Vertex Pharmaceuticals
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549________________________________________________________FORM 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2017oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 000-19319____________________________________________Vertex Pharmaceuticals Incorporated(Exact name of registrant as specified in its charter)Massachusetts04-3039129(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)50 Northern Avenue, Boston, Massachusetts02210(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code (617) 341-6100____________________________________________Securities registered pursuant to Section 12(b) of the Exchange Act:Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, $0.01 Par Value Per Share The NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Exchange Act: None______________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No xIndicate 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 preceding12 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 x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act(Check one):Large accelerated filer xAccelerated filer oNon-accelerated filer o Smaller reporting company oEmerging growth company o (Do not check if a smaller reporting 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xThe aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in suchcalculation is an affiliate) based on the last reported sale price of the common stock on June 30, 2017 (the last trading day of the registrant’s second fiscal quarter of 2017) was$31.8 billion. As of January 31, 2018, the registrant had 253,891,984 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the 2018 Annual Meeting of Shareholders to be held on May 17, 2018 are incorporated by reference into Part III of this AnnualReport on Form 10-K.VERTEX PHARMACEUTICALS INCORPORATEDANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PART I Item 1.Business1 Directors and Executive Officers of the Registrant19Item 1A.Risk Factors23Item 1B.Unresolved Staff Comments44Item 2.Properties44Item 3.Legal Proceedings44Item 4.Mine Safety Disclosures44PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities45Item 6.Selected Financial Data47Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations48Item 7A.Quantitative and Qualitative Disclosures About Market Risk67Item 8.Financial Statements and Supplementary Data68Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure68Item 9A.Controls and Procedures68Item 9B.Other Information71PART III Item 10.Directors, Executive Officers and Corporate Governance72Item 11.Executive Compensation72Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters72Item 13.Certain Relationships and Related Transactions, and Director Independence72Item 14.Principal Accountant Fees and Services72PART IV Item 15.Exhibits and Financial Statement Schedules73 Signatures77“We,” “us,” “Vertex” and the “Company” as used in this Annual Report on Form 10-K refer to Vertex Pharmaceuticals Incorporated, a Massachusettscorporation, and its subsidiaries.“Vertex,” “KALYDECO®,” “ORKAMBI®” and “SYMDEKOTM” are registered trademarks of Vertex. Other brands, names and trademarks containedin this Annual Report on Form 10-K are the property of their respective owners.PART IITEM 1.BUSINESSOVERVIEWWe invest in scientific innovation to create transformative medicines for serious diseases. Our business is focused on developing and commercializingtherapies for the treatment of cystic fibrosis, or CF, and advancing our research and development programs in other diseases. Our marketed products areORKAMBI (lumacaftor in combination with ivacaftor), KALYDECO (ivacaftor) and SYMDEKO (tezacaftor in combination with ivacaftor).Cystic FibrosisOur goal is to develop treatment regimens that will provide benefits to all patients with CF and will enhance the benefits that currently are beingprovided to patients taking our medicines.Current MedicinesORKAMBI, KALYDECO and SYMDEKO are collectively approved to treat approximately 45% of the 75,000 CF patients in North America, Europe andAustralia. ORKAMBI is approved as a treatment for approximately 28,000 patients who have two copies of the F508del mutation, who we refer to as F508delhomozygous patients, in their cystic fibrosis transmembrane conductance regulator, or CFTR, gene. KALYDECO is approved for the treatment ofapproximately 6,000 CF patients who have the G551D mutation or other specified mutations in their CFTR gene. SYMDEKO was approved by the UnitedStates Food and Drug Administration, or FDA, in February 2018 for the treatment of patients with CF twelve years of age and older who are F508delhomozygous or who have at least one mutation that is responsive to tezacaftor/ivacaftor, and provides an additional treatment option to CF patients whowere already eligible for either ORKAMBI or KALYDECO. We are currently seeking approval from the European Medicines Agency, or EMA, for tezacaftorin combination with ivacaftor.Next-generation CFTR Corrector Triple Combination RegimensIn the first quarter of 2018, we selected two next-generation corrector compounds, VX-659 and VX-445, to advance into Phase 3 clinical development aspart of separate triple combination regimens. Each of VX-659 and VX-445 have the potential to be combined with both (i) tezacaftor and ivacaftor and (ii)tezacaftor and VX-561, a deuterated version of ivacaftor. We expect to initiate the Phase 3 development program for VX-659 in combination with tezacaftorand ivacaftor in the first half of 2018. In mid-2018, we expect to initiate the Phase 3 development of a once-daily combination of VX-445, tezacaftor and VX-561. Our decision to advance VX-659 and VX-445 was based on available clinical and nonclinical data, including data from an ongoing Phase 2 clinicalprogram, and regulatory discussions are ongoing to finalize the design of the Phase 3 development programs for VX-659 and VX-445.We believe the triple combination regimens we are evaluating could potentially provide benefits to all CF patients who have at least one F508delmutation in their CFTR gene (approximately 90% of all CF patients). This would include (i) the first treatment option that treats the underlying cause of CFfor patients who have one copy of the F508del mutation in their CFTR gene and a second mutation in their CFTR gene that results in minimal CFTRfunction, who we refer to as F508del/Min patients, and (ii) an additional treatment option for patients with CF who are eligible for ORKAMBI, KALYDECOand/or SYMDEKO.Research and Development ProgramsWe have a number of ongoing research and development programs in other diseases that we are conducting independently or in collaboration with thirdparties. We are developing VX-150 and VX-128 as treatments for pain, co-developing CTX001, an investigational gene editing treatment, for the treatment ofbeta-thalassemia and sickle cell disease, with CRISPR Therapeutics AG, or CRISPR, and developing VX-210 as a treatment for acute spinal cord injury. Weplan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines. In additionto continuing our research in cystic fibrosis, pain and hemoglobinopathies, our current research programs include programs targeting adrenoleukodystrophy,alpha-1 antritrypsin deficiency and polycystic kidney disease. We believe that pursuing research in diverse areas allows us to balance the risks inherent indrug development and may provide drug candidates that will form our pipeline in future years.1CYSTIC FIBROSISBackgroundCF is a rare, life-shortening genetic disease affecting approximately 75,000 people in North America, Europe and Australia. CF is caused by a defectiveor missing CFTR protein resulting from mutations in the CFTR gene. To develop CF, children must inherit two defective CFTR genes, which are referred to asalleles; one allele is inherited from each parent. There are more than 2,000 known mutations in the CFTR gene, some of which result in CF. The vast majorityof patients with CF carry at least one of the two of the most prevalent mutations, the F508del mutation or the G551D mutation. The F508del mutation resultsin a defect in the CFTR protein in which the CRTR protein does not reach the surface of the cells in sufficient quantities. The G551D mutation results in adefect in the CFTR protein in which the defective protein reaches the surface of a cell but does not efficiently transport chloride ions across the cellmembrane.The absence of working CFTR proteins results in poor flow of salt and water into and out of cells in a number of organs, including the lungs. As a result,thick, sticky mucus builds up and blocks the passages in many organs, leading to a variety of symptoms. In particular, mucus builds up and clogs the airwaysin the lungs, causing chronic lung infections and progressive lung damage. CFTR potentiators such as ivacaftor and VX-561 increase the open probability ofthe CFTR protein channels on the cell surface, increasing the flow of salt and water into and out of the cell. CFTR correctors, such as lumacaftor, tezacaftor,VX-659 and VX-445, help CFTR proteins reach the cell surface.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 CF development programs, we refer to our compounds by their scientific (or generic) name.KALYDECO (ivacaftor)KALYDECO (ivacaftor) is an orally-administered CFTR potentiator that is approved in the United States, the European Union, Australia and Canada forthe treatment of certain patients with CF who have specific mutations in their CFTR gene, including the G551D mutation.In the fourth quarter of 2017, we obtained results from an open-label Phase 3 clinical trial of KALYDECO in patients with CF one to two years of agewith one of 10 mutations in the CFTR gene. The clinical trial met its primary endpoint of safety, showing that KALYDECO was generally well tolerated, andsafety data were consistent with those seen in previous Phase 3 clinical trials of ivacaftor in children ages two to five years of age and six to eleven years ofage. The clinical trial also showed substantial improvements in sweat chloride, a secondary endpoint, as well as in multiple exploratory endpoints evaluatingpancreatic function. Based on these results, we expect to submit regulatory approval applications to the FDA and the EMA for ivacaftor for children ages oneto two years in the first quarter of 2018. The Phase 3 clinical trial is ongoing in infants younger than one year old.ORKAMBI (lumacaftor in combination with ivacaftor)ORKAMBI is an orally-administered combination therapy comprised of lumacaftor, a CFTR corrector, and ivacaftor that is approved in the United Statesand European Union for the treatment of specified patients with CF who are homozygous for the F508del mutation in their CFTR gene. ORKAMBI wasoriginally approved in 2015 for the treatment of F508del homozygous patients twelve years of age and older, and we obtained approval for F508delhomozygous patients six to eleven years of age in the United States and European Union in September 2016 and January 2018, respectively.In the fourth quarter of 2017, we obtained results from a 2-part open-label Phase 3 clinical trial of ORKAMBI in 60 patients with CF two to five years ofage who have two copies of the F508del mutation in their CFTR gene. The clinical trial met its primary endpoint of safety, showing that ORKAMBI wasgenerally well tolerated and that there were no new safety concerns compared to prior clinical trials of ORKAMBI in patients six through eleven years of age.Secondary endpoints showed decreases in the sweat chloride and improvements in nutritional status as measured by change in weight (weight-for-age z score)and body mass index (BMI-for-age z score). Based on these results, we submitted a New Drug Application, or NDA, to the FDA and expect to submit aMarketing Authorization Application, or MAA, line extension to the EMA in the first quarter of 2018.SYMDEKO (tezacaftor in combination with ivacaftor)SYMDEKO is an orally-administered combination therapy comprised of tezacaftor, a CFTR corrector, and ivacaftor that was approved by the FDA inFebruary 2018 for the treatment of patients with CF twelve years of age and older who are F508del homozygous or who have at least one mutation that isresponsive to tezacaftor/ivacaftor. The approval was based, in2part, on the results from two Phase 3 clinical trials of tezacaftor in combination with ivacaftor. The clinical trials demonstrated that the tezacaftor/ivacaftorcombination provided statistically significant improvements in lung function (percent predicted forced expiratory volume in one second, or ppFEV1) inpatients with CF 12 years of age and older who have certain mutations in their CFTR gene. The 24-week EVOLVE clinical trial evaluated tezacaftor incombination with ivacaftor in F508del homozygous patients. This clinical trial met its primary endpoint with a mean absolute improvement in ppFEV1through 24 weeks of 4.0 percentage points from baseline compared to placebo (p < 0.0001). The second clinical trial, EXPAND, was an 8-week crossoverclinical trial that evaluated the combination treatment in patients with CF who have one mutation that results in residual CFTR function and one F508delmutation. This clinical trial met the primary endpoints of absolute change in ppFEV1 from baseline to the average of the Week 4 and Week 8 measurements,with the tezacaftor/ivacaftor combination treatment demonstrating a mean absolute improvement of 6.8 percentage points compared to placebo (p < 0.0001)and the ivacaftor monotherapy group demonstrating a mean absolute improvement of 4.7 percentage points compared to placebo (p < 0.0001). Across bothclinical trials, the tezacaftor/ivacaftor combination treatment was generally well tolerated.We submitted an MAA to the EMA for tezacaftor in combination with ivacaftor. The EMA has validated the MAA and we expect the EMA to completeits review in the second half of 2018.Next-generation CFTR Corrector CompoundsWe are investing significant resources in the development of triple combination regimens that include a next-generation CFTR corrector compound.Over the last two years we have been evaluating four next-generation corrector compounds and have obtained positive clinical data from Phase 1 and Phase 2clinical trials evaluating triple combination regimens including each of these next-generation corrector compounds. In the first quarter of 2018, we selectedtwo next-generation corrector compounds, VX-659 and VX-445, to advance into Phase 3 clinical development as part of separate triple combinationregimens. This decision was based on clinical and nonclinical data, including data from an ongoing Phase 2 clinical program. Regulatory discussions areongoing to finalize the design of the Phase 3 development programs for VX-659 and VX-445, and we expect additional data from these Phase 2 clinical trialsin the first half of 2018. We expect to initiate the Phase 3 development program for VX-659 in combination with tezacaftor and ivacaftor in the first half of2018. In mid-2018, we expect to initiate the Phase 3 development of VX-445 in combination with tezacaftor and VX-561, which is a deuterated version ofivacaftor, as a once-daily regimen. The initiation of this Phase 3 clinical development program for VX-445 in combination with tezacaftor and VX-561 issubject to the receipt of additional data in the first half of 2018 on the combination of VX-445, tezacaftor and VX-561, including data from the ongoingPhase 2 clinical trial, and completion of long-term non-clinical toxicology studies of VX-445.We believe the triple combination regimens we are evaluating could potentially provide benefits to all CF patients who have at least one F508delmutation in their CFTR gene (approximately 90% of all CF patients). This would include (i) the first treatment option that treats the underlying cause of CFfor F508del/Min patients, and (ii) an additional treatment option for patients with CF who are eligible for ORKAMBI, KALYDECO and/or SYMDEKO.Next-Generation Clinical DataVX-659We are evaluating VX-659 (80mg, 240mg and 400mg QD) in a randomized, double-blind Phase 2 clinical trial in combination with tezacaftor andivacaftor in two different groups of patients 18 years of age and older who have CF: F508del/Min patients (Part 1), and F508del homozygous patients (Part2). Minimal function mutations are those that result in little-to-no functioning CFTR protein and are not responsive to ivacaftor, tezacaftor or thecombination of tezacaftor and ivacaftor. In Part 3 of the clinical trial we are evaluating VX-659 in combination with tezacaftor and VX-561 in F508del/Minpatients as a potential once-daily triple combination regimen. The primary objectives for the clinical trial are safety, tolerability and efficacy as assessed bymean absolute change in ppFEV1 from baseline. Secondary endpoints include change in sweat chloride and Cystic Fibrosis Questionnaire-Revised, or CFQ-R. We have reported data from Part 1 of the clinical trial. Parts 2 and 3 of the clinical trial are ongoing with data expected in the first half of 2018.Safety DataIn Part 1 of the clinical trial, the triple combination regimen was generally well tolerated. The majority of adverse events were mild or moderate. Seriousadverse events were reported in seven patients: three patients in the placebo group (2 with infective pulmonary exacerbations and 1 with decreasedpulmonary function test) and four in the triple combination groups (3 with infective pulmonary exacerbations and 1 with influenza). None of these seriousadverse events was considered related to treatment and none resulted in treatment discontinuation. The most common adverse events (>10%), regardless oftreatment group, were cough, headache, oropharyngeal (throat) pain and sputum increased. There were no discontinuations due to adverse3events. One patient interrupted treatment due to an adverse event in the triple combination treatment groups (rash). The rash resolved following interruptionof treatment, and the patient subsequently restarted and completed triple combination treatment without any further incidence.Efficacy DataPart 1 of the clinical trial evaluated the triple combination for four weeks in 63 F508del/Min patients (10 in the placebo arm, 11 in the VX-659 80mgarm, 20 in the VX-659 240mg arm and 22 in the VX-659 400mg arm). A summary of the within-group lung function and sweat chloride data is providedbelow:VX-659 in F508del/Min PatientsMean Absolute Within-Group Change FromBaseline Through Day 29*Mean Absolute Within-GroupChange in ppFEV1 (percentagepoints)Mean Absolute Within-GroupChange in Sweat Chloride(mmol/L)Triple placebo+0.3 (p=0.9053)+2.9 (p=0.5338)VX-659 (80mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+10.2 (p=0.0004)-45.8 (p<0.0001)VX-659 (240mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+11.6 (p<0.0001)-43.7 (p<0.0001)VX-659 (400mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+13.3 (p<0.0001)-51.4 (p<0.0001)* all p-values are within group p-values based on mixed effect models; values expressed as ‘Through Day 29' are the averageof Day 15 and Day 29 measuresA secondary endpoint in the clinical trial measured mean absolute change in the respiratory domain of CFQ-R, a validated patient-reported outcomemeasure, at Day 29. CFQ-R results reported are based on a mixed effect model not adjusted for baseline CFQ-R. The mean absolute improvements for patientswho received the triple combination were 24.6 points (VX-659 80mg arm), 19.8 points (VX-659 240mg arm) and 21.8 points (VX-659 400mg arm). Theimprovement for those who received placebo was 4.7 points.VX-445We are evaluating VX-445 in an ongoing Phase 2 randomized, double-blind clinical trial. In this clinical trial, we are evaluating the safety andtolerability of single and multiple ascending doses of VX-445 alone and in triple combination with tezacaftor and ivacaftor in healthy volunteers (Parts A, Band C). We also are evaluating the safety, tolerability and efficacy of VX-445 (50mg, 100mg and 200mg QD) in triple combination with tezacaftor andivacaftor for four weeks in patients with CF 18 years of age and older who are F508del/Min patients (Part D) and F508del homozygous patients (Part E). InPart F of the clinical trial, we are evaluating VX-445 in combination with tezacaftor and VX-561 as a potential once-daily triple combination regimen inF508del/Min patients. The primary objectives of the parts of the clinical trial in CF patients are safety, tolerability and efficacy as assessed by mean absolutechange in ppFEV1 from baseline. Secondary endpoints include change in sweat chloride and CFQ-R. We have reported data from Part D of the clinical trial.Parts E and F of the clinical trial are ongoing with data expected in the first half of 2018.Safety DataIn Part D of the clinical trial, the triple combination regimen was generally well tolerated. The majority of adverse events were mild or moderate. Seriousadverse events were reported in five patients: two patients in the placebo group (1 with hemoptysis and 1 with infective pulmonary exacerbation) and threepatients in the triple combination groups (1 patient with infective pulmonary exacerbation, jugular vein thrombosis related to a central line and distalintestinal obstruction syndrome; 1 patient with infective pulmonary exacerbation and influenza; and 1 patient with infective pulmonary exacerbation). Noneof these serious adverse events was considered related to treatment and none resulted in treatment discontinuation. The most common adverse events (>10%),regardless of treatment group, were cough, sputum increased, infective pulmonary exacerbation, hemoptysis, headache, nasal congestion, nausea,oropharyngeal pain and pyrexia. Two patients discontinued treatment due to adverse events in the triple combination treatment groups (1 patient with rashand 1 patient with increased bilirubin without associated elevations in transaminases) and none in the placebo group. Following treatment discontinuation,the rash resolved and the increased bilirubin returned to baseline. Two patients interrupted treatment due to adverse events in the triple combination groups(1 with constipation and 1 with increased bilirubin without associated elevations in transaminases); both events resolved when treatment was interrupted andboth patients subsequently restarted and completed triple combination treatment without further incident.4Efficacy DataPart D of the clinical trial evaluated the triple combination for four weeks in 65 patients who have one F508del mutation and one minimal functionmutation (12 in the combined placebo arm, 10 in the VX-445 50mg arm, 22 in the VX-445 100mg arm and 21 in the VX-445 200mg arm). A summary of thewithin-group lung function and sweat chloride data is provided below:VX-445 in F508del/Min PatientsMean Absolute Within-Group Change FromBaseline Through Day 29*Mean Absolute Within-GroupChange in ppFEV1 (percentagepoints)Mean Absolute Within-GroupChange in Sweat Chloride(mmol/L)Triple placebo0.0 (p=0.9943)-2.2 (p=0.5804)VX-445 (50mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+11.1 (p<0.0001)-38.2 (p<0.0001)VX-445 (100mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+7.8 (p<0.0001)-33.2 (p<0.0001)VX-445 (200mg QD) + tezacaftor (100mg QD) +ivacaftor (150mg q12h)+13.8 (p<0.0001)-39.1 (p<0.0001)* all p-values are within group p-values based on mixed effect models; values expressed as ‘Through Day 29' are the average ofDay 15 and Day 29 measuresA secondary endpoint in the clinical trial measured mean absolute change in the respiratory domain of CFQ-R at Day 29. CFQ-R results reported arebased on a mixed effect model not adjusted for baseline CFQ-R. The mean absolute improvements for patients who received the triple combination were 20.8points (VX-445 50mg arm), 15.4 points (VX-445 100mg arm) and 25.7 points (VX-445 200mg arm). The improvement for those who received placebo was4.2 points.DEVELOPMENT PROGRAMSPainWe are developing VX-150 and VX-128, inhibitors of the sodium channel 1.8 (Nav 1.8), as potential treatments for pain. We have obtained positiveresults from two Phase 2 clinical trials of VX-150:•In the first quarter of 2017, we announced data from a 14-day Phase 2 randomized, double-blind, placebo-controlled, clinical trial of VX-150 inpatients with pain from osteoarthritis of the knee.•In the first quarter of 2018, we announced data from a Phase 2 randomized, double-blind, placebo-controlled clinical trial evaluating VX-150 as atreatment for patients with acute pain following bunionectomy surgery.A third Phase 2 clinical trial evaluating VX-150 for the treatment of neuropathic pain caused by small fiber neuropathy is ongoing, and we are planningto initiate a Phase 1 clinical trial of an intravenous formulation of VX-150.A Phase 1 clinical trial of VX-128, in healthy volunteers is ongoing to evaluate single and multiple ascending doses of VX-128 to support the plannedinitiation of a Phase 2 clinical trial of VX-128 in acute pain.HemoglobinopathiesIn conjunction with CRISPR, we are co-developing a treatment aimed at the underlying genetic causes of specified hemoglobinopathies using CRISPR-Cas9 gene editing technology. In the fourth quarter of 2017, CRISPR submitted a clinical trial application for CTX001, an investigational gene editingtreatment, in beta-thalassemia, a blood disorder that reduces the production of hemoglobin. The Phase 1/2 trial is designed to assess the safety and efficacy ofCTX001 in adult transfusion-dependent beta-thalassemia patients and is expected to begin in Europe in 2018. In 2018, we expect an investigation new drug,or IND, application to be submitted to the FDA for CTX001 as a potential treatment for sickle cell disease.InfluenzaJanssen Pharmaceuticals, Inc., or Janssen, is developing pimodivir (JNJ-63623872), previously referred to as VX-787, as a potential treatment for theinfluenza A virus. We exclusively licensed pimodivir to Janssen in 2014. During the fourth quarter of 2017, Janssen initiated a Phase 3 clinical trial ofpimodivir in combination standard of care treatment in patients who are hospitalized or are outpatients at a higher risk of influenza-related complications.5RESEARCH PROGRAMSWe invest in research and development in order to discover and develop medicines for people with serious diseases. Our research organization seeks toidentify new medicines by combining transformative insights into the causal human biology of serious diseases with innovative approaches to therapeutics.Our approach to drug discovery has focused on the research and development of small molecule drugs, which has been validated through our success inmoving novel small molecule drug candidates into clinical trials and obtaining marketing approvals for KALYDECO, ORKAMBI and SYMDEKO for thetreatment of cystic fibrosis and INCIVEK (telaprevir) for the treatment of hepatitis C infection. In addition to our approved medicines, we have a number ofdrug candidates that we are developing independently or that are being developed by collaborators pursuant to collaboration agreements. Over the lastseveral years, we have expanded our research capabilities to include additional innovative therapeutic approaches with a focus on nucleic acid-based therapies. For example, in the fourth quarter of 2017, a clinical trial application was submitted for CTX001, a drug candidate that we are co-developingwith CRISPR that utilizes the CRISPR-Cas9 gene editing technology.We are applying the experience we gained developing medicines for cystic fibrosis to guide our current investments in research and developmentprograms by:•focusing on validated targets that have been shown in patients to have a causal relationship with respect to serious diseases;•generating biological assays and identifying clinical biomarkers that we believe will be predictive of clinical responses;•targeting the discovery and development of medicines that have the potential to offer transformative benefit; and•identifying efficient clinical and regulatory paths to bring new medicines to patients.In addition to continuing our research to identify additional drug candidates for the treatment of cystic fibrosis, pain and hemoglobinopathies, we arefocusing our early research efforts on identifying drug candidates for the treatment of serious diseases such as adrenoleukodystrophy, alpha-1 antritrypsindeficiency and polycystic kidney disease.To augment our internal research programs, we seek to collaborate with biopharmaceutical and technology companies, leading academic researchinstitutions, government laboratories, foundations and other organizations as needed to advance research in our areas of therapeutic interest as well as toaccess technologies needed to execute on our strategy. We have established such relationships with organizations around the world and intend to extend andleverage that experience to further our research efforts to discover transformational medicines for serious diseases.COMMERCIAL ORGANIZATIONOur commercial organization focuses on supporting sales of ORKAMBI, KALYDECO and SYMDEKO in the markets where these products have beenapproved. Our sales and marketing organizations are responsible for promoting products to health care providers and obtaining reimbursement for ourproducts from third-party payors, including governmental organizations in the United States and ex-U.S. markets.Our U.S. field-based CF commercial team is comprised of a small number of individuals whom we believe will be sufficient to support future needs,including support for SYMDEKO which was recently approved by the FDA. We focus our CF marketing efforts in the United States on a relatively smallnumber of physicians and health care professionals who write most of the prescriptions for CF medicines. Many of these physicians and health careprofessionals are located at a limited number of accredited centers in the United States focused on the treatment of CF. In international markets, we have asmall sales force that promotes KALYDECO and ORKAMBI in jurisdictions where these products are approved.We market our products through personal interactions with individual physicians, advertising, sending direct mail, public relations activities and otheractivities. In addition, our government affairs and public policy group advocates for policies that promote life sciences innovation and increase awareness ofthe diseases on which we are focusing, with state and federal legislatures, government agencies, public health officials and other policy-makers. We also haveestablished programs in the United States that provide our products to qualified uninsured or underinsured patients at no charge or at a reduced charge, basedon specific eligibility criteria.COLLABORATIONSWe have entered into collaborations with pharmaceutical and other companies and organizations that provide us financial and other resources, includingcapabilities in research, development, manufacturing and sales and marketing, and licenses to6intellectual property. These collaborations have provided us with drug candidates and/or important financial and non-financial resources that havecontributed to our products and a number of the drug candidates in our current development pipeline. We may seek to license or acquire drugs, drugcandidates and other technologies that have the potential to add to our pipeline or to provide us with new commercial opportunities. In particular, we arefocusing on drug candidates for the treatment of patients with CF and other third-party drug candidates that could be developed for specialty markets.Furthermore, we may seek collaborators to support, develop and/or commercialize some of our current drug candidates and/or additional drug candidates thatmay emerge from our research activities.Cystic Fibrosis Foundation Therapeutics IncorporatedWe began working with the Cystic Fibrosis Foundation Therapeutics Incorporated, or CFFT, in 1998. We entered into a collaboration agreement withCFFT in 2004 and have amended it several times to support research and development activities. Pursuant to the collaboration agreement, as amended, wehave agreed to pay tiered royalties ranging from single digits to sub-teens on any approved drugs first synthesized and/or tested during a research term on orbefore February 28, 2014, including KALYDECO (ivacaftor), ORKAMBI (lumacaftor in combination with ivacaftor) and SYMDEKO (tezacaftor incombination with ivacaftor) and royalties ranging from low single digits to mid-single digits on potential net sales of certain compounds first synthesizedand/or tested between March 1, 2014 and August 31, 2016, including VX-659 and VX-445. For combination products, such as ORKAMBI and SYMDEKO,sales are allocated equally to each of the active pharmaceutical ingredients in the combination product.For ivacaftor, lumacaftor and tezacaftor, we will have royalty obligations to CFFT until the expiration of patents covering each compound. We havepatents in the United States and European Union covering the composition-of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject topotential patent life extensions. We have patents in the United States and European Union covering the composition-of-matter of lumacaftor that expire in2030 and 2026, respectively, subject to potential patent life extensions. We have patents in the United States and European Union covering the composition-of-matter of tezacaftor that expire in 2027 and 2028, respectively, subject to potential patent life extensions.CRISPR Therapeutics AGIn 2015, we entered into a strategic collaboration, option and license agreement with CRISPR to collaborate on the discovery and development ofpotential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editing technology. Pursuant to this agreement,we have the exclusive right to license up to six CRISPR-Cas9-based targets and paid CRISPR an upfront payment of $75.0 million.We fund all of the discovery activities conducted pursuant to the CRISPR agreement. For potential hemoglobinopathy treatments, including treatmentsfor sickle cell disease and beta-thalassemia, we share equally with CRISPR all research and development costs and worldwide revenues. For other targets thatwe elect to license, we would lead all development and global commercialization activities. For each target that we elect to license, other thanhemoglobinopathy targets, CRISPR has the potential to receive up to $420.0 million in development, regulatory and commercial milestones and royalties onnet sales.We may terminate the agreement upon 90 days’ notice to CRISPR prior to any product receiving marketing approval or upon 270 days’ notice after aproduct has received marketing approval. The agreement also may be terminated by either party for a material breach by the other, subject to notice and cureprovisions. Unless earlier terminated, the agreement will continue in effect until the expiration of our payment obligations under the agreement.In the fourth quarter of 2017, pursuant to the terms of the agreement, we entered a co-development and co-commercialization agreement with CRISPR,under which we and CRISPR will co-develop and co-commercialize CTX001 for the treatment of hemoglobinopathies.Other CollaborationsModerna Therapeutics, Inc. In July 2016, we entered into a strategic collaboration and licensing agreement with Moderna Therapeutics, Inc., or Moderna, pursuant to which theparties are seeking to identify and develop messenger ribonucleic acid, or mRNA, therapeutics for the treatment of CF. In connection with this agreement, wemade an upfront payment to Moderna of $20.0 million. Moderna has the potential to receive future development and regulatory milestones of up to $275.0million, including $220.0 million in approval and reimbursement milestones, as well as tiered royalty payments on net sales. Under the terms of the Modernaagreement, Moderna is leading discovery efforts and we are leading all preclinical, development7and commercialization activities associated with the advancement of mRNA therapeutics that result from this collaboration and we will fund all expensesrelated to the collaboration.We may terminate the agreement by providing advance notice to Moderna, with the required length of notice dependent upon whether any productdeveloped under the agreement has received marketing approval. The agreement also may be terminated by either party for a material breach by the other,subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the expiration of our payment obligations underthe agreement.BioAxone Biosciences, Inc.In 2014, we entered into a license and collaboration agreement with BioAxone. Pursuant to this agreement, we are collaborating with BioAxone on theresearch, development and commercialization of VX-210 (formerly referred to as Cethrin), a Rho inhibitor controlled by BioAxone, for the treatment ofpatients who have spinal cord injuries.We paid BioAxone an initial payment of $10.0 million and BioAxone has the potential to receive up to $90.0 million in milestones and license fees,including development and regulatory milestone payments and a license continuation fee. In addition, BioAxone would receive tiered royalties andcommercial milestones based on future net product sales, if any. We hold an option to purchase BioAxone at a predetermined price. The option expires on theearliest of (a) the day the FDA accepts the Biologics License Application submission for VX-210, (b) the day we elect to continue the license instead ofexercising the option to purchase BioAxone and (c) March 15, 2018, subject to our option to extend this date by one year. We may terminate our agreementwith BioAxone upon 90 days’ notice or immediately if we determine that a licensed product is unsafe for administration to humans. The agreement also maybe terminated by either party for a material breach by the other or by BioAxone for our inactivity with respect to VX-210, in each case subject to notice andcure provisions. Unless earlier terminated, the agreement will continue until the expiration of our royalty obligations.Parion Sciences, Inc.In 2015, we entered into a strategic collaboration and license agreement with Parion Sciences, Inc., or Parion, pursuant to which we are collaboratingwith Parion to develop ENaC inhibitors, including VX-371 and VX-551, for the potential treatment of CF and other pulmonary diseases. Parion received an $80.0 million up-front payment and in 2016, Parion earned a milestone payment of $5.0 million based upon the achievement of aspecified milestone under the agreement. Parion has the potential to receive up to an additional (i) $485.0 million in development and regulatory milestonepayments for development of ENaC inhibitors in CF, including $360.0 million related to global filing and approval milestones, (ii) $370.0 million indevelopment and regulatory milestones for VX-371 and VX-551 in non-CF pulmonary indications and (iii) $230.0 million in development and regulatorymilestones if we elect to develop an additional ENaC inhibitor from Parion’s research program. Parion will receive tiered royalties on potential sales oflicensed products that range from the low double digits to mid-teens as a percentage of net sales.We may terminate the agreement upon 90 days’ notice to Parion prior to any licensed product receiving marketing approval or upon 180 days’ noticeafter a licensed product has received marketing approval. Parion may terminate the agreement upon 30 days’ notice if Vertex experiences a change of controlprior to the initiation of the first Phase 3 clinical trial for a licensed product, subject to our right to receive specified royalties on any subsequentcommercialization of licensed products. The agreement also may be terminated by either party for a material breach by the other, subject to notice and cureprovisions. Unless earlier terminated, the agreement will continue in effect until the expiration of our royalty obligations.Outlicense ArrangementsWe have entered into various agreements pursuant to which we have outlicensed rights to certain drug candidates to third-party collaborators. Pursuantto these outlicense arrangements, our collaborators become responsible for all costs related to the continued development of such drug candidates and obtaindevelopment and commercialization rights to these drug candidates. Depending on the terms of the arrangements, our collaborators may be required to makeupfront payments, milestone payments upon the achievement of certain product research and development objectives and/or pay royalties on future sales, ifany, of commercial products resulting from the collaboration.Merck KGaAIn the first quarter of 2017, we entered into a Strategic Collaboration and License Agreement with Merck KGaA, Darmstadt, Germany, or Merck KGaA.Pursuant to the agreement, we granted Merck KGaA an exclusive worldwide license to research, develop and commercialize four oncology research anddevelopment programs. Under the agreement, we granted Merck KGaA exclusive, worldwide rights to our two clinical-stage programs targeting DNA damagerepair: our8ataxia telangiectasia and Rad3-related protein inhibitor, or ATR program, including VX-970 and VX-803, and our DNA-dependent protein kinase inhibitor,or DNA-PK program, including VX-984. In addition, we granted Merck KGaA exclusive, worldwide rights to two pre-clinical programs.Under the agreement, we earned an up-front payment of $230.0 million. In addition, we will receive tiered royalties on potential sales of licensedproducts, calculated as a percentage of net sales, that range from (i) mid-single digits to mid-twenties for clinical-stage programs and (ii) mid-single digits tohigh single digits for the pre-clinical research programs. Merck KGaA will assume full responsibility for development and commercialization costs for allprograms.Merck KGaA may terminate the agreement or any individual program by providing 90 days’ notice, or, in the case of termination of a program with aproduct that has received marketing approval, 180 days’ notice. The agreement may also be terminated by either party for a material breach by the otherparty, subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the date on which the royalty term and allpayment obligations with respect to all products in all countries have expired.Janssen Pharmaceuticals, Inc.In 2014, we entered into an agreement with Janssen Inc. Pursuant to this agreement, Janssen Inc. has an exclusive worldwide license to develop andcommercialize certain drug candidates for the treatment of influenza, including JNJ-63623872 (formerly VX-787). We received non-refundable payments of$35.0 million from Janssen Inc. in 2014 and have the potential to receive development, regulatory and commercial milestone payments as well as royaltieson future product sales, if any. Janssen Inc. is responsible for costs related to the development and commercialization of the compounds. Janssen Inc. mayterminate the agreement, subject to certain exceptions, upon six months’ notice. In the fourth quarter of 2017, we earned a $25.0 million milestone paymentfrom Janssen Inc. related to the initiation of a Phase 3 clinical trial of JNJ-63623872.INTELLECTUAL PROPERTYWe actively seek protection for our products and proprietary information by means of U.S. and foreign patents, trademarks and copyrights, asappropriate. In addition, we rely upon trade secret protection and contractual arrangements to protect certain of our proprietary information and products. Wehave patents and pending patent applications that relate to potential drug targets, compounds we are developing to modulate those targets, methods ofmaking or using those compounds and proprietary elements of our drug discovery platform.Much of our technology and many of our processes depend upon the knowledge, experience and skills of key scientific and technical personnel. Toprotect our rights to our proprietary know-how and technology, we require all employees, as well as our consultants and advisors when feasible, to enter intoconfidentiality agreements that require disclosure and assignment to us of ideas, developments, discoveries and inventions made by these employees,consultants and advisors in the course of their service to us.While we have numerous issued patents and pending patent applications in our patent portfolio, we believe that the patents and patent applications inthe United States and the European Union that are the most important to our business are those that claim the composition-of-matter of our drugs and drugcandidates that have progressed at least into Phase 3 clinical trials. The following table sets forth the status of such primary patents and patent applications inthe United States and the European Union covering the composition-of-matter of these drugs and drug candidates:Drug/Drug CandidateStatus of United States Patent (Anticipated Expiration, Subject to Potential Extensions)Status of European Union Patent (Anticipated Expiration, Subject to Potential Extensions)IvacaftorGranted (2027)Granted (2025)LumacaftorGranted (2030)Granted (2026)TezacaftorGranted (2027)Granted (2028)We hold issued patents and pending patent applications in the United States, and in foreign countries we deem appropriate, claiming intellectualproperty developed as part of our research and development programs. In addition to the composition-of-matter patents and patent applications listed above,we hold or have exclusive licenses to the following intellectual property:•U.S. and foreign patents and patent applications covering CF potentiators, correctors and ENaC inhibitors, including ivacaftor, lumacaftor,tezacaftor, VX-561, VX-659, VX-445 and VX-371 and many other related compounds, and the use of those potentiators, correctors and ENaCinhibitors to treat CF.9•U.S. and foreign patents and patent applications covering VX-150 and VX-128 and the use of VX-150 and VX-128 to treat pain indications.•U.S. and foreign patents and patent applications covering VX-210 and the use of VX-210 to treat neurology indications.•U.S. and foreign patents and patent applications covering the manufacture, pharmaceutical compositions, related solid forms, formulations, dosingregimens and methods of use of most of the above compounds, including ivacaftor, lumacaftor and tezacaftor.We cannot be certain, however, that issued patents will be enforceable or provide adequate protection or that pending patent applications will result inissued patents.From time to time we enter into non-exclusive license agreements for proprietary third-party technology used in connection with our research activities.These license agreements typically provide for the payment by us of a license fee, but may also include terms providing for milestone payments or royaltiesfor the development and/or commercialization of our drug products arising from the related research.We have a U.S. patent that covers the composition-of-matter of ivacaftor that we expect will provide intellectual property protection in the United Statesthrough its expiration date in 2027. We have a European patent that covers the composition-of-matter of ivacaftor that we expect will provide intellectualproperty protection in the European Union through its expiration date in 2025, subject to potential extension.We have patents in the United States and European Union that cover the composition of matter of lumacaftor that we expect will provide intellectualproperty protection in these jurisdictions through their expiration dates in 2030 and 2026, respectively, subject to potential extension.We have patents in the United States and European Union that cover the composition of matter of tezacaftor that we expect will provide intellectualproperty protection in these jurisdictions through their expiration dates in 2027 and 2028, respectively, subject to potential extension.MANUFACTURINGManufacturing Approach and PhilosophyAs we market and sell our approved products and advance our drug candidates through clinical development toward commercialization, we continue tobuild and maintain our supply chain and quality assurance resources. We rely on internal capabilities and an international network of third parties tomanufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our drug candidates forclinical trials. Wherever possible, we seek to establish multiple suppliers for each raw material and step in the manufacturing process. However, our supplychain includes a single-source manufacturer for (i) one step in the ivacaftor manufacturing process, (ii) the manufacture of the tablets of ORKAMBI that isused for patients with CF six to eleven years of age and (iii) a pre-formulation step and the manufacture of the tablets for our commercial supply ofSYMDEKO.We expect that we will continue for the foreseeable future to rely on third parties to meet most of our commercial supply needs and a significant portionof our clinical supply needs. We have established our own small-scale manufacturing capabilities in Boston, which we use for clinical trial and commercialsupplies.Our supply chain for sourcing raw materials and manufacturing drug product ready for distribution is a multi-step international endeavor. Third-partycontract manufacturers, including some in China, perform different parts of our manufacturing process. Contract manufacturers may supply us with rawmaterials, convert these raw materials into drug substance and/or convert the drug substance into final dosage form. Establishing and managing this globalsupply chain for each of our drugs and drug candidates requires a significant financial commitment and the creation and maintenance of numerous third-partycontractual relationships.We have developed systems and processes to track, monitor and oversee our third-party manufacturers’ activities, including a quality assurance programintended to ensure that our third-party manufacturers comply with current Good Manufacturing Practices, or cGMP. We regularly evaluate the performance ofour third-party manufacturers with the objective of confirming their continuing capabilities to meet our needs efficiently and economically. Manufacturing10facilities, both foreign and domestic, are subject to inspections by or under the authority of the FDA and other U.S. and foreign government authorities.Manufacture of KALYDECO (ivacaftor)We obtain ivacaftor to meet our commercial and clinical supply needs through a third-party manufacturing network. A disruption in the commercialsupply of KALYDECO would have a significant effect on patients, our business and our product revenues.Manufacture of ORKAMBI (lumacaftor/ivacaftor)We obtain the bulk materials needed to produce both our commercial and clinical supply of ORKAMBI through a third-party manufacturing network.We have developed several tablet manufacturing processes utilizing various degrees of continuous manufacturing technology as well as a batchmanufacturing processes to produce commercial quantities of ORKAMBI. This includes multiple third-party manufacturers that are producing commercialquantities of ORKAMBI using combinations of batch and continuous manufacturing processes, as well as a fully-continuous drug product manufacturingprocess at our internal facility located in Boston, Massachusetts. While continuous process manufacturing has been used in many industries, we believe thatwe are the first company to obtain FDA approval for a fully-continuous drug product manufacturing process.Manufacture of SYMDEKO (tezacaftor/ivacaftor)We obtain the bulk materials needed to produce both our commercial and clinical supply of SYMDEKO through a third-party manufacturing network.We produce our commercial supply of SYMDEKO using a fully-continuous drug product manufacturing process at our internal facility located in Boston,Massachusetts and are in the process of establishing a second fully-continuous drug product manufacturing location with a third-party.COMPETITIONThe pharmaceutical industry is characterized by extensive research efforts, rapid technological progress and intense competition. There are many publicand private companies, including pharmaceutical companies and biotechnology companies, engaged in developing products for the indications our drugsare approved to treat and the therapeutic areas we are targeting with our research and development activities. Potential competitors also include academicinstitutions, government agencies, other public and private research organizations and charitable venture philanthropy organizations that conduct research,seek patent protection and/or establish collaborative arrangements for research, development, manufacturing and commercialization. Many of ourcompetitors have substantially greater financial, technical and human resources than we do. We face competition based on the safety and efficacy of ourproducts and drug candidates, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities,reimbursement coverage, price, patent protection and other factors. Our competitors may develop or commercialize more effective, safer or more affordableproducts than we are able to develop or commercialize or obtain more effective patent protection. As a result, our competitors may commercialize productsmore rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our drug candidates, if approved, wouldachieve and maintain market acceptance and our ability to generate meaningful revenues from our products. Future competitive products may render ourproducts, or future products, obsolete or noncompetitive.Cystic FibrosisAn increasing number of companies are seeking to identify and develop drug candidates for the treatment of CF, including companies such as GalapagosNV in collaboration with AbbVie, ProQR Therapeutics, Proteostasis Therapeutics, Eloxx Pharmaceuticals and several private companies. Although we are thefirst company to successfully develop drugs that treat the underlying cause of CF, ORKAMBI, KALYDECO and SYMDEKO are collectively approved totreat only a portion of patients with CF. Our competitors have research and development programs directed at identifying and developing CFTR potentiators,CFTR correctors, ENaC inhibitors and drug candidates with other mechanisms of action or that utilize new therapeutic approaches that seek to address theunderlying cause of CF. Our competitors are exploring the development of drug candidates primarily as part of combination regimens. Our success in rapidlydeveloping and commercializing KALYDECO, ORKAMBI and SYMDEKO may increase the resources that our competitors allocate to the development ofthese potential treatments for CF. If one or more competing therapies are successfully developed as a treatment for patients11with CF, our revenues from ORKAMBI, KALYDECO, SYMDEKO and/or our other CF drug candidates, if then approved, could face significant competitivepressure.GOVERNMENT REGULATIONOur operations and activities are subject to extensive regulation by numerous government authorities in the United States, the European Union and othercountries. In the United States, the European Union and other countries, drugs are subject to rigorous regulation. federal and state statutes and regulationsgovern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our products. As a result of theseregulations, product development and product approval processes are very expensive and time consuming. The regulatory requirements applicable to drugdevelopment, approval, and marketing are subject to change. In addition, FDA regulations and guidance often are revised or reinterpreted by the agency inways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations,guidance or interpretations will change.United States Government RegulationNew Drug Application Approval ProcessesThe process required by the FDA before a drug may be marketed in the United States generally involves the following:•completion of preclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLP, andother applicable regulations;•submission to the FDA of an IND application, which must become effective before clinical trials in the United States may begin;•performance of adequate and well-controlled clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of theproposed drug for its intended use;•submission to the FDA of an NDA;•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product will be produced to assess compliancewith cGMP; and•FDA review and approval of the NDA.Once a drug candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of productchemistry, toxicity and formulation, as well as animal pharmacology and toxicology studies. An IND sponsor must submit the results of the preclinical tests,together with manufacturing information and analytical data, to the FDA as part of the IND, which seeks FDA approval to test the drug candidate in humans.Preclinical or nonclinical testing typically continues even after the IND is submitted.If the FDA accepts the IND, the drug candidate can then be studied in human clinical trials to determine if the drug candidate is safe and effective. Theseclinical trials involve three separate phases that often overlap, can take many years and are expensive. These three phases, which are subject to considerableregulation, are as follows:•Phase 1. The drug initially is introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distributionand elimination. In the case of some drug candidates for severe or life-threatening diseases, such as cancer, especially when the drug candidate maybe inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.•Phase 2. Clinical trials are initiated in a limited patient population intended to identify possible adverse effects and safety risks, to preliminarilyevaluate the efficacy of the drug candidate for specific targeted diseases and to determine dosage tolerance and optimal dosage.•Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographicallydispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the drug candidate and provide an adequatebasis for regulatory approval and product labeling.12Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend aclinical trial at any time for a variety of reasons, including a finding that the healthy volunteers or patients are being exposed to an unacceptable health risk.All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP. Progress reports detailing theresults of the clinical trials must be submitted at least annually to the FDA and more frequently in other situations, including the occurrence of seriousadverse events. Information about certain clinical trials must be submitted within specific time-frames to the National Institutes of Health for publicdissemination on the www.clinicaltrials.gov website.The results of drug development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conductedon the chemistry of the drug candidate, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval tomarket the drug candidate. The FDA reviews each NDA submitted to ensure that it is sufficiently complete for substantive review before it accepts it for filing.It may request additional information rather than accept an NDA for filing.Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA reviews an NDA to determine, among other things, whether adrug candidate is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the drug candidate’sidentity, strength, quality and purity. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the NDA should beapproved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows suchrecommendations. Before approving an NDA, the FDA will inspect the facility or facilities where the drug candidate is manufactured and tested.Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.The FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reportingof certain adverse events, pre-approval of promotional materials, restrictions on direct-to-consumer advertising or commitments to conduct additionalresearch post-approval. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form.Biologics License Application ProcessCertain of our drug candidates may be regulated by the FDA under the Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act asbiologics. Biologics can present special safety, efficacy and manufacturing challenges that may differ from those present in the regulation of small moleculedrugs. As such, while similar to the NDA review process described above, in lieu of filing an NDA, biologics require the submission of a Biologics LicenseApplication, or BLA, and approval of such BLA by the FDA prior to being marketed in the U.S.Expedited Review and ApprovalThe FDA has developed four distinct approaches to make new drugs available as rapidly as possible in cases where there is no available treatment orthere are advantages over existing treatments.The FDA may grant “accelerated approval” to products that have been studied for their safety and effectiveness in treating serious or life-threateningillnesses and that provide meaningful therapeutic benefit to patients over existing treatments. For accelerated approval, the product must have an effect on asurrogate endpoint or an intermediate clinical endpoint that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect onirreversible morbidity and mortality. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity, the sponsor willbe required to conduct additional post-approval clinical studies to verify and describe the clinical benefit. These studies are known as "confirmatory trials."Approval of a drug may be withdrawn or the labeled indication of the drug changed if these trials fail to verify clinical benefit or do not demonstratesufficient clinical benefit to justify the risks associated with the drug.The FDA may grant “fast track” status to products that treat serious diseases or conditions and demonstrate the potential to address an unmet medicalneed. Fast track is a process designed to facilitate the development and expedite the review of such products by providing, among other things, more frequentmeetings with the FDA to discuss the product's development plan and rolling review, which allows submission of individually completed sections of an NDAor BLA for FDA review before the entire submission is completed. Fast track status does not ensure that a product will be developed more quickly or receiveFDA approval.13“Breakthrough Therapy” designation is a process designed to expedite the development and review of drugs that are intended to treat a serious conditionand preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically significantendpoint. For drugs and biologics that have been designated as Breakthrough Therapies, robust FDA-sponsor interaction and communication can help toidentify the most efficient and expeditious path for clinical development while minimizing the number of patients placed in ineffective control regimens.The FDA may grant “priority review” status to products that, if approved, would provide significant improvement in the safety or effectiveness of thetreatment, diagnosis, or prevention of serious conditions. Priority review is intended to reduce the time it takes for the FDA to review an NDA or BLA, withthe goal to take action on the application within six months, compared to ten months for a standard review.Manufacturing Quality ControlAmong the conditions for NDA or BLA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedurescontinually conform with cGMP. In complying with cGMP, manufacturers must devote substantial time, money and effort in the areas of production, qualitycontrol and quality assurance to maintain compliance. Material changes in manufacturing equipment, location or process, may result in additional regulatoryreview and approval. The FDA, and other regulatory agencies conduct periodic visits to inspect equipment, facilities, and processes following the initialapproval of a product. If a manufacturing facility is not in substantial compliance with the applicable regulations and requirements imposed when theproduct was approved, regulatory enforcement action may be taken, which may include a warning letter or an injunction against shipment of products fromthe facility and/or recall of products previously shipped. We rely, and expect to continue to rely, on third parties for the production of our products. FutureFDA, state, and foreign inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt manufacture or distributionof our products, or require substantial resources to correct.Post-approval RequirementsOnce an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after theproduct reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or complete withdrawalof the product from the market. In addition, under the FDCA the sponsor of an approved drug in the United States may not promote that drug for unapproved,or off-label, uses, although a physician may prescribe a drug for an off-label use in accordance with the practice of medicine. After approval, some types ofchanges to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA reviewand approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized,and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.Products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:•record-keeping requirements;•reporting of adverse experiences with the product;•providing the FDA with updated safety and efficacy information;•drug sampling and distribution requirements;•notifying the FDA and gaining its approval of specified manufacturing or labeling changes;•complying with certain electronic records and signature requirements; and•complying with FDA promotion and advertising requirements.Failure to comply with the applicable U.S. requirements at any time during the drug development process, approval process or after approval, maysubject us or our collaborators to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:•refusal to approve or delay in review of pending applications;14•withdrawal of an approval or the implementation of limitations on a previously approved indication for use;•imposition of a clinical hold, a risk mitigation and evaluation strategy or other safety-related limitations;•warning letters or “untitled letters”;•product seizures;•total or partial suspension of production or distribution; or•injunctions, fines, disgorgement, refusals of government contracts, or civil or criminal penalties.Patent Term Restoration and Regulatory ExclusivityUpon approval, products may be entitled to certain kinds of exclusivity under applicable intellectual property and regulatory regimes. The Drug PriceCompetition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act) permits a patent restoration term of up to five years ascompensation for patent term lost during product development and the FDA regulatory review process. The length of the patent extension is roughly basedon 50 percent of the period of time from the filing of an IND for a compound to the submission of the NDA for such compound, plus 100 percent of the timeperiod from NDA submission to regulatory approval. The extension, however, cannot exceed five years and the patent term remaining after regulatoryapproval cannot exceed 14 years.If the FDA approves a drug product that contains an active ingredient not previously approved, the product is typically entitled to five years of non-patent regulatory exclusivity. Other products may be entitled to three years of exclusivity if approval was based on the FDA’s reliance on new clinical studiesessential to approval submitted by the NDA applicant. If the NDA applicant studies the product for use by children, the FDA may grant pediatric exclusivity,which extends by 180 days the longest existing exclusivity (patent or regulatory) related to the product.Biologics are also entitled to exclusivity under the Biologics Price Competition and Innovation Act, which was passed as Title VII to the PatientProtection and Affordable Care Act, or the ACA. The law provides a pathway for approval of biosimilars following the expiration of 12 years of exclusivityfor the innovator biologic and a potential additional 180 day-extension term for conducting pediatric studies. Biologics are also eligible for orphan drugexclusivity, as discussed below. The law also includes an extensive process for the innovator biologic and biosimilar manufacturer to litigate patentinfringement, validity, and enforceability prior to the approval of the biosimilar.Under the Orphan Drug Act, the FDA may grant orphan drug designation to drug candidates intended to treat a rare disease or condition, which isgenerally a disease or condition that affects fewer than 200,000 people in the United States. KALYDECO, ORKAMBI and SYMDEKO have been granteddesignation as orphan drugs by the FDA.If a drug candidate that has orphan drug designation subsequently receives the first FDA approval for that drug for the disease for which it has suchdesignation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drugfor the same indication for seven years following marketing approval, except in certain very limited circumstances, such as if the later product is shown to beclinically superior to the orphan product. Orphan drug exclusivity, however, also could block the approval of our drug candidates for seven years if acompetitor first obtains approval of the same product as defined by the FDA or if our drug candidate is determined to be contained within the competitor’sproduct for the same indication or disease.Foreign RegulationWe conduct clinical trials and market our products in numerous jurisdictions outside the United States. Most of these jurisdictions have clinical trial,product approval and post-approval regulatory processes that are similar in principle to those in the United States. Thus, whether or not we obtain FDAapproval for a drug candidate, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the EuropeanUnion, before we can commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conductof clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required forFDA approval.Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralizedprocedure. The centralized procedure, which is compulsory for medicines produced by15biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes and optional for those medicines that are highlyinnovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. In addition to the centralizedprocedure, Europe also has a nationalized procedure, which requires a separate application to and approval determination by each country; a decentralizedprocedure, whereby applicants submit identical applications to several countries and receive simultaneous approval; and a mutual recognition procedure,where applicants submit an application to one country for review and other countries may accept or reject the initial decision.ReimbursementSales of our products depend, to a large degree, on the extent to which our products will be covered by third-party payors, such as government healthprograms, commercial insurance and managed health care organizations. These third-party payors increasingly are reducing reimbursements for medicalproducts and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs havebeen a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of pricecontrols and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit ourrevenues. Decreases in third-party reimbursement for a product or a decision by a third-party payor to not cover a product could reduce physician usage of theproduct.The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide avoluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by privateentities, which will provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescriptiondrug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs itwill cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of coveredPart D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed andreviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products forwhich we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower thanthe prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often followMedicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in asimilar reduction in payments from non-governmental payors.The American Recovery and Reinvestment Act of 2009 provided funding for the federal government to compare the effectiveness of different treatmentsfor the same illness. A plan for the research was to be developed by the Department of Health and Human Services, or HHS, the Agency for HealthcareResearch and Quality and the National Institutes of Health, and periodic reports on the status of the research and related expenditures were to be made to theU.S. Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it isnot clear what effect, if any, the research will have on the sales of our products. It is possible that comparative effectiveness research demonstrating benefits ofa competitor’s product could adversely affect the sales of our products. If third-party payors do not consider our products to be cost-effective compared toother available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow usto sell our products on a profitable basis.The ACA was enacted in March 2010 and was designed to expand coverage for the uninsured while at the same time containing overall health care costs.With regard to pharmaceutical products, among other things, the ACA is designed to expand and increase industry rebates for drugs covered under Medicaidprograms, impose an annual fee on branded pharmaceutical manufacturers and make changes to the coverage requirements under the Medicare Part Dprogram. The branded prescription drug fee is not tax deductible.In Europe and many other foreign countries, the success of ORKAMBI and KALYDECO and of any other drug candidates we may develop, dependslargely on obtaining and maintaining government reimbursement, because in many foreign countries patients are unable to access prescriptionpharmaceutical products that are not reimbursed by their governments. Negotiating reimbursement rates in foreign countries can delay the commercializationof a pharmaceutical product and generally results in a reimbursement rate that is lower than the net price that companies can obtain for the same product inthe United States.16In some countries, such as Germany and France, commercial sales of a new product can occasionally begin while the reimbursement rate that a companywill receive is under discussion. In other countries, a company must complete the reimbursement discussions prior to the commencement of commercial salesof the pharmaceutical product. The requirements governing drug pricing vary widely from country to country. For example, the member states of theEuropean Union can restrict the range of drugs for which their national health insurance systems provide reimbursement and can control the prices of drugsfor human use. A member state may approve a specific price for the drug or it may instead adopt a system of direct or indirect controls on the profitability ofthe company placing the drug on the market. Recently, many countries in the European Union have increased the amount of discounts required onpharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debtcrises experienced by many countries in the European Union. There can be no assurance that any country that has price controls or reimbursement limitationsfor pharmaceutical products will provide for reimbursement of our products, or such countries may only provide for reimbursement on terms that we do notdeem adequate. Additionally, reimbursement discussions in ex-U.S. markets may take a significant period of time.Other RegulationsPharmaceutical companies are also subject to various laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claimslaws. Anti-kickback laws make it illegal to solicit, offer, receive or pay any remuneration in exchange for or to induce the referral of business, including thepurchase or prescription of a particular drug that is reimbursed by a state or federal program. False claims laws prohibit knowingly and willingly presenting,or causing to be presented for payment to third-party payors (including Medicare and Medicaid) any claims for reimbursed drugs or services that are false orfraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. Violations of fraud and abuse laws maybe punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as by the possibility of exclusion from federalhealthcare programs (including Medicare and Medicaid). Liability under the false claims laws may also arise when a violation of certain laws or regulationsrelated to the underlying products (e.g., violations regarding improper promotional activity or unlawful payments) contributes to the submission of a falseclaim. If we were subject to allegations concerning, or convicted of violating, these laws, our business could be harmed.Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceuticalmanufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers or require disclosure to thegovernment and public of such interactions. The laws include federal “sunshine” provisions. The sunshine provisions apply to pharmaceutical manufacturerswith products reimbursed under certain government programs and require those manufacturers to disclose annually to the federal government (for re-disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also requiredisclosure of pharmaceutical pricing information and marketing expenditures. Many of these laws and regulations contain ambiguous requirements. Outsidethe United States, other countries have implemented requirements for disclosure of financial interactions with healthcare providers and additional countriesmay consider or implement such laws.We are subject to various federal and foreign laws that govern our international business practices with respect to payments to government officials.Those laws include the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits U.S. companies and their representatives from paying, offering to pay,promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or politicalcandidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity.In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. We are alsosubject to U.K. Bribery Act 2010, or the Bribery Act, which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign publicofficial, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in theUnited Kingdom generally will be subject to the Bribery Act.Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations andrecommendations relating to data privacy and protection, safe working conditions, laboratory practices, the experimental use of animals, and the purchase,storage, movement, import, export and use and disposal of hazardous or potentially hazardous substances are or may be applicable to our activities. Theextent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.17EMPLOYEESAs of December 31, 2017, we had approximately 2,300 employees, as compared to approximately 2,150 employees as of December 31, 2016. Of theseemployees, approximately 1,870 were based in the United States and approximately 375 were based in Europe. In February 2017, we decided to consolidateour research activities into our Boston, Milton Park and San Diego locations and closed our research site in Canada. Our scientific staff members havediversified experience and expertise in molecular and cell biology, genetics, biochemistry, synthetic organic chemistry, protein X-ray crystallography,protein nuclear magnetic resonance spectroscopy, microbiology, computational chemistry and computational biology, biophysical chemistry, medicinalchemistry, clinical pharmacology and clinical medicine. Our clinical development personnel have extensive expertise in designing and executing clinicaltrials. Employees in our commercial organization have extensive experience in selling and marketing pharmaceutical products as well as seekingreimbursement from government and third-party payors for pharmaceutical products. Our employees are not covered by a collective bargaining agreement,except for a small number of employees outside the U.S. We consider our relations with our employees to be good.OTHER MATTERSFinancial Information and Significant CustomersFinancial information about (i) our net product revenues and other revenues generated in the principal geographic regions in which we operate and oursignificant customers is set forth in Note T, “Segment Information,” to our consolidated financial statements included in this Annual Report on Form 10-K,(ii) net income (loss) per share attributable to Vertex common shareholders and our total assets are provided in our consolidated financial statements includedin this Annual Report on Form 10-K and (iii) our research and development expenses in each of the last three fiscal years and our deconsolidation of Parion asof September 30, 2017 is provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” A discussion of therisks attendant to our international operations is set forth in the “Risk Factors” section of this Annual Report on Form 10-K.Information Available on the InternetOur internet address is www.vrtx.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and allamendments to those reports, are available to you free of charge through the “Investors-SEC Filings” section of our website as soon as reasonably practicableafter those materials have been electronically filed with, or furnished to, the Securities and Exchange Commission.Corporate InformationVertex was incorporated in Massachusetts in 1989, and our principal executive offices are located at 50 Northern Avenue Boston, Massachusetts 02210.18DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTThe names, ages and positions held by our executive officers and directors are as follows:Name AgePositionJeffrey M. Leiden, M.D., Ph.D.62Chairman of the Board, Chief Executive Officer and PresidentDavid Altshuler, M.D., Ph.D.53Executive Vice President, Global Research and Chief Scientific OfficerStuart A. Arbuckle52Executive Vice President and Chief Commercial OfficerJeffrey A. Chodakewitz, M.D.62Executive Vice President, Global Medicines Development and Medical Affairs, andChief Medical OfficerMichael Parini, J.D.43Executive Vice President and Chief Legal and Administrative OfficerAmit K. Sachdev, J.D.50Executive Vice President and Chief Regulatory OfficerIan F. Smith52Executive Vice President and Chief Operating OfficerThomas Graney53Senior Vice President and Chief Financial OfficerPaul M. Silva51Senior Vice President and Corporate ControllerSangeeta M. Bhatia, M.D., Ph.D.49DirectorAlan Garber, M.D., Ph.D.62DirectorTerrence C. Kearney63DirectorYuchun Lee52DirectorMargaret G. McGlynn58DirectorBruce I. Sachs58DirectorElaine S. Ullian70DirectorWilliam Young73DirectorDr. Leiden is our Chairman, Chief Executive Officer and President. He has held the positions of Chief Executive Officer and President since February2012 after joining us as CEO Designee in December 2011. He has been a member of our Board of Directors since July 2009, the Chairman of our Board ofDirectors since May 2012, and served as our lead independent director from October 2010 through December 2011. Dr. Leiden was a Managing Director atClarus Ventures, a life sciences venture capital firm, from 2006 through January 2012. Dr. Leiden was President and Chief Operating Officer of AbbottLaboratories, Pharmaceuticals Products Group, and a member of the Board of Directors of Abbott Laboratories from 2001 to 2006. From 1987 to 2000, Dr.Leiden held several academic appointments, including the Rawson Professor of Medicine and Pathology and Chief of Cardiology and Director of theCardiovascular Research Institute at the University of Chicago, the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health,and Professor of Medicine at Harvard Medical School. He is an elected member of both the American Academy of Arts and Sciences and the Institute ofMedicine of the National Academy of Sciences. Dr. Leiden is a senior advisor to Clarus Ventures. Dr. Leiden serves as a director of Quest Diagnostics Inc., amedical diagnostics company, and Massachusetts Mutual Life Insurance Company, an insurance company. Dr. Leiden was a director and the non-executiveVice Chairman of the board of Shire plc, a specialty biopharmaceutical company, from 2006 to January 2012. Dr. Leiden received his M.D., Ph.D. and B.A.degrees from the University of Chicago.Dr. Altshuler has been our Executive Vice President, Global Research and Chief Scientific Officer since January 2015 and was a member of our Board ofDirectors from May 2012 through December 2014. Dr. Altshuler was one of four founding members of the Broad Institute, a research collaboration of Harvard,MIT, The Whitehead Institute and the Harvard Hospitals. He served as the Director of the Institute’s Program in Medical and Population Genetics from 2003through December 2014 and as the Institute’s Deputy Director and Chief Academic Officer from 2009 through December 2014. Dr. Altshuler joined thefaculty at Harvard Medical School and the Massachusetts General Hospital in 2000 and held the academic rank of Professor of Genetics and Medicine from2008 through December 2014. He served as Adjunct Professor of Biology at MIT from 2012 through December 2014. Dr. Altshuler earned a B.S. from MIT, aPh.D. from Harvard University and an M.D. from Harvard Medical School. Dr. Altshuler completed his clinical training in Internal Medicine, and inEndocrinology, Diabetes and Metabolism, at the Massachusetts General Hospital.Mr. Arbuckle is our Executive Vice President and Chief Commercial Officer, a position he has held since September 2012. Prior to joining us, Mr.Arbuckle held multiple commercial leadership roles at Amgen, Inc., a 17,000 person biotechnology company, from July 2004 through August 2012. Mr.Arbuckle has worked in the biopharmaceuticals industry since 1986, including more than 15 years at GlaxoSmithKline plc, where he held sales andmarketing roles of increasing19responsibility for medicines aimed at treating respiratory, metabolic, musculoskeletal, cardiovascular and other diseases. He served as a member of the Boardof Directors of Cerulean Pharma, Inc. from June 2015 through July 2017 and has served as a member of the Board of Directors of ImmunoGen, Inc. sinceJanuary 2018. Mr. Arbuckle holds a BSc in pharmacology and physiology from the University of Leeds.Dr. Chodakewitz is our Executive Vice President, Global Medicines Development and Medical Affairs and Chief Medical Officer. Dr. Chodakewitzjoined Vertex as a Senior Vice President in January 2014 and became an Executive Vice President in October 2014. Prior to joining us, Dr. Chodakewitzspent more than 20 years at Merck & Co., Inc., where he held a variety of roles including Vice President of Clinical Research – Infectious Diseases &Vaccines, Vice President of Clinical Pharmacology/Early Stage Development, Senior Vice President of Late Stage Development, and Senior Vice President ofGlobal Scientific Strategy (Infectious Diseases, Respiratory/Immunology). Prior to his tenure at Merck, he served as the Director of the HIV Outpatient Clinicat the Veterans Administration Medical Center in West Haven, Connecticut and held various academic positions at Yale University and New York UniversitySchools of Medicine. Dr. Chodakewitz serves as a member of the Board of Directors of Tetraphase Pharmaceuticals, Inc., a pharmaceutical company. Dr.Chodakewitz holds B.S. in Biochemistry from Yale University, and an M.D. from the Yale University School of Medicine.Mr. Parini is our Executive Vice President and Chief Legal and Administrative Officer, a position he has held since January 2017. From January 2016 toJanuary 2017, he was our Executive Vice President and Chief Legal Officer. From 2004 until he joined Vertex, Mr. Parini served in various roles of increasingresponsibility at Pfizer Inc., a pharmaceutical company, most recently as Senior Vice President and Associate General Counsel. Prior to Pfizer, Mr. Parini wasan attorney at Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Parini holds a B.A. from Georgetown University and a J.D. from the Georgetown University LawCenter.Mr. Sachdev is our Executive Vice President and Chief Regulatory Officer, a role he assumed in January 2017. He served as our Executive VicePresident, Policy, Access and Value, from October 2014 through December 2016. In 2007, he joined us as a Senior Vice President, and has led ourgovernment affairs and public policy activities, as well as our patient advocacy programs. From 2010 through 2013 he established our first internationalcommercial operations in Canada. Prior to joining us, Mr. Sachdev served as Executive Vice President, Health of the Biotechnology Industry Organization(BIO) and was the Deputy Commissioner for Policy at the FDA, where he also served in several other senior positions Prior to the FDA, Mr. Sachdev served asMajority Counsel to the Committee on Energy and Commerce in the United States House of Representatives and practiced law at the ChemicalManufacturers Association, and subsequently at the law firm of Ropes & Gray LLP. Mr. Sachdev holds a B.S from Carnegie Mellon University, and a J.D.from Emory University School of Law.Mr. Smith is our Executive Vice President and Chief Operating Officer, a role he assumed in September 2017. He was our Executive Vice President, ChiefOperating Officer and Chief Financial Officer from January 2017 until September 2017, Executive Vice President and Chief Financial Officer from February2006 until January 2017, our Senior Vice President and Chief Financial Officer from November 2003 to February 2006, and our Vice President and ChiefFinancial Officer from October 2001 to November 2003. Prior to joining us, Mr. Smith served as a partner in the Life Science and Technology Practice Groupof Ernst & Young LLP, an accounting firm, from 1999 to 2001. Mr. Smith initially joined Ernst & Young’s U.K. firm in 1987, and then joined its Bostonoffice in 1995. Mr. Smith has served as a member of the Boards of Directors of Acorda Therapeutics, Inc., a drug development company, since February 2007,and Infinity Pharmaceuticals, Inc., a drug development company, since May 2008. Mr. Smith served on the Board of Directors of Ophthotech Corporation, abiopharmaceutical company, from August 2016 to May 2017. Mr. Smith holds a B.A. in accounting and finance from Manchester Metropolitan University,U.K., is a member of the American Institute of Certified Public Accountants and is a Chartered Accountant of England and Wales.Mr. Graney is our Senior Vice President and Chief Financial Officer, a position he has held since September 2017. From August 2014 until he joinedVertex, Mr. Graney served as Chief Financial Officer and Senior Vice President of Finance and Corporate Strategy for Ironwood Pharmaceuticals, Inc. FromJanuary 2010 to August 2014, Mr. Graney served as Worldwide Vice President of Finance and Chief Financial Officer of Ethicon, Inc., a maker of surgicalmedical devices and subsidiary of Johnson and Johnson. From 1994 to 2010, Mr. Graney served in various roles of increasing responsibility at Johnson &Johnson, including most recently as Vice President of Finance for J&J Global Supply Chain. Mr. Graney serves on the board of directors of AC Immune SA, abiopharmaceutical company. Mr. Graney holds a Bachelor of Science degree in accounting from the University of Delaware and an M.B.A. in marketing,finance and international business from the Leonard N. Stern School of Business at New York University.20Mr. Silva is our Senior Vice President and Corporate Controller, a position he has held since April 2011. Mr. Silva joined us in August 2007 as SeniorDirector, Accounting Operations and was our Vice President and Corporate Controller from September 2008 through April 2011. Prior to joining us, he wasthe Vice President, Internal Reporting at Iron Mountain Incorporated from July 2006 until August 2007 and a consultant to Iron Mountain’s financingdepartment from April 2005 until July 2006. He was the Finance Director of the Bioscience Technologies Division of Thermo Electron Corporation from2002 to April 2005. Mr. Silva holds a B.S. in accounting from Assumption College.Dr. Bhatia has been a member of our Board of Directors since June 2015. Dr. Bhatia is a professor at the Massachusetts Institute of Technology, where shecurrently serves as the John J. and Dorothy Wilson Professor of Health Sciences & Technology/Electrical Engineering & Computer Science. Prior to joiningthe Massachusetts Institute of Technology in 2005, Dr. Bhatia was a professor of bioengineering and medicine at the University of California at San Diegofrom 1998 through 2005. Dr. Bhatia also is an investigator for the Howard Hughes Medical Institute, a member of the Department of Medicine at Brighamand Women’s Hospital, a member of the Broad Institute and a member of the Koch Institute for Integrative Cancer Research. Dr. Bhatia holds a Sc.B. inbiomedical engineering from Brown University, an S.M. and Ph.D. in Mechanical Engineering from the Massachusetts Institute of Technology and an M.D.from Harvard Medical School.Dr. Garber has been a member of our Board of Directors since June 2017. He is Provost of Harvard University and the Mallinckrodt Professor of HealthCare Policy at Harvard Medical School, a Professor of Economics in the Faculty of Arts and Sciences, Professor of Public Policy in the Harvard KennedySchool of Government, and Professor in the Department of Health Policy and Management in the Harvard T.H. Chan School of Public Health. From 1998until he joined Harvard in 2011, he was the Henry J. Kaiser Jr. Professor, a Professor of Medicine, and a Professor (by courtesy) of Economics, Health Researchand Policy, and of Economics in the Graduate School of Business at Stanford University. Dr. Garber is a member of the National Academy of Medicine, theAmerican Society of Clinical Investigation, the Association of American Physicians, the American Academy for Arts and Sciences, and the Board on Science,Technology, and Economic Policy at the National Academies. He is a Fellow of the American Association for the Advancement of Science, the AmericanCollege of Physicians, and the Royal College of Physicians. Dr. Garber is also a Research Associate with the National Bureau of Economic Research andserved as founding Director of its Health Care Program for nineteen years. He has also served as a member of the National Advisory Council on Aging at theNational Institutes of Health, as a member of the Board of Health Advisers of the Congressional Budget Office and as Chair of the Medicare EvidenceDevelopment and Coverage Advisory Committee at the Centers for Medicare and Medicaid Services. Dr. Garber has been a member of the Board of Directorsof Exelixis, Inc., a biopharmaceutical company, since 2005. Dr. Garber holds an A.B. summa cum laude, an A.M. and a Ph.D., all in Economics, from HarvardUniversity, and an M.D. with research honors from Stanford University.Mr. Kearney has been a member of our Board of Directors since May 2011. Mr. Kearney served as the Chief Operating Officer of Hospira, Inc., a specialtypharmaceutical and medication delivery company, from April 2006 to January 2011. From April 2004 to April 2006, he served as Hospira’s Senior VicePresident, Finance, and Chief Financial Officer, and he served as Acting Chief Financial Officer through August 2006. Mr. Kearney served as Vice Presidentand Treasurer of Abbott Laboratories from 2001 to April 2004. From 1996 to 2001, Mr. Kearney was Divisional Vice President and Controller for Abbott’sInternational Division. Mr. Kearney serves as a member of the Board of Directors at Acceleron Pharma Inc., a biopharmaceutical company, and AveXis, Inc., agene therapy company, and served as a member of the Board of Directors at Innoviva, Inc. (formerly known as Theravance, Inc.), a royalty managementcompany, until April 2016. He received his B.S. in biology from the University of Illinois and his M.B.A. from the University of Denver.Mr. Lee has been a member of our Board of Directors since September 2012. Mr. Lee serves as an Executive in Residence (XIR) and Partner of GeneralCatalyst Partners, a venture capital firm, positions he has held since April of 2013. Mr. Lee also serves as the Chief Executive Officer of Allego, Inc. and isExecutive Chairman of Clarabridge, Inc. Mr. Lee was the Vice President of IBM’s Enterprise Marketing Management Group from November 2010 throughJanuary 2013. Mr. Lee co-founded Unica Corporation, a provider of software and services used to automate marketing processes, in 1992, and was Unica’sPresident and/or Chief Executive Officer from 1992 through November 2010, when Unica was acquired by IBM. From 1989 to 1992, Mr. Lee was a seniorconsultant at Digital Equipment Corporation, a supplier of general computing technology and consulting services. Mr. Lee holds a B.S. and an M.S. inelectrical engineering and computer science from the Massachusetts Institute of Technology and an M.B.A. from Babson College.Ms. McGlynn has been a member of our Board of Directors since May 2011. Ms. McGlynn served as the President and Chief Executive Officer of theInternational AIDS Vaccine Initiative, a global not-for-profit organization whose mission is to ensure the development of safe, effective and accessible HIVvaccines for use throughout the world, from July 2011 until September 2015. Ms. McGlynn served as President, Vaccines and Infectious Diseases of Merck &Co., Inc. from 2005 until212009. Ms. McGlynn joined Merck in 1983 and served in a variety of marketing, sales and managed care roles. Ms. McGlynn serves as a member of the Boardof Directors for Air Products and Chemicals, Inc., a company specializing in gases and chemicals for industrial uses, and Amicus Therapeutics, Inc., abiopharmaceutical company. She is also a member of the National Industrial Advisory Committee at the University at Buffalo School of Pharmacy andPharmaceutical Sciences. Ms. McGlynn holds a B.S. in Pharmacy and an M.B.A. in Marketing from the State University of New York at Buffalo.Mr. Sachs has been a member of our Board of Directors since 1998. Mr. Sachs is a General Partner at Charles River Ventures, a venture capital firm hejoined in 1999. From 1998 to 1999, he served as Executive Vice President and General Manager of Ascend Communications, Inc. From 1997 until 1998, Mr.Sachs served as President and Chief Executive Officer of Stratus Computer, Inc. From 1995 to 1997, he served as Executive Vice President and GeneralManager of the Internet Telecom Business Group at Bay Networks, Inc. From 1993 to 1995, he served as President and Chief Executive Officer of Xylogics,Inc. Mr. Sachs holds a B.S.E.E. in electrical engineering from Bucknell University, an M.E.E. in electrical engineering from Cornell University, and anM.B.A. from Northeastern University.Ms. Ullian has been a member of our Board of Directors since 1997. Ms. Ullian served as President and Chief Executive Officer of Boston MedicalCenter, a private, not-for-profit, 626-bed, academic medical center with a community-based focus, from 1996 through January 2010. From 1994 to 1996, sheserved as President and Chief Executive Officer of Boston University Medical Center Hospital. From 1987 to 1994, Ms. Ullian served as President and ChiefExecutive Officer of Faulkner Hospital. She also serves as a director of Thermo Fisher Scientific Inc. and Hologic, Inc. Ms. Ullian holds a B.A. in politicalscience from Tufts University and an M.P.H. from the University of Michigan.Mr. Young has been a member of our Board of Directors since May 2014. Mr. Young is a Venture Partner at Clarus Ventures, a life sciences venturecapital firm, which he joined in 2010. Prior to Clarus Ventures, Mr. Young served from 1999 until June 2009 as the Chairman and Chief Executive Officer ofMonogram Biosciences, Inc., a biotechnology company acquired by Laboratory Corporation of America in June 2009. From 1980 to 1999, Mr. Young wasemployed at Genentech, Inc. in positions of increasing responsibility, including as Chief Operating Officer from 1997 to 1999, where he was responsible forall product development, manufacturing and commercial functions. Prior to joining Genentech, Mr. Young was with Eli Lilly & Co. for 14 years. Mr. Youngcurrently serves as the Chairman of the Board of Directors of NanoString Technologies, Inc., and as a member of the Board of Directors of TheravanceBioPharma Inc. Mr. Young retired from BioMarin Pharmaceutical Inc.’s Board of Directors in November 2015 and from Biogen’s Board of Directors in June2014. Mr. Young holds a B.S. in Chemical Engineering from Purdue University, an M.B.A. from Indiana University and an Honorary Doctorate inEngineering from Purdue University. Mr. Young was elected to the National Academy of Engineering in 1993 for his contributions to biotechnology.22ITEM 1A. RISK FACTORSRISK FACTORSInvesting in our common stock involves a high degree of risk, and you should carefully consider the risks and uncertainties described below in additionto the other information included or incorporated by reference in this Annual Report on Form 10-K. If any of the following risks or uncertainties actuallyoccurs, our business, financial condition or results of operations would likely suffer, possibly materially. In that case, the trading price of our common stockcould decline.Risks Related to Our BusinessAll of our product revenues and the vast majority of our total revenues are derived from sales of medicines for the treatment of cystic fibrosis. If we areunable to continue to increase revenues from sales of our cystic fibrosis medicines or if we do not meet the expectations of investors or public equity marketanalysts, our business would be materially harmed and the market price of our common stock would likely decline.Substantially all of our net product revenues and the vast majority of our total revenues are derived from the sale of CF medicines. ORKAMBI andKALYDECO net product revenues represented approximately 53% and 34% of our total revenues in the year ended December 31, 2017, respectively. As aresult, our future success is dependent on our ability to continue to increase revenues from sales of our CF medicines. In the near term, this will require us toincrease CF net product revenues from our current medicines, including SYMDEKO which was approved by the FDA in February 2018. In the longer term,this will require us to successfully develop, obtain approval for and commercialize at least one triple combination therapy that will allow us to treat patientswho have one copy of the F508del mutation in their CFTR gene and a second mutation in their CFTR gene that results in minimal CFTR function and toimprove the treatment options available to patients with CF who are eligible for our current medicines.Our concentrated source of revenues presents a number of risks to our business, including:•that one or more competing therapies may successfully be developed as a treatment for patients with CF;•that we may experience adverse developments with respect to development or commercialization of our CF medicines and/or CF drug candidates;and•that reimbursement policies of payors and other third parties may make it difficult to obtain reimbursement or reduce the net price we receive for ourproducts.Additionally, each of our commercial products and our triple combination treatment regimens contain ivacaftor or VX-561, a deuterated version ofivacaftor. As a result, if any of our products or drug candidates were to experience safety issues, ORKAMBI, KALYDECO and SYMDEKO, as well as one ormore of our drug candidates, may be adversely affected.If one or more of the above risks were to materialize or if we are otherwise unable to increase revenues from sales of our CF medicines, our business wouldbe materially harmed and our stock price would likely decline.We are investing significant resources in the development of our next-generation CFTR corrector compounds in triple combinations and if we are unableto show the safety and efficacy of these compounds, experience delays in doing so or are unable to successfully commercialize at least one of thesemedicines, our business would be materially harmed.We are investing significant resources in the development of our next-generation CFTR corrector compounds, and recently selected VX-659 and VX-445to evaluate in Phase 3 clinical development as part of triple combination treatment regimens for patients with CF. We believe that a significant portion of thelong-term value attributed to our company by investors is based on the commercial potential of these triple combination therapies. We are planning toinitiate Phase 3 clinical development of VX-659 in the first half of 2018 and VX-445 in mid-2018 based on ongoing Phase 2 clinical trials that enrolled alimited number of patients with CF. We expect to receive additional information regarding these combination regimens, including additional data from theseongoing Phase 2 clinical trials of VX-659 and VX-445 and long-term nonclinical toxicology studies of VX-445, in the first half of 2018, which couldadversely affect our planned initiation of Phase 3 clinical trials for these regimens.In order to ultimately obtain approval for a triple combination regimen, we will need to demonstrate that the compounds are safe and effective in asignificantly larger number of patients than were involved in the clinical trials conducted to date. Initial results from ongoing clinical trials may differmaterially from final results from such clinical trials. The results from preclinical and early clinical studies do not always accurately predict results in later,large-scale clinical trials. If the data23from our ongoing or planned clinical trials or non-clinical studies of triple combination regimens including our next-generation CFTR compounds are notfavorable, the FDA and comparable foreign regulatory authorities may not approve these treatment regimens and/or we may be forced to delay or terminatethe development of these treatment regimens, which would have an adverse effect on our business. Even successfully completed large-scale clinical trialsmay not result in marketable medicines. If a triple combination that includes a next-generation CFTR corrector compounds fails to achieve its primaryendpoint in clinical trials, if safety issues arise or if the results from our clinical trials are otherwise inadequate to support regulatory approval of our triplecombination therapies, commercialization of that combination regimen could be delayed or halted.Even if we gain marketing approval for one or more combination therapies containing a next-generation CFTR corrector compound in a timely manner,we cannot be sure that such combination therapy will be commercially successful. In addition, since we expect that a significant portion of the patients forwhom a triple combination treatment regimen would be indicated would also be eligible for our then existing medicines, a portion of the revenues from ourtriple combination regimens will likely displace revenues from our then-marketed products, reducing the overall positive effect of the commercialization ofour triple combination regimens on our total revenues.If the anticipated or actual timing of marketing approvals for these triple combination regimens, or the market acceptance of these triple combinationregimens, if approved, including treatment reimbursement levels agreed to by third-party payors, do not meet the expectations of investors or public marketanalysts, the market price of our common stock would likely decline.We have experienced challenges commercializing ORKAMBI outside of the United States, and our future revenues will be dependent on our ability toobtain adequate reimbursement for ORKAMBI, tezacaftor in combination with ivacaftor, if approved in ex-U.S. markets, and our future products in ex-U.S. markets.In most ex-U.S. markets, the pricing and reimbursement of therapeutic and other pharmaceutical products is subject to governmental control. Givenrecent global economic pressures and geopolitical uncertainty, government authorities particularly in Europe are increasingly attempting to limit or regulatethe price of drug products. Reimbursement agencies in Europe are often more conservative than those in the United States and the reimbursement process isoften slower since reimbursement decisions are made on a country-by-country basis. Additionally, particular attention is being paid to specialtypharmaceutical products such as KALYDECO and ORKAMBI given the relative higher cost of these products as compared to other types of pharmaceuticalproducts. Due in part to these challenges, we have recognized limited ex-U.S. net product revenues for ORKAMBI as we have yet to complete reimbursementdiscussions in many ex-U.S. countries, including the United Kingdom and France, which represent significant potential markets for ORKAMBI. In 2017 and2016, ORKAMBI net product revenues from ex.-U.S. markets represented only 13% and 8% respectively, of our total ORKAMBI net product revenues.Our future product revenues will be dependent on, among other things, our ability to complete reimbursement discussions in ex-U.S. markets forORKAMBI and to obtain reimbursement in ex-U.S. markets for tezacaftor in combination with ivacaftor, if approved, and any other products that may beapproved in the future, including our triple combination regimens. There is no assurance that coverage and reimbursement will be available outside of theUnited States and, even if it is available, the timing or the level of reimbursement may not be satisfactory. Adverse pricing limitations or a delay in obtainingcoverage and reimbursement would decrease our future net product revenues and harm our business.Our business depends on our ability to obtain marketing authorization and reimbursement for tezacaftor in combination with ivacaftor in ex-U.S. markets.If we are unable to obtain marketing authorization or experience material delays in obtaining marketing authorization for, or reimbursementarrangements relating to, tezacaftor in combination with ivacaftor in ex-U.S. markets, our business could be materially harmed.In 2017, we submitted an MAA in Europe seeking approval of tezacaftor in combination with ivacaftor in patients with CF 12 years of age and older whohave certain mutations in their CFTR gene. We expect the EMA to complete its review in the second half of 2018. Obtaining approval of an MAA is alengthy, expensive and uncertain process, and we may not be successful. Obtaining approval depends on many factors including:•whether or not the European regulatory authorities determine that the evidence gathered in well-controlled clinical trials, other clinical trials andnonclinical studies demonstrates that the combination regimen is safe and effective; and•whether or not the European regulatory authorities are satisfied that the manufacturing facilities, processes and controls for the combination areadequate, that the labeling is satisfactory and that plans for post-marketing studies, safety monitoring and risk evaluation and mitigation aresufficient.24Obtaining approval for the combination of tezacaftor and ivacaftor in one country or region does not ensure that we will be able to obtain marketingauthorization in any other country or region.Even if tezacaftor in combination with ivacaftor is approved, the European Commission may limit the indications for which the product may bemarketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval.If we do not obtain approval to market the combination of tezacaftor and ivacaftor in Europe, our business will be materially harmed. Additionally, even ifthe combination of tezacaftor and ivacaftor receives marketing approval in Europe, coverage and reimbursement may not be available and, even if it isavailable, the level of reimbursement may not be satisfactory.We only recently became profitable, and we cannot predict the extent of our future profitability.We achieved annual profitability on a GAAP basis in 2017 for the first time since 2011. Our ability to sustain profitability depends on the extent towhich we can continue to increase our revenue and control our costs in order to, among other things, counter any unforeseen difficulties, complications orother unknown factors that may impair future revenue or require additional expenditures. Our ability to increase our revenues is dependent on our ability tosuccessfully commercialize SYMDEKO and to develop and commercialize additional products, including our triple combination regimens. Our operatingexpenses may increase due to, among other factors, additional investments to support or accelerate our research and development activities, the expansion ofour organization, and/or costs associated with business development activities, including costs to acquire assets or programs, integration costs and the coststo develop drug candidates that are acquired. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we areunable to predict the extent of our future profitability or losses. If we are unable to increase sales of ORKAMBI, sustain sales of KALYDECO, successfullycommercialize SYMDEKO and our triple combination regimes, and develop additional products, we may not sustain profitability.If our competitors bring drugs with superior product profiles to market, our drugs may not be competitive and our revenues could decline.Many of our competitors, including major pharmaceutical companies such as Abbvie, Bristol-Myers Squibb, Gilead, Johnson & Johnson, Merck, MerckKGaA, Novartis, Pfizer, Sanofi and Roche, possess substantially greater financial, technical and human resources than we possess. Potential competitors alsoinclude other public and private companies, academic institutions, government agencies, other public and private research organizations and charitableventure philanthropy organizations that conduct research, seek patent protection and/or establish collaborative arrangements for research, development,manufacturing and commercialization. As an example, in 2013 and 2014 we experienced a rapid decline in the number of patients being treated withINCIVEK, a product we previously marketed for the treatment of hepatitis C virus infection.Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smallernumber of our competitors. Smaller and other early-stage companies also may prove to be significant competitors, particularly through collaborativearrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and managementpersonnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for,our programs.ORKAMBI, KALYDECO, SYMDEKO and any drugs that we develop in the future may not be able to compete effectively with marketed drugs or newdrugs that may be developed by competitors. The risk of competition is particularly important to our company because substantially all of our revenues aswell as our most advanced drug candidates are related to the treatment of patients with CF. There are many other companies developing drugs for the sameindications that we are pursuing. In order to compete successfully in these areas, we must demonstrate improved safety, efficacy and/or tolerability, and easeof manufacturing, and gain and maintain market acceptance over competing drugs.A number of companies are seeking to identify and develop drug candidates for the treatment of CF, including Galapagos NV in collaboration withAbbVie, ProQR Therapeutics, Proteostasis Therapeutics, Eloxx Pharmaceuticals and several private companies. Our competitors have research anddevelopment programs directed at identifying CFTR potentiators, CFTR correctors, ENaC inhibitors and drug candidates with other mechanisms of action orthat utilize new therapeutic approaches that seek to address the underlying cause of CF. Our success in rapidly developing and commercializing ORKAMBI,KALYDECO and SYMDEKO may increase the resources that our competitors allocate to the development of these potential treatments for CF. Ourcompetitors are exploring the development of drug candidates both as monotherapies and as part of combination regimens. If one or more competingtherapies are successfully developed as a treatment for patients with CF, our revenues from ORKAMBI, KALYDECO, SYMDEKO and/or other compounds, ifthen approved, could face competitive25pressures. If one or more competing therapies prove to be superior to our existing products and/or drug candidates for the treatment of CF, our business wouldbe materially adversely affected.If we discover safety issues with any of our products or if we fail to comply with continuing U.S. and applicable foreign regulations, commercializationefforts for the product could be negatively affected, the approved product could lose its approval or sales could be suspended, and our business could bematerially harmed.Our products are subject to continuing regulatory oversight, including the review of additional safety information. Drugs are more widely used bypatients once approval has been obtained and therefore side-effects and other problems may be observed after approval that were not seen or anticipated, orwere not as prevalent or severe, during pre-approval clinical trials or nonclinical studies. The subsequent discovery of previously unknown problems with aproduct could negatively affect commercial sales of the product, result in restrictions on the product or lead to the withdrawal of the product from the market.Each of our commercial products and our triple combination treatment regimens contain ivacaftor or VX-561, a deuterated version of ivacaftor. As a result, ifany of our products or drug candidates were to experience safety issues, ORKAMBI, KALYDECO and SYMDEKO, as well as one or more of our drugcandidates, may be adversely affected. The reporting of adverse safety events involving our products or public speculation about such events could cause ourstock price to decline or experience periods of volatility.If we or our collaborators fail to comply with applicable continuing regulatory requirements, we or our collaborators may be subject to fines, suspensionor withdrawal of regulatory approvals for specific products, product recalls and seizures, operating restrictions and/or criminal prosecutions. In addition, themanufacturers we engage to make our products and the manufacturing facilities in which our products are made are subject to periodic review and inspectionby the FDA and foreign regulatory authorities. If problems are identified during the review or inspection of these manufacturers or manufacturing facilities, itcould result in our inability to use the facility to make our product or a determination that inventories are not safe for commercial sale.If physicians and patients do not accept our drugs, or if patients do not remain on treatment or comply with the prescribed dosing regimen, our productrevenues would be materially harmed in future periods.Our drugs may not gain or maintain market acceptance among physicians and patients. Effectively marketing our drugs and any of our drug candidates,if approved, requires substantial efforts, both prior to launch and after approval. Physicians may elect not to prescribe our drugs, and patients may elect not totake them or may discontinue use of our drugs after initiation of treatment, for a variety of reasons including:•prevalence and severity of adverse side-effects;•lack of reimbursement availability from third-party payors, including governmental entities;•lower demonstrated efficacy, safety and/or tolerability compared to alternative treatment methods;•lack of cost-effectiveness;•a decision to wait for the approval of other therapies in development that have significant perceived advantages over our drug;•convenience and ease of administration;•other potential advantages of alternative treatment methods; and•ineffective sales, marketing and/or distribution support.For example, our net product revenues from ORKAMBI have been affected by discontinuations by patients who had previously initiated treatment withORKAMBI. If the discontinuation rate for ORKAMBI or any of our other drug products increases, or if our drugs otherwise fail to achieve or maintain marketacceptance, we may not be able to generate significant revenues in future periods.Government and other third-party payors seek to contain costs of health care through legislative and other means. If they fail to provide coverage andadequate reimbursement rates for our products, our revenues will be harmed.Our sales of products depend in part upon the availability of reimbursement from third-party payors. Third-party payors include government healthprograms such as Medicare and Medicaid in the United States and the national health care systems in many international markets, managed care providers,private health insurers and other organizations. The trend in the26health care industry is cost containment and efforts of third-party payors to contain or reduce health care costs may adversely affect our ability to establish ormaintain appropriate prices for our products or any drugs that we may develop and commercialize. In most ex-U.S. markets, the pricing and reimbursement oftherapeutic and other pharmaceutical products is subject to governmental control and such government authorities are increasingly attempting to limit orregulate the price of drug products. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposalsto implement similar governmental control as currently exists in Europe. The Patient Protection and Affordable Care Act, or the ACA, requires discountsunder the Medicare drug benefit program and increased the rebates paid by pharmaceutical companies on drugs covered by Medicaid. The ACA also imposesan annual fee, which increases annually, on sales by branded pharmaceutical manufacturers.In addition, third-party payors attempt to contain health care costs by demanding price discounts or rebates and limiting both the types and variety ofdrugs that they will cover and the amounts that they will pay for drugs. As a result, they may not cover or provide adequate payment for our products. Wemight need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products or any other future products to such payors’satisfaction. Such studies might require us to commit a significant amount of management’s time and our financial and other resources. Our products mightnot ultimately be considered cost-effective. Adequate third-party reimbursement might not be available to enable us to maintain price levels sufficient torealize an appropriate return on our investment in product development.Reimbursement rates vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower-costproducts that already are reimbursed, may be incorporated into existing payments for other products or services and may reflect budgetary constraints and/orimperfections in the data used to calculate these rates. Net prices for products are reduced by mandatory discounts or rebates required by government healthcare programs and privately-negotiated discounts. While we have implemented policies in an effort to comply with mandated reimbursement rates, the U.S.federal government, state governments and private payors frequently pursue actions against pharmaceutical and biotechnology companies alleging that thecompanies have overstated prices in order to inflate reimbursement rates. Any such action could adversely affect the pricing of and revenues from ourproducts.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the healthcare system in ways that could affect our ability to sell products. For example, the ACA was enacted under the prior U.S. administration, and there issignificant uncertainty regarding changes in the laws and regulations applicable to the health care system that may be made under the current administration,and, in particular, the effect any such changes may have on our business. Some of these proposed and implemented reforms have resulted, or could result, inreduced reimbursement rates and/or more limited access for our current or future products, which would adversely affect our business, operations andfinancial results.Specialty pharmaceuticals are drugs that are prescribed by specialist physicians to treat rare or life-threatening conditions and typically address smallerpatient populations. Each of ORKAMBI, KALYDECO and SYMDEKO is a specialty pharmaceutical product and our research and development programs areprimarily focused on developing additional specialty pharmaceutical products. The increasing availability and use of innovative specialty pharmaceuticals,combined with their relative higher cost as compared to other types of pharmaceutical products, is beginning to generate significant third-party payor interestin developing cost-containment strategies targeted to this sector. Government regulations in both U.S. and ex-U.S. markets could limit the prices that can becharged for our products and may limit our commercial opportunity. The increasing use of health technology assessments in markets around the world andthe financial challenges faced by many governments may lead to significant adverse effects on our business.Any legislation or regulatory changes or relaxation of laws that restrict imports of drugs from other countries also could reduce the net price we receivefor our products.If regulatory authorities interpret any of our conduct, including our marketing practices, as being in violation of applicable health care laws, includingfraud and abuse laws, laws prohibiting off-label promotion, disclosure laws or other similar laws, we may be subject to civil or criminal penalties.We are subject to health care fraud and abuse laws, such as the federal False Claims Act and the anti-kickback provisions of the federal Social SecurityAct, laws prohibiting off-label product promotion and other similar laws and regulations both in United States and in non-U.S. markets. While we have acorporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems andthe promotion of a culture of compliance, if we are found not to be in full compliance with these laws our business could be materially harmed.The federal anti-kickback law prohibits knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, directly or indirectly,in exchange for or to induce either the referral of an individual, or the ordering,27furnishing, arranging for or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program, such as Medicare orMedicaid. The federal statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, patients,purchasers and formulary managers on the other hand, and therefore constrains our marketing practices and our various service arrangements with physicians,including physicians who make clinical decisions to use our products. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and have been interpreted by courts as such.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government,or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws fora variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would billfederal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursementrates; engaging in promotion for uses that the FDA has not approved, known as “off-label” uses, that caused claims to be submitted to Medicaid for non-covered off-label uses; submitting inflated “best price” information to the Medicaid Rebate Program; and certain manufacturing-related violations. The scopeof this and other laws may expand in ways that make compliance more difficult and expensive.Although physicians are permitted, based on their medical judgment, to prescribe products for indications other than those approved by the FDA,manufacturers are prohibited from promoting their products for such off-label uses. We market ORKAMBI, KALYDECO and SYMDEKO to eligible CFpatients for whom the applicable product has been approved and provide promotional materials and training programs to physicians regarding the use ofORKAMBI, KALYDECO and SYMDEKO in these patient populations. These eligible patients represent only a portion of the total patients with CF. If theFDA determines that our promotional materials, training or other activities constitute off-label promotion, it could request that we modify our training orpromotional materials or other activities, conduct corrective advertising or subject us to regulatory enforcement actions, including the issuance of a warningletter, injunction, seizure, civil fine and criminal penalties. It also is possible that other federal, state or foreign enforcement authorities might take action ifthey believe that the alleged improper promotion led to the submission and payment of claims for an off-label use, which could result in significant fines orpenalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we were not in violation ofthese laws, we may be faced with negative publicity, incur significant expenses defending our actions and have to divert significant management resourcesfrom other matters.In recent years, legislation has been adopted at the federal, state and local level requiring pharmaceutical companies to establish marketing complianceprograms, file periodic reports or make periodic public disclosures on sales, marketing, pricing, clinical trials, health care provider payments and otheractivities. For example, as part of the ACA, the federal government enacted the Open Payments (commonly known as the Sunshine Act) provisions. OpenPayments requires pharmaceutical manufacturers to report annually to the Centers for Medicare and Medicaid Services payments or other transfers of valuemade by that entity to physicians and teaching hospitals. We also now have similar reporting obligations throughout the European Union, or the E.U. Weexpended significant efforts to establish, and are continuing to devote significant resources to maintain and enhance, systems and processes in order tocomply with these regulations. Failure to comply with the reporting requirements would result in significant civil monetary penalties.The sales and marketing practices of our industry have been the subject of increased scrutiny from governmental entities in the United Sates and othercountries in which we market our products, and we believe that this trend will continue. The risk of our being found in violation of these laws is increased bythe fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety ofinterpretations. If our past or present operations are found to be in violation of any such laws or any other governmental regulations that may apply to us, wemay be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal health care programs and/or the curtailment orrestructuring of our operations. Any action against us for violation of these laws, even if we successfully defend against them, also could cause us to incursignificant legal expenses and divert our management’s attention from the operation of our business.Changes in laws and regulations governing the privacy and protection of data and personal information could adversely affect our business.We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary informationand personally-identifying information, which among other things, imposes certain requirements relating to the privacy, security and transmission ofindividually identifiable health information. In addition, numerous other federal and state laws, including state security breach notification laws, state healthinformation privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and security of personal information.28Various foreign countries also have, or are developing, laws governing the collection, use, disclosure, security, and cross-border transmission of personalinformation. For example, we are preparing to fulfill our obligations under the new E.U. General Data Protection Regulation, which will be effective in May2018. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus onprivacy and data protection issues with the potential to affect our business. For example, privacy requirements in the E.U. govern the transfer of personalinformation from the European Economic Area to the United States. While we continue to address the implications of changes to E.U. data privacyregulations, the area remains an evolving landscape with new regulations coming into effect and continued legal challenges and our efforts to comply withthe evolving data protection rules may be unsuccessful. Failure to comply with laws regarding data protection would expose us to risk of enforcement actionstaken by data protection authorities in the E.U. and the potential for significant penalties if we are found to be non-compliant. Similarly, failure to complywith federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Even ifwe are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources andgenerate negative publicity, which could harm our business.In 2015, the EMA adopted a new policy on publication of clinical data whereby it will publish clinical reports submitted as part of MAAs for drugs. Thepolicy applies to all MAAs, extension of indication or line extension applications submitted in or after 2015. The EMA aims to publish reports within 60days after a decision on the application has been made by the European Commission. The ability of third-parties to review and/or analyze the raw data fromour clinical trials may increase the risk of patient confidentiality breaches and could result in enhanced scrutiny of our clinical trials results. Such scrutinycould result in misconceptions being spread about our drugs and drug candidates, even if the underlying analysis of such review turns out to be flawed. Thesepublications could also result in the disclosure of information to our competitors that we might otherwise deem confidential, which could harm ourcompetitive position.The use of social media platforms presents risks and challenges.Social media is being used by third parties to communicate about our products and drug candidates and the diseases our therapies are designed to treat.We believe that members of the CF community may be more active on social media as compared to other patient populations due to the demographics of thispatient population. Social media practices in the pharmaceutical and biotechnology industries are evolving, which creates uncertainty and risk ofnoncompliance with regulations applicable to our business. For example, patients may use social media platforms to comment on the effectiveness of, oradverse experiences with, a drug or a drug candidate, which could result in reporting obligations. In addition, there is a risk of inappropriate disclosure ofsensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or weotherwise fail to comply with applicable regulations, we could incur liability, face restrictive regulatory actions or incur other harm to our business.Risks Related to Development, Clinical Testing and Regulation of Our Products and Drug CandidatesOur drug candidates remain subject to clinical testing and regulatory approval. Our future success is dependent on our ability to successfully developadditional drug candidates for both CF and non-CF indications.Our business depends upon the successful development and commercialization of drug candidates. These drug candidates are in various stages ofdevelopment and must satisfy rigorous standards of safety and efficacy before they can be approved for sale by the FDA or comparable foreign regulatoryauthorities. To satisfy these standards, we must allocate resources among our various development programs and must engage in expensive and lengthytesting of our drug candidates. Discovery and development efforts for new pharmaceutical products, including new combination therapies, are resource-intensive and may take 10 to 15 years or longer for each drug candidate. Despite our efforts, our drug candidates may not:•offer therapeutic or other improvement over existing competitive therapies;•be proven safe and effective in clinical trials;•meet applicable regulatory standards;•be capable of being produced in commercial quantities at acceptable costs; or•if approved for commercial sale, be successfully marketed as pharmaceutical products.We have recently completed and/or have ongoing or planned clinical trials for several of our drug candidates. The strength of our company’s productportfolio and pipeline will depend in large part upon the outcomes of these clinical trials29and our ability to develop and commercialize combination treatments for CF, including our next-generation CFTR corrector compounds and developtreatments for other diseases. Results of our clinical trials and findings from our nonclinical studies, including toxicology findings in nonclinical studiesconducted concurrently with clinical trials, could lead to abrupt changes in our development activities, including the possible cessation of developmentactivities associated with a particular drug candidate or program. Moreover, clinical data are often susceptible of varying interpretations, and manycompanies that have believed their drug candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of theirdrug candidate. Furthermore, results from our clinical trials may not meet the level of statistical significance required by the FDA or other regulatoryauthorities for approval of a drug candidate.Many companies in the pharmaceutical and biotechnology industries, including our company, have suffered significant setbacks in later-stage clinicaltrials even after achieving promising results in earlier-stage clinical trials. Accordingly, the results from completed preclinical studies and clinical trials maynot be replicated in later clinical trials, and ongoing clinical trials for our drug candidates may not be predictive of the results we may obtain in later-stageclinical trials or of the likelihood of approval of a drug candidate for commercial sale. In addition, from time to time we report interim data from our clinicaltrials. Interim data from a clinical trial may not be predictive of final results from the clinical trial.If we are unable to obtain regulatory approval, we will be unable to commercialize our drug candidates.The time required to complete clinical trials and to satisfy the FDA and other countries’ regulatory review processes is uncertain and typically takesmany years. Our analysis of data obtained from nonclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities,which could delay, limit or prevent regulatory approval. We also may encounter unanticipated delays or increased costs due to government regulation fromfuture legislation or administrative action or changes in governmental policy during the period of drug development, clinical trials and governmentalregulatory review.We may seek a Fast Track and/or Breakthrough Therapy designation for some of our drug candidates. Drug candidates that receive one or both of thesedesignations may be eligible for, among other things, a priority regulatory review. Each of these designations is within the discretion of the FDA.Accordingly, even if we believe one of our drug candidates meets the criteria for Fast Track and/or Breakthrough Therapy designation, the FDA may disagreeand instead determine not to make such designation. The receipt of one or both of these designations for a drug candidate does not guarantee a fasterdevelopment process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimateapproval by the FDA. In addition, even if one or more of our drugs or drug candidates qualifies for Fast Track and/or Breakthrough Therapy designation, theFDA may later decide to withdraw such designation if it determines that the drug or drug candidate no longer meets the conditions for qualification.Any failure to obtain regulatory approvals for a drug candidate would prevent us from commercializing that drug candidate. Any delay in obtainingrequired regulatory approvals could materially adversely affect our ability to successfully commercialize a drug candidate. Furthermore, any regulatoryapproval to market a drug may be subject to limitations that we do not expect on the indicated uses for which we may market the drug. Any such limitationscould reduce the size of the market for the drug.We also are subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization,pricing and third-party reimbursement. Non-U.S. jurisdictions have different approval procedures than those required by the FDA, and these jurisdictions mayimpose additional testing requirements for our drug candidates. The foreign regulatory approval process includes all of the risks associated with the FDAapproval process described above, as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval byregulatory authorities outside the United States and approval by a foreign regulatory authority does not ensure approval by the FDA. In addition, althoughthe FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to conditions imposed by the FDA. Forexample, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The trialpopulation also must adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways thatthe FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will dependon its determination that the trials also complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any trial that weconduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay orpermanently halt our development of the applicable drug candidate.30If clinical trials are prolonged or delayed, our development timelines for the affected development program could be extended, our costs to develop thedrug candidate could increase and the competitive position of the drug candidate could be adversely affected.We cannot predict whether or not we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us orregulatory authorities to delay or suspend clinical trials, or delay the analysis of data from our completed or ongoing clinical trials. Among the factors thatcould delay our development programs are:•ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials and the number of clinicaltrials we must conduct;•delays in enrolling volunteers or patients into clinical trials, including as a result of low numbers of patients that meet the eligibility criteria for thetrial;•a lower than anticipated retention rate of volunteers or patients in clinical trials;•the need to repeat clinical trials as a result of inconclusive results, unforeseen complications in testing or clinical investigator error;•inadequate supply or deficient quality of drug candidate materials or other materials necessary for the conduct of our clinical trials;•unfavorable FDA or foreign regulatory authority inspection and review of a manufacturing facility that supplied clinical trial materials or its relevantmanufacturing records or a clinical trial site or records of any clinical or preclinical investigation;•unfavorable scientific results from clinical trials;•serious and unexpected drug-related side-effects experienced by participants in our clinical trials or by participants in clinical trials being conductedby our competitors to evaluate drug candidates with similar mechanisms of action or structures to drug candidates that we are developing;•favorable results in testing of our competitors’ drug candidates, or FDA or foreign regulatory authority approval of our competitors’ drug candidates;or•action by the FDA or a foreign regulatory authority to place a clinical hold or partial clinical hold on a trial or compound or deeming the clinicaltrial conduct as problematic.Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis is subject to a number of factors, including the size of thepatient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, thenumber of other clinical trials ongoing and competing for patients in the same indication and the eligibility criteria for the clinical trial. In addition, patientsmay drop out of our clinical trials or may be lost to follow-up medical evaluation after treatment ends, and this could impair the validity or statisticalsignificance of the trials. Delays in patient enrollment or unforeseen drop-out rates may result in increased costs and longer development times.We, our collaborators, the FDA or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time if we or they believethe healthy volunteers or patients participating in such clinical trials are being exposed to unacceptable health risks or for other reasons. Any suchsuspension could materially adversely affect the development of a particular drug candidate and our business.If our processes and systems are not compliant with regulatory requirements, we could be subject to restrictions on marketing our products or could bedelayed in submitting regulatory filings seeking approvals for our drug candidates.We have a number of regulated processes and systems that are required to obtain and maintain regulatory approval for our drugs and drug candidates.These processes and systems are subject to continual review and periodic inspection by the FDA and other regulatory bodies. In addition, the clinicalresearch organizations and other third parties that we work with in our non-clinical studies and clinical trials and our oversight of such parties are subject tosimilar reviews and periodic inspection by the FDA and other regulatory bodies. If compliance issues are identified at any point in the development andapproval process, we may experience delays in filing for regulatory approval for our drug candidates, or delays in obtaining regulatory approval after filing.Any later discovery of previously unknown problems or safety issues with approved drugs or manufacturing processes, or failure to comply with regulatoryrequirements, may result in restrictions on such drugs or31manufacturing processes, withdrawal of drugs from the market, the imposition of civil or criminal penalties or a refusal by the FDA and/or other regulatorybodies to approve pending applications for marketing approval of new drugs or supplements to approved applications, any of which could have a materialadverse effect on our business. In addition, we are a party to agreements that transfer responsibility for complying with specified regulatory requirements,such as filing and maintenance of marketing authorizations and safety reporting or compliance with manufacturing requirements, to our collaborators andthird-party manufacturers. If our collaborators or third-party manufacturers do not fulfill these regulatory obligations, any drugs for which we or they obtainapproval may be subject to later restrictions on manufacturing or sale, which could have a material adverse effect on our business.Risks Related to Collaborations and other Business Development ActivitiesOur ability to execute on our long-term strategy depends in part on our ability to acquire rights to additional drugs, drug candidates and othertechnologies that have the potential to add to our pipeline or provide us with new commercial opportunities.In order to achieve our long-term business objectives, our strategy is to supplement our internal pipeline by acquiring rights to additional drugs, drugcandidates and other technologies that have the potential to provide us with new commercial opportunities, including in the field of treating CF and intherapeutic areas outside of CF. We may not be able to acquire, in-license or otherwise obtain rights to additional drugs, drug candidates or othertechnologies on acceptable terms or at all. We have faced and will continue to face significant competition for these types of drugs, drug candidates and othertechnologies from a variety of other companies with interests in the specialty pharmaceutical marketplace, many of which have significantly more financialresources and experience in business development activities than we have. In addition, non-profit organizations may be willing to provide capital to thecompanies that control additional drugs, drug candidates or technologies, which may provide incentives for companies to advance these drugs, drugcandidates or technologies independently. Because of these competitive pressures, the cost of acquiring, in-licensing or otherwise obtaining rights to suchdrugs, drug candidates or other technologies has grown dramatically in recent years and may be at levels that we cannot afford or that we believe are notjustified by market potential. This competition is most intense for approved drugs and late-stage drug candidates, which have the lowest risk and would havethe most immediate effect on our financial performance.We may not realize the anticipated benefits of potential acquisitions or licenses to businesses, drugs, drug candidates and other technologies, and theintegration following any such acquisition or license may disrupt our business and management.We may acquire a business or the rights to drugs, drug candidates or other technologies. In recent years we have entered into both acquisition andcollaboration arrangements, including our acquisition of VX-561 from Concert, our agreement with CRISPR to collaborate on the discovery anddevelopment of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editing technology and ouragreement with Moderna pursuant to which we are seeking to identify and develop mRNA therapeutics for the treatment of CF. With respect to each of thesetransactions and any additional acquisition of a business or rights to drugs, drug candidates or other technologies, we may not realize the anticipated benefitsof such transaction, each of which involves numerous risks. These risks include:•failure to successfully further develop the acquired or licensed drugs or technology or to achieve strategic objectives, including successfullydeveloping and commercializing the drugs, drug candidates or technologies that we acquire or license;•inadequate or unfavorable data from clinical trials evaluating the acquired or licensed drug or drug candidates;•entry into markets in which we have no or limited direct prior experience or where competitors in such markets have stronger market positions;•disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges;•potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquiredcompany, or acquired or licensed product or technology, including but not limited to, problems, liabilities or other shortcomings or challenges withrespect to intellectual property, product quality, safety, accounting practices, employee, customer or third party relations and other known andunknown liabilities;•liability for activities of the acquired company or licensor before the acquisition or license, including intellectual property infringement claims,violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;32•exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of an acquisition or license, includingbut not limited to, claims from terminated employees, customers, former equity holders or other third-parties;•difficulty in integrating the drugs, drug candidates, technologies, business operations and personnel of an acquired asset or company, including theintegration of VX-561 into our development programs for VX-445 and VX-659; and•difficulties in the integration of the acquired company’s departments, systems, including accounting, human resource and other administrativesystems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including internal control overfinancial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies.Acquisitions and licensing arrangements are inherently risky, and ultimately, if we do not complete an announced acquisition or license transaction orintegrate an acquired business, or an acquired or licensed drug, drug candidate or other technology successfully and in a timely manner, we may not realizethe benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our management team and our company maysuffer in the marketplace. Additionally, we may later incur impairment charges related to assets acquired in any such transaction. For example, we enteredinto a strategic collaboration and license agreement with Parion to develop ENaC inhibitors in 2015 and incurred an impairment charge related to thiscollaboration in the third quarter of 2017. In addition, even if we achieve the long-term benefits associated with strategic transactions, our expenses andshort-term costs may increase materially and adversely affect our liquidity and short-term net income (loss). Future licenses or acquisitions could result inpotentially dilutive issuances of equity securities, the incurrence of debt, the creation of contingent liabilities, impairment expenses related to goodwill, andimpairment or amortization expenses related to other intangible assets, which could harm our financial condition.We face risks in connection with existing and future collaborations with respect to the development, manufacture and commercialization of our productsand drug candidates.The risks that we face in connection with our current collaborations, including with CRISPR, Janssen, Merck KGaA, Moderna and Parion, and any futurecollaborations, include the following:•Our collaborators may change the focus of their development and commercialization efforts or may have insufficient resources to effectivelydevelop our drug candidates. The ability of some of our products and drug candidates to reach their potential could be limited if collaboratorsdecrease or fail to increase development or commercialization efforts related to those products or drug candidates. Our collaboration agreementsprovide our collaborators with a level of discretion in determining the amount and timing of efforts and resources that they will apply to thesecollaborations.•Any future collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or incollaboration with third parties.•Collaborators may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the drugs or drug candidatesthat are the subject of their collaborations with us.•Disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,might cause delays or termination of the research, development or commercialization of drug candidates, might lead to additional responsibilitiesfor us with respect to drug candidates, or might result in litigation or arbitration. Any such disagreements would divert management attention andresources and be time-consuming and expensive.•Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invitelitigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation.•Collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability.•Investigations and/or compliance or enforcement actions against a collaborator, which may expose us to indirect liability as a result of ourpartnership with such collaborator.•Our collaboration agreements are subject to termination under various circumstances.33Additionally, if a collaborator were to be involved in a business combination, it might deemphasize or terminate the development or commercializationof any drug candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract newcollaborators and our perception in the business and financial communities could be harmed.We may not be able to attract collaborators or external funding for the development and commercialization of certain of our drug candidates.As part of our ongoing strategy, we may seek additional collaborative arrangements or external funding for certain of our development programs and/orseek to expand existing collaborations to cover additional commercialization and/or development activities. We have a number of research programs andearly-stage clinical development programs, some of which are being developed in collaboration with a third party. For example, in January 2017, we grantedMerck KGaA an exclusive worldwide license to research, develop and commercialize four of our oncology research and development programs. At any time,we may determine that in order to continue development of a drug candidate or program or successfully commercialize a drug we need to identify acollaborator or amend or expand an existing collaboration. Whether we reach a definitive agreement for a collaboration will depend, among other things,upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’sevaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similarregulatory authorities outside the United States, the potential market for the subject drug candidate, the costs and complexities of manufacturing anddelivering such drug candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of the applicableintellectual property, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and marketconditions generally. Potentially, and depending on the circumstances, we may desire that a collaborator either agree to fund portions of a drug developmentprogram led by us, or agree to provide all of the funding and directly lead the development and commercialization of a program. No assurance can be giventhat any efforts we make to seek additional collaborative arrangements will be successfully completed on a timely basis or at all. If we elect to fund andundertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not beavailable to us on acceptable terms or at all. If we are unable to enter into acceptable collaborative relationships, one or more of our development programscould be delayed or terminated and the possibility of our receiving a return on our investment in the program could be impaired.Risks Related to Third-Party Manufacturing and Reliance on Third PartiesWe depend on third-party manufacturers to manufacture our products and the materials we require for our clinical trials. We may not be able to maintainthese relationships and could experience supply disruptions outside of our control.We rely on a worldwide network of third-party manufacturers to manufacture our drugs for commercial use and our drug candidates for clinical trials. As aresult of our reliance on these third-party manufacturers and suppliers, we could be subject to significant supply disruptions outside of our control. Oursupply chain for sourcing raw materials and manufacturing drug product ready for distribution is a multi-step international endeavor. Third-party contractmanufacturers, including some in China, perform different parts of our manufacturing process. Contract manufacturers may supply us with raw materials,convert these raw materials into drug substance and/or convert the drug substance into final dosage form. Establishing and managing this global supplychain requires a significant financial commitment and the creation and maintenance of numerous third-party contractual relationships. Although we attemptto manage the business relationships with companies in our supply chain, we do not have control over their operations. Supply disruptions may result from anumber of factors, including shortages in product raw materials, labor or technical difficulties, regulatory inspections or restrictions, shipping or customsdelays or any other performance failure by any third-party manufacturer on which we rely. Any supply disruptions could disrupt sales of our products and/orthe timing of our clinical trials.We require a supply of ivacaftor, lumacaftor and tezacaftor for commercial sale (as KALYDECO, ORKAMBI and/or SYMDEKO). We also require asupply of our drug candidates for use in our clinical trials. While we have developed some internal capabilities, a majority of the manufacturing steps neededto produce our drug candidates and drug products are performed through a third-party manufacturing network. Our supply chain includes a single-sourcemanufacturer for (i) one step in the ivacaftor manufacturing process, (ii) the manufacture of the tablets of ORKAMBI that is used for patients with CF six toeleven years of age and (iii) a pre-formulation step and the manufacture of the tablets for our commercial supply of SYMDEKO. As a result, if we or our third-party manufacturers become unable or unwilling to continue manufacturing product on our behalf and we are not able to promptly identify anothermanufacturer, we could experience a disruption in the commercial supply of our then-marketed medicines, which would have a significant effect on patients,our business and our product revenues. Similarly, a disruption in the clinical supply of drug products could delay the completion of clinical trials34and affect timelines for regulatory filings. There can be no assurance that we will be able to establish and maintain secondary manufacturers for all of our drugcandidates and drug products on a timely basis or at all.In the course of providing its services, a contract manufacturer may develop process technology related to the manufacture of our products or drugcandidates that the manufacturer owns, either independently or jointly with us. This would increase our reliance on that manufacturer or require us to obtain alicense from that manufacturer in order to have our products or drug candidates manufactured by other suppliers utilizing the same process.We rely on third parties to conduct certain pre-clinical work and clinical trials, and those third parties may not perform satisfactorily, including failing tomeet established deadlines for the completion of such studies and/or trials or failing to satisfy regulatory requirements.We rely on third parties such as contract research organizations to help manage certain pre-clinical work and our clinical trials and on medicalinstitutions, clinical investigators and clinical research organizations such as the Therapeutic Development Network, which is primarily funded by the CFFT,to assist in the design and review of, and to conduct our clinical trials, including enrolling qualified patients. Our reliance on these third parties for clinicaldevelopment activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible forensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the clinical trial. Moreover, theFDA requires us to comply with standards, commonly referred to as good laboratory practices and good clinical practices, for conducting, recording andreporting the results of pre-clinical and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity andconfidentiality of trial participants are protected. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, wemay be required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, itmay result in a delay of the affected clinical trial or drug development program. If clinical trials are not conducted in accordance with our contractualexpectations or regulatory requirements, action by regulatory authorities might significantly and adversely affect the conduct or progress of these clinicaltrials or in specific circumstances might result in a requirement that a clinical trial be redone. Accordingly, our efforts to obtain regulatory approvals for andcommercialize our drug candidates could be delayed.Risks Related to Intellectual PropertyIf our patents do not protect our drugs or our drugs infringe third-party patents, we could be subject to litigation which could result in injunctionspreventing us from selling our products or substantial liabilities.We have numerous issued patents and pending patent applications in the United States, as well as counterparts in other countries. Our success willdepend, in significant part, on our ability to obtain and defend U.S. and foreign patents covering our drugs, their uses and our processes, to preserve our tradesecrets and to operate without infringing the proprietary rights of third parties. We cannot be certain that any patents will issue from our pending patentapplications or, even if patents issue or have issued, that the issued claims will provide us with adequate protection against competitive products or otherwisebe commercially valuable.Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope ofclaims made under these patents, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Recentpatent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense ofour issued patents in the U.S. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, includes a number of significant changes to United Statespatent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States PatentOffice developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent lawassociated with the Leahy-Smith Act, and in particular, the first to file provisions, became effective in March 2013. The first to file provisions limit the rightsof an inventor who is the first to invent an invention but is not the first to file an application claiming that invention. U.S. and foreign patent applicationstypically are maintained in confidence for a period of time after they initially are filed with the applicable patent office. Consequently, we cannot be certainthat we were the first to invent, or the first to file patent applications on, our products or drug candidates or their use. If a third party also has filed a U.S.patent application relating to our drugs or drug candidates, their uses, or a similar invention, we may have to participate in legal or administrativeproceedings to determine priority of invention. For applications governed by the Lahey-Smith Act, if a third-party has an earlier filed U.S. patent applicationrelating to our drugs or drug candidates, their uses, or a similar invention, we may be unable to obtain an issued patent from our application.35The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability. Our patents may be challenged by third parties,resulting in the patent being deemed invalid, unenforceable or narrowed in scope, or the third party may circumvent any such issued patents. Also, ourpending patent applications may not issue, and we may not receive any additional patents. Our patents might not contain claims that are sufficiently broad toprevent others from utilizing our technologies. For instance, the issued patents relating to our drugs or drug candidates may be limited to a particularmolecule or molecules and may not cover similar molecules that have similar clinical properties. Consequently, our competitors may independently developcompeting products that do not infringe our patents or other intellectual property. In addition, if the breadth or strength of protection provided by our patentsand patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products.The laws of many foreign jurisdictions do not protect intellectual property rights to the same extent as in the United States and many companies in oursegment of the pharmaceutical industry have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If weencounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, ourbusiness could be substantially harmed.Because of the extensive time required for the discovery, development, testing and regulatory review of drug candidates, it is possible that, a patent mayexpire before a drug candidate can be commercialized, or a patent may expire or remain in force for only a short period following commercialization of suchdrug candidate resulting in a minimal, if any, period of patent exclusivity. To the extent our drug candidates are not commercialized significantly ahead ofthe expiration date of any applicable patent, or to the extent we have no patent protection on such drug candidates, then, to the extent available we wouldrely on other forms of exclusivity, such as regulatory exclusivity provided by the FDCA and its counterpart agencies in various jurisdictions, and/or orphandrug exclusivity.Uncertainty over intellectual property in the pharmaceutical and biotechnology industry has been the source of litigation and other disputes, which isinherently costly and unpredictable.There is considerable uncertainty within our industry about the validity, scope and enforceability of many issued patents in the United States andelsewhere in the world, and, to date, the law and practice remains in substantial flux both in the agencies that grant patents and in the courts. We cannotcurrently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted as beinginfringed by the manufacture, use and sale of our products.There has been, and we expect that there may continue to be, significant litigation in the industry regarding patents and other intellectual propertyrights. Litigation, arbitrations, administrative proceedings and other legal actions with private parties and governmental authorities concerning patents andother intellectual property rights may be protracted, expensive and distracting to management. Competitors may sue us as a way of delaying the introductionof our drugs or to remove our drugs from the market. Any litigation, including litigation related to Abbreviated New Drug Applications, or ANDA, litigationrelated to 505(b)(2) applications, interference proceedings to determine priority of inventions, derivations proceedings, inter partes review, oppositions topatents in foreign countries, litigation against our collaborators or similar actions, may be costly and time consuming and could harm our business. Weexpect that litigation may be necessary in some instances to determine the validity and scope of certain of our proprietary rights. Litigation may be necessaryin other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, useor sale of our products. Ultimately, the outcome of such litigation could adversely affect the validity and scope of our patent or other proprietary rights,hinder our ability to manufacture and market our products, or result in the assessment of significant monetary damages against us that may exceed amounts, ifany, accrued in our financial statements.To the extent that valid present or future third-party patents or other intellectual property rights cover our drugs, drug candidates or technologies, we orour strategic collaborators may seek licenses or other agreements from the holders of such rights in order to avoid or settle legal claims. Such licenses may notbe available on acceptable terms, which may hinder our ability to, or prevent us from being able to, manufacture and market our drugs. Payments under anylicenses that we are able to obtain would reduce our profits derived from the covered products.We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership ofwhat we regard as our own intellectual property.Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors orpotential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, wemay be subject to claims that these employees or we have used or36disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may benecessary to defend against these claims.In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to executeagreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact developsintellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced tobring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction tomanagement.Risks Related To Our OperationsRisks associated with operating in foreign countries could materially adversely affect our business.We have expanded our international operations over the past several years in order to market ORKAMBI and KALYDECO and expand our research anddevelopment capabilities. New laws and industry codes in the E.U. and elsewhere have expanded transparency requirements regarding payments and transfersof value as well as patient-level clinical trial data. New laws in the E.U., also have expanded protections related to personal data and provided for increasedsanctions for violations. Collectively, our expansion and these new requirements are adding to our compliance costs and expose us to potential sanctions forfailing to meet the enhanced safeguards and reporting demands in these jurisdictions. In addition, a significant portion of our commercial supply chain,including sourcing of raw materials and manufacturing, is located in China and the E.U. Consequently, we are, and will continue to be, subject to risks relatedto operating in foreign countries. Risks associated with conducting operations in foreign countries include:•differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;•varying reimbursement regimes and difficulties or the inability to obtain reimbursement for our products in a timely manner;•differing patient treatment infrastructures, particularly since our business is focused on the treatment of rare diseases that are typically prescribed byspecialist physicians;•collectibility of accounts receivable;•changes in tariffs, trade barriers and regulatory requirements, the risks of which appear to have increased in the current political environment;•economic weakness, including recession and inflation, or political instability in particular foreign economies and markets;•differing levels of enforcement and/or recognition of contractual and intellectual property rights;•complying with local laws and regulations, which are interpreted and enforced differently across jurisdictions and which can change significantlyover time;•foreign taxes, including withholding of payroll taxes;•foreign currency fluctuations, which could result in reduced revenues or increased operating expenses, and other obligations incident to doingbusiness or operating in another country;•workforce uncertainty in countries where labor unrest is more common than in the United States;•import and export licensing requirements, tariffs, and other trade and travel restrictions;•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and•business interruptions resulting from geo-political actions, including war and terrorism.37Our revenues are subject to foreign exchange rate fluctuations due to the global nature of our operations. Although we have foreign currency forwardcontracts to hedge forecasted product revenues denominated in foreign currencies, our efforts to reduce currency exchange losses may not be successful. As aresult, currency fluctuations among our reporting currency, the U.S. dollar, and the currencies in which we do business will affect our operating results, oftenin unpredictable ways.In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign Corrupt Practices Act prohibits U.S.companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retainingbusiness abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official forpurposes of the Foreign Corrupt Practices Act. We also are subject to import/export control laws. Failure to comply with domestic or foreign laws could resultin various adverse consequences, including the possible delay in approval or refusal to approve a product, recalls, seizures, withdrawal of an approvedproduct from the market, the imposition of civil or criminal sanctions, the prosecution of executives overseeing our international operations andcorresponding bad publicity and negative perception of our company in foreign countries.If we fail to manage our operations effectively, our business may suffer.We have expanded and are continuing to expand our global operations and capabilities, which has placed, and will continue to place, significantdemands on our management and our operational, research and development and financial infrastructure. To effectively manage our business, we need to:•implement and clearly communicate our corporate-wide strategies;•enhance our operational and financial infrastructure, including our controls over records and information;•enhance our operational, financial and management processes, including our cross-functional decision-making processes and our budgetprioritization systems;•train and manage our global employee base;•transition from a U.S.-centric company into an organization capable of developing and commercializing multiple drug candidates in internationalmarkets; and•enhance our compliance and legal resources.Risk Relating to the Referendum of the United Kingdom’s Membership of the European Union.Our European headquarters and European research facility are located in the United Kingdom, and a significant portion of our ex-U.S. net productrevenues are derived from sales in the United Kingdom. In June 2016, the United Kingdom, or the U.K., held a referendum in which voters approved an exitfrom the E.U., commonly referred to as “Brexit.” The U.K. government provided official notice of withdrawal from the E.U. in the first half of 2017, and iscurrently negotiating the terms of the U.K’s withdrawal. The withdrawal could, among other outcomes, disrupt the free movement of goods, services andpeople between the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade between the U.K. and the E.U. Inaddition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace orreplicate. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the withdrawal of the U.K. from theE.U. would have and how such withdrawal would affect us. The announcement of Brexit caused significant volatility in global stock markets and currencyexchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. The withdrawal of theU.K. from the E.U. may also create global economic uncertainty, which may cause third-party payors, including governmental organizations, to closelymonitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others, could adversely affect our business, financial conditionand operating results.Our business has a substantial risk of product liability claims and other litigation liability. If we do not obtain appropriate levels of insurance, anypotential claims could adversely affect our business.We are or may be involved in various legal proceedings, including securities class action lawsuits and claims related to product liability, intellectualproperty and breach of contract. Such proceedings may involve claims for, or the possibility of, fines and penalties involving substantial amounts of moneyor other relief, including but not limited to civil or criminal fines and penalties. If any of these legal proceedings were to result in an adverse outcome, itcould have a material adverse effect on our business.38With respect to product liability and clinical trial risks, in the ordinary course of business we are subject to liability claims and lawsuits, includingpotential class actions, alleging that our products or drug candidates have caused, or could cause, serious adverse events or other injury. We have productliability insurance and clinical trial insurance in amounts that we believe are adequate to cover this risk. However, our insurance may not provide adequatecoverage against all potential liabilities. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well aspay uncovered damage awards resulting from a claim brought successfully against us and these damages could be significant and have a material adverseeffect on our financial condition. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to directsignificant financial and managerial resources to such defense and adverse publicity is likely to result.A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. In thecourse of our business, we collect, store and transmit confidential information (including personal information and intellectual property), and it is critical thatwe do so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our informationtechnology and information security systems makes such systems potentially vulnerable to service interruptions or to security breaches. A disruption,infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware malfunctions, computer viruses,cyber attacks, employee theft or misuse, power disruptions, natural disasters, floods or accidents could cause breaches of data security and loss of critical data,which in turn could materially adversely affect our business and subject us to both private and governmental causes of action. While we have implementedsecurity measures in an attempt to minimize these risks to our data and information technology systems and have adopted a business continuity plan to dealwith a disruption to our information technology systems, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems thatcould adversely affect our business.If we fail to attract and retain skilled employees, our business could be materially harmed.Because our drug discovery and development activities are highly technical in nature, we require the services of highly qualified and trained scientistswho have the skills necessary to conduct these activities. In addition, we need to attract and retain employees with experience in marketing andcommercialization of medicines. We face intense competition for our personnel from our competitors and other companies throughout our industry. We alsoexperience competition for the hiring of scientific and clinical personnel from universities and research institutions. Moreover, the growth of localbiotechnology companies and the expansion of major pharmaceutical companies into the Boston area have increased competition for the available pool ofskilled employees, especially in technical fields, and the high cost of living in Massachusetts makes it difficult to attract employees from other parts of thecountry to Massachusetts. In addition, the available pool of skilled employees would be further reduced if immigration laws change in a manner thatincreases restrictions on immigration. Our ability to commercialize our products, and achieve our research and development objectives, depends on ourability to respond effectively to these demands. If we are unable to hire and retain qualified personnel, there could be a material adverse effect on ourbusiness.The loss of the services of key employees or the failure to effectively integrate key employees could negatively affect our business.Our future success will depend in large part on our ability to retain the services of our key scientific and management personnel and to integrate newscientific and management personnel into our business. A loss of key personnel or a failure to properly integrate new personnel could be disruptive. We haveentered into employment agreements with some executives and provide compensation-related benefits to all of our key employees that vest over time andtherefore induce them to remain with us. However, the employment agreements can be terminated by the executive on relatively short notice. The value toemployees of stock-related benefits that vest over time—such as options, restricted stock and restricted stock units—is significantly affected by movementsin our stock price, and may at any point in time be insufficient to counteract more lucrative offers from other companies. A failure to retain, as well as hire,train and effectively integrate into our organization a sufficient number of qualified scientists, professionals, sales personnel and senior management wouldnegatively affect our business.If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.Our research and development efforts involve the regulated use of hazardous materials, chemicals and various controlled and radioactive compounds.Although we believe that our safety procedures for handling and disposing of these materials39comply with the standards prescribed by state, federal and foreign regulations, the risk of loss of, or accidental contamination or injury from, these materialscannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We also are subject to numerousenvironmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens andthe handling of biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs we may incur due to injuries to ouremployees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We maintain insurance tocover pollution conditions or other extraordinary or unanticipated events relating to our use and disposal of hazardous materials that we believe isappropriate based on the small amount of hazardous materials we generate. Additional federal, state and local laws and regulations affecting our operationsmay be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.If our facilities were to experience a catastrophic loss, our operations would be seriously harmed.Most of our operations, including our research and development activities, are conducted in a limited number of facilities. If any of our major facilitieswere to experience a catastrophic loss, due to a earthquake, severe storms, fire or similar event, our operations could be seriously harmed. For example, ourcorporate headquarters, as well as additional leased space that we use for certain logistical and laboratory operations and manufacturing, are located in aflood zone along the Massachusetts coast. We have adopted a business continuity plan to address most crises. However, if we are unable to fully implementour disaster recovery plans, we may experience delays in recovery of data and/or an inability to perform vital corporate functions, which could result in asignificant disruption in our research, development, manufacturing and/or commercial activities, the loss or critical data and/or large expenses to repair orreplace the facility, which would have a material adverse effect on our business.Risks Related to Holding Our Common StockOur stock price may fluctuate.Market prices for securities of companies such as ours are highly volatile. From January 1, 2017 to December 31, 2017, our common stock tradedbetween $73.34 and $167.86 per share. The market for our stock, like that of other companies in the biotechnology industry, has experienced significantprice and volume fluctuations. The future market price of our securities could be significantly and adversely affected by factors such as:•the information contained in our quarterly earnings releases, including our net product revenues and operating expenses for completed periods andguidance regarding future periods;•announcements of FDA actions with respect to our drugs or our competitors’ drugs, or regulatory filings for our drug candidates or those of ourcompetitors, or announcements of interim or final results of clinical trials or nonclinical studies relating to our drugs, drug candidates or those of ourcompetitors;•prescription data and other information disclosed by third parties regarding our business or products;•technological innovations or the introduction of new drugs by our competitors;•government regulatory action;•public concern as to the safety of drugs developed by us or our competitors;•developments in patent or other intellectual property rights or announcements relating to these matters;•developments in domestic and international governmental policy or regulation, for example, relating to intellectual property rights;•developments relating specifically to other companies and market conditions for pharmaceutical and biotechnology stocks or stocks in general;•business development, capital structuring or financing activities; and•general worldwide or national economic, political and capital market conditions.Following periods of volatility in the market price of a company's securities, stockholder derivative lawsuits and securities class action litigation arecommon. Such litigation, if instituted against us or our officers and directors, could result in substantial costs and a diversion of management's attention andresources.40Our indebtedness could materially and adversely affect our financial condition, and the terms of our credit agreement impose restrictions on our business,reducing our operational flexibility and creating default risks.In October 2016, we entered into a credit agreement providing for a $500 million revolving facility, $300 million of which was drawn at closing andsubsequently paid off in February 2017. The credit agreement provides that, subject to the satisfaction of certain conditions, we may request that theborrowing capacity under the credit agreement be increased by an additional $300.0 million. All outstanding borrowings under the credit agreement matureon October 13, 2021. Our indebtedness could have important consequences to our business, including increasing our vulnerability to general adversefinancial, business, economic and industry conditions, as well as other factors that are beyond our control. The credit agreement requires that we comply withcertain financial covenants, including (i) a consolidated leverage ratio covenant and (ii) a consolidated EBITDA covenant, in each case to be measured on aquarterly basis. Further, the credit agreement includes negative covenants, subject to exceptions, restricting or limiting our ability and the ability of oursubsidiaries to, among other things, incur additional indebtedness, grant liens, engage in certain investment, acquisition and disposition transactions, paydividends, repurchase capital stock and enter into transactions with affiliates. As a result, we may be restricted from engaging in business activities that mayotherwise improve our business. Failure to comply with the covenants could result in an event of default that could trigger acceleration of our indebtedness,which would require us to repay all amounts owing under the credit agreement and/or our capital leases and could have a material adverse effect on ourbusiness. Additionally, our obligations under the credit agreement are unconditionally guaranteed by certain of our domestic subsidiaries. All obligationsunder the credit agreement, and the guarantees of those obligations, are secured by substantially all of our assets and the assets of all guarantors (excludingintellectual property, owned and leased real property and certain other excluded property), including the pledge of all or a portion of the equity interests ofcertain of our subsidiaries. If we fail to satisfy our obligations under the credit agreement or are unable to obtain sufficient funds to make payments, thelenders could foreclose on our pledged collateral.Our quarterly operating results are subject to significant fluctuation.Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Our revenues areprimarily dependent on the level of net product revenues from sales of our CF medicines. Our total net product revenues could vary on a quarterly basis basedon, among other factors, the timing of orders from our significant customers. Additional factors that have caused quarterly fluctuations to our operatingresults in recent years include variable amounts of revenues, impairment charges, charges for excess and obsolete inventories, changes in the fair value ofderivative instruments and the consolidation or deconsolidation of variable interest entities. Our revenues also are subject to foreign exchange ratefluctuations due to the global nature of our operations. Although we have foreign currency forward contracts to hedge forecasted product revenuesdenominated in foreign currencies, our efforts to reduce currency exchange losses may not be successful. As a result, currency fluctuations among ourreporting currency, the U.S. dollar, and the currencies in which we do business may affect our operating results, often in unpredictable ways. Our quarterlyresults also could be materially affected by significant charges, which may or may not be similar to charges we have experienced in the past. Most of ouroperating expenses relate to our research and development activities, do not vary directly with the amount of revenues and are difficult to adjust in the shortterm. As a result, if revenues in a particular quarter are below expectations, we are unlikely to reduce operating expenses proportionately for that quarter.These examples are only illustrative and other risks, including those discussed in these “Risk Factors,” could also cause fluctuations in our reported financialresults. Our operating results during any one period do not necessarily suggest the results of future periods.We expect that results from our clinical development activities and the clinical development activities of our competitors will continue to be releasedperiodically, and may result in significant volatility in the price of our common stock.Any new information regarding our products and drug candidates or competitive products or potentially competitive drug candidates can substantiallyaffect investors’ perceptions regarding our future prospects. We, our collaborators and our competitors periodically provide updates regarding drugdevelopment programs, typically through press releases, conference calls and presentations at medical conferences. These periodic updates often includeinterim or final results from clinical trials conducted by us or our competitors and/or information about our or our competitors’ expectations regardingregulatory filings and submissions as well as future clinical development of our products or drug candidates, competitive products or potentially competitivedrug candidates. The timing of the release of information by us regarding our drug development programs is often beyond our control and is influenced bythe timing of receipt of data from our clinical trials and by the general preference among pharmaceutical companies to disclose clinical data during medicalconferences. In addition, the information disclosed about our clinical trials, or our competitors’ clinical trials, may be based on interim rather than final datathat may involve interpretation difficulties and may in any event not accurately predict final results.41Changes in tax laws, regulations and treaties could affect our future taxable income.A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could materially affect us if we generate taxableincome in a future period. For example, on December 22, 2017, the United States enacted H.R.1., known as the Tax Cuts and Jobs Act. We currently do notexpect H.R.1. to have a material impact on our financial statements as long as we maintain a valuation allowance on the majority of our net operating lossesand other deferred tax assets, however we are still in the process of evaluating the new law and do not know the full effect it will have on our business,including our financial statements.We continue to assess the impact of various tax reform proposals and modifications to existing tax treaties in all jurisdictions where we have operationsto determine the potential effect on our business and any assumptions we have made about our future taxable income. We cannot predict whether any specificproposals will be enacted, the terms of any such proposals or what effect, if any, such proposals would have on our business if they were to be enacted.We may need to raise additional capital that may not be available.We may need to raise additional capital in the future. Any potential public offering, private placement or debt financing may or may not be similar to thetransactions that we entered into in the past. Any debt financing may be on terms that, among other things, include conversion features that could result indilution to our then-existing security holders and restrict our ability to pay interest and dividends—although we do not intend to pay dividends for theforeseeable future. Additionally, our pledge of specified assets as collateral to secure our obligations under our credit agreement may limit our ability toobtain additional debt financing. Any equity financings would result in dilution to our then-existing security holders. If adequate funds are not available onacceptable terms, or at all, we may be required to curtail significantly or discontinue one or more of our research, drug discovery or development programs,including clinical trials, incur significant cash exit costs, or attempt to obtain funds through arrangements with collaborators or others that may require us torelinquish rights to certain of our technologies, drugs or drug candidates. Based on many factors, including general economic conditions, additionalfinancing may not be available on acceptable terms, if at all.Issuances of additional shares of our common stock could cause the price of our common stock to decline.As of December 31, 2017, we had 253.3 million shares of common stock issued and outstanding. As of December 31, 2017, we also had outstandingoptions to purchase 9.8 million shares of common stock with a weighted-average exercise price of $91.57 per share. Outstanding vested options are likely tobe exercised if the market price of our common stock exceeds the applicable exercise price, and, in the future, we expect to issue additional options, restrictedstock and restricted stock units to directors and employees. In addition, we may issue additional common stock or restricted securities in the future as part offinancing activities or business development activities and any such issuances may have a dilutive effect on our then-existing shareholders. Sales ofsubstantial amounts of our common stock in the open market, or the availability of such shares for sale, could adversely affect the price of our common stock.The issuance of restricted common stock or common stock upon exercise of any outstanding options would be dilutive, and may cause the market price for ashare of our common stock to decline.There can be no assurance that we will repurchase shares of common stock or that we will repurchase shares at favorable prices.Our Board of Directors has authorized a share repurchase program of up to $500 million to repurchase shares of our common stock. Our stock repurchaseswill depend upon, among other factors, our cash balances and potential future capital requirements, results of operations, financial condition and other factorsthat we may deem relevant. We can provide no assurance that we will repurchase stock at favorable prices, if at all.We have adopted anti-takeover provisions and are subject to Massachusetts corporate laws that may frustrate any attempt to remove or replace ourcurrent management or effectuate a business combination involving Vertex.Our corporate charter and by-law provisions and Massachusetts state laws may discourage certain types of transactions involving an actual or potentialchange of control of Vertex that might be beneficial to us or our security holders. Although we recently amended our charter to eliminate staggered terms forour Board of Directors, our shareholders will not have the ability to vote for all members of the Board of Directors on an annual basis until 2020. Our by-lawsgrant the directors a right to adjourn annual meetings of shareholders, and certain provisions of our by-laws may be amended only with an 80% shareholdervote. We may issue shares of any class or series of preferred stock in the future without shareholder approval and upon such terms as our Board of Directorsmay determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any class or seriesof preferred stock that may be issued in the42future. Massachusetts state law prohibits us from engaging in specified business combinations, unless the combination is approved or consummated in aprescribed manner, and prohibits voting by any shareholder who acquires 20% or more of our voting stock without shareholder approval. As a result,shareholders or other parties may find it more difficult to remove or replace our current management.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K and, in particular, the description of our Business set forth in Item 1, the Risk Factors set forth in this Item 1A and ourManagement’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, asamended, including statements regarding:•our expectations regarding the amount of, timing of and trends with respect to our revenues, costs and expenses and other gains and losses,including those related to our CF net product revenues;•our expectations regarding clinical trials, development timelines and regulatory authority filings and submissions for ivacaftor, lumacaftor,tezacaftor, VX-659, VX-445, VX-150, VX-128 and VX-210 and the MAA for tezacaftor in combination with ivacaftor;•our ability to obtain reimbursement for ORKAMBI in ex-U.S. markets and our ability to otherwise successfully market ORKAMBI, KALYDECO,SYMDEKO 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 and drug candidates, including ivacaftor, lumacaftor, tezacaftor,VX-659, VX-445, VX-150, VX-128 and VX-210, 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 developmentor support regulatory filings;•our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates for further investigation,clinical trials or potential use as a treatment;•our plan to continue investing in our research and development programs and our strategy to develop our drug candidates, alone or with third party-collaborators;•the establishment, development and maintenance of collaborative relationships;•potential business development activities;•potential fluctuations in foreign currency exchange rates;•our ability to use our research programs to identify and develop new drug candidates to address serious diseases and significant unmet medicalneeds; and•our liquidity and our expectations regarding the possibility of raising additional capital.Any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be wrong. They can be affected by inaccurateassumptions or by known or unknown risks and uncertainties. Many factors mentioned in this Annual Report on Form 10-K will be important in determiningfuture results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results. We alsoprovide a cautionary discussion of risks and uncertainties under “Risk Factors” above in this Item 1A. These are factors and uncertainties that we think couldcause our actual results to differ materially from expected results. Other factors and uncertainties besides those listed there could also adversely affect us.43Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “intends,” “expects” and similar expressions are intended to identifyforward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicatedby such forward-looking statements, many of which are beyond our control, including the factors and uncertainties set forth under “Risk Factors” above inthis Item 1A. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be reliedupon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, wespecifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-lookingstatements.ITEM 1B.UNRESOLVED STAFF COMMENTSWe did not receive any written comments from the Securities and Exchange Commission prior to the date 180 days before the end of the fiscal yearended December 31, 2017 regarding our filings under the Securities Exchange Act of 1934, as amended, that have not been resolved.ITEM 2.PROPERTIESCorporate HeadquartersWe lease approximately 1.1 million square feet of office and laboratory space at our corporate headquarters in Boston, Massachusetts in two buildingspursuant to two leases that we entered into in May 2011. The leases commenced in December 2013 and will extend until December 2028. We have an optionto extend the term of the leases for an additional ten years. In addition, in connection with our relocation to Boston, we entered into a lease in June 2012 forapproximately 100,000 square feet of space in the Boston Marine Industrial Park, in close proximity to our corporate headquarters. We are using thisadditional space for certain logistical and laboratory operations and manufacturing equipment that complement the office and laboratory facilities at ourcorporate headquarters.Additional United States and Worldwide LocationsIn addition to our facilities in Massachusetts, we lease an aggregate of approximately 300,000 square feet of space. This includes laboratory and officespace to support our research and development organizations in San Diego, California and Milton Park, Abingdon, England, and office space in many of thecountries in which we sell our products. In addition, in December 2015, we entered into a lease for approximately 170,000 square feet of office and laboratoryspace under construction in San Diego, California, which will replace our existing facility in San Diego. We will commence lease payments in the secondquarter of 2019 and the lease has a term of 16 years.ITEM 3.LEGAL PROCEEDINGSWe are not currently subject to any material legal proceedings.ITEM 4.MINE SAFETY DISCLOSURESNot applicable.44PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket InformationOur common stock is traded on The NASDAQ Global Select Market under the symbol “VRTX.” The following table sets forth for the periods indicatedthe high and low sale prices per share of our common stock as reported by NASDAQ Stock Market LLC:Year Ended December 31, 2017: High LowFirst quarter$111.88 $73.34Second quarter137.26 107.24Third quarter167.86 125.50Fourth quarter158.04 136.50Year Ended December 31, 2016: High LowFirst quarter$124.96 $75.90Second quarter96.49 75.92Third quarter103.73 83.50Fourth quarter97.93 71.46ShareholdersAs of January 31, 2018, there were 1,455 holders of record of our common stock.Performance GraphCUMULATIVE TOTAL RETURNBased on Initial Investment of $100 on December 31, 2012with dividends reinvested (fiscal years ended December 31)We became part of the Standard & Poor’s 500 (“S&P 500®”) Stock Index in 2013.45DividendsWe have never declared or paid any cash dividends on our common stock, and we currently expect that any future earnings will be retained for use in ourbusiness. Any future determination to declare cash dividends will be subject to the discretion of our board of directors and applicable law and will depend onvarious factors, including our results of operations, financial condition, prospects and any other factors deemed relevant by our board of directors. Inaddition, our credit agreement limits our ability to pay cash dividends on our common stock.Issuer Repurchases of Equity SecuritiesThe table set forth below shows all repurchases of securities by us during the three months ended December 31, 2017:Period Total Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet be Purchased Under the Plans or ProgramsOct. 1, 2017 to Oct. 31, 20176,163$0.01——Nov. 1, 2017 to Nov. 30, 20178,450$0.01——Dec. 1, 2017 to Dec. 31, 20172,121$0.01——The repurchases were made under the terms of our Amended and Restated 2006 Stock and Option Plan and Amended and Restated 2013 Stock andOption Plan. Under these plans, we award shares of restricted stock to our employees that typically are subject to a lapsing right of repurchase by us. We mayexercise this right of repurchase if a restricted stock recipient’s service to us is terminated. If we exercise this right, we are required to repay the purchase pricepaid by or on behalf of the recipient for the repurchased restricted shares, which typically is the par value per share of $0.01. Repurchased shares are returnedand are available for future awards under the terms of our Amended and Restated 2013 Stock and Option Plan.On January 31, 2018, we announced that our Board of Directors had authorized a share repurchase program, or Share Repurchase Program, pursuant towhich up to $500.0 million of common stock can be repurchased through December 31, 2019. The primary objective of the Share Repurchase Program is toreduce the impact of dilution from employee equity programs. Purchases under the Share Repurchase Program may be made through the open public marketor through privately negotiated transactions, and may be made pursuant to Rule 10b5-1 plans or other means as determined by our management and inaccordance with the requirements of the Securities and Exchange Commission.46ITEM 6.SELECTED FINANCIAL DATAThe following unaudited selected consolidated financial data are derived from our audited consolidated financial statements and have been revised toreflect discontinued operations. These data should be read in conjunction with our audited consolidated financial statements and related notes that areincluded elsewhere in this Annual Report on Form 10-K and with “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” included in Item 7. Year Ended December 31, 2017 2016 2015 2014 2013Consolidated Statements of Operations Data:(in thousands, except per share amounts)Product revenues, net ORKAMBI product revenues, net$1,320,850 $979,590 $350,663 $— $—KALYDECO product revenues, net844,630 703,432 631,674 463,750 371,285INCIVEK product revenues, net— 610 17,987 24,071 466,360Total product revenues, net2,165,480 1,683,632 1,000,324 487,821 837,645Royalty revenues7,988 16,600 23,959 40,919 156,592Collaborative revenues (1)315,184 1,945 8,053 51,675 217,738Total revenues2,488,652 1,702,177 1,032,336 580,415 1,211,975Total costs and expenses (2)2,365,409 1,692,241 1,499,215 1,272,827 1,821,983(Benefit from) provision for income taxes (3)(107,324) 16,665 30,381 6,958 (122,422)Income (loss) from continuing operations attributable to Vertex263,484 (112,052) (556,334) (737,643) (503,622)(Loss) income from discontinued operations attributable to Vertex(4)— — — (912) 58,594Net income (loss) attributable to Vertex$263,484 $(112,052) $(556,334) $(738,555) $(445,028)Diluted income (loss) from continuing operations per share attributable to Vertexcommon shareholders$1.04 $(0.46) $(2.31) $(3.14) $(2.24)Shares used in per diluted share calculations253,225 244,685 241,312 235,307 224,906 As of December 31, 2017 2016 2015 2014 2013Consolidated Balance Sheet Data:(in thousands)Cash, cash equivalents and marketable securities$2,088,666 $1,434,557 $1,042,462 $1,387,106 $1,465,076Total assets3,546,014 2,896,787 2,498,587 2,334,679 2,319,041Total current liabilities (5)807,260 792,537 506,167 368,254 397,829Long-term debt obligations, excluding current portion— — 223,863 280,569 —Construction financing lease obligation, excluding current portion(6)563,406 486,359 472,611 473,073 440,937Other long-term obligations133,042 279,700 202,318 116,600 123,870(1)In 2017, we recorded $246.6 million of collaborative revenues, which consisted of $230.0 million related to an upfront payment and $16.6 million related to research anddevelopment and transition activities, from Merck KGaA, which were primarily attributable to the upfront payment made by Merck KGaA to us pursuant to a collaborationagreement. See Note B, “Collaborative Arrangements and Acquisitions.”(2)Total costs and expenses included (i) in 2017 and 2013, intangible asset impairment charges, (ii) in 2017, $160.0 million for an asset acquisition and (iii) in 2017, 2014 and2013, $14.2 million, $50.9 million and $40.5 million, respectively, of restructuring charges related to our closure of our research site in Canada in 2017, the relocation of ourcorporate headquarters in 2014 and workforce reduction primarily related to the commercial support of INCIVEK in 2013. See Note J, “Intangible Assets and Goodwill”,Note B, “Collaborative Arrangements and Acquisitions” and Note Q, “Restructuring Expenses.”(3)In 2017 and 2013, we recorded benefits from income taxes related to the impairment of intangible assets. See Note P, “Income Taxes.” and Note B, “CollaborativeArrangements and Acquisitions.”(4)(Loss) income from discontinued operations attributable to Vertex relates to our collaboration with Alios BioPharma, Inc., in 2012 through 2013, which we deconsolidated asof December 31, 2013.(5)As of December 31, 2017, we have $232.4 million recorded as current liabilities related to cash received by us for sales of ORKAMBI in France for which the price has notbeen established. See Note A, “Nature of Business and Accounting Policies.”(6)In 2011 and 2015, we entered into leases in which we are deemed to be the owner for accounting purposes. See Note L, “Long Term Obligations.”47ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOVERVIEWWe invest in scientific innovation to create transformative medicines for serious diseases. Our business is focused on developing and commercializingtherapies for the treatment of cystic fibrosis, or CF, and advancing our research and development programs in other diseases. Our marketed products areORKAMBI (lumacaftor in combination with ivacaftor), KALYDECO (ivacaftor) and SYMDEKO (tezacaftor in combination with ivacaftor). Our total netproduct revenues were $2.2 billion in 2017, an increase of 29% over net product revenues of $1.7 billion in 2016, due to increased ORKAMBI andKALYDECO net product revenues.Cystic FibrosisCurrent MedicinesORKAMBI, KALYDECO and SYMDEKO are collectively approved to treat approximately 45% of the 75,000 CF patients in North America, Europe andAustralia. ORKAMBI is approved as a treatment for approximately 28,000 patients who have two copies of the F508del mutation, or F508del homozygous,in their cystic fibrosis transmembrane conductance regulator, or CFTR, gene. KALYDECO is approved for the treatment of approximately 6,000 CF patientswho have the G551D mutation or other specified mutations in their CFTR gene. SYMDEKO was approved by the United States Food and DrugAdministration, or FDA, in February 2018 for the treatment of patients with CF twelve years of age and older who are F508del homozygous or who have atleast one mutation that is responsive to tezacaftor/ivacaftor, and provides an additional treatment option to CF patients who were already eligible for eitherORKAMBI or KALYDECO. We are currently seeking approval from the European Medicines Agency for tezacaftor in combination with ivacaftor.Next-generation CFTR Corrector CompoundsIn the first quarter of 2018, we selected two next-generation corrector compounds, VX-659 and VX-445, to advance into Phase 3 clinical development aspart of separate triple combination regimens. Each of VX-659 and VX-445 have the potential to be combined with both (i) tezacaftor and ivacaftor and (ii)tezacaftor and VX-561, a deuterated version of ivacaftor. We expect to initiate the Phase 3 development program for VX-659 in combination with tezacaftorand ivacaftor in the first half of 2018. In mid-2018, we expect to initiate the Phase 3 development of a once-daily combination of VX-445, tezacaftor and VX-561. Our decision to advance VX-659 and VX-445 was based on available clinical and nonclinical data, including data from an ongoing Phase 2 clinicalprogram, and regulatory discussions are ongoing to finalize the design of the Phase 3 development programs for VX-659 and VX-445.We believe the triple combination regimens we are evaluating could potentially provide benefits to all CF patients who have at least one F508delmutation in their CFTR gene (approximately 90% of all CF patients). This would include (i) the first treatment option that treats the underlying cause of CFfor patients who have one copy of the F508del mutation in their CFTR gene and a second mutation in their CFTR gene that results in minimal CFTRfunction, who we refer to as F508del/Min patients, and (ii) an additional treatment option for patients with CF who are eligible for ORKAMBI, KALYDECOand/or SYMDEKO.Research and DevelopmentWe have a number of ongoing research and development programs in other diseases that we are conducting independently or in collaboration with thirdparties. We are developing VX-150 and VX-128 as treatments for pain, co-developing CTX001, an investigational gene editing treatment, for the treatment ofbeta-thalassemia and sickle cell disease, with CRISPR Therapeutics AG, or CRISPR, and developing VX-210 as a treatment for acute spinal cord injury. Weplan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines for peoplewith serious diseases. In addition to continuing our research in cystic fibrosis, pain and hemoglobinopathies, our current internal research programs includeprograms targeting adrenoleukodystrophy, alpha-1 antritrypsin deficiency and polycystic kidney disease. To supplement our internal research programs, weseek to collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations andother organizations as needed to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy. Webelieve that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will formour pipeline in future years.48Drug Discovery and DevelopmentDiscovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along withextensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluations, driven inpart by stringent regulatory considerations, designed to generate information concerning efficacy, side-effects, proper dosage levels and a variety of otherphysical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceuticalproduct. Most chemical compounds that are investigated as potential drug candidates never progress into development, and most drug candidates that doadvance into development never receive marketing approval. Because our investments in drug candidates are subject to considerable risks, we closelymonitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of newdata and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in abrupt changes in focusand priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well asthose of our competitors.If we believe that data from a completed registration program support approval of a drug candidate, we submit an NDA to the FDA requesting approval tomarket the drug candidate in the United States and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions. To obtainapproval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidateis safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture of the drugcandidate are adequate. The FDA and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should begranted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatoryapproval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for thedrug candidate involved will be harmed.Regulatory ComplianceOur marketing of pharmaceutical products is subject to extensive and complex laws and regulations. We have a corporate compliance program designedto actively identify, prevent and mitigate risk through the implementation of compliance policies and systems, and through the promotion of a culture ofcompliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state laws, and comparable foreign laws, pertaining tohealth 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 make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration to induce the referral of business,including the purchase or prescription of a particular drug that is reimbursed by a state or federal program. False claims laws prohibit anyone from knowinglyor willfully presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false orfraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. We are subject to laws and regulationsthat regulate the sales and marketing practices of pharmaceutical manufacturers, as well as laws such as the U.S. Foreign Corrupt Practices Act that govern ourinternational business practices with respect to payments to government officials. We expect to continue to devote substantial resources to maintain,administer and expand these compliance programs globally.ReimbursementSales of our products depend, to a large degree, on the extent to which our products are covered by third-party payors, such as government healthprograms, commercial insurance and managed health care organizations. We dedicate substantial management and other resources in order to obtain andmaintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the United States and ex-U.S.markets. In the United States, we continue to engage in discussions with numerous commercial insurers and managed health care organizations, along withgovernment health programs that are typically managed by authorities in the individual states. In Europe and other ex-U.S. markets, we work to obtaingovernment reimbursement for ORKAMBI on a country-by-country basis, because in many foreign countries patients are unable to access prescriptionpharmaceutical products that are not reimbursed by their governments.In the United States, we worked successfully with third party payors in order to promptly obtain appropriate levels of reimbursement for KALYDECO andORKAMBI and are beginning that process for SYMDEKO. We also successfully obtained reimbursement for KALYDECO in each significant ex-U.S. marketwithin two years of approval. Since we obtained approval for ORKAMBI in 2015, we have experienced significant challenges in obtaining reimbursement forORKAMBI in ex-U.S. markets, to date, having reached a pricing and reimbursement agreement for ORKAMBI in several European countries, includingGermany, Ireland and Italy, but remaining in negotiations with a number of other European countries,49including the United Kingdom and France, which represent significant potential markets for ORKAMBI. While we have innovative reimbursementarrangements in place in certain ex-U.S. jurisdiction such as Ireland that will allow rapid access to tezacaftor in combination with ivacaftor, if approved, andORKAMBI for younger patients, in most significant markets we will need to obtain country-by-country reimbursement for each new medicine and each labelexpansions for a current medicine.Collaboration ArrangementsWe have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates ortechnologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with:•CRISPR, pursuant to which we are collaborating on the discovery and development of potential new treatments aimed at the underlyinggenetic causes of human diseases using CRISPR-Cas9 gene editing technology;•Moderna Therapeutics, Inc., or Moderna, pursuant to which we are seeking to identify and develop messenger ribonucleic acid, or mRNA,therapeutics for the treatment of CF;•BioAxone Biosciences, Inc., or BioAxone, pursuant to which we are evaluating VX-210 as a potential treatment for patients who havespinal cord injuries; and•Parion Sciences, Inc., or Parion, pursuant to which we are developing epithelial sodium channel, or ENaC, inhibitors for the treatment ofpulmonary diseases.Generally, when we in-license a technology or drug candidate, we make upfront payments to the collaborator, assume the costs of the program and agreeto make contingent payments, which could consist of milestone, royalty and option payments. Depending on many factors, including the structure of thecollaboration, the significance of the drug candidate that we license to the collaborator’s operations and the other activities in which our collaborators areengaged, the accounting for these transactions can vary significantly. For example, the upfront payments and expenses incurred in connection with ourCRISPR and Moderna collaborations are being expensed as research expenses because the collaboration represents a small portion of these collaboratorsoverall business. CRISPR and Moderna’s activities unrelated to our collaborations have no effect on our consolidated financial statements. Parion andBioAxone have historically been accounted for as variable interest entities, or VIEs, and historically have been included in our consolidated financialstatements due to (i) the significance of the respective licensed programs to Parion and BioAxone as a whole, (ii) our power to control the significantactivities under each collaboration and (iii) our obligation to absorb losses and right to receive benefits that potentially could be significant. As of September30, 2017, we determined that the above conditions were no longer satisfied with respect to Parion following the results of a Phase 2 clinical trial of VX-371that did not meet its primary efficacy endpoint. As a result, we no longer account for Parion as a VIE and have deconsolidated Parion from our consolidatedfinancial statements as of September 30, 2017. BioAxone continues to be accounted for as a VIE and remains included in our consolidated financialstatements as of December 31, 2017.Collaborators we account for as a VIE may engage in activities unrelated to our collaboration. The revenues and expenses unrelated to the programs wein-license from our VIEs have historically been immaterial to our consolidated financial statements. With respect to each of Parion, prior to itsdeconsolidation as of September 30, 2017, and BioAxone, the activities unrelated to our collaborations with these entities have represented approximately2% or less of our total revenues and total expenses on an annual basis. As a result of the deconsolidation of Parion, we expect these amounts to decrease infuture periods. For any consolidated VIEs, we evaluate the fair value of the contingent payments payable by us on a quarterly basis. Changes in the fair valueof these contingent future payments affect net income attributable to Vertex on a dollar-for-dollar basis, with increases in the fair value of contingentpayments payable by us to a VIE resulting in a decrease in net income attributable to Vertex (or an increase in net loss attributable to Vertex) and decreases inthe fair value of contingent payments payable by us to a VIE resulting in an increase in net income attributable to Vertex (or decrease in net loss attributableto Vertex). For additional information regarding our VIEs see Note B “Collaborative Arrangements and Acquisitions” and our critical accounting policies“Collaborations; Variable Interest Entities.”We also have outlicensed internally-developed programs to collaborators who are leading the development of these programs. These outlicensearrangements include our collaboration agreements with:•Merck KGaA, Darmstadt, Germany, or Merck KGaA, pursuant to which Merck KGaA obtained rights to four oncology research anddevelopment programs; and50•Janssen Pharmaceuticals, Inc., or Janssen, Inc., which is evaluating JNJ-63623872 (formerly VX-787) for the treatment of influenza in aPhase 3 clinical development program.Pursuant to these outlicensing arrangements, our collaborators are responsible for the research, development and commercialization costs associated withthese programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses inconnection with these programs and have the potential for future collaborative and/or royalty revenues resulting from these programs.51RESULTS OF OPERATIONS 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Revenues$2,488,652 $1,702,177 $1,032,336 $786,475 46% $669,841 65 %Operating costs and expenses2,365,409 1,692,241 1,499,215 673,168 40% 193,026 13 %Other items, net140,241 (121,988) (89,455) 262,229 n/a (32,533) (36)%Net income (loss) attributable to Vertex$263,484 $(112,052) $(556,334) $375,536 n/a $444,282 80 % Net income (loss) per diluted share attributable toVertex common shareholders$1.04 $(0.46) $(2.31) Diluted shares used in per share calculations253,225 244,685 241,312 Net Income (Loss) Attributable to VertexComparison of Net Income (Loss) Attributable to Vertex 2017 vs. 2016Net income attributable to Vertex was $263.5 million in 2017 as compared to a net loss attributable to Vertex of $(112.1) million in 2016. Our revenuesincreased significantly in 2017 as compared to 2016 primarily due to increased ORKAMBI and KALYDECO net product revenues and $230.0 million inone-time collaborative revenues related to the strategic collaboration and license agreement we established with Merck KGaA in the first quarter of 2017. Ouroperating costs and expenses increased in 2017 as compared to 2016 primarily due to increases in our cost of product revenues related to our increased netproduct revenues, increases in our research and development expenses, which included $160.0 million in development expenses incurred in connection withthe acquisition of VX-561 from Concert, increases in our sales and administrative expenses and a $255.3 million intangible asset impairment charge relatedto Parion’s pulmonary ENaC platform.Other items, net in 2017 primarily reflect a benefit from income taxes and certain other benefits associated with the impairment of Parion’s pulmonaryENaC platform, for which there were no comparable benefits in 2016, and a decrease in interest expense, net to $57.6 million. Other items, net in 2016primary reflects interest expense, net of $81.4 million, a provision for income taxes of $16.7 million and net income attributable to noncontrolling interest of$28.0 million.Comparison of Net Loss Attributable to Vertex 2016 vs. 2015Net loss attributable to Vertex was $(112.1) million in 2016 as compared to a net loss attributable to Vertex of $(556.3) million in 2015. Ourrevenues increased significantly in 2016 as compared to 2015 primarily due to an increase in ORKAMBI net product revenues, which we began recognizingin mid-2015, and an increase in KALYDECO net product revenues, partially offset by decreases in our royalty revenues and collaborative revenues. Ouroperating costs and expenses increased in 2016 as compared to 2015 primarily due to increases in cost of product revenues, research and developmentexpenses, sales, general and administrative expenses.The change in our other items, net between 2016 and 2015 was primarily due to a $54.9 million increase in the fair value of contingent payments relatedto our consolidated VIEs in 2016, which resulted in an increase in net loss attributable to Vertex.Earnings Per ShareIn 2017, 2016 and 2015, net income (loss) attributable to Vertex was $1.04, $(0.46) and $(2.31), respectively, per diluted share. In 2017, 2016 and 2015,the number of diluted shares used to calculate net income (loss) per common share was 253.2 million, 244.7 million and 241.3 million, respectively. Theincrease in diluted shares was primarily due to our issuance of shares of common stock pursuant to our employee equity programs.52Revenues 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Product revenues, net$2,165,480 $1,683,632 $1,000,324 $481,848 29 % $683,308 68 %Royalty revenues7,988 16,600 23,959 (8,612) (52)% (7,359) (31)%Collaborative revenues315,184 1,945 8,053 313,239 n/a (6,108) (76)%Total revenues$2,488,652 $1,702,177 $1,032,336 $786,475 46 % $669,841 65 %Product Revenues, Net 2017 2016 2015 (in thousands) ORKAMBI$1,320,850 $979,590 $350,663 KALYDECO844,630 703,432 631,674 Total CF product revenues, net$2,165,480 $1,683,022 $982,337In 2017, ORKAMBI net product revenues were $1.32 billion, including $167.6 million of net product revenues from ex-U.S. markets, compared toORKAMBI net product revenues of $979.6 million in 2016, including $76.4 million of net product revenues from ex-U.S. markets. ORKAMBI salescommenced in mid-2015 and net product revenues were $350.7 million during 2015, including $1.6 million of net product revenues from ex-U.S. markets.SYMDEKO was approved by the FDA in February 2018 and we expect that a portion of the patients currently receiving ORKAMBI will switch to SYMDEKOfollowing its approval. Our consolidated balance sheet includes $232.4 million collected as of December 31, 2017 in France related to ORKAMBI suppliedunder early access programs at the invoiced price. Pursuant to the revenue recognition guidance applicable through December 31, 2017, we have notrecognized any net product revenues to date on sales of ORKAMBI in France because the price was not fixed or determinable. Please refer to CriticalAccounting Policies - Revenue Recognition below for a discussion of our early access program for ORKAMBI in France and the application of the newrevenue recognition guidance that becomes effective on January 1, 2018.In 2017, KALYDECO net product revenues were $844.6 million, including $334.2 million of net product revenues from ex-U.S. markets, compared toKALYDECO net product revenues of $703.4 million in 2016, including $303.9 million of net product revenues from ex-U.S. markets. In 2015, KALYDECOnet product revenues were $631.7 million, including $266.1 million of net product revenues from ex-U.S. markets. The increases year-over-year wereprimarily due to additional patients being treated with KALYDECO as we completed reimbursement discussions in various ex-U.S. jurisdictions and to theincreased number of patients eligible to receive KALYDECO through label expansions.In 2018, we believe that our total CF net product revenues will increase as compared to 2017 and will be dependent on our ability to successfullycommercialize SYMDEKO in the United States and on our ability to continue to expand the number of patients eligible for our medicines and to obtainapproval and reimbursement for our medicines, including tezacaftor in combination with ivacaftor, in ex-U.S. markets.Royalty RevenuesOur royalty revenues were $8.0 million, $16.6 million and $24.0 million in 2017, 2016 and 2015, respectively. Our royalty revenues primarily consist ofrevenues related to a cash payment we received in 2008 when we sold our rights to certain HIV royalties. Pursuant to the new revenue recognition guidancethat became applicable on January 1, 2018, we do not expect to recognize royalty revenues in future periods related to the 2008 cash payment because theremaining $6.9 million that was deferred as of December 31, 2017 will be recorded as a cumulative effect adjustment to our accumulated deficit, net ofdeferred costs, in the first quarter of 2018. Our future royalty revenues will be dependent on if, and when, our collaborators, including Janssen, Inc. and MerckKGaA, are able to successfully develop drug candidates that we have outlicensed to them.53Collaborative RevenuesOur collaborative revenues were $315.2 million, $1.9 million and $8.1 million in 2017, 2016 and 2015, respectively. In 2017, our collaborativerevenues included (i) $230.0 million in revenues related to the one-time upfront payment earned in the first quarter of 2017 from Merck KGaA and (ii) a$25.0 million milestone related to our license agreement with Janssen, Inc. for the treatment of influenza. Our 2017 collaborative revenues also included$40.0 million in revenues related to upfront and milestone payments earned by Parion in the second and third quarter of 2017 pursuant to a license agreementParion entered into with a third party. We are not a party to the Parion license agreement and have no economic interest in either the license or thesemilestone payments. These revenues were included in our consolidated financial statements because during these periods we were consolidating Parion as aVIE. Parion was deconsolidated as a VIE as of September 30, 2017 and any future payments received by Parion pursuant to this license agreement will nolonger be recognized by us as collaborative revenue. Our collaborative revenues have historically fluctuated significantly from one period to another andmay continue to fluctuate in the future.Operating Costs and Expenses 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Cost of product revenues$272,675 $206,811 $117,151 $65,864 32 % $89,660 77 %Royalty expenses2,444 3,649 7,361 (1,205) (33)% (3,712) (50)%Research and development expenses1,324,625 1,047,690 995,922 276,935 26 % 51,768 5 %Sales, general and administrative expenses496,079 432,829 376,575 63,250 15 % 56,254 15 %Restructuring expenses14,246 1,262 2,206 12,984 n/a (944) (43)%Intangible asset impairment charge255,340 — — 255,340 n/a — n/aTotal costs and expenses$2,365,409 $1,692,241 $1,499,215 $673,168 40 % $193,026 13 %Cost of Product RevenuesOur cost of product revenues includes 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. Pursuant to our agreement with Cystic Fibrosis Foundation Therapeutics Incorporated, or CFFT, ourtiered third-party royalties on sales of KALYDECO, ORKAMBI and SYMDEKO, calculated as a percentage of net sales, range from the single digits to thesub-teens. As a result of the tiered royalty rate, which resets annually, our cost of product revenues as a percentage of CF product revenues is lower at thebeginning of each calendar year.Our cost of product revenues have been increasing due primarily to increased net product revenues. In each of 2016 and 2015, our cost of productrevenues included a $13.9 million commercial milestone that was earned by CFFT and was related to sales of ORKAMBI. There are no further commercialmilestones payable to CFFT. In 2018, we expect our cost of product revenues as a percentage of total CF product revenues to be similar to the cost of productrevenues as a percentage of total CF product revenues in 2017.Royalty ExpensesRoyalty expenses primarily consist of expenses related to a subroyalty payable to a third party on net sales of an HIV protease inhibitor sold byGlaxoSmithKline. Royalty expenses do not include royalties we pay to CFFT on sales of KALYDECO and ORKAMBI, which instead are included in cost ofproduct revenues.54Research and Development Expenses 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Research expenses$311,206 $314,602 $337,797 $(3,396) (1)% $(23,195) (7)%Development expenses1,013,419 733,088 658,125 280,331 38 % 74,963 11 %Total research and development expenses$1,324,625 $1,047,690 $995,922 $276,935 26 % $51,768 5 %Our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates. Wedo not assign our internal costs, such as salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses andinfrastructure costs, to individual drugs or drug candidates, because the employees within our research and development groups typically are deployed acrossmultiple research and development programs. These internal costs are significantly greater than our external costs, such as the costs of services provided to usby clinical research organizations and other outsourced research, which we allocate by individual program. All research and development costs for our drugsand drug candidates are expensed as incurred.Over the past three years, we have incurred $3.4 billion in research and development expenses associated with drug discovery and development. Thesuccessful development of our drug candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may varysubstantially according to the type, complexity and novelty of the drug candidate and the disease indication being targeted. The FDA and comparableagencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy anddetailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical andclinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained fromthese 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 meaningfulestimates of the ultimate costs to bring our drug candidates to market are not available.In 2015, 2016 and 2017, costs related to our CF programs represented the largest portion of our development costs. Any estimates regardingdevelopment and regulatory timelines for our drug candidates are highly subjective and subject to change. We expect the EMA to complete its review of ourMAA for tezacaftor in combination with ivacaftor in the second half of 2018. We cannot make a meaningful estimate when, if ever, our other clinicaldevelopment programs will generate revenues and cash flows.Research Expenses 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Research Expenses: Salary and benefits$81,229 $80,845 $81,752 $384 <1% $(907) (1)%Stock-based compensation expense60,122 51,034 49,744 9,088 18 % 1,290 3 %Laboratory supplies and other direct expenses45,822 43,151 37,058 2,671 6 % 6,093 16 %Outsourced services39,497 33,682 24,210 5,815 17 % 9,472 39 %Collaboration and asset acquisition payments8,425 33,000 75,000 (24,575) (74)% (42,000) (56)%Infrastructure costs76,111 72,890 70,033 3,221 4 % 2,857 4 %Total research expenses$311,206 $314,602 $337,797 $(3,396) (1)% $(23,195) (7)%55Over the past three years we have maintained a substantial and consistent investment in our internal research activities. Our total research expenses havebeen affected by research expenses associated with our business development activities, which are reflected in collaboration and asset acquisition payments.Collaboration and asset acquisition payments in 2016 included a $20.0 million upfront payment to Moderna and approximately $10.0 million in expensesrelated to the acquisition of early-stage research assets. Collaboration and asset acquisition payments in 2015 consisted of a $75.0 million upfront paymentwe made to CRISPR. We expect to continue to invest in our research programs with a focus on identifying drug candidates with the goal of creatingtransformative medicines.Development Expenses 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Development Expenses: Salary and benefits$208,769 $177,399 $164,466 $31,370 18% $12,933 8 %Stock-based compensation expense121,778 102,417 103,211 19,361 19% (794) (1)%Laboratory supplies and other direct expenses45,594 42,861 30,611 2,733 6% 12,250 40 %Outsourced services337,901 282,137 248,506 55,764 20% 33,631 14 %Collaboration and asset acquisition payments160,250 — — 160,250 n/a — n/aDrug supply costs13,660 12,510 9,799 1,150 9% 2,711 28 %Infrastructure costs125,467 115,764 101,532 9,703 8% 14,232 14 %Total development expenses$1,013,419 $733,088 $658,125 $280,331 38% $74,963 11 %Our development expenses increased by $280.3 million, or 38%, in 2017 as compared to 2016 and increased by $75.0 million, or 11%, in 2016 ascompared to 2015. The increase in 2017 as compared to 2016 was primarily due to the $160.0 million payment to Concert in connection with the acquisitionof VX-561 in the third quarter of 2017 and to increased outsourced services expenses related to ongoing clinical trials, including trials involving our next-generation CFTR corrector compounds that we are evaluating as part of triple combination treatment regimens. We expect our development expenses,excluding collaboration and asset acquisition payments, to increase in 2018 as compared to 2017 due to expenses related to the advancement of our triplecombination regimens into Phase 3 development.The increased development expenses in 2016 as compared to 2015 were primarily due to an increase in outsourced services related to clinical trials,including our Phase 3 development program for tezacaftor in combination with ivacaftor and increases in salary and benefits, laboratory supplies and otherdirect expenses and infrastructure costs.Sales, General and Administrative Expenses 2017/2016Comparison 2016/2015Comparison Increase/(Decrease) Increase/(Decrease) 2017 2016 2015 $ % $ % (in thousands) (in thousands, except percentages)Sales, general and administrative expenses$496,079 $432,829 $376,575 $63,250 15% $56,254 15%Sales, general and administrative expenses increased by 15% in 2017 as compared to 2016, and by 15% in 2016 as compared to 2015. These increaseswere primarily due to increased global support for KALYDECO and ORKAMBI and costs incurred to prepare for the launch of SYMDEKO in the UnitedStates.Restructuring ExpensesIn 2017, 2016 and 2015, we recorded restructuring expenses of $14.2 million, $1.3 million and $2.2 million, respectively. Our restructuring expenses in2017 were primarily related to our decision to consolidate our research activities into our Boston, Milton Park and San Diego locations and to close ourresearch site in Canada.56Intangible Asset Impairment ChargeIn 2017, we recorded a $255.3 million impairment charge related to Parion’s pulmonary ENaC platform that we licensed from Parion in 2015 and abenefit from income taxes of $97.7 million related to this impairment charge attributable to Parion. There were no corresponding intangible asset impairmentcharges in 2016 or 2015.Other Items, NetInterest Expense, NetOur interest expense, net relates primarily to interest expenses associated with our real estate leases and interest on our outstanding debt. In 2017, 2016and 2015, interest expense, net was $57.6 million, $81.4 million and $84.2 million, respectively. The decrease in interest expense, net in 2017 as comparedto 2016 was primarily due to the repayment of the $300.0 million outstanding under our revolving credit facility in February 2017. In 2018, we expect thatwe will incur approximately $66 million in interest expenses related to our real estate leases and that our interest expense related to outstanding debt will bedependent on whether, and to what extent, we reborrow amounts under our credit facility.Other (Expense) Income, NetIn 2017, other (expense) income, net was an expense of $81.4 million primarily related to the deconsolidation of Parion. In 2016, we recorded net otherincome of $4.1 million primarily related to foreign exchange gains. In 2015, we recorded net other expense of $6.7 million primarily related to foreignexchange losses.Income TaxesIn 2017, we recorded a benefit from income taxes of $107.3 million, related to a benefit from income taxes of $114.1 million attributable tononcontrolling interest primarily as a result of our impairment of Parion’s pulmonary ENaC platform and decrease in the fair value of the contingentpayments payable by us to Parion in the third quarter of 2017, partially offset by a provision for income taxes of $6.8 million related primarily to U.S. stateand foreign taxes. As discussed below in Critical Accounting Policies - Income Taxes, we continue to maintain a valuation allowance on the majority of ournet operating losses and other deferred tax assets and are in the process of determining the impact that H.R.1., known as the Tax Cuts and Jobs Act of 2017,will have on our provision for (benefit from) income taxes in the future.In 2016, we recorded a provision for income taxes of $16.7 million, principally due to income taxes payable by our VIEs. In 2015, we recorded aprovision for income taxes of $30.4 million, principally due to the consolidation of Parion as a VIE into our consolidated financial statements.Noncontrolling Interest (VIEs)The net (income) loss attributable to noncontrolling interest (VIEs) recorded on our consolidated statements of operations reflects Parion (throughSeptember 30, 2017) and BioAxone’s net (income) loss for the reporting period, adjusted for any changes in the noncontrolling interest holders’ claim to netassets, including contingent milestone, royalty and option payments. A summary of net (income) loss attributable to noncontrolling interest related to ourVIEs for the three years ended December 31, 2017 is as follows: 2017 2016 2015 (in thousands)Loss attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fairvalue of contingent payments$223,379 $10,086 $6,646(Benefit from) provision for income taxes(114,090) 16,743 29,731Decrease (increase) in fair value of contingent payments62,560 (54,850) (4,530)Net loss (income) attributable to noncontrolling interest$171,849 $(28,021) $31,847The net loss attributable to noncontrolling interest in the year ended December 31, 2017 was primarily related to the $255.3 million impairment chargerelated to Parion’s pulmonary ENaC platform, a decrease in fair value of the contingent payments payable by us to Parion of $69.6 million and benefit fromincome taxes of $126.2 million related to these charges. The net income attributable to noncontrolling interest in 2016 and the net loss attributable tononcontrolling interest in 2015 were primarily related to an increase in the fair value of contingent payments based on a Phase 2 clinical trial of VX-37157achieving its primary safety endpoint and a provision for income taxes related to our $80.0 million upfront payment to Parion, respectively. As of September30, 2017, we have deconsolidated Parion.LIQUIDITY AND CAPITAL RESOURCESThe following table summarizes the components of our financial condition as of December 31, 2017 and 2016: Increase/(Decrease) 2017 2016 $ % (in thousands, except percentages)Cash, cash equivalents and marketable securities$2,088,666 $1,434,557 $654,109 46%Working Capital Total current assets$2,648,963 $1,831,540 $817,423 45%Total current liabilities(807,260) (792,537) (14,723) 2%Total working capital$1,841,703 $1,039,003 $802,700 77%As of December 31, 2017, we had cash, cash equivalents and marketable securities of $2.1 billion, which represented an increase of $654.1 million fromapproximately $1.4 billion as of December 31, 2016. The increase in our cash, cash equivalents and marketable securities balance in 2017 was primarily dueto increased cash receipts from product sales, cash received from issuances of common stock under our employee benefit plans and $193.6 million of the$230.0 million upfront payment received from our collaboration with Merck KGaA, partially offset by cash expenditures in 2017, related to among otherthings research and development expenses and sales, general and administrative expenses, the $300.0 million repayment of our revolving credit facility andthe $160.0 million payment to Concert in connection with the acquisition of VX-561. We expect that our future cash flows will be substantially dependenton our CF product sales.As of December 31, 2017, total working capital was $1.8 billion, which represented an increase of $802.7 million from approximately $1.0 billion as ofDecember 31, 2016. The most significant items that increased total working capital in 2017 were $844.9 million cash provided by operations and $344.8million cash received from issuances of common stock under our employee benefit plans, partially offset by the $300.0 million repayment of our revolvingcredit facility.Sources of LiquidityWe intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source ofliquidity. We are receiving cash flows from sales of ORKAMBI and KALYDECO from the United States and ex-U.S. markets and will begin receiving cashflows from sales of SYMDEKO in the United States in 2018. We submitted an MAA to the EMA for tezacaftor in combination with ivacaftor and expect theEMA to complete its review in the second half of 2018. Future net product revenues for ORKAMBI and, if approved, tezacaftor in combination withivacaftor, from ex-U.S. markets will be dependent on, among other things, the timing of and ability to complete reimbursement discussions in Europeancountries.In February 2017, we repaid the $300.0 million we had borrowed under our $500.0 million revolving credit facility. We may repay and reborrowamounts under the revolving credit agreement without penalty. Subject to certain conditions, we may request that the borrowing capacity under this creditagreement be increased by an additional $300.0 million.In 2015 and 2017, we also received significant proceeds from the issuance of common stock under our employee benefit plans and more limited proceedsfrom employee benefit plans in 2016. The amount and timing of future proceeds from employee benefits plans is uncertain. Other possible sources ofliquidity include strategic collaborative agreements that include research and/or development funding, commercial debt, public and private offerings of ourequity and debt securities, development milestones and royalties on sales of products, software and equipment leases, strategic sales of assets or businessesand financial transactions. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity.Future Capital RequirementsWe incur substantial operating expenses to conduct research and development activities and to operate our organization. Under the terms of our creditagreement entered into in October 2016, we are required to repay all outstanding principal amounts in 2021. We also have substantial facility and capitallease obligations, including leases for two buildings in Boston,58Massachusetts that continue through 2028 and capital expenditures for our building under construction in San Diego, California. As of December 31, 2017,we have collected approximately $232.4 million from ORKAMBI early access programs in France for which the price is not fixed or determinable. We expectwe will be required to repay a portion of the collected amounts to the French government based on the difference between the invoiced price of ORKAMBIand the final price for ORKAMBI in France once we conclude our ongoing pricing discussions with the French government.In addition, we have entered into certain collaboration agreements with third parties that include the funding of certain research, development andcommercialization efforts with the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental andregulatory targets and/or commercial targets and we may enter into additional business development transactions that require additional capital. Our board ofdirectors has also authorized a share repurchase program pursuant to which we may use up to $500.0 million to repurchase shares of our common stockthrough December 31, 2019.We expect that cash flows from ORKAMBI, KALYDECO and SYMDEKO, together with our current cash, cash equivalents and marketable securities willbe sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capitalrequirements will depend on many factors, including the amounts of future revenues generated by ORKAMBI, KALYDECO and SYMDEKO, and thepotential 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 StrategyWe have a $500.0 million revolving credit facility that we entered into in October 2016. We may repay and reborrow amounts under the revolving creditagreement without penalty. In addition, subject to certain conditions, we may request that the borrowing capacity under this credit agreement be increased byan additional $300.0 million. We may raise additional capital through public offerings or private placements of our securities or securing new collaborativeagreements or other methods of financing. We will continue to manage our capital structure and will consider all financing opportunities, whenever they mayoccur, that could strengthen our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptableterms, if at all.CONTRACTUAL COMMITMENTS AND OBLIGATIONSThe following table sets forth our commitments and obligations as of December 31, 2017: Payments Due by Period 2018 2019-2020 2021-2022 2023 and later Total (in thousands)Fan Pier Leases$61,606 $145,178 $145,178 $462,442 $814,404Facility leases, excluding Fan Pier Leases22,845 43,409 41,959 187,343 295,556Capital lease obligations24,004 15,686 5,382 387 45,459Research, development and drug supply costs34,878 — — — 34,878Other4,653 4,004 308 7,572 16,537Total contractual commitments and obligations$147,986 $208,277 $192,827 $657,744 $1,206,834LeasesWe lease two buildings that are located at Fan Pier in Boston, Massachusetts. We commenced lease payments on these two buildings in December 2013and the initial lease periods end in December 2028.In December 2015, we entered into a lease agreement, pursuant to which we agreed to lease approximately 170,000 square feet of office and laboratoryspace in a building under construction in San Diego, California. We expect to commence base rent payments in the second quarter of 2019 and the lease has aterm of 16 years. The future minimum rental payments that we are obligated to pay after taking occupancy are included in “Facility leases, excluding Fan PierLeases.”The table also reflects leases of equipment and leasehold improvements that are accounted for as capital leases.59Research, Development and Drug Supply CostsThe amounts reflected in “Research, development and drug supply costs”, do not include certain payments we are obligated to make to clinical researchorganizations, or CROs, because these contracts are cancelable, at our option, with notice. However, we historically have not cancelled such contracts. As ofDecember 31, 2017, we had accrued $35.8 million related to these contracts for costs incurred for services provided through December 31, 2017, and we haveapproximately $148.5 million in cancelable future commitments based on existing contracts as of December 31, 2017. These amounts reflect plannedexpenditures based on existing contracts and do not reflect any future modifications to, or terminations of, existing contracts or anticipated or potential newcontracts.Collaborative Arrangements and Asset AcquisitionsWe have entered into certain research and development collaboration agreements with third parties and acquired certain assets that include the fundingof certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments by us upon theachievement of pre-established developmental, regulatory and/or commercial targets. Our obligation to fund these efforts is contingent upon continuedinvolvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs. Our payment obligations under thesecollaboration agreements include the following:•CFFT: CFFT has the right to tiered royalties ranging from single digits to sub-teens on any approved drugs first synthesized and/or tested during aresearch term on or before February 28, 2014, including KALYDECO, ORKAMBI, lumacaftor, ivacaftor and tezacaftor and royalties ranging fromlow 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 VX-659 and VX-445. For combination products, such as ORKAMBI and SYMDEKO, sales are allocated equally to each of theactive pharmaceutical ingredients in the combination product.•CRISPR: CRISPR has the potential to receive milestone and royalty payments, including up to $420.0 million in development, regulatory andcommercial milestone payments for each of up to six targets pursuant to the collaboration.•Moderna: Moderna has the potential to receive milestone and royalty payments, including up to $275.0 million in development and regulatorymilestones.•BioAxone: BioAxone has the potential to receive milestone and royalty payments, including up to $90.0 million in development and regulatorymilestone payments (including a license continuation fee).•Parion: Parion has the potential to receive milestone and royalty payments, including up to $485.0 million in development and regulatorymilestone payments for the development of VX-371 and/or VX-551 to treat CF.In addition to the above collaborations, in 2017 we acquired certain CF assets including VX-561 from Concert pursuant to an asset purchase agreement.Under the asset purchase agreement, Concert has the potential to receive milestone payments, including up to $90.0 million in milestones based onregulatory approval in the U.S. and reimbursement in the U.K., Germany or France.Contingent payments under these agreements become due and payable only upon achievement of certain milestones and are not included in thecontractual obligations table above.Tax-related ObligationsWe exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of theperiod of cash settlement with the respective taxing authorities. As of December 31, 2017, we did not have any liabilities associated with uncertain taxpositions. As of December 31, 2017, we cannot reasonably estimate the amount we expect to pay within the next twelve months in connection with any suchsettlements.Other Funding CommitmentsOur table detailing contractual commitments and obligations does not include severance payment obligations to certain of our executive officers in theevent of a not-for-cause employment termination under existing employment contracts. We provide information regarding these obligations annually in ourproxy statement for our annual meeting of shareholders.60CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements prepared inaccordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make certainestimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzedby management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflectedin reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe tobe reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantiallyaccurate.We believe that our application of the following accounting policies, each of which requires significant judgments and estimates on the part ofmanagement, are the most critical to aid in fully understanding and evaluating our reported financial results:•revenue recognition;•intangible assets;•collaborations; variable interest entities;•research and development accruals;•commercial supplies and inventories;•income taxes;•leases; and•stock-based compensation expense.Our accounting policies, including the ones discussed below, are more fully described in the Notes to our consolidated financial statements, includingNote A, “Nature of Business and Accounting Policies,” included in this Annual Report on Form 10-K.Revenue RecognitionProduct Revenues, NetWe generate product revenues from sales in the United States and in international markets. We sell our products principally to a limited number ofspecialty pharmacy providers in North America as well as government-owned and supported customers in international markets, collectively, our customers.Our customers in North America subsequently resell our products to patients and health care providers. We contract with government agencies so that ourproducts will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We recognize net product revenues from sales of ourproducts upon delivery to our customers as long as:•there is persuasive evidence that an arrangement exists between us and our customer;•collectability is reasonably assured; and•the price is fixed or determinable.In order to conclude that the price is fixed or determinable, we must be able to calculate our gross product revenues from our customers and reasonablyestimate our net product revenues upon delivery to our customers’ locations. Our gross product revenues are based on the fixed price for our products that wecharge our customers. We estimate our net product revenues by deducting from our gross product revenues (i) trade allowances, such as invoice discounts forprompt payment and customer fees, (ii) estimated government and private payor rebates, chargebacks and discounts, (iii) estimated reserves for expectedproduct returns and (iv) estimated costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers. We makesignificant estimates and judgments that materially affect our recognition of net product revenues. Changes in our estimates of net product revenues couldhave a material effect on net product revenues recorded in the period in which we determine that change occurs.61The value of the rebates, chargebacks and discounts provided to third-party payors per course of treatment vary significantly and are based ongovernment-mandated discounts and our arrangements with other third-party payors. In order to estimate our total rebates, chargebacks and discounts, weestimate the percentage of prescriptions that will be covered by each third-party payor, which is referred to as the payor mix. We track available informationregarding changes, if any, to the payor mix for our products, to our contractual terms with third-party payors and to applicable governmental programs andregulations and levels of our products in the distribution channel. We adjust our estimated rebates, chargebacks and discounts based on new information,including information regarding actual rebates, chargebacks and discounts for our products, as it becomes available. Claims by third-party payors for rebates,chargebacks and discounts are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the newinformation becomes known.Our customers generally have the right to return unopened unprescribed packages subject to contractual limitations. To date, returns have been minimaland, based on inventory levels held by our customers and our distribution model, we believe that returns of products will continue to be minimal. We trackactual returns by individual production lots and will continue to monitor inventory levels in the distribution channel. If necessary, we will adjust ourestimated product returns based on new information as it becomes available.In certain instances, we may be unable to reasonably conclude that the price is fixed or determinable at the time of delivery, in which case we defer therecognition of revenues. Once we are able to determine that the price is fixed or determinable, we recognize the revenues associated with the units in whichrevenue recognition was deferred. For example, we began distributing ORKAMBI in France in 2015 through early access programs but have not recognizedany revenues from product sales through December 31, 2017 because the price is not fixed or determinable due to the ongoing pricing discussions regardingthe reimbursement rate for ORKAMBI in France. Our consolidated balance sheets included $232.4 million and $73.4 million collected as of December 31,2017 and 2016, respectively, in France related to ORKAMBI that are classified as “Customer deposits”. We expect that the difference between the amountscollected based on the invoiced price and the final price for ORKAMBI in France will be returned to the French government.Because we concluded that the price is not fixed or determinable as of December 31, 2017, the amounts classified as customer deposits related toshipments of ORKAMBI under early access programs will be subject to the new guidance applicable to revenue recognition that became effective January 1,2018. Pursuant to the new guidance, we will record a cumulative effect adjustment to our accumulated deficit in the first quarter of 2018. The amount of theadjustment to accumulated deficit will be determined based upon (i) the status of pricing discussions in France upon adoption and (ii) our estimate of theamount of consideration we expect to retain related to the French ORKAMBI sales that occurred on or prior to December 31, 2017 that will not be subject to asignificant reversal in amounts recognized. For ORKAMBI sales in France that occur after December 31, 2017 under the early access programs, we willrecognize product revenues based on our estimate of consideration we expect to retain that will not be subject to a significant reversal in amounts recognized.In periods after the first quarter of 2018, if our estimates regarding the amounts we will receive for ORKAMBI supplied pursuant to these programs change,the effect of the change in estimates, which may be significant, would be reflected in net product revenues in the period in which the change in estimateoccurred. For more information regarding the new guidance please see Note A, “Nature of Business and Accounting Policies.” Collaborative RevenuesWe recognize revenues generated through collaborative research, development and/or commercialization agreements. The terms of these agreementstypically include payment to us of one or more of the following: nonrefundable, up-front license fees; development and commercial milestone payments;funding of research and/or development activities; and royalties on net sales of licensed products. Each of these types of payments that result in collaborativerevenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues.For each collaborative research, development and/or commercialization agreement that results in revenues, we determine (i) whether multipledeliverables exist, (ii) whether the undelivered elements have value to the customer on a stand-alone basis, (iii) how the deliverables should be separated and(iv) how the consideration should be allocated to the deliverables. We allocate consideration in an arrangement using the relative selling price method basedon our best estimate of selling price of deliverables if we do not have vendor-specific objective evidence or third-party evidence. As part of the accountingfor these agreements, we must develop assumptions that require judgment to determine the best estimate of selling price. We utilize key assumptions todetermine the best estimate of selling price, which may include patient enrollment requirements from regulatory authorities, development timelines,reimbursement rates for personnel costs, discount rates, and estimated third-party development costs.62Intangible AssetsWe maintain an indefinite-lived in-process research and development asset on our consolidated balance sheet until either the research and developmentproject underlying it is completed or the asset becomes impaired. When we determine that an asset has become impaired or we abandon a project, we writedown the carrying value of the related intangible asset to its fair value and take an impairment charge in the period in which the impairment occurs.We assess the fair value of assets, including intangible assets such as in-process research and development assets, using a variety of methods, includingpresent-value models that are based upon multiple probability-weighted scenarios involving the development and potential commercialization of theunderlying drug candidates. The present-value models require us to make significant assumptions regarding the estimates that market participants wouldmake in evaluating a drug candidate, including the probability of successfully completing clinical trials and obtaining regulatory approval to market thedrug candidate, the timing of and the expected costs to complete in-process research and development projects, future net cash flows from potential drugsales, which are based on estimates of the sales price of the drug, the number of patients who will be diagnosed and treated and our competitive position inthe marketplace, and appropriate discount and tax rates.We test our intangible assets for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstancesuggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additionalclinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drugcandidate or new information regarding potential sales for the drug. In connection with each annual impairment assessment and any interim impairmentassessment, we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on our consolidated balance sheet.As of December 31, 2017, we had $29.0 million as an indefinite-lived intangible asset recorded on our consolidated balance sheet related to BioAxone,our variable interest entity (VIE) that we consolidated as of December 31, 2017. In the third quarter of 2017, a full intangible asset impairment charge of$255.3 million related to Parion’s pulmonary ENaC platform was recorded. We had recorded the indefinite-lived intangible asset for Parion on ourconsolidated balance sheet based on our estimate of the fair value of Parion’s pulmonary ENaC platform in June 2015 and made significant estimatesregarding: (i) the probability of obtaining regulatory approval for an ENaC drug candidate; (ii) the timing and expected costs to develop and commercializean ENaC drug candidate; (iii) future cash flows from potential product sales with respect to an ENaC drug candidate and (iv) appropriate discount and taxrates. The timing of this impairment charge was based on changes in our estimates regarding the potential to develop this asset, which were reflected in ourreported results in the period in which they became known.Collaborations; Variable Interest EntitiesOur collaborations require us to apply accounting policies that involve significant judgments and that have a material effect on our consolidatedfinancial statements. We review each collaboration agreement pursuant to which we license assets owned by a collaborator in order to determine whether wehave a variable interest via the license agreement with the collaborator and if the variable interest is a variable interest in the collaborator as a whole. Inconnection with this assessment, we consider and make judgments regarding the following, among other factors: (1) whether the collaborator is a business;(2) the purpose and design of the collaborator; (3) the value of the licensed asset(s) as compared to the value of the collaborator as a whole; and (4) whichparty has the power to direct the activities that most significantly affect the collaborator’s economic performance. For example, in connection with the Parioncollaboration, we consolidated Parion’s financial statements into our financial statements from June 2015 through September 2017. To reach this conclusionwe determined that (a) Parion was a business; (b) the purpose and redesign of Parion was to advance the development and commercialization of the licensedassets with a company that is able to effectively develop and commercialize products for the treatment of cystic fibrosis and other pulmonary diseases; (c) thelicensed assets represented significantly more than half the value of Parion; and (d) through the joint steering committee, we had the power to direct thedevelopment and commercialization of Parion’s ENaC inhibitors, which were the activities that most significantly affected the economic performance ofParion during this period of time. Similarly, we have determined that BioAxone is a VIE that we have consolidated into our financial statements since 2014.We evaluate on a quarterly basis if we continue to have a variable interest in each VIE and are the primary beneficiary of the VIE, and if we laterdetermine that we no longer have a variable interest or are no longer the primary beneficiary, we deconsolidate the applicable VIE. This evaluation involvesan assessment of the activities being conducted pursuant to our collaboration agreement with the collaborator, the collaborator’s financial statements,discussions with the collaborator’s management regarding its other activities, including any new collaborations, financing activities, clinical data and thecollaborator’s other programs.63After evaluating the results from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint, we determined, based on among otherthings, the significance of the ENaC development activities and the decrease in the fair value of Parion’s pulmonary ENaC platform relative to Parion’s otheractivities, that we were no longer the primary beneficiary of Parion as we no longer had the power to direct the significant activities of Parion. Accordingly,we deconsolidated Parion as of September 30, 2017.We believe that the following effects of the consolidation and deconsolidation of VIEs on our consolidated financial statements are the most significant:•In each period, we record net income (loss) attributable to our VIEs noncontrolling interest. This net income (loss) reflects our VIEs net income (loss)for the period as adjusted for gains and losses in the fair value of the contingent payments, which consist of milestone, royalty and optionpayments, payable by us to our VIEs. Determining the fair value of the contingent payments payable by us to our VIEs requires us to makesignificant estimates regarding the probability and potential timing of achieving each of the milestones pursuant to the agreement, futurepotential net sales of licensed products and appropriate discount rates. We expect that the net income (loss) attributed to noncontrolling interestwill continue to be affected by changes in the fair value of the contingent payments. In 2017, the fair value of contingent payments payable byus decreased by $62.6 million primarily due to the Phase 2 clinical trial of VX-371 not meeting its primary efficacy endpoint. In 2016 and 2015,the fair value of contingent payments payable by us increased by $54.9 million and $4.5 million, respectively. The increase in fair value of thecontingent payments in 2016 primarily related to a separate Phase 2 clinical trial of VX-371 achieving its primary safety endpoint. The changesin the fair value of contingent payments decrease or increase our net loss attributable to Vertex on a dollar-for-dollar basis.•We recorded $255.3 million and $29.0 million, respectively, of intangible assets on our consolidated balance sheet based on our estimate of the fairvalue of Parion’s and BioAxone’s in-process research and development assets as of the applicable transaction date and made significantestimates regarding: (i) the probability of obtaining regulatory approval for the applicable licensed drug candidate(s); (ii) the timing andexpected costs to develop and commercialize the applicable licensed drug candidate(s); (iii) future cash flows from potential product sales withrespect to the applicable licensed drug candidate(s) and (iv) appropriate discount and tax rates. If we are successful in developing a drugcandidate, we will amortize the carrying value of the relevant intangible asset. We test these in-process research and development assets forimpairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest thatimpairment may exist. In September 2017, we determined that the intangible assets associated with Parion’s ENaC program has been impairedprimarily due to the Phase 2 clinical trial of VX-371 not meeting its primary efficacy endpoint. If the fair value of any other licensed programbecomes impaired as the result of safety or efficacy data from any ongoing or future clinical trial conducted by us or our competitors or becauseof any other information regarding the prospects of successfully developing or commercializing the applicable licensed drug candidate(s), wecould incur significant charges in the period in which the impairment occurs.•The revenues, research and development expenses and sales, general and administrative expenses of our VIEs that are unrelated to the programs thatwe in-license from our VIEs and that are consolidated into our financial statements are set forth in the table below and represent approximately2% or less of our revenues, research and development expenses and sales, general and administrative expenses in each period: 2017 2016 2015 (in thousands)Revenues$43,376 $944 $2,888Research and development expenses(7,729) (6,762) (3,642)Sales, general and administrative expenses(3,826) (4,160) (5,836)Other (expenses) income, net(255,200) (108) (56)Loss attributable to noncontrolling interest before provision for income taxes and changes in fairvalue of contingent payments$(223,379) $(10,086) $(6,646)To the extent that BioAxone pursues other programs, expenses related to those activities would be reflected in our research and developmentexpenses and our sales, general and administrative expenses as a result of the financial statement consolidation. We would not be entitled to anybenefits from those activities. In future periods, BioAxone could increase their operating expenses related to other activities and any such increaseswould affect our operating expenses as presented in our consolidated financial statements.64•We reflect all of our VIEs' cash and cash equivalents under the heading “Restricted cash and cash equivalents (VIE)” on our consolidated balancesheets. We do not have any rights to our VIEs cash or cash equivalents, these resources are not available to fund research and development programspursuant to the collaborations and these amounts do not provide us with any additional liquidity. Our VIEs have control over the restricted cash andcash equivalents (VIE), including the ability to distribute the restricted cash and cash equivalents to their equity holders, and as a result, these assets,although carried on our consolidated balance sheets, are not included in the discussion of our liquidity and should be disregarded when evaluatingour financial condition.In order to account for the fair value of the intangible assets and contingent payments related to collaborations with our VIEs under GAAP, we usepresent-value models based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the timing of achieving themilestones, estimates of future product sales and the appropriate discount rates. We base our estimates of the probability of achieving the relevant milestoneson industry data for similar assets and our own experience. The discount rates used in the valuation model represent a measure of credit risk and market riskassociated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions during each reporting period.Changes in these assumptions could have a material effect on the fair value of the contingent payments and affect the analysis of whether or not an intangibleasset is impaired.Research and Development AccrualsResearch and development expenses, including amounts funded through research and development collaborations, are expensed as incurred. Whenthird-party service providers’ billing terms do not coincide with our period-end, we are required to make estimates of our obligations to those third parties,including clinical trial and pharmaceutical development costs, contractual services costs, costs for drug supply, marketing expenses and infrastructureexpenses incurred in a given accounting period and record accruals at the end of the period. We base our estimates on our knowledge of the research anddevelopment programs, services performed for the period, experience with related activities and the expected duration of the third-party service contract,where applicable.Commercial Supplies and InventoriesWe began capitalizing the costs of our tezacaftor inventories in the first quarter of 2017. Tezacaftor in combination with ivacaftor, or SYMDEKO, is acombination therapy that was approved by the FDA in February 2018. We capitalize inventories produced in preparation for initiating sales of a drugcandidate when the related drug candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverablethrough sale of the inventories. In determining whether or not to capitalize such inventories, we evaluate, among other factors, information regarding the drugcandidate’s safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales,including the existence of current or anticipated competitive drugs and the timing and availability of reimbursement. In addition, we evaluate risksassociated with manufacturing the drug candidate and the remaining shelf life of the inventories.After we begin capitalizing inventories, we perform an assessment of the recoverability of capitalized inventory during each reporting period, and writedown any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. Periodic assessments of therecoverability of capitalized costs involve significant estimates and judgments on the part of management, including the outlook for commercial sales, whichcan be effected by the existence of current or anticipated competitive medicines, including additional medicines that we develop that are alternativetreatments to our previously approved medicines and the timing and availability of reimbursement. As of December 31, 2017, all of our inventories arerelated to CF products. Our inventory write offs for 2017 were $15.3 million and we had no write offs in 2016 and 2015. The write offs in 2017 were primarilydue to delays in securing reimbursement in certain markets.Income TaxesWe utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based onthe difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which thetemporary differences are expected to reverse. If our estimate of the tax effect of reversing temporary differences is (i) not reflective of actual outcomes, (ii)modified to reflect new developments or interpretations of the tax law, or (iii) revised to incorporate new accounting principles, or changes in the expectedtiming or manner of the reversal, our results of operations could be materially impacted. We provide a valuation allowance when it is more likely than notthat deferred tax assets will not be realized. We recognize the benefit of an uncertain tax position that has been taken or we expect to take on income taxreturns if such tax position is more likely than not to be sustained.65We maintain a valuation allowance on the majority of our net operating losses and other deferred tax assets. Accordingly, we have not reported any taxbenefit relating to the remaining net operating loss carryforwards and income tax credit carryforwards that are available for utilization in future periods. OurU.S. federal net operating loss carryforwards totaled approximately $3.6 billion as of December 31, 2017. On a periodic basis, we reassess the valuationallowance on our deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. In 2017, wereassessed the valuation allowance and considered negative evidence, including our cumulative losses over the three years ended December 31, 2017, andpositive evidence, including our income during the year ended December 31, 2017 and our projections of future income. After assessing both the negativeevidence and the positive evidence, we concluded that we should continue to maintain the valuation allowance on the majority of our net operating lossesand other deferred tax assets as of December 31, 2017 given the significance of the weight of the negative evidence. Based on our recent financialperformance and our future projections, we could record a reversal of all, or a portion of the valuation allowance associated with U.S. deferred tax assets infuture periods. However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at thetime of the assessment. Our total deferred tax asset balance subject to the valuation allowance was approximately $1.6 billion at December 31, 2017.Significant judgment is required in making these assessments to maintain or reverse our valuation allowances and, to the extent our future expectationschange we would have to assess the recoverability of these deferred tax assets at that time. If we determine that these deferred tax assets are not realizable in afuture period, we would record material changes to income tax expense in that period.On December 22, 2017, H.R.1, known as the Tax Cuts and Jobs Act, was signed into law. The new law did not have a significant impact on ourconsolidated financial statements for the year ended December 31, 2017 because we maintain a valuation allowance on the majority of our net operatinglosses and other deferred tax assets. We are in the process of determining the impact that the new law will have on our consolidated financial statements in2018 and beyond; however, we do not expect it to have a material impact as long as we maintain a valuation allowance on the majority of our net operatinglosses and other deferred tax assets.LeasesIn 2011, we entered into two leases for our corporate headquarters. Our corporate headquarters were built during the period from 2011 through December2013. We lease our corporate headquarters pursuant to leases that expire in 2028, subject to our right to extend the leases for an additional 10 years. Becausewe were involved in the construction project, we were deemed for accounting purposes to be the owner of the buildings during the construction period.Accordingly, we recorded project construction costs incurred by the landlord as an asset and a related financing obligation in “Property and equipment, net”and “Construction financing lease obligation,” respectively, on our consolidated balance sheets.Upon completion of the construction of the corporate headquarters buildings, we evaluated the leases and determined that the leases did not meet thecriteria for “sale-leaseback” treatment. Accordingly, we depreciate the asset and incur interest expense related to the financing obligation recorded on ourconsolidated balance sheet. We bifurcate our lease payments pursuant to the leases into (i) a portion that is allocated to the buildings and (ii) a portion that isallocated to the land on which the buildings were constructed. We incurred $60.1 million in interest expense, $13.3 million in depreciation expense and $6.5million in operating expense in 2017 related to these leases. In 2018, we expect interest expense, depreciation expense and operating expenses related to theleases for our corporate headquarters to be approximately consistent with that from 2017.In 2015, we entered into a lease agreement for a research and development facility under construction in San Diego. Because we are involved in theconstruction project, we are deemed for accounting purposes to be the owner of the building during the construction period and are recording projectconstruction costs incurred by the landlord. As of December 31, 2017, we have recorded $94.6 million and $87.4 million in “Property and equipment, net”and “Construction financing lease obligation”, respectively, on our consolidated balance sheet. We will need to evaluate this lease based on “sale-leaseback”criteria upon completion of the construction, which is anticipated to be in the first half of 2018. We currently expect this lease will not meet the criteria andwill be accounted for in the same manner as we have accounted for the leases for our corporate headquarters.Stock-based Compensation ExpenseStock-based compensation expense is determined based on the fair value of the equity award at the grant date and is adjusted each period to reflectactual forfeitures and the outcomes of certain performance conditions. For awards with performance conditions that accelerate vesting of the award, weestimate the likelihood of satisfaction of the performance conditions, which affects the period over which the expense is recognized, and recognize theexpense using the accelerated66attribution model. For awards with performance conditions in which the award does not vest unless the performance condition is met, we recognize expenseonly if we estimate that achievement of the performance condition is probable. If we conclude that vesting is probable, we recognize expense from the datethat we reach this conclusion through the estimated vesting date. Starting in 2016, we also granted awards with a variable number of shares issuable pursuantto such awards. Half of the PSUs contain financial goals and the other half contain non-financial goals. A target number of shares is established for eachaward, however the actual number of shares that will be issued when an award vests may range from zero to 200% of the target amount depending on the levelof achievement of the applicable performance metric. We also provide to employees who have rendered a certain number of years of service and meet certainage requirements, partial or full acceleration of vesting of their equity awards, subject to certain conditions including a notification period, upon atermination of employment other than for cause. If our estimates regarding the employees who will be eligible for partial or full acceleration of their equityawards, if the likelihood of achievement of a performance conditions changes or if any of our other assumptions or estimates prove incorrect, our stock-basedcompensation expense, or the period over which our stock-based compensation is recognized, could be materially affected.RECENT ACCOUNTING PRONOUNCEMENTSRefer to Note A, “Nature of Business and Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion ofrecent accounting pronouncements and new accounting pronouncements adopted during 2017.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAs part of our investment portfolio, we own financial instruments that are sensitive to market risks. The investment portfolio is used to preserve ourcapital until it is required to fund operations, including our research and development activities. None of these market risk-sensitive instruments is held fortrading purposes. We do not have derivative financial instruments in our investment portfolio.Interest Rate RiskWe invest our cash in a variety of financial instruments, principally securities issued by the U.S. government and its agencies, investment-gradecorporate bonds and commercial paper, and money market funds. These investments are denominated in U.S. dollars. All of our interest-bearing securities aresubject to interest rate risk and could decline in value if interest rates fluctuate. Substantially all of our investment portfolio consists of marketable securitieswith active secondary or resale markets to help ensure portfolio liquidity, and we have implemented guidelines limiting the term-to-maturity of ourinvestment instruments. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. If interestrates were to increase or decrease by 1%, the fair value of our investment portfolio would increase or decrease by an immaterial amount.In October 2016, we entered into a credit agreement. Loans under the credit agreement bear interest, at our option, at either a base rate or a Eurodollarrate, in each case plus an applicable margin. The applicable margin on base rate loans ranges from 0.75% to 1.50% and the applicable margin on Eurodollarloans ranges from 1.75% to 2.50%, in each case, based on our consolidated leverage ratio (as defined in the credit agreement). We do not believe that changesin interest rates related to the credit agreement would have a material effect on our financial statements. As of December 31, 2017, we had no principal orinterest outstanding. A portion of our interest expense, net in 2018 will be dependent on whether, and to what extent, we reborrow amounts under the existingfacility.Foreign Exchange Market RiskAs a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, Swiss Franc, British Pound,Australian Dollar and Canadian Dollar against the U.S. Dollar. The current exposures arise primarily from cash, accounts receivable, intercompanyreceivables and payables, payables and accruals and inventories. Both positive and negative affects to our net revenues from international product sales frommovements in foreign currency exchange rates are partially mitigated by the natural, opposite affect that foreign currency exchange rates have on ourinternational 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 andforecasted revenues and expenses denominated in foreign currencies. We currently have cash flow hedges for the Euro, British Pound and Australian Dollarrelated to forecasted product revenues that qualify for hedge accounting treatment under U.S. GAAP. We do not seek hedge accounting treatment for ourforward contracts related to monetary assets and liabilities that impact our operating results. As of December 31, 2017, we held foreign exchange forwardcontracts with notional amounts totaling $488.1 million. As of December 31, 2017, our outstanding foreign exchange forward contracts had a net fair valueof $(15.2) million.67Based on our foreign currency exchange rate exposures at December 31, 2017, a hypothetical 10% adverse fluctuation in exchange rates would decreasethe fair value of our foreign exchange forward contracts that are designated as cash flow hedges by approximately $36.5 million at December 31, 2017. Theresulting loss on these forward contracts would be offset by the gain on the underlying transactions and therefore would have minimal impact on futureanticipated earnings and cash flows. Similarly, adverse fluctuations in exchange rates that would decrease the fair value of our foreign exchange forwardcontracts that are not designated as hedge instruments would be offset by a positive impact of the underlying monetary assets and liabilities.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe information required by this Item 8 is contained on pages F-1 through F-50 of this Annual Report on Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.ITEM 9A.CONTROLS AND PROCEDURES(1) Evaluation of Disclosure Controls and Procedures. The Company’s chief executive officer and chief financial officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the SecuritiesExchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation,the Company’s disclosure controls and procedures were effective. In designing and evaluating the disclosure controls and procedures, the Company’smanagement recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving thedesired control objectives, and the Company’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.(2) Management’s Annual Report on Internal Control Over Financial Reporting. The management of the Company is responsible for establishing andmaintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f)promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principalexecutive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of theCompany;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets thatcould have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In makingthis assessment, it used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (2013 framework)(COSO). Based on its assessment, the Company’s management has concluded that, as of December 31, 2017, theCompany’s internal control over financial reporting is effective based on those criteria.68The Company’s independent registered public accounting firm, Ernst & Young LLP, issued an attestation report on the Company’s internal control overfinancial reporting. See Section 4 below.(3) Changes in Internal Controls. During the quarter ended December 31, 2017, there were no changes in the Company’s internal control over financialreporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.69(4) Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors ofVertex Pharmaceuticals IncorporatedOpinion on Internal Control over Financial ReportingWe have audited Vertex Pharmaceuticals Incorporated’s internal control over financial reporting as of December 31, 2017, based on criteria establishedin Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSOcriteria). In our opinion, Vertex Pharmaceuticals Incorporated (the “Company”) maintained, in all material respects, effective internal control over financialreporting as of December 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated balance sheets of Vertex Pharmaceuticals Incorporated as of December 31, 2017 and 2016, the related consolidated statements of operations,comprehensive income (loss), shareholders’ equity and noncontrolling interest, and cash flows for each of the three years in the period ended December 31,2017, and the related notes and our report dated February 14, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission of the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLPBoston, MassachusettsFebruary 14, 201870ITEM 9B.OTHER INFORMATIONNot applicable.71PART IIIPortions of our definitive Proxy Statement for the 2018 Annual Meeting of Shareholders, or 2018 Proxy Statement, are incorporated by reference intothis Part III of our Annual Report on Form 10-K.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information regarding directors required by this Item 10 will be included in our 2018 Proxy Statement and is incorporated herein by reference. Weexpect this information to be provided under “Election of Directors,” “Corporate Governance and Risk Management,” “Shareholder Proposals for the 2018Annual Meeting and Nominations for Director,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Conduct.” The informationregarding executive officers required by this Item 10 as well as certain information regarding our directors is included in Part I of this Annual Report onForm 10-K.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this Item 11 will be included in the 2018 Proxy Statement and is incorporated herein by reference. We expect thisinformation to be provided under “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,”“Compensation and Equity Tables,” “Director Compensation,” “Management Development and Compensation Committee Report” and/or “CorporateGovernance and Risk Management.”ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this Item 12 will be included in the 2018 Proxy Statement and is incorporated herein by reference. We expect thisinformation to be provided under “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this Item 13 will be included in the 2018 Proxy Statement and is incorporated herein by reference. We expect thisinformation to be provided under “Election of Directors,” “Corporate Governance and Risk Management,” and “Audit and Finance Committee.”ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this Item 14 will be included in the 2018 Proxy Statement and is incorporated herein by reference. We expect thisinformation to be provided under “Ratification of the Appointment of Independent Registered Public Accounting Firm.”72PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)(1) The Financial Statements required to be filed by Items 8 and 15(c) of Form 10-K, and filed herewith, are as follows: Page Number in this Form 10-KReport of Independent Registered Public Accounting FirmF-1Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015F-2Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015F-3Consolidated Balance Sheets as of December 31, 2017 and 2016F-4Consolidated Statements of Shareholders’ Equity and Noncontrolling Interest for the years ended December 31, 2017, 2016 and 2015F-5Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015F-6Notes to Consolidated Financial StatementsF-7(a)(2) Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in theconsolidated financial statements or notes thereto listed in (a)(1) above.(a)(3) Exhibits.The following is a list of exhibits filed as part of this Annual Report on Form 10-K.ExhibitNumberExhibit DescriptionFiled with this reportIncorporated by Reference herein from—Form or ScheduleFiling Date/ Period CoveredSEC File/ Reg. Number3.1Restated Articles of Organization of Vertex Pharmaceuticals Incorporated, asamended. 10-Q(Exhibit 3.1)July 28, 2017000-193193.2Amended and Restated By-Laws of Vertex Pharmaceuticals Incorporated. 10-Q(Exhibit 3.2)July 28, 2017000-193194.1Specimen stock certificate.X Collaboration and Asset Purchase Agreements 10.1Research, Development and Commercialization Agreement, dated as of May 24,2004, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis FoundationTherapeutics Incorporated.† 10-Q/A(Exhibit 10.2)August 19, 2011000-1931910.2Amendment No. 1 to Research, Development and Commercialization Agreement,dated as of January 6, 2006, between Vertex Pharmaceuticals Incorporated andCystic Fibrosis Foundation Therapeutics Incorporated.† 10-K(Exhibit 10.9)March 16, 2006000-1931910.3Amendment No. 2 to Research, Development and Commercialization Agreement,dated as of March 17, 2006, between Vertex Pharmaceuticals Incorporated andCystic Fibrosis Foundation Therapeutics Incorporated. 10-Q/A(Exhibit 10.6)August 19, 2011000-1931910.4Amendment No. 5 to Research, Development and Commercialization Agreement,effective as of April 1, 2011, between Vertex Pharmaceuticals Incorporated andCystic Fibrosis Foundation Therapeutics Incorporated.† 10-Q(Exhibit 10.3)August 9, 2011000-1931910.5Amendment No. 7 to Research, Development and Commercialization Agreement,dated October 13, 2016, between Vertex Pharmaceuticals Incorporated and CysticFibrosis Foundation Therapeutics Incorporated. † 10-K(Exhibit 10.05)February 23, 2017000-1931910.6Strategic Collaboration, Option and License Agreement, dated October 26, 2015,by and among CRISPR Therapeutics AG, CRISPR Therapeutics Limited, CRISPRTherapeutics, Inc., Tracr Hematology Ltd., Vertex Pharmaceuticals Incorporatedand Vertex Pharmaceuticals (Europe) Limited.† 10-K(Exhibit 10.6)February 16, 2016000-1931973ExhibitNumberExhibit DescriptionFiled with this reportIncorporated by Reference herein from—Form or ScheduleFiling Date/ Period CoveredSEC File/ Reg. Number10.7Amendment #1 to Strategic Collaboration, Option and License Agreement, datedDecember 12, 2017, by and among CRISPR Therapeutics AG, CRISPRTherapeutics Limited, CRISPR Therapeutics, Inc., Tracr Hematology Ltd., VertexPharmaceuticals Incorporated and Vertex Pharmaceuticals (Europe) Limited.†X 10.8Strategic Collaboration and License Agreement, dated January 10, 2017, betweenVertex Pharmaceuticals Incorporated and Merck KGaA, Darmstadt, Germany.† 10-Q(Exhibit 10.1)April 28, 2017000-1931910.9Asset Purchase Agreement, dated March 3, 2017, by and among VertexPharmaceuticals (Europe) Ltd., as Buyer, Vertex Pharmaceuticals, Inc., asGuarantor, and Concert Pharmaceuticals, Inc. 10-Q(Exhibit 10.2)April 28, 2017000-19319Leases 10.10Lease, dated May 5, 2011, between Fifty Northern Avenue LLC and VertexPharmaceuticals Incorporated.† 10-Q(Exhibit 10.4)August 9, 2011000-1931910.11Lease, dated May 5, 2011, between Eleven Fan Pier Boulevard LLC and VertexPharmaceuticals Incorporated.† 10-Q(Exhibit 10.5)August 9, 2011000-1931910.12Lease, dated December 2, 2015, between ARE-SD Region No. 23, LLC and VertexPharmaceuticals Incorporated. 10-K(Exhibit 10.10)February 16, 2016000-1931910.13First Amendment to Lease, dated as of March 1, 2017, between ARE-SD RegionNo. 23 and Vertex Pharmaceuticals Incorporated. 10-Q(Exhibit 10.3)April 28, 2017000-19319Financing Agreements10.14Credit Agreement, dated as of October 13, 2016, among Vertex PharmaceuticalsIncorporated, Bank of America, N.A. and the other lenders party thereto. 10-K(Exhibit 10.12)February 23, 2017000-1931910.15First Amendment to Credit Agreement, dated as of February 9, 2017, among VertexPharmaceuticals Incorporated, Bank of America, N.A. and the other lenders partythereto. 10-K(Exhibit 10.13)February 23, 2017000-19319Equity Plans 10.16Amended and Restated 2006 Stock and Option Plan.* 10-Q(Exhibit 10.3)August 8, 2012000-1931910.17Form of Stock Option Agreement under Amended and Restated 2006 Stock andOption Plan (granted prior to July 30, 2013).* 8-K(Exhibit 10.2)May 15, 2006000-1931910.18Form of Restricted Stock Agreement under Amended and Restated 2006 Stock andOption Plan (granted prior to July 30, 2013).* 8-K(Exhibit 10.3)May 15, 2006000-1931910.19Form of Restricted Stock Agreement (Performance Accelerated Restricted Stock)under Amended and Restated 2006 Stock and Option Plan (granted prior to July30, 2013).* 8-K(Exhibit 10.4)May 15, 2006000-1931910.20Form of Stock Option Agreement under Amended and Restated 2006 Stock andOption Plan (granted on or after July 30, 2013).* 10-K(Exhibit 10.20)February 13, 2015000-1931910.21Form of Restricted Stock Agreement under Amended and Restated 2006 Stock andOption Plan (granted on or after July 30, 2013).* 10-K(Exhibit 10.21)February 13, 2015000-1931910.22Form of Restricted Stock Unit Agreement under Amended and Restated 2006 Stockand Option Plan (granted on or after July 30, 2013).* 10-K(Exhibit 10.22)February 13, 2015000-1931910.23Amended and Restated 2013 Stock and Option Plan.* DEF 14A(Appendix C)April 28, 2017000-1931910.24Form of Non-Qualified Stock Option Agreement under 2013 Stock and OptionPlan.* 10-K(Exhibit 10.17)February 13, 2015000-1931910.25Form of Restricted Stock Agreement under 2013 Stock and Option Plan.* 10-K(Exhibit 10.18)February 13, 2015000-1931910.26Form of Restricted Stock Unit Agreement under 2013 Stock and Option Plan(U.S.).* 10-K(Exhibit 10.25)February 16, 2016000-1931910.27Form of Restricted Stock Unit Agreement under 2013 Stock and Option Plan(International).* 10-K(Exhibit 10.19)February 13, 2015000-1931910.28Non-Employee Director Deferred Compensation Plan.* 10-K(Exhibit 10.27)February 16, 2016000-1931910.29Vertex Pharmaceuticals Incorporated Employee Stock Purchase Plan, as amendedand restated as of July 12, 2016.* 10-Q(Exhibit 10.1)August 1, 2016000-1931974ExhibitNumberExhibit DescriptionFiled with this reportIncorporated by Reference herein from—Form or ScheduleFiling Date/ Period CoveredSEC File/ Reg. NumberAgreements with Executive Officers and Directors 10.30Amended and Restated Employment Agreement, dated November 30, 2016, by andbetween Vertex Pharmaceuticals Incorporated and Jeffrey M. Leiden, M.D., Ph.D* 8-K(Exhibit 10.1)December 2, 2016000-1931910.31Employee Non-disclosure, Non-competition and Inventions Agreement betweenJeffrey M. Leiden and Vertex, dated December 14, 2011.* 10-K(Exhibit 10.35)February 22, 2012000-1931910.32Employment Agreement, dated as of August 27, 2012, between VertexPharmaceuticals Incorporated and Stuart Arbuckle.* 10-Q(Exhibit 10.1)November 6, 2012000-1931910.33Change of Control Agreement, dated as of August 27, 2012, between VertexPharmaceuticals Incorporated and Stuart Arbuckle.* 10-Q(Exhibit 10.2)November 6, 2012000-1931910.34Employment Agreement, dated as of December 12, 2014, between VertexPharmaceuticals Incorporated and David Altshuler.* 10-K(Exhibit 10.34)February 16, 2016000-1931910.35Change of Control Agreement, dated as of December 12, 2014, between VertexPharmaceuticals Incorporated and David Altshuler.* 10-K(Exhibit 10.35)February 16, 2016000-1931910.36Amended and Restated Employment Agreement, dated as of November 8, 2004,between Vertex Pharmaceuticals Incorporated and Ian F. Smith.* 10-Q(Exhibit 10.13)November 9, 2004000-1931910.37Amendment No. 1 to Amended and Restated Employment Agreement between IanF. Smith and Vertex Pharmaceuticals Incorporated, dated December 29, 2008.* 10-K(Exhibit 10.66)February 17, 2009000-1931910.38Employment Agreement, dated as of December 2, 2013, between VertexPharmaceuticals Incorporated and Jeffrey Chodakewicz.* 10-Q(Exhibit 10.1)May 4, 2015000-1931910.39Change of Control Agreement, dated as of December 2, 2013, between VertexPharmaceuticals Incorporated and Jeffrey Chodakewicz.* 10-Q(Exhibit 10.2)May 4, 2015000-1931910.40Employment Agreement, dated as of November 14, 2015, between VertexPharmaceuticals Incorporated and Michael Parini.* 10-K (Exhibit 10.40)February 23, 2017000-1931910.41Change of Control Agreement, dated as of November 9, 2015, between VertexPharmaceuticals Incorporated and Michael Parini.* 10-K (Exhibit 10.41)February 23, 2017000-1931910.42Third Amended and Restated Employment Agreement, dated as of February 26,2013, between Vertex Pharmaceuticals Incorporated and Amit Sachdev.* 10-K (Exhibit 10.42)February 23, 2017000-1931910.43Third Amended and Restated Change of Control Agreement, dated as of February26, 2013, between Vertex Pharmaceuticals Incorporated and Amit Sachdev.* 10-K (Exhibit 10.43)February 23, 2017000-1931910.44Employment Agreement, dated as of September 6, 2017, between VertexPharmaceuticals Incorporated and Tom Graney.* 10-Q(Exhibit 10.1)October 30, 2017000-1931910.45Change of Control Agreement, dated as of September 6, 2017, between VertexPharmaceuticals Incorporated and Tom Graney.* 10-Q(Exhibit 10.2)October 30, 2017000-1931910.46Vertex Employee Compensation Plan.*X 10.47Vertex Pharmaceuticals Non-Employee Board Compensation.*X Subsidiaries 21.1Subsidiaries of Vertex Pharmaceuticals Incorporated.X Consent 23.1Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.X Certifications 31.1Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.X 31.2Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.X 32.1Certification of the Chief Executive Officer and the Chief Financial Officer underSection 906 of the Sarbanes-Oxley Act of 2002.X 101.INSXBRL InstanceX 101.SCHXBRL Taxonomy Extension SchemaX 101.CALXBRL Taxonomy Extension CalculationX 101.LABXBRL Taxonomy Extension LabelsX 101.PREXBRL Taxonomy Extension PresentationX 75ExhibitNumberExhibit DescriptionFiled with this reportIncorporated by Reference herein from—Form or ScheduleFiling Date/ Period CoveredSEC File/ Reg. Number101.DEFXBRL Taxonomy Extension DefinitionX * Management contract, compensatory plan or agreement.†Confidential portions of this document have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.76SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Vertex Pharmaceuticals Incorporated February 14, 2018By:/s/ Jeffrey M. Leiden Jeffrey M. LeidenChief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Name Title Date /s/ Jeffrey M. LeidenChair of the Board, President and Chief Executive Officer (Principal ExecutiveOfficer) Jeffrey M. LeidenFebruary 14, 2018 /s/ Thomas GraneySenior Vice President and Chief Financial Officer (Principal Financial Officer) Thomas GraneyFebruary 14, 2018 /s/ Paul M. SilvaSenior Vice President and Corporate Controller (Principal Accounting Officer) Paul M. SilvaFebruary 14, 2018 /s/ Sangeeta N. BhatiaDirector Sangeeta N. BhatiaFebruary 14, 2018 /s/ Alan GarberDirector Alan GarberFebruary 14, 2018 /s/ Terrence C. KearneyDirector Terrence C. KearneyFebruary 14, 2018 /s/ Yuchun LeeDirector Yuchun LeeFebruary 14, 2018 /s/ Margaret G. McGlynnDirector Margaret G. McGlynnFebruary 14, 2018 /s/ Bruce I. SachsDirector Bruce I. SachsFebruary 14, 2018 /s/ Elaine S. UllianDirector Elaine S. UllianFebruary 14, 2018 /s/ William D. YoungDirector William D. YoungFebruary 14, 201877Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors ofVertex Pharmaceuticals IncorporatedOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Vertex Pharmaceuticals Incorporated (the “Company”) as of December 31, 2017 and2016, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and noncontrolling interest, and cash flows foreach of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). Inour opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generallyaccepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 14, 2018 expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond tothose risks. Such procedure included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of thefinancial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLPWe have served as the Company’s auditor since 2005.Boston, MassachusettsFebruary 14, 2018F-1VERTEX PHARMACEUTICALS INCORPORATEDConsolidated Statements of Operations(in thousands, except per share amounts) Year Ended December 31, 2017 2016 2015Revenues: Product revenues, net$2,165,480 $1,683,632 $1,000,324Royalty revenues7,988 16,600 23,959Collaborative revenues315,184 1,945 8,053Total revenues2,488,652 1,702,177 1,032,336Costs and expenses: Cost of product revenues272,675 206,811 117,151Royalty expenses2,444 3,649 7,361Research and development expenses1,324,625 1,047,690 995,922Sales, general and administrative expenses496,079 432,829 376,575Restructuring expenses14,246 1,262 2,206Intangible asset impairment charge255,340 — —Total costs and expenses2,365,409 1,692,241 1,499,215Income (loss) from operations123,243 9,936 (466,879)Interest expense, net(57,550) (81,432) (84,206)Other (expense) income, net(81,382) 4,130 (6,715)Loss before (benefit from) provision for income taxes(15,689) (67,366) (557,800)(Benefit from) provision for income taxes(107,324) 16,665 30,381Net income (loss)91,635 (84,031) (588,181)Loss (income) attributable to noncontrolling interest171,849 (28,021) 31,847Net income (loss) attributable to Vertex$263,484 $(112,052) $(556,334) Amounts per share attributable to Vertex common shareholders: Net income (loss): Basic$1.06 $(0.46) $(2.31)Diluted$1.04 $(0.46) $(2.31)Shares used in per share calculations: Basic248,858 244,685 241,312Diluted253,225 244,685 241,312The accompanying notes are an integral part of the consolidated financial statements.F-2VERTEX PHARMACEUTICALS INCORPORATEDConsolidated Statements of Comprehensive Income (Loss)(in thousands) Year ended December 31, 2017 2016 2015Net income (loss)$91,635 $(84,031) $(588,181)Changes in other comprehensive income (loss): Unrealized holding gains on marketable securities, net of tax of $(2.7) million, $(3.8) million and zero,respectively6,954 17,395 249Unrealized (losses) gains on foreign currency forward contracts, net of tax of $3.4 million, $(3.9) millionand zero, respectively(26,530) 7,736 1,767Foreign currency translation adjustment(13,169) (5,782) (1,109)Total changes in other comprehensive (loss) income(32,745) 19,349 907Comprehensive income (loss)58,890 (64,682) (587,274)Comprehensive loss (income) attributable to noncontrolling interest171,849 (28,021) 31,847Comprehensive income (loss) attributable to Vertex$230,739 $(92,703) $(555,427)The accompanying notes are an integral part of the consolidated financial statements.F-3VERTEX PHARMACEUTICALS INCORPORATEDConsolidated Balance Sheets(in thousands, except share and per share amounts) December 31, 2017 2016Assets Current assets: Cash and cash equivalents$1,665,412 $1,183,945Marketable securities, available-for-sale423,254 250,612Restricted cash and cash equivalents (VIE)1,489 47,762Accounts receivable, net281,343 200,364Inventories111,830 77,604Prepaid expenses and other current assets165,635 71,253Total current assets2,648,963 1,831,540Property and equipment, net789,437 698,362Intangible assets29,000 284,340Goodwill50,384 50,384Cost method investments20,447 20,276Other assets7,783 11,885Total assets$3,546,014 $2,896,787Liabilities and Shareholders’ Equity Current liabilities: Accounts payable$73,994 $61,451Accrued expenses443,961 315,249Deferred revenues, current portion5,169 6,005Accrued restructuring expense, current portion2,175 6,047Capital lease obligations, current portion22,531 19,426Customer deposits232,401 73,416Credit facility— 300,000Other liabilities, current portion27,029 10,943Total current liabilities807,260 792,537Deferred revenues, excluding current portion1,726 6,632Accrued restructuring expense, excluding current portion— 1,907Capital lease obligations, excluding current portion20,496 34,976Deferred tax liability6,341 134,063Construction financing lease obligation, excluding current portion563,406 486,359Advance from collaborator, excluding current portion78,431 73,423Other liabilities, excluding current portion26,048 28,699Total liabilities1,503,708 1,558,596Commitments and contingencies Shareholders’ equity: Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding at December 31, 2017 and 2016— —Common stock, $0.01 par value; 500,000,000 shares authorized, 253,253,362 and 248,300,517 shares issued and outstanding atDecember 31, 2017 and 2016, respectively2,512 2,450Additional paid-in capital7,157,362 6,506,795Accumulated other comprehensive (loss) income(11,572) 21,173Accumulated deficit(5,119,723) (5,373,836)Total Vertex shareholders’ equity2,028,579 1,156,582Noncontrolling interest13,727 181,609Total shareholders’ equity2,042,306 1,338,191Total liabilities and shareholders’ equity$3,546,014 $2,896,787The accompanying notes are an integral part of the consolidated financial statements.F-4VERTEX PHARMACEUTICALS INCORPORATEDConsolidated Statements of Shareholders’ Equity and Noncontrolling Interest(in thousands) Common Stock Additional Paid-in Capital Accumulated Other ComprehensiveIncome (Loss) AccumulatedDeficit Total Vertex Shareholders’Equity Noncontrolling Interest Total Shareholders’Equity Shares Amount Balance, December 31, 2014241,764 $2,385 $5,777,154 $917 $(4,705,450) $1,075,006 $21,177 $1,096,183Other comprehensive income, net of tax— — — 907 — 907 — 907Net loss— — — — (556,334) (556,334) (31,847) (588,181)Issuance of common stock under benefit plans4,543 42 185,234 — — 185,276 14 185,290Stock-based compensation expense— — 235,112 — — 235,112 — 235,112Noncontrolling interest upon consolidation— — — — — — 164,317 164,317Balance, December 31, 2015246,307 $2,427 $6,197,500 $1,824 $(5,261,784) $939,967 $153,661 $1,093,628Other comprehensive income, net of tax— — — 19,349 — 19,349 — 19,349Net (loss) income— — — — (112,052) (112,052) 28,021 (84,031)Issuance of common stock under benefit plans1,994 23 67,983 — — 68,006 — 68,006Stock-based compensation expense— — 241,312 — — 241,312 (73) 241,239Balance, December 31, 2016248,301 $2,450 $6,506,795 $21,173 $(5,373,836) $1,156,582 $181,609 $1,338,191Cumulative effect adjustment for adoption of new accountingguidance— — 9,371 — (9,371) — — —Other comprehensive income, net of tax— — — (32,745) — (32,745) — (32,745)Net income (loss)— — — — 263,484 263,484 (171,849) 91,635Issuance of common stock under benefit plans4,952 62 345,554 — — 345,616 57 345,673Stock-based compensation expense— — 295,642 — — 295,642 — 295,642VIE noncontrolling interest upon deconsolidation— — — — — — 3,910 3,910Balance, December 31, 2017253,253 $2,512 $7,157,362 $(11,572) $(5,119,723) $2,028,579 $13,727 $2,042,306The accompanying notes are an integral part of the consolidated financial statements.F-5VERTEX PHARMACEUTICALS INCORPORATEDConsolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net income (loss)$91,635 $(84,031) $(588,181)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Stock-based compensation expense290,736 237,705 231,025Depreciation expense61,397 61,398 62,343Write-downs of inventories to net realizable value15,292 — —Deferred income taxes(120,513) 16,961 3,283Impairment of property and equipment1,951 — 2,516Intangible asset impairment charge255,340 — —Acquired in-process research and development160,000 — —Deconsolidation of VIE76,644 — —Other non-cash items, net(2,804) 6,140 9,532Changes in operating assets and liabilities: Accounts receivable, net(71,759) (39,095) (110,098)Inventories(44,984) (16,450) (23,146)Prepaid expenses and other assets(111,063) (2,631) (4,009)Accounts payable8,753 (11,745) (1,709)Accrued expenses and other liabilities246,217 88,649 102,746Accrued restructuring expense(5,987) (7,426) (30,492)Deferred revenues(5,913) (13,372) (19,242)Net cash provided by provided by (used in) operating activities844,942 236,103 (365,432)Cash flows from investing activities: Maturities of marketable securities369,214 757,562 1,067,443Purchases of marketable securities(532,581) (616,625) (633,041)Expenditures for property and equipment(99,421) (56,563) (45,302)Purchase of in-process research and development(160,000) — —Investment in note receivable— (20,000) (30,000)Investment in equity securities— (13,075) —(Decrease) increase in restricted cash and cash equivalents (VIE)(15,329) 31,148 11,685Increase (decrease) in restricted cash and cash equivalents and other assets436 22,022 (21,929)Payment for acquisition of variable interest entity— — (80,000)Net cash (used in) provided by investing activities(437,681) 104,469 268,856Cash flows from financing activities: Issuances of common stock under benefit plans344,840 68,230 185,592Payments on revolving credit facility(300,000) — —Advance from collaborator12,500 75,000 —Payments on construction financing lease obligation(541) (432) (381)Proceeds related to construction financing lease obligation27,182 — —Proceeds from capital lease financing7,484 11,208 23,662Payments on capital lease obligations(18,795) (17,597) (19,954)Repayments of advanced funding(4,266) — —Payments on senior secured term loan— (75,000) —Proceeds from revolving credit facility— 74,965 —Payments of debt issuance costs— (3,103) —Net cash provided by financing activities68,404 133,271 188,919Effect of changes in exchange rates on cash5,802 (4,666) (2,834)Net increase in cash and cash equivalents481,467 469,177 89,509Cash and cash equivalents—beginning of period1,183,945 714,768 625,259Cash and cash equivalents—end of period$1,665,412 $1,183,945 $714,768 Supplemental disclosure of cash flow information: Cash paid for interest$68,696 $83,656 $85,613Cash paid for (received from) income taxes$6,414 $(2,579) $1,806Non-cash investing and financing activities: Capitalization of costs related to construction financing lease obligation$40,855 $14,238 $—Issuances of common stock from employee benefit plans receivable$844 $68 $361Proceeds from revolving credit facility directly paid to settle all outstanding obligations under the term loan$— $225,000 $—The accompanying notes are an integral part of the consolidated financial statements.F-6VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial StatementsA.Nature of Business and Accounting PoliciesBusinessVertex Pharmaceuticals Incorporated (“Vertex” or the “Company”) invests in scientific innovation to create transformative medicines for seriousdiseases. The Company’s business is focused on developing and commercializing therapies for the treatment of cystic fibrosis (“CF”) and advancing ourresearch and development programs in other indications. The Company’s marketed products are ORKAMBI (lumacaftor in combination with ivacaftor),KALYDECO (ivacaftor) and SYMDEKO (tezacaftor in combination with ivacaftor), which are approved to treat patients with CF who have specific mutationsin their cystic fibrosis transmembrane conductance regulator (“CFTR”) gene.As of December 31, 2017, the Company had cash, cash equivalents and marketable securities of $2.1 billion. The Company expects that cash flows fromthe sales of its products, together with the Company’s cash, cash equivalents and marketable securities, will be sufficient to fund its operations for at least thenext twelve months.Vertex is subject to risks common to companies in its industry including, but not limited to, the dependence on revenues from its CF products,competition, uncertainty about clinical trial outcomes and regulatory approvals, uncertainties relating to pharmaceutical pricing and reimbursement,uncertainty related to international expansion, uncertain protection of proprietary technology, the need to comply with government regulations, share pricevolatility, dependence on collaborative relationships and potential product liability.Basis of PresentationThe consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) consolidated variable interestentities (“VIEs”). On September 30, 2017, the Company deconsolidated Parion Sciences, Inc. (“Parion”), a VIE the Company had consolidated since June 4,2015. The Company's consolidated balance sheet as of December 31, 2017 excludes Parion. All material intercompany balances and transactions have beeneliminated. The Company operates in one segment, pharmaceuticals. Please refer to Note T, “Segment Information,” for enterprise-wide disclosures regardingthe Company’s revenues, major customers and long-lived assets by geographic area. The Company has reclassified certain amounts in the consolidatedbalance sheets for the period ended December 31, 2016 between “Accounts receivable, net” and “Prepaid expenses and other current assets” to conform withthe current year presentation.Use of EstimatesThe preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America(“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements, and the amounts of revenues and expenses during the reported periods.Significant estimates in these consolidated financial statements have been made in connection with the calculation of revenues, inventories, research anddevelopment expenses, stock-based compensation expense, the fair value of intangible assets, goodwill, noncontrolling interest, the consolidation anddeconsolidation of VIEs, leases, the fair value of cash flow hedges, deferred tax asset valuation allowances and the provision for or benefit from income taxes.The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections, thatmanagement believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected inreported results in the period in which they become known.Revenue RecognitionProduct Revenues, NetThe Company sells its products principally to a limited number of specialty pharmacy providers in North America as well as government-owned andsupported customers in international markets (collectively, its “Customers”). The Company’s Customers in North America subsequently resell the products topatients and health care providers. The Company recognizesF-7VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)net revenues from product sales upon delivery as long as (i) there is persuasive evidence that an arrangement exists between the Company and the Customer,(ii) collectibility is reasonably assured and (iii) the price is fixed or determinable.In order to conclude that the price is fixed or determinable, the Company must be able to (i) calculate its gross product revenues from sales to Customersand (ii) reasonably estimate its net product revenues upon delivery to its Customer’s locations. The Company calculates gross product revenues based on theprice that the Company charges its Customers. The Company estimates its net product revenues by deducting from its gross product revenues (a) tradeallowances, such as invoice discounts for prompt payment and Customer fees, (b) estimated government and private payor rebates, chargebacks anddiscounts, (c) estimated reserves for expected product returns and (d) estimated costs of co-pay assistance programs for patients, as well as other incentives forcertain indirect customers.Trade Allowances: The Company generally provides invoice discounts on product sales to its Customers for prompt payment and pays fees fordistribution services, such as fees for certain data that Customers provide to the Company. The payment terms for sales to Customers in the United States(“U.S.”) generally include a discount for payment within 30 days. The Company expects that, based on its experience, its Customers will earn thesediscounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time suchrevenues are recognized.Rebates, Chargebacks and Discounts: The Company contracts primarily with government agencies (its “Third-party Payors”) so that products willbe eligible for purchase by, or partial or full reimbursement from, such Third-party Payors. The Company estimates the rebates, chargebacks anddiscounts it will provide to Third-party Payors and deducts these estimated amounts from its gross product revenues at the time the revenues arerecognized. For each product, the Company estimates the aggregate rebates, chargebacks and discounts that it will provide to Third-party Payors basedupon (i) the Company’s contracts with these Third-party Payors, (ii) the government-mandated discounts applicable to government-funded programs,(iii) information obtained from the Company’s Customers and other third-party data regarding the payor mix for such product and (iv) historicalexperience.Product Returns: The Company estimates the amount of each product that will be returned and deducts these estimated amounts from its grossrevenues at the time the revenues are recognized. The Company’s Customers have the right to return unopened unprescribed packages, subject tocontractual limitations. To date, product returns have been minimal and, based on inventory levels held by its Customers and its distribution model, theCompany believes that returns of its products will continue to be minimal.Other Incentives: Other incentives that the Company offers include co-pay mitigation rebates provided by the Company to commercially insuredpatients who have coverage and who reside in states that permit co-pay mitigation programs. The Company’s co-pay mitigation programs are intended toreduce each participating patient’s portion of the financial responsibility for a product’s purchase price to a specified dollar amount. Based upon theterms of the Company’s co-pay mitigation programs, the Company estimates average co-pay mitigation amounts for each of its products in order toestablish its accruals for co-pay mitigation rebates and deducts these estimated amounts from its gross product revenues at the later of the date (i) therevenues are recognized or (ii) the incentive is offered. The Company’s co-pay mitigation rebates are subject to expiration.F-8VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The following table summarizes activity in each of the product revenue allowance and reserve categories for the three years ended December 31, 2017: Trade Allowances Rebates, Chargebacks and Discounts Product Returns Other Incentives Total (in thousands)2017 Beginning Balance$2,568 $81,927 $3,492 $1,214 $89,201Provision related to current period sales25,892 176,996 4,038 15,595 222,521Adjustments related to prior period sales(189) (8,943) (13) (493) (9,638)Credits/payments made(25,507) (137,765) (4,496) (11,633) (179,401)Ending Balance$2,764 $112,215 $3,021 $4,683 $122,683 2016 Beginning Balance$2,089 $44,669 $1,228 $1,310 $49,296Provision related to current period sales20,075 134,198 3,047 6,602 163,922Adjustments related to prior period sales(90) 154 (17) (151) (104)Credits/payments made(19,506) (97,094) (766) (6,547) (123,913)Ending Balance$2,568 $81,927 $3,492 $1,214 $89,201 2015 Beginning Balance$1,463 $29,102 $4,713 $745 $36,023Provision related to current period sales10,890 65,781 779 3,755 81,205Adjustments related to prior period sales(214) (19,410) (993) (235) (20,852)Credits/payments made(10,050) (30,804) (3,271) (2,955) (47,080)Ending Balance$2,089 $44,669 $1,228 $1,310 $49,296The Company makes significant estimates and judgments that materially affect the Company’s recognition of net product revenues. The Companyadjusts its estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates, chargebacks anddiscounts for its products, as it becomes available. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to theCompany significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. In 2017, theCompany’s adjustments relating to prior period sales were less than 0.5% of total net product revenues and primarily related to U.S. rebates, chargebacks anddiscounts. In 2016, the Company’s adjustments relating to prior period sales were insignificant. In 2015, the Company’s adjustments relating to prior periodsales principally related to the Company’s estimates for INCIVEK following the Company’s withdrawal of INCIVEK from the market in the U.S. in the fourthquarter of 2014.In certain instances, the Company may be unable to reasonably conclude that the price is fixed or determinable at the time of delivery, in which case itdefers the recognition of revenues. Once the Company is able to determine that the price is fixed or determinable, it recognizes the net product revenuesassociated with the units in which revenue recognition was deferred.French Early Access ProgramsThe Company began distributing ORKAMBI through early access programs in France during the fourth quarter of 2015. The Company’s ORKAMBI netproduct revenues for the three years ended December 31, 2017 do not include any net product revenues from sales of ORKAMBI in France because the pricewas not fixed or determinable. As of December 31, 2017, the Company’s consolidated balance sheet includes $232.4 million collected in France related toshipments of ORKAMBI under the early access programs that is classified as “Customer deposits.” The Company expects that the difference between theamounts collected based on the invoiced price and the final price for ORKAMBI in France will be returned to the French government.F-9VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Because the Company concluded that the price was not fixed or determinable as of December 31, 2017, the amounts classified as “Customer deposits”related to shipments of ORKAMBI under early access programs will be subject to the new guidance applicable to revenue recognition that became effectiveJanuary 1, 2018. Pursuant to the new guidance, the Company will record a cumulative effect adjustment to the Company’s accumulated deficit in the firstquarter of 2018. The amount of the adjustment to accumulated deficit will be determined based upon (i) the status of pricing discussions in France uponadoption and (ii) the Company’s estimate of the amount of consideration the Company expects to retain related to ORKAMBI sales in France that occurredon or prior to December 31, 2017 that will not be subject to a significant reversal in amounts recognized. For ORKAMBI sales in France that occur afterDecember 31, 2017 under the early access programs, the Company will recognize net product revenues based on the Company’s estimate of consideration theCompany expects to retain that will not be subject to a significant reversal in amounts recognized. In periods after the first quarter of 2018, if the Company’sestimate regarding the amounts it will receive for ORKAMBI supplied pursuant to these programs changes, the effect of the change in estimate would bereflected in net product revenues in the period in which the change in estimate occurred. Please refer to Recent Accounting Pronouncements included in thisNote A “Nature of Business and Accounting Policies” below for more information regarding the new revenue recognition guidance.Royalty RevenuesThe Company has sold its rights to receive certain royalties on sales of an HIV protease inhibitor (fosamprenavir) and recognizes the revenues related tothis sale as royalty revenues. Pursuant to the revenue recognition guidance that was in effect until December 31, 2017, in the circumstance where theCompany sold its rights to future royalties under a license agreement and also maintained continuing involvement in the royalty arrangement (but notsignificant continuing involvement in the generation of the cash flows payable to the purchaser of the future royalty rights), the Company deferredrecognition of the proceeds it received for the royalty stream. It recognized these deferred revenues over the life of the license agreement utilizing the units-of-revenue method pursuant to this revenue recognition guidance. In the first quarter of 2018, the Company will record a $6.5 million cumulative effectadjustment to its accumulated deficit equal to the net deferred revenues and costs recorded as of December 31, 2017. This adjustment will be recordedutilizing the modified retrospective approach upon adoption of the new revenue recognition guidance described in Recent Accounting Pronouncementsincluded in this Note A “Nature of Business and Accounting Policies” below that became effective January 1, 2018. The adjustment will be made becausethere are no material performance obligations remaining related to the royalty arrangement. The Company does not expect to record any royalty revenues infuture periods based on sales of the HIV protease inhibitor. Please refer to Note O, “Other Arrangements” for further information related to this transaction.Collaborative RevenuesThe Company recognizes collaborative revenues generated through collaborative research, development and/or commercialization agreements. Theterms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, up-front license fees; development andcommercial milestone payments; funding of research and/or development activities; and royalties on net sales of licensed products. Each of these types ofpayments results in collaborative revenues except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues.For each collaborative research, development and/or commercialization agreement that result in revenues, the Company determines (i) whether multipledeliverables exist, (ii) whether the undelivered elements have value to the customer on a stand-alone basis, (iii) how the deliverables should be separated and(iv) how the consideration should be allocated to the deliverables. For arrangements entered into or materially modified after January 1, 2011, the Companyallocates consideration in an arrangement using the relative selling price method based on management’s best estimate of selling price of deliverables if itdoes not have vendor-specific objective evidence or third-party evidence. As part of the accounting for these agreements, the Company must developassumptions that require judgment to determine the best estimate of selling price. Key assumptions utilized by the Company to determine the best estimate ofselling price may include forecasted revenues, patient enrollment requirements from regulatory authorities, development timelines, reimbursement rates forpersonnel costs, discount rates, and estimated third-party development costs.The Company evaluates amendments to its existing arrangements to determine whether they have been materially modified. In making its determinationthat an arrangement has been materially modified, the Company considers whetherF-10VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)there have been significant changes to the consideration under the arrangement, the deliverables under the arrangement, the timing of deliverables and theperiod of the arrangement. If the arrangement is determined to have been materially modified, the Company allocates fixed consideration under thearrangement using its best estimate of selling price to the remaining undelivered elements at the date of material modification. Any consideration remainingafter the allocation is recognized as revenue.Up-front License Fees: If the license to the Company’s intellectual property is determined to have stand-alone value from the other deliverablesidentified in the arrangement, the Company recognizes revenues from nonrefundable, up-front license fees upon delivery. If these licenses do not havestand-alone value, the Company recognizes revenues from nonrefundable, up-front license fees on a straight-line basis over the contracted or estimatedperiod of performance. The Company evaluates the period of performance each reporting period and adjusts the period of performance on a prospectivebasis if there are changes to be made.Milestone Payments: At the inception of each agreement that includes research and development milestone payments, the Company evaluateswhether each milestone is substantive. The Company recognizes revenues related to substantive milestones in full in the period in which the substantivemilestone is achieved if payment is reasonably assured. If a milestone is not considered substantive, the Company recognizes the applicable milestonepayment over the period of performance.Research and Development Activities: If the Company is entitled to reimbursement from its collaborators for specified research and developmentexpenses, the Company determines whether the research and development funding would result in collaborative revenues or an offset to research anddevelopment expenses in accordance with the provisions of gross or net revenue presentation.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of money market funds and marketablesecurities. The Company places these investments with highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any onefinancial institution. These amounts at times may exceed federally insured limits. The Company also maintains a foreign currency hedging program thatincludes foreign currency forward contracts with several counterparties. The Company has not experienced any credit losses related to these financialinstruments and does not believe it is exposed to any significant credit risk related to these instruments.The Company also is subject to credit risk from its accounts receivable related to its product sales and collaborators. The Company evaluates thecreditworthiness of each of its customers and has determined that all of its material customers are creditworthy. To date, the Company has not experiencedsignificant losses with respect to the collection of its accounts receivable. The Company’s receivables from Greece, Italy, Portugal and Spain were notmaterial as of December 31, 2017. The Company believes that its allowance for doubtful accounts was adequate at December 31, 2017. Please refer to Note T,“Segment Information,” for further information.Cash and Cash EquivalentsThe Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.Marketable SecuritiesThe Company’s marketable securities consist of investments in government-sponsored enterprise securities, corporate equity securities, corporate debtsecurities and commercial paper that are classified as available-for-sale as of December 31, 2017. The Company classifies marketable securities available tofund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidatedbalance sheets if (i) they have been in an unrealized loss position for longer than one year and (ii) the Company has the ability and intent to hold them(a) until the carrying value is recovered and (b) such holding period may be longer than one year. The Company’s marketable securities are stated at fairvalue with their unrealized gains and losses included as a component of accumulatedF-11VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)other comprehensive income (loss), which is a separate component of shareholders’ equity, until such gains and losses are realized. The fair value of thesesecurities is based on quoted prices for identical or similar assets.The Company reviews investments in marketable securities for other-than-temporary impairment whenever the fair value of an investment is less than theamortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether animpairment is other-than-temporary, the Company considers whether it has an intent to sell, or whether it is more likely than not that the Company will berequired to sell, the investment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for theimpairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to year-end. If a decline in the fair value is considered other-than-temporary, based on available evidence, the unrealized loss is transferred from other comprehensiveincome (loss) to the consolidated statements of operations.Realized gains and losses are determined using the specific identification method and are included in other income (expense), net in the consolidatedstatements of operations.Accounts ReceivableThe Company deducts trade allowances for prompt payment and fees for distribution services from its accounts receivable based on its experience thatthe Company’s Customers will earn these discounts and fees. The Company’s estimates for its allowance for doubtful accounts, which have not beensignificant to date, are determined based on existing contractual payment terms and historical payment patterns.Stock-based Compensation ExpenseThe Company expenses the fair value of employee stock options and other forms of stock-based employee compensation over the associated employeeservice period on a straight-line basis. Stock-based compensation expense is determined based on the fair value of the award at the grant date and is adjustedeach period to reflect actual forfeitures and the outcomes of certain performance conditions.For awards with performance conditions in which the award does not vest unless the performance condition is met, the Company recognizes expense if,and to the extent that, the Company estimates that achievement of the performance condition is probable. If the Company concludes that vesting is probable,it recognizes expense from the date it reaches this conclusion through the estimated vesting date. For awards with performance conditions that acceleratevesting of the award, the Company estimates the likelihood of satisfaction of the performance conditions, which affects the period over which the expense isrecognized, and recognizes the expense using the accelerated attribution model.The Company provides to employees who have rendered a certain number of years’ to the Company and meet certain age requirements, partial or fullacceleration of vesting of these equity awards, subject to certain conditions including a notification period, upon a termination of employment other than forcause. Less than 5% of the Company’s employees were eligible for partial or full acceleration of any of their equity awards as of December 31, 2017. TheCompany recognizes stock-based compensation expense related to these awards over a service period reflecting qualified employees’ eligibility for partial orfull acceleration of vesting.Research and Development ExpensesThe Company expenses as incurred all research and development expenses, including amounts funded by research and development collaborations. TheCompany capitalizes nonrefundable advance payments made by the Company for research and development activities and expenses the payments as therelated goods are delivered or the related services are performed.Research and development expenses are comprised of costs incurred by the Company in performing research and development activities, includingsalary and benefits; stock-based compensation expense; laboratory supplies and other direct expenses; outsourced services, including clinical trial andpharmaceutical development costs; collaboration and assetF-12VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)acquisition payments; expenses associated with drug supplies that are not being capitalized; and infrastructure costs, including facilities costs anddepreciation expense.Advertising ExpensesThe Company expenses the costs of advertising, including promotional expenses, as incurred. Advertising expenses, recorded in sales, general andadministrative expenses, were $35.2 million, $31.4 million and $24.5 million in 2017, 2016 and 2015, respectively.InventoriesThe Company values its inventories at the lower-of-cost or net realizable value. The Company determines the cost of its inventories, which includesamounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability ofcapitalized inventory during each reporting period, and writes down any excess and obsolete inventories to their net realizable value in the period in whichthe impairment is first identified. Shipping and handling costs incurred for inventory purchases are capitalized and recorded upon sale in cost of productrevenues in the consolidated statements of operations. Shipping and handling costs incurred for product shipments are recorded as incurred in cost of productrevenues in the consolidated statements of operations.The Company capitalizes inventories produced in preparation for initiating sales of a drug candidate when the related drug candidate is considered tohave a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales of the inventories. In determining whether ornot to capitalize such inventories, the Company evaluates, among other factors, information regarding the drug candidate’s safety and efficacy, the status ofregulatory submissions and communications with regulatory authorities and the outlook for commercial sales, including the existence of current oranticipated competitive drugs and the availability of reimbursement. In addition, the Company evaluates risks associated with manufacturing the drugcandidate and the remaining shelf-life of the inventories.Property and EquipmentProperty and equipment are recorded at cost. Depreciation expense is recorded using the straight-line method over the estimated useful life of the relatedasset, generally seven to ten years for furniture and equipment, three to five years for computers and software, 40 years for buildings and for leaseholdimprovements, the shorter of the useful life of the improvements or the estimated remaining life of the associated lease. Amortization expense of assetsacquired under capital leases is included in depreciation expense. Maintenance and repairs to an asset that do not improve or extend its life are charged tooperations. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and anyresulting gain or loss is reflected in the Company’s consolidated statements of operations. The Company performs an assessment of the fair value of the assetsif indicators of impairment are identified during a reporting period and records the assets at the lower of the net book value or the fair value of the assets.The Company capitalizes internal costs incurred to develop software for internal use during the application development stage. The Company expensescosts related to the planning and post-implementation phases of development of software for internal use as these costs are incurred. Maintenance andenhancement costs (including costs in the post-implementation stages) are expensed as incurred, unless such costs relate to substantial upgrades andenhancements to the software resulting in added functionality, in which case the costs are capitalized. Amortization of capitalized internally developedsoftware costs is recorded in depreciation expense over the useful life of the related asset.The Company records certain construction costs incurred by a landlord as an asset and a corresponding financing obligation on the Company’sconsolidated balance sheets when the Company is determined to be the owner of a building during construction for accounting purposes. Upon completionof the project, the Company performs a sale-leaseback analysis to determine if the Company can remove the assets and corresponding liability from itsconsolidated balance sheet.Capital LeasesThe assets and liabilities associated with capital lease agreements are recorded at the present value of the minimum lease payments at the inception of thelease agreement. The assets are depreciated using the straight-line method over the shorterF-13VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)of the useful life of the related asset or the remaining life of the associated lease. Amortization of assets that the Company leases pursuant to a capital lease isincluded in depreciation expense. The Company performs an assessment of the fair value of the assets if indicators of impairment are identified during areporting period and records the assets at the lower of the net book value or the fair value of the assets. Assets recorded under capital leases are recordedwithin “Property and equipment, net” and liabilities related to those assets are recorded within “Capital lease obligations, current portion” and “Capital leaseobligations, excluding current portion” on the Company’s consolidated balance sheets.Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statementcarrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on theavailable evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a periodic basis, the Company reassesses thevaluation allowance on its deferred income tax assets weighing positive and negative evidence to assess the recoverability of its deferred tax assets. TheCompany includes its recent financial performance and its future projections in this periodic assessment.The Company records liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not believe any suchuncertain tax positions currently pending will have a material adverse effect on its consolidated financial statements.Variable Interest EntitiesThe Company reviews each collaboration agreement pursuant to which it licenses assets owned by a collaborator in order to determine whether or not ithas a variable interest via the license agreement with the collaborator and if the variable interest is a variable interest in the collaborator as a whole. Inassessing whether the Company has a variable interest in the collaborator as a whole, the Company considers and makes judgments regarding the purposeand design of the entity, the value of the licensed assets to the collaborator, the value of the collaborator’s total assets and the significant activities of thecollaborator. If the Company has a variable interest in the collaborator as a whole, the Company assesses whether or not the Company is the primarybeneficiary of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most significantly affect the VIE’seconomic performance, (ii) the parties’ contractual rights and responsibilities pursuant to the collaboration agreement and (iii) which party has the obligationto absorb losses of or the right to receive benefits from the VIE that could be significant to the VIE. If the Company determines it is the primary beneficiary ofa VIE at the onset of the collaboration agreement, the collaboration is treated as a business combination and the Company consolidates the financialstatements of the VIE into the Company’s consolidated financial statements. The Company evaluates whether it continues to be the primary beneficiary ofany consolidated VIEs on a quarterly basis. If the Company determines that it is no longer the primary beneficiary of a consolidated VIE, or no longer has avariable interest in the VIE, it deconsolidates the VIE in the period that the determination is made.Assets recorded as a result of consolidating VIEs’ financial results into the Company’s consolidated balance sheet do not represent additional assets thatcould be used to satisfy claims against the Company’s general assets. With respect to the Company’s VIEs, the VIEs’ assets are not significant, except for theVIEs’ cash and cash equivalents. The Company records the cash and cash equivalents of consolidated VIEs as “Restricted cash and cash equivalents (VIE)”because the Company does not have control over the VIEs’ cash and cash equivalents. The VIEs’ cash and cash equivalents were $1.5 million and $47.8million as of December 31, 2017 and 2016, respectively. The Company also has recorded the liabilities of its consolidated VIEs for which creditors do nothave recourse to the Company’s general assets outside of the VIE.Fair Value of In-process Research and Development Assets and Contingent PaymentsThe present-value models used to estimate the fair values of research and development assets and contingent payments pursuant to collaborationsincorporate significant assumptions, including: assumptions regarding the probability of obtaining marketing approval and/or achieving relevantdevelopment milestones for a drug candidate; estimates regarding the timing of and the expected costs to develop a drug candidate; estimates of future cashflows from potential product sales and/or the potential to achieve certain commercial milestones with respect to a drug candidate; and the appropriatediscount and tax rates.F-14VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)In-process Research and Development AssetsThe Company records the fair value of in-process research and development assets as of the transaction date of a business combination. Each of theseassets is accounted for as an indefinite-lived intangible asset and is maintained on the Company’s consolidated balance sheet until either the projectunderlying it is completed or the asset becomes impaired. If the asset becomes impaired or is abandoned, the carrying value of the related intangible asset iswritten down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs. If a project is completed, the carrying valueof the related intangible asset is amortized as a part of cost of product revenues over the remaining estimated life of the asset beginning in the period in whichthe project is completed. In-process research and development assets are tested for impairment on an annual basis as of October 1, and more frequently ifindicators are present or changes in circumstances suggest that impairment may exist.In-process research and development assets that are acquired in a transaction that does not qualify as a business combination under GAAP and that donot have an alternative future use are expensed in the period in which the assets are acquired.GoodwillThe difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated togoodwill. Goodwill is evaluated for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstancessuggest that impairment may exist.Noncontrolling InterestThe Company records noncontrolling interest, which has historically related to consolidated VIEs, on its consolidated balance sheets. The Companyrecords net loss (income) attributable to noncontrolling interest on its consolidated statements of operations, reflecting the VIEs’ net loss (income) for thereporting period, adjusted for changes in the noncontrolling interest holders’ claim to net assets, including contingent milestone, royalty and optionpayments, each of which is evaluated each reporting period.Deconsolidation and Discontinued OperationsUpon the occurrence of certain events and on a regular basis, the Company evaluates whether it no longer has a controlling interest in its subsidiaries,including consolidated VIEs. If the Company determines it no longer has a controlling interest, the subsidiary is deconsolidated. The Company records again or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of (a) the fair value of any considerationreceived, (b) the fair value of any retained noncontrolling investment in the former subsidiary and (c) the carrying amount of any noncontrolling interest inthe subsidiary being deconsolidated, less (ii) the carrying amount of the former subsidiary’s assets and liabilities.The Company assesses whether a deconsolidation is required to be presented as discontinued operations in its consolidated financial statements on thedeconsolidation date. This assessment is based on whether or not the deconsolidation represents a strategic shift that has or will have a major effect on theCompany’s operations or financial results. If the Company determines that a deconsolidation requires presentation as a discontinued operation on thedeconsolidation date, or at any point during the one year period following such date, it will present the former subsidiary as a discontinued operation incurrent and comparative period financial statements.Derivative Instruments, Embedded Derivatives and Hedging ActivitiesThe Company has entered into financial transactions involving free-standing derivative instruments and embedded derivatives in the past. Embeddedderivatives are required to be bifurcated from the host instruments if the derivatives are not clearly and closely related to the host instruments. The Companydetermines the fair value of each derivative instrument or embedded derivative that is identified on the date of issuance and at the end of each quarterlyperiod. The estimates of the fair value of the derivatives include significant assumptions regarding the estimates market participants would make in order toevaluate these derivatives.F-15VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The Company recognizes the fair value of hedging instruments that are designated and qualify as hedging instruments pursuant to GAAP, foreigncurrency forward contracts, as either assets or liabilities on the consolidated balance sheets. Changes in the fair value of these instruments are recorded eachperiod in “Accumulated other comprehensive (loss) income”, which is a separate component of shareholders’ equity, as unrealized gains and losses until theforecasted underlying transaction occurs. Unrealized gains and losses on these foreign currency forward contracts are included in (i) “Prepaid expenses andother current assets,” (ii) “Other assets,” (iii) “Other liabilities, current portion” and (iv) “Other liabilities, excluding current portion,” respectively, on theCompany’s consolidated balance sheets. Realized gains and losses for the effective portion of such contracts are recognized in “Product revenues, net” in theconsolidated statement of operations when the contract is settled with the counterparty. The Company classifies the cash flows from hedging instruments inthe same category as the cash flows from the hedged items.Certain of the Company’s hedging instruments are subject to master netting arrangements to reduce the risk arising from such transactions with itscounterparties. The Company presents unrealized gains and losses on its foreign currency forward contracts on a gross basis within its consolidated balancesheets.The Company assesses, both at inception and on an ongoing basis, whether the foreign currency forward contracts used in hedging transactions arehighly effective in offsetting the changes in cash flows of the hedged items. The Company also assesses hedge ineffectiveness quarterly and, if determined tobe ineffective, records the gain or loss related to the ineffective portion to earnings in “Other (expense) income, net” in its consolidated statements ofoperations. The Company did not record any ineffectiveness related to these hedging transactions in the three years ended December 31, 2017.The Company also enters into foreign currency forward contracts with contractual maturities of less than one month designed to mitigate the effect ofchanges in foreign exchange rates on monetary assets and liabilities including intercompany balances. These contracts are not designated as hedginginstruments pursuant to GAAP. Realized gains and losses for such contracts are recognized in “Other (expense) income, net” in the consolidated statement ofoperations when the contract is settled with the counterparty.Restructuring ExpensesThe Company records costs and liabilities associated with exit and disposal activities based on estimates of fair value in the period the liabilities areincurred. The Company’s exit and disposal activities have primarily been associated with the Company’s facilities, but also have included the termination ofemployees in some cases. The Company’s initial estimate of its liabilities for net ongoing costs associated with its facility obligations are recorded at fairvalue on the cease use date. In estimating the expenses and liabilities related to these facilities, the Company utilizes the probability-weighted discountedcash-flows of the Company’s ongoing lease obligations. In estimating the expense and liability under its lease obligations, the Company estimates (i) thecosts to be incurred to satisfy rental and build-out commitments under the lease (including operating costs), (ii) the lead-time necessary to sublease the space,(iii) the projected sublease rental rates and (iv) the anticipated durations of subleases. The Company uses a credit-adjusted risk-free rate to discount theestimated cash flows.In periods subsequent to the initial measurement, the Company measures changes to the liability using the credit-adjusted risk-free discount rate appliedin the initial period. The Company evaluates and adjusts these liabilities as appropriate for changes in circumstances on a quarterly basis. Changes to theCompany’s estimate of these liabilities are recorded as additional restructuring expenses (credits). In addition, because the Company’s estimate of theseliabilities includes the application of a discount rate to reflect the time-value of money, the Company records imputed interest costs related to these liabilitieseach quarter. These costs are included in “Restructuring expenses” on the Company’s consolidated statements of operations.Comprehensive Income (Loss)Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translationadjustments and unrealized gains and losses on foreign currency forward contracts and certain marketable securities. For purposes of comprehensive income(loss) disclosures, the Company records provisions for or benefits from income taxes related to the unrealized gains and losses on foreign currency forwardcontracts and certain marketable securities. The Company does not record provisions for or benefits from income taxes related to the cumulative translationadjustment, as the Company intends to permanently reinvest undistributed earnings in its foreign subsidiaries.F-16VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Foreign Currency Translation and TransactionsThe Company primarily operates with entities that have the U.S. dollar denominated as their functional currency. Non-U.S. dollar denominatedfunctional currency subsidiaries have assets and liabilities translated into U.S. dollars at rates of exchange in effect at the end of the year. Revenue andexpense amounts are translated using the average exchange rates for the period. Net unrealized gains and losses resulting from foreign currency translationare included in “Accumulated other comprehensive (loss) income”, which is a separate component of shareholders’ equity. Included in “Accumulated othercomprehensive (loss) income” are net unrealized losses related to foreign currency translation of $21.0 million, $7.9 million and $2.1 million atDecember 31, 2017, 2016 and 2015, respectively. Net foreign currency exchange transaction gains or losses are included in net income (loss) on theCompany’s consolidated statement of operations. Net transaction losses were $5.5 million and $6.8 million for 2017 and 2015, respectively, and nettransaction gains were $4.0 million for 2016.Net Loss Per Share Attributable to Vertex Common ShareholdersBasic and diluted net loss per share attributable to Vertex common shareholders are presented in conformity with the two-class method required forparticipating securities. Under the two-class method, earnings are allocated to (i) Vertex common shares, excluding unvested restricted stock, and (ii)participating securities, based on their respective weighted-average shares outstanding for the period. Shares of unvested restricted stock granted under theCompany’s Amended and Restated 2006 Stock and Option Plan have the non-forfeitable right to receive dividends on an equal basis with other outstandingcommon stock. As a result, these unvested shares of restricted stock are considered participating securities under the two-class method. Potentially dilutiveshares result from the assumed exercise of outstanding stock options (the proceeds of which are then assumed to have been used to repurchase outstandingstock using the treasury stock method).Basic net loss per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding duringthe period, excluding restricted stock that has been issued but is not yet vested. Diluted net loss per share attributable to Vertex common shareholders isbased upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent sharesoutstanding during the period when the effect is dilutive.Recent Accounting PronouncementsIn 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance applicable to revenue recognition that became effective January 1,2018. The new guidance applies a more principles based approach to recognizing revenue. Under the new guidance, revenue is recognized when a customerobtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange forthose goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising fromcontracts with customers. The new guidance must be adopted using either a modified retrospective approach or a full retrospective approach for all periodspresented. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial applicationwithin accumulated deficit. Under the full retrospective approach, the standard would be applied to each prior reporting period presented. Upon adoption, theCompany will use the modified retrospective method. The Company has evaluated the new guidance and the effect the adoption will have on theconsolidated financial statements. The Company’s project team has finalized its review of existing customer contracts and current accounting policies andhas concluded that the following will be impacted by applying the requirements of the new standard beginning in the first quarter of 2018:•The Company will be required to estimate the amount of consideration it expects to retain on shipments of ORKAMBI under early access programsin France whereby the associated product has received regulatory approval but the price is not fixed or determinable based on the status ofongoing pricing discussions as of December 31, 2017. Please refer to “Product Revenues, Net” above for further information related to theimpact of the new revenue recognition on these sales.•The Company expects to recognize $6.5 million that was received with the sale of its HIV protease inhibitor royalty stream in 2008 net of deferredcosts associated with this sale as a cumulative effect adjustment to its accumulated deficit due to the new revenue recognition guidance. Pleaserefer to “Royalty Revenues” above and Note O, “Other Arrangements” for further information related to this transaction.F-17VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The Company has implemented appropriate changes to its internal controls to support revenue recognition and additional revenue-related disclosuresunder the new standard.In 2016, the FASB issued amended guidance applicable to share-based compensation to employees that simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification inthe statement of cash flows. The amended guidance became effective for the Company January 1, 2017. The amended guidance eliminates the requirementthat excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an increase in additionalpaid-in capital. This created approximately $410.8 million of deferred tax asset (“DTA”) relating to federal and state net operating losses (“NOLs”) that arefully reserved by an equal increase in valuation allowance. The Company recorded DTAs of approximately $404.7 million relating to federal NOLs andapproximately $6.1 million relating to state NOLs, both of which are offset by a full valuation allowance. Upon adoption, the Company also elected tochange its accounting policy to account for forfeitures of options and awards as they occur. The change was applied on a modified retrospective basis with acumulative effect adjustment to the Company’s accumulated deficit of $9.4 million, which increased the accumulated deficit as of January 1, 2017. Thischange also resulted in an increase to the DTA of $3.4 million, which is offset by a full valuation allowance. As a result, there was no cumulative effectadjustment to accumulated deficit related to income taxes. The provisions related to the recognition of excess tax benefits in the income statement andclassification in the statement of cash flows were adopted prospectively, and as such, the prior periods were not retrospectively adjusted.In 2016, the FASB issued amended guidance related to the recording of financial assets and financial liabilities. Under the amended guidance, equityinvestments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fairvalue with changes in fair value recognized in net income (loss). However, an entity has the option to either measure equity investments without readilydeterminable fair values either (i) at fair value or (ii) at cost adjusted for changes in observable prices minus impairment. Changes in measurement undereither alternative will be recognized in net income (loss). The amended guidance became effective January 1, 2018. The Company held publicly tradedequity investments as well as equity investments accounted for under the cost method as of December 31, 2017. In the first quarter of 2018, the Company willrecord a cumulative effect adjustment to its accumulated deficit equal to the $25.1 million unrealized gain, net of tax, recorded in accumulated othercomprehensive income (loss) as of December 31, 2017 related to its publicly traded equity investments. This adjustment will decrease the Company’saccumulated deficit as of January 1, 2018. Adoption of the amended guidance will have no effect on the Company’s equity investments accounted for underthe cost method because there have been no changes in observable prices or impairments identified that would adjust the cost of the investment as ofDecember 31, 2017 compared to the original cost basis of these investments. The implementation of this amended guidance is expected to increase volatilityin net income as the volatility currently recorded in other comprehensive income (loss) related to changes in the fair market value of equity investments willbe reflected in net income (loss) after adoption.In 2016, the FASB issued amended guidance applicable to leases that will be effective for the year ending December 31, 2019. Early adoption ispermitted. This guidance requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet andrequires a modified retrospective adoption approach. The Company is in the process of evaluating this guidance and determining the expected effect on itsconsolidated financial statements; however, it anticipates that the amended guidance will result in the Company recording additional assets andcorresponding liabilities on its consolidated balance sheets. The Company expects the implementation of the new standard will have an impact on itsinternal controls, systems, and processes.In 2016, the FASB issued amended guidance related to intra-entity transfers other than inventory. This guidance removes the current exception in GAAPprohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within theconsolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it issold to a third party remains unaffected. The amended guidance became effective for the Company on January 1, 2018. In the first quarter of 2018, theCompany will record a deferred tax asset and corresponding full valuation allowance upon adoption of this new guidance equal to the unamortized cost ofintellectual property transferred to the United Kingdom (“U.K.”) in 2014 multiplied by appropriate statutory rates. As a result, there will be no cumulativeeffect adjustment to accumulated deficit.F-18VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)In 2017, the FASB issued amended guidance related to business combinations. The amended guidance clarifies the definition of a business with theobjective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets orbusinesses. The new accounting guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.The Company early adopted this new guidance as of January 1, 2017 and has applied this new guidance to acquisitions completed subsequent to adoption.In 2017, the FASB issued amended guidance related to measurements of goodwill. The amended guidance eliminates a step from the goodwillimpairment test. Under the amended guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of areporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reportingunit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amended guidance iseffective for the year-ending December 31, 2020. Early adoption is permitted. The Company does not expect a significant effect on its consolidated financialstatements upon adoption of this new guidance.In 2017, the FASB issued amended guidance related to the scope of stock option modification accounting, to reduce diversity in practice and provideclarity regarding existing guidance. The new accounting guidance became effective January 1, 2018. The Company does not expect the adoption ofthis guidance to have a material effect on its consolidated financial statements and related disclosures.In 2017, the FASB issued amended guidance applicable to hedge accounting. The new accounting guidance is effective for annual periods beginningafter December 15, 2018, including interim periods within those periods. Early adoption is permitted. The amended guidance helps simplify certain aspectsof hedge accounting and enables entities to more accurately present their risk management activities in their financial statements. The Company is in theprocess of evaluating this guidance and determining the expected effect on its consolidated financial statements.B.Collaborative Arrangements and AcquisitionsCystic Fibrosis Foundation Therapeutics IncorporatedThe Company has a research, development and commercialization agreement with Cystic Fibrosis Foundation Therapeutics Incorporated (“CFFT”) thatwas originally entered into in May 2004, and was most recently amended in October 2016 (the “2016 Amendment”). Pursuant to the agreement, as amended,the Company has agreed to pay royalties ranging from low-single digits to mid-single digits on potential sales of certain compounds first synthesized and/ortested between March 1, 2014 and August 31, 2016, including VX-659 and VX-445, and tiered royalties ranging from single digits to sub-teens on anyapproved drugs 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 (tezacaftor in combination with ivacaftor). For combination products, such as ORKAMBI, saleswill be allocated equally to each of the active pharmaceutical ingredients in the combination product.In each of the fourth quarter of 2015 and the first quarter of 2016, CFFT earned a commercial milestone payment of $13.9 million from the Companyupon achievement of certain sales levels of lumacaftor. There were no commercial milestone payments in the year ended December 31, 2017, and there are noadditional commercial milestone payments payable by the Company to CFFT pursuant to the agreement. Pursuant to the 2016 Amendment, the CFFTprovided the Company an upfront payment of $75.0 million and agreed to provide development funding to the Company of up to $6.0 million annually. Theupfront payment plus any future development funding represent a form of financing pursuant to Accounting Standards Codification (“ASC”) 730, Researchand Development, and thus the amounts are recorded as a liability on the consolidated balance sheet, primarily reflected in “Advance from collaborator,excluding current portion”. The liability is reduced over the estimated royalty term of the agreement. Reductions in the liability are reflected as an offset tocost of product revenues and as interest expense.The Company began marketing KALYDECO in 2012 and began marketing ORKAMBI in 2015. The Company received approval for SYMDEKO in theUnited States in February 2018 and has submitted an MAA to the EMA seeking approval for tezacaftor in combination with ivacaftor in the E.U. TheCompany expects the EMA to complete its review of the MAA in the second half of 2018. The Company has royalty obligations to CFFT for ivacaftor,lumacaftor and tezacaftor until the expiration of patents covering those compounds. The Company has patents in the U.S. and E.U. covering the composition-F-19VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject to potential patent extensions. The Company has patents in the U.S. and E.U.covering the composition-of-matter of lumacaftor that expire in 2030 and 2026, respectively, subject to potential extension. The Company has patents in theU.S. and E.U. covering the composition-of-matter of tezacaftor that expire in 2027 and 2028, respectively, subject to potential extension.CRISPR Therapeutics AGIn 2015, the Company entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AGand its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of humandiseases using CRISPR-Cas9 gene editing technology. The Company has the exclusive right to license up to six CRISPR-Cas9-based targets. In connectionwith the CRISPR Agreement, the Company made an upfront payment to CRISPR of $75.0 million and a $30.0 million investment in CRISPR pursuant to aconvertible loan agreement that converted into preferred stock in January 2016. The Company expensed $75.0 million to research and development, and the$30.0 million investment was recorded at cost on the Company’s consolidated balance sheet. In the second quarter of 2016, the Company made an additionalpreferred stock investment in CRISPR of approximately $3.1 million. In connection with CRISPR's initial public offering in October 2016, the Companypurchased $10.0 million of common shares at the public offering price and the Company’s preferred stock investments in CRISPR converted into commonshares. As of December 31, 2017, the Company recorded the fair value of its investment in CRISPR common shares of $74.8 million in marketable securitiesand a $31.6 million unrealized gain related to these common shares in accumulated other comprehensive income (loss) on the consolidated balance sheet. InJanuary 2018, the Company purchased an additional $21.5 million of CRISPR’s common shares.The Company funds all of the discovery activities conducted pursuant to the CRISPR Agreement. For targets that the Company elects to license, otherthan hemoglobinopathy treatments, the Company would lead all development and global commercialization activities. For each target that the Companyelects to license, other than hemoglobinopathy targets, CRISPR has the potential to receive up to $420.0 million in development, regulatory and commercialmilestones and royalties on net product sales. As part of the collaboration, the Company and CRISPR share equally all development costs and potentialworldwide revenues related to potential hemoglobinopathy treatments, including treatments for of beta-thalassemia and sickle cell disease.The Company may terminate the CRISPR Agreement upon 90 days’ notice to CRISPR prior to any product receiving marketing approval or upon 270days’ notice after a product has received marketing approval. The CRISPR Agreement also may be terminated by either party for a material breach by theother, subject to notice and cure provisions. Unless earlier terminated, the CRISPR Agreement will continue in effect until the expiration of the Company’spayment obligations under the CRISPR Agreement.In the fourth quarter of 2017, the Company entered a co-development and co-commercialization agreement with CRISPR pursuant to the terms of theCRISPR Agreement, under which the Company and CRISPR will co-develop and co-commercialize CTX001 for the treatment of hemoglobinopathytreatments, including treatments for sickle cell disease and beta-thalassemia.Merck KGaAOn January 10, 2017, the Company entered into a strategic collaboration and license agreement (the “Merck KGaA Agreement”) with Merck KGaA,Darmstadt, Germany (“Merck KGaA”). Pursuant to the Merck KGaA Agreement, the Company granted Merck KGaA an exclusive worldwide license toresearch, develop and commercialize four oncology research and development programs. Under the Merck KGaA Agreement, the Company granted MerckKGaA exclusive, worldwide rights to two clinical-stage programs targeting DNA damage repair: its ataxia telangiectasia and Rad3-related protein inhibitorprogram, including VX-970 and VX-803, and its DNA-dependent protein kinase inhibitor program, including VX-984. In addition, the Company grantedMerck KGaA exclusive, worldwide rights to two pre-clinical programs.The Merck KGaA Agreement provided for an upfront payment from Merck KGaA to the Company of $230.0 million. During the first quarter of 2017, theCompany received $193.6 million of the upfront payment and the remaining $36.4 million was remitted to the German tax authorities. Pursuant to a taxtreaty between the U.S. and Germany, the Company filed a refund application for the tax withholding. The income tax receivable is included in “Prepaidexpenses and otherF-20VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)current assets” as of December 31, 2017. In addition to the upfront payment, the Company will receive tiered royalties on potential sales of licensed products,calculated as a percentage of net sales, that range from (i) mid-single digits to mid-twenties for clinical-stage programs and (ii) mid-single digits to highsingle digits for the pre-clinical research programs. Merck KGaA has assumed full responsibility for development and commercialization costs for allprograms.The Company evaluated the deliverables, primarily consisting of a license to the four programs and the obligation to complete certain fully-reimbursableresearch and development and transition activities as directed by Merck KGaA, pursuant to the Merck KGaA Agreement, under the multiple elementarrangement accounting guidance. The Company concluded that the license has stand-alone value from the research and development and transitionactivities based on the resources and know-how possessed by Merck KGaA, and thus concluded that there are two units of accounting in the arrangement.The Company determined the relative selling price of the units of accounting based on the Company’s best estimate of selling price. The Company utilizedkey assumptions to determine the best estimate of selling price for the license, which included future potential net sales of licensed products, developmenttimelines, reimbursement rates for personnel costs, discount rates, and estimated third-party development costs. The Company utilized a discounted cash flowmodel to determine its best estimate of selling price for the license and determined the best estimate of selling price for the research and development andtransition activities based on what it would sell the services for separately. Given the significance of the best estimate of selling price for the license ascompared to the best estimate of selling price for the research and development and transition services, reasonable changes in the assumptions used in thediscounted cash flow model would not have a significant impact on the relative selling price allocation. Based on this analysis, the Company recognizedapproximately $246.6 million in collaborative revenues related to the $230.0 million upfront payment upon delivery of the license and $16.6 million forresearch and development and transition activities during the year ended December 31, 2017. The Company recorded the reimbursement for the research anddevelopment and transition activities in its consolidated statements of operations as a collaborative revenue primarily due to the fact that it is the primaryobligor in the arrangement.Merck KGaA may terminate the Merck KGaA Agreement or any individual program by providing 90 days’ notice, or, in the case of termination of aprogram with a product that has received marketing approval, 180 days’ notice. The Merck KGaA Agreement also may be terminated by either party for amaterial breach by the other party, subject to notice and cure provisions. Unless earlier terminated, the Merck KGaA Agreement will continue in effect untilthe date on which the royalty term and all payment obligations with respect to all products in all countries have expired.Variable Interest Entities (VIE)The Company has entered into several agreements pursuant to which it has licensed rights to certain drug candidates from third-party collaborators,resulting in the consolidation of the third parties’ financial statements into the Company’s consolidated financial statements as VIEs. In order to account forthe fair value of the contingent payments, which consist of milestone, royalty and option payments, related to these collaborations under GAAP, theCompany uses present-value models based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the timing ofachieving the milestones, estimates of future product sales and the appropriate discount rates. The Company bases its estimates of the probability ofachieving the relevant milestones on industry data for similar assets and its own experience. The discount rates used in the valuation model represent ameasure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of theseassumptions at each reporting period. Changes in these assumptions could have a material effect on the fair value of the contingent payments. The followingcollaborations have been reflected in the Company’s financial statements as consolidated VIEs for portions or all of the periods presented:Parion Sciences, Inc.In June 2015, the Company entered into a strategic collaboration and license agreement (the “Parion Agreement”) with Parion Sciences, Inc. (“Parion”)to collaborate with Parion to develop investigational epithelial sodium channel (“ENaC”) inhibitors, including VX-371 (formerly P-1037) and VX-551(formerly P-1055), for the potential treatment of CF and all other pulmonary diseases. The Company is responsible for all costs, subject to certain exceptions,related to development and commercialization of the compounds.F-21VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Pursuant to the Parion Agreement, the Company has worldwide development and commercial rights to Parion’s lead investigational ENaC inhibitors,VX-371 and VX-551, for the potential treatment of CF and all other pulmonary diseases and has the option to select additional compounds discovered inParion’s research program. In 2015, Parion received an $80.0 million up-front payment, and in 2016, Parion earned a milestone payment of $5.0 millionbased upon the achievement of a specified milestone under the Parion Agreement. Parion has the potential to receive up to an additional (i) $485.0 million indevelopment and regulatory milestone payments for development of ENaC inhibitors in CF, including $360.0 million related to global filing and approvalmilestones, (ii) $370.0 million in development and regulatory milestones for VX-371 and VX-551 in non-CF pulmonary indications and (iii) $230.0 millionin development and regulatory milestones should the Company elect to develop an additional ENaC inhibitor from Parion’s research program. The Companyagreed to pay Parion tiered royalties that range from the low double digits to mid-teens as a percentage of potential sales of licensed products.The Company may terminate the Parion Agreement upon 90 days’ notice to Parion prior to any licensed product receiving marketing approval or upon180 days’ notice after a licensed product has received marketing approval. If the Company experiences a change of control prior to the initiation of the firstPhase 3 clinical trial for a licensed product, Parion may terminate the Parion Agreement upon 30 days’ notice, subject to the Company’s right to receivespecified royalties on any subsequent commercialization of licensed products. The Parion Agreement also may be terminated by either party for a materialbreach by the other, subject to notice and cure provisions. Unless earlier terminated, the Parion Agreement will continue in effect until the expiration of theCompany’s royalty obligations, which expire on a country-by-country basis on the later of (i) the date the last-to-expire patent covering a licensed productexpires or (ii) ten years after the first commercial sale in the country.Following execution of the Parion Agreement, the Company determined that it had a variable interest in Parion via the Parion Agreement, and that thevariable interest represented a variable interest in Parion as a whole because the fair value of the ENaC inhibitors represented more than half of the total fairvalue of Parion’s assets. The Company also concluded that it was the primary beneficiary as it had the power to direct the activities that most significantlyaffect the economic performance of Parion and that it had the obligation to absorb losses and right to receive benefits that potentially could be significant toParion. Accordingly, the Company consolidated Parion's financial statements from June 4, 2015 until the Company deconsolidated Parion effectiveSeptember 30, 2017. Notwithstanding the applicable accounting treatment, the Company's interests in Parion have been and continue to be limited to thoseaccorded to the Company in the Parion Agreement.The effect of consolidating Parion’s financial statements included $255.3 million of intangible assets on the Company’s consolidated balance sheet forParion’s in-process research and development assets. These in-process research and development assets relate to Parion’s pulmonary ENaC platform,including the intellectual property related to VX-371 and VX-551, that are licensed by Parion to the Company. The Company also recorded the fair value ofthe net assets attributable to noncontrolling interest of $164.3 million, deferred tax liability of $91.0 million resulting primarily from a basis difference in theintangible assets and certain other net liabilities held by Parion of $10.5 million. The difference between the fair values of the consideration andnoncontrolling interest and the fair value of Parion’s net assets was recorded as goodwill. When determining the valuation of goodwill, the fair value ofconsideration for the license was zero since there was no consideration transferred outside the consolidated financial statements. While there was a transfer of$80.0 million for the upfront payment to Parion, the cash remained within the Company’s consolidated balance sheet since Parion was part of theconsolidated entity. The cash received, net of any cash spent by Parion, was recorded as restricted cash and cash equivalents (VIE) within the consolidatedbalance sheet as it was attributed to the noncontrolling interest holders of Parion.In the second quarter of 2017, Parion signed a license agreement with an affiliate of Shire plc related to the development of a drug candidate for thepotential treatment of dry eye disease. The Company evaluated the license agreement entered into by Parion as a reconsideration event to determine whetherit should continue to consolidate Parion as a variable interest entity into its consolidated financial statements. The Company determined that there was nosubstantive change in the design of Parion subsequent to Parion’s agreement with Shire. Additionally, the Company concluded that at the time it wasappropriate to continue to consolidate the financial results of Parion. Based on the consolidation of Parion’s financial statements, during the year endedDecember 31, 2017, the Company recognized $40.0 million of collaborative revenues and (ii) a tax provision of $14.8 million, both of which wereattributable to noncontrolling interest related to payments that Parion received from Shire in the year ended December 31, 2017. The Company has nointerest in Parion’s license agreement with Shire, including the economic benefits and/or obligations derived therefrom.F-22VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)As of September 30, 2017, the Company determined that the fair value of Parion’s pulmonary ENaC platform had declined significantly based on datareceived in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. The Company recorded an impairmentcharge of $255.3 million, which represented the entire value of the intangible asset in the third quarter of 2017. After evaluating the results of the clinicaltrial and based on the decrease in the fair value of Parion’s pulmonary ENaC platform relative to Parion’s other activities, the Company determined that it wasno longer the primary beneficiary of Parion as it no longer had the power to direct the significant activities of Parion. Accordingly, the Companydeconsolidated Parion as of September 30, 2017. The impairment charge of $255.3 million, the decrease in the fair value of the contingent payments payableby the Company to Parion of $69.6 million and the benefit from income taxes of $126.2 million resulting from these charges were recorded in the thirdquarter of 2017 and were attributable to noncontrolling interest. The benefit from income taxes consisted of benefits of $97.7 million attributable to theimpairment charge and $28.5 million attributable to the decrease in the fair value of contingent payments. The net effect of these charges and impact of thedeconsolidation was a loss of $7.1 million recorded in other income (expense), net attributable to Vertex in the consolidated statement of operations for theyear ended December 31, 2017. The loss of $7.1 million was approximately the difference between (i) the aggregate of $85.0 million in upfront and milestonepayments that the Company has made to Parion to date pursuant to the Parion Agreement and (ii) losses the Company recorded in 2015, 2016, and the firsthalf of 2017 based on increases in the fair value of contingent payments payable by the Company to Parion.Please refer to Note J, “Intangible Assets and Goodwill,” for further information regarding the impairment of Parion’s pulmonary ENaC platform.In connection with the deconsolidation of Parion, the Company evaluated whether the results of Parion should be presented as discontinued operationsfor the year ending December 31, 2017. The Company concluded that the deconsolidation of Parion based on data from the Phase 2 clinical trial of VX-371 isnot a development that significantly impacts the Company’s overall operations and financial results or plans to treat patients with CF. Research anddevelopment expenses incurred related to this program accounted for a minor portion of the Company’s overall annual research and development expensesand the Company remains focused on developing medicines to treat CF. Therefore, the Company has not presented the results related to Parion asdiscontinued operations in its consolidated statements of operations for the year ending December 31, 2017.BioAxone Biosciences, Inc.In October 2014, the Company entered into a license and collaboration agreement (the “BioAxone Agreement”) with BioAxone Biosciences, Inc.(“BioAxone”), which resulted in the consolidation of BioAxone as a VIE beginning on October 1, 2014. The Company paid BioAxone initial payments of$10.0 million in the fourth quarter of 2014.BioAxone has the potential to receive up to $90.0 million in milestones and fees, including development and regulatory milestone payments and alicense continuation fee. The Company recorded an in-process research and development intangible asset of $29.0 million for VX-210 and a correspondingdeferred tax liability of $11.3 million attributable to BioAxone. The Company holds an option to purchase BioAxone at a predetermined price. The optionexpires on the earliest of (a) the day the FDA accepts the Biologics License Application submission for VX-210, (b) the day the Company elects to continuethe license instead of exercising the option to purchase BioAxone and (c) March 15, 2018, subject to the Company’s option to extend this date by one year.F-23VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Aggregate VIE Financial InformationAn aggregate summary of net loss attributable to noncontrolling interest related to the Company’s VIEs for the three years ended December 31, 2017 wasas follows: 2017 2016 2015 (in thousands)Loss attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fairvalue of contingent payments$223,379 $10,086 $6,646(Benefit from) provision for income taxes(114,090) 16,743 29,731Decrease (increase) in fair value of contingent payments62,560 (54,850) (4,530)Net loss (income) attributable to noncontrolling interest$171,849 $(28,021) $31,847The decrease in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments for the year endedDecember 31, 2017 was primarily due to the decrease in the fair value of Parion’s pulmonary ENaC platform described above. The increase in the fair value ofthe contingent payments for the year ended December 31, 2016 was primarily due to a separate Phase 2 clinical trial of VX-371 achieving its primary safetyendpoint in the second quarter of 2016. The increase in the fair value of the contingent payments for the year ended December 31, 2015 was primarily due tochanges in market interest rates and the time value of money. During three years ended December 31, 2017, the (increases) decreases in the fair value of thecontingent payments related to the Company’s VIEs were as follows: 2017 2016 2015 (in thousands)Parion$63,460 $(64,800) $(3,660)BioAxone(900) 9,950 (870)The fair value of the contingent payments related to the Parion Agreement and the BioAxone Agreement as of the dates set forth in the table were asfollows: December 31, 2017 December 31, 2016 (in thousands)Parion$— $238,800BioAxone18,900 18,000The following table summarizes items related to the Company’s VIEs included in the Company’s consolidated balance sheets as of the dates set forth inthe table. Amounts as of December 31, 2017 related to BioAxone while amounts as of December 31, 2016 related to Parion and BioAxone. December 31, 2017 December 31, 2016 (in thousands)Restricted cash and cash equivalents (VIE)$1,489 $47,762Prepaid expenses and other current assets22 6,812Intangible assets29,000 284,340Other assets256 399Accounts payable1,021 415Taxes payable2,171 1,330Other current liabilities— 2,137Deferred tax liability, net4,756 131,446Other liabilities— 300Noncontrolling interest13,727 181,609The Company has recorded the VIEs’ cash and cash equivalents as “Restricted cash and cash equivalents (VIE)” because (i) the Company does not haveany interest in or control over the VIEs’ cash and cash equivalents and (ii) the Company’sF-24VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)agreements with each VIE do not provide for the VIEs’ cash and cash equivalents to be used for the development of the assets that the Company licensedfrom the applicable VIE. Assets recorded as a result of consolidating the Company’s VIEs’ financial condition into the Company’s balance sheets do notrepresent additional assets that could be used to satisfy claims against the Company’s general assets.Other CollaborationsThe Company has entered into various agreements pursuant to which it collaborates with third parties, including inlicensing and outlicensingarrangements. Although the Company does not consider any of these arrangements to be material, the most notable of these arrangements are describedbelow.Moderna Therapeutics, Inc.In July 2016, the Company entered into a strategic collaboration and licensing agreement (the "Moderna Agreement") with Moderna Therapeutics, Inc.("Moderna"), pursuant to which the parties are seeking to identify and develop messenger Ribonucleic Acid ("mRNA") therapeutics for the treatment of CF. Inconnection with the Moderna Agreement, in the third quarter of 2016, the Company made an upfront payment to Moderna of $20.0 million and a $20.0million cost-method investment in Moderna pursuant to a convertible promissory note that converted into preferred stock in August 2016. Moderna has thepotential to receive future development and regulatory milestones of up to $275.0 million, including $220.0 million in approval and reimbursementmilestones, as well as tiered royalty payments on future sales.Under the terms of the Moderna Agreement, Moderna will lead discovery efforts and the Company will lead all preclinical, development andcommercialization activities associated with the advancement of mRNA Therapeutics that result from this collaboration and will fund all expenses related tothe collaboration.The Company may terminate the Moderna Agreement by providing advance notice to Moderna, with the required length of notice dependent on whetherany product developed under the Moderna Agreement has received marketing approval. The Moderna Agreement also may be terminated by either party for amaterial breach by the other, subject to notice and cure provisions. Unless earlier terminated, the Moderna Agreement will continue in effect until theexpiration of the Company’s payment obligations under the Moderna Agreement.The Company evaluates the carrying value of its $20.0 million cost-method investment in Moderna, which is not a publicly traded company, forimpairment on a quarterly basis and has not recorded any adjustments to the carrying value of its investment to date.Janssen Pharmaceuticals, Inc.In 2014, the Company entered into an agreement (the “Janssen Influenza Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen Inc.”). Pursuant to theagreement, Janssen Inc. has an exclusive worldwide license to develop and commercialize certain drug candidates for the treatment of influenza, includingJNJ-63623872 (formerly VX-787). The Company received non-refundable payments of $35.0 million from Janssen Inc. in 2014, which were recorded ascollaborative revenues. In the fourth quarter of 2017, the Company recognized $25.0 million in collaborative revenues due to a milestone that was achievedbased on the Phase 3 clinical trial Janssen initiated in the fourth quarter of 2017. The Company has the potential to receive additional regulatory andcommercial milestone payments as well as royalties on future product sales, if any.Janssen Inc. is responsible for costs related to the development and commercialization of the compounds. The Company recorded reimbursement fordevelopment activities conducted by the Company on behalf of Janssen of $2.0 million, $14.7 million and $22.8 million in 2017, 2016 and 2015,respectively. The reimbursements are recorded as a reduction to development expense in the Company’s consolidated statements of operations primarily dueto the fact that Janssen Inc. directs the activities and selects the suppliers associated with these activities. Janssen Inc. may terminate the Janssen InfluenzaAgreement, subject to certain exceptions, upon six months’ notice.F-25VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Asset AcquisitionConcert PharmaceuticalsIn July 2017, the Company acquired certain CF assets including VX-561 (formerly CTP-656) (the “Concert Assets”) from Concert Pharmaceuticals Inc.(“Concert”) pursuant to an asset purchase agreement that was entered into in March 2017 (the “Concert Agreement”). VX-561 is an investigational CFTRpotentiator that has the potential to be used as part of combination regimens of CFTR modulators to treat CF. Pursuant to the Concert Agreement, Vertex paidConcert $160.0 million in cash for the Concert Assets. If VX-561 is approved as part of a combination regimen to treat CF, Concert would receive up to anadditional $90.0 million in milestones based on regulatory approval in the U.S. and reimbursement in the UK, Germany or France. The Company determinedthat substantially all of the fair value of the Concert Agreement was attributable to a single in-process research and development asset, VX-561, which did notconstitute a business. The Company concluded that it did not have any alternative future use for the acquired in-process research and development asset.Thus, the Company recorded the $160.0 million upfront payment as a research and development expense in 2017. The total cost of the transaction was$165.1 million including $5.1 million of transaction costs that were recorded as sales, general and administrative expenses. If the Company achievesregulatory approval and reimbursement milestones, the Company will record the value of the milestone as an intangible asset and will begin amortizing theasset in cost of product revenues in the period that the relevant milestone is achieved.C.Earnings Per ShareBasic net income (loss) per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstandingduring the period, excluding restricted stock, restricted stock units and performance-based restricted stock units, or PSUs, that have been issued but are notyet vested. Diluted net income (loss) per share attributable to Vertex common shareholders is based upon the weighted-average number of common sharesoutstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.F-26VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The following table sets forth the computation of basic and diluted net income (loss) per share for three years ended December 31, 2017: 2017 2016 2015 (in thousands, except per share amounts)Basic net income (loss) attributable to Vertex per common share calculation: Net income (loss) attributable to Vertex common shareholders$263,484 $(112,052) $(556,334)Less: Undistributed earnings allocated to participating securities(293) — —Net income (loss) attributable to Vertex common shareholders—basic$263,191 $(112,052) $(556,334) Basic weighted-average common shares outstanding248,858 244,685 241,312Basic net income (loss) attributable to Vertex per common share$1.06 $(0.46) $(2.31) Diluted net income (loss) attributable to Vertex per common share calculation: Net income (loss) attributable to Vertex common shareholders$263,484 $(112,052) $(556,334)Less: Undistributed earnings allocated to participating securities(288) — —Net income (loss) attributable to Vertex common shareholders—diluted$263,196 $(112,052) $(556,334) Weighted-average shares used to compute basic net income (loss) per common share248,858 244,685 241,312Effect of potentially dilutive securities: Stock options2,797 — —Restricted stock and restricted stock units (including PSUs)1,542 — —Employee stock purchase plan28 — —Weighted-average shares used to compute diluted net income (loss) per common share253,225 244,685 241,312Diluted net income (loss) attributable to Vertex per common share$1.04 $(0.46) $(2.31)The Company did not include the securities in the following table in the computation of the net income (loss) per share attributable to Vertex commonshareholders calculations because the effect would have been anti-dilutive during each period. 2017 2016 2015 (in thousands)Stock options3,554 12,642 11,145Unvested restricted stock and restricted stock units (including PSUs)411 3,546 3,024D.Fair Value MeasurementsThe fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connectionwith the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurementdate. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market dataobtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how marketparticipants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs andunobservable inputs used in order to value the assets and liabilities:F-27VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)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 transactionsfor 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 orliabilities 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 orliability.The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standardsoutlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As ofDecember 31, 2017, the Company’s investments were primarily in money market funds, government-sponsored enterprise securities, corporate equitysecurities, corporate debt securities and commercial paper. Additionally, the Company utilizes foreign currency forward contracts intended to mitigate theeffect of changes in foreign exchange rates on its consolidated statement of operations.As of December 31, 2017, all of the Company’s financial assets and liabilities that were subject to fair value measurements were valued using observableinputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, government-sponsored enterprise securities andcorporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of corporate debt securities andcommercial paper, which consisted of investments in highly-rated investment-grade corporations and foreign currency forward contracts with highlyreputable and creditworthy counterparties. During 2017, 2016 and 2015, the Company did not record an other-than-temporary impairment charge related toits financial assets.The following table sets forth the Company’s financial assets and liabilities (excluding VIE cash and cash equivalents) subject to fair valuemeasurements: Fair Value Measurements as of December 31, 2017 Fair Value Hierarchy Total Level 1 Level 2 Level 3 (in thousands)Financial instruments carried at fair value (asset position): Cash equivalents: Money market funds$614,951 $614,951 $— $—Government-sponsored enterprise securities12,678 12,678 — —Commercial paper57,357 — 57,357 —Marketable securities: Corporate equity securities74,821 74,821 — —Government-sponsored enterprise securities2,303 2,303 — —Corporate debt securities265,867 — 265,867 —Commercial paper80,263 — 80,263 —Prepaid and other current assets: Foreign currency forward contracts13 — 13 —Total financial assets$1,108,253 $704,753 $403,500 $—Financial instruments carried at fair value (liability position): Other liabilities, current portion: Foreign currency forward contracts$(13,642) $— $(13,642) $—Other liabilities, excluding current portion: Foreign currency forward contracts(866) — (866) —Total financial liabilities$(14,508) $— $(14,508) $—F-28VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued) Fair Value Measurements as of December 31, 2016 Fair Value Hierarchy Total Level 1 Level 2 Level 3 (in thousands)Financial instruments carried at fair value (asset position): Cash equivalents: Money market funds$280,560 $280,560 $— $—Marketable securities: Corporate equity securities64,560 64,560 — —Government-sponsored enterprise securities15,508 15,508 — —Corporate debt securities111,140 — 111,140 —Commercial paper59,404 — 59,404 —Prepaid and other current assets: Foreign currency forward contracts14,407 — 14,407 —Other assets: Foreign currency forward contracts1,186 — 1,186 —Total financial assets$546,765 $360,628 $186,137 $—Financial instruments carried at fair value (liability position): Other liabilities, current portion: Foreign currency forward contracts$(144) $— $(144) $—Total financial liabilities$(144) $— $(144) $—The Company’s VIE invested in cash equivalents consisting of money market funds of $1.5 million as of December 31, 2017, which are valued based onLevel 1 inputs. These cash equivalents are not included in the table above. The Company’s noncontrolling interest related to the Company’s VIE includesthe fair value of the contingent payments, which consist of milestone, royalty and option payments, which are valued based on Level 3 inputs. Please refer toNote B, “Collaborative Arrangements and Acquisitions,” for further information.F-29VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)E.Marketable SecuritiesA summary of the Company’s cash, cash equivalents and marketable securities is shown below: AmortizedCost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands)December 31, 2017 Cash and cash equivalents: Cash and money market funds$1,595,377 $— $— $1,595,377Government-sponsored enterprise securities12,679 — (1) 12,678Commercial paper57,371 — (14) 57,357Total cash and cash equivalents$1,665,427 $— $(15) $1,665,412Marketable securities: Corporate equity securities$43,213 $31,608 $— $74,821Government-sponsored enterprise securities2,304 — (1) 2,303Corporate debt securities (matures within 1 year)215,639 — (363) 215,276Corporate debt securities (matures after 1 year through 5 years)50,697 — (106) 50,591Commercial paper (matures within 1 year)80,372 — (109) 80,263Total marketable securities392,225 31,608 (579) 423,254Total cash, cash equivalents and marketable securities$2,057,652 $31,608 $(594) $2,088,666 December 31, 2016 Cash and cash equivalents: Cash and money market funds$1,183,945 $— $— $1,183,945Total cash and cash equivalents$1,183,945 $— $— $1,183,945Marketable securities: Corporate equity securities$43,213 $21,347 $— $64,560Government-sponsored enterprise securities (matures within 1 year)15,506 2 — 15,508Corporate debt securities (matures within 1 year)111,225 — (85) 111,140Commercial paper (matures within 1 year)59,331 73 — 59,404Total marketable securities229,275 21,422 (85) 250,612Total cash, cash equivalents and marketable securities$1,413,220 $21,422 $(85) $1,434,557The Company has a limited number of marketable securities in insignificant loss positions as of December 31, 2017, which the Company does not intendto sell and has concluded it will not be required to sell before recovery of the amortized costs for the investments at maturity. There were no charges recordedfor other-than-temporary declines in fair value of marketable securities nor gross realized gains or losses recognized in 2017, 2016 or 2015.F-30VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)F.Accumulated Other Comprehensive Income (Loss)The following table summarizes the changes in accumulated other comprehensive income (loss) by component: Foreign currencytranslationadjustment Unrealized holdinggains (losses) onmarketablesecurities, net of tax Unrealized (losses)gains on foreigncurrency forwardcontracts, net of tax Total (in thousands)Balance at December 31, 2014$(971) $(123) $2,011 $917Other comprehensive (loss) income before reclassifications(1,109) 249 6,493 5,633Amounts reclassified from accumulated other comprehensive income (loss)— — (4,726) (4,726)Net current period other comprehensive (loss) income(1,109) 249 1,767 907Balance at December 31, 2015$(2,080) $126 $3,778 $1,824Other comprehensive (loss) income before reclassifications(5,782) 17,395 17,383 28,996Amounts reclassified from accumulated other comprehensive income (loss)— — (9,647) (9,647)Net current period other comprehensive (loss) income(5,782) 17,395 7,736 19,349Balance at December 31, 2016$(7,862) $17,521 $11,514 $21,173Other comprehensive (loss) income before reclassifications(13,169) 6,954 (29,175) (35,390)Amounts reclassified from accumulated other comprehensive income (loss)— — 2,645 2,645Net current period other comprehensive (loss) income(13,169) 6,954 (26,530) (32,745)Balance at December 31, 2017$(21,031) $24,475 $(15,016) $(11,572)G.HedgingThe Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’sforecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cashflow hedges under GAAP having contractual durations from one to eighteen months.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 allforeign currency forward contracts that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at thehedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedgeditems on a prospective and retrospective basis. If the Company determines that a (i) foreign currency forward contract is not highly effective as a cash flowhedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, theCompany would discontinue hedge accounting treatment prospectively. The Company measures effectiveness based on the change in fair value of theforward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. Asof December 31, 2017, all hedges were determined to be highly effective and the Company had not recorded any ineffectiveness related to the hedgingprogram.F-31VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges: As of As of December 31, 2017 2016Foreign Currency(in thousands)Euro$257,230 $164,368British pound sterling77,481 65,237Australian dollar30,501 23,776Total foreign currency forward contracts$365,212 $253,381The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges underGAAP included on the Company’s consolidated balance sheets:As of December 31, 2017Assets LiabilitiesClassification Fair Value Classification Fair Value(in thousands)Prepaid and other current assets $13 Other liabilities, current portion $(13,642)Other assets — Other liabilities, excluding current portion (866)Total assets $13 Total liabilities $(14,508)As of December 31, 2016Assets LiabilitiesClassification Fair Value Classification Fair Value(in thousands)Prepaid and other current assets $14,407 Other liabilities, current portion $(144)Other assets 1,186 Other liabilities, excluding current portion —Total assets $15,593 Total liabilities $(144)The following table summarizes the potential effect of offsetting derivatives by type of financial instrument on the Company’s consolidated balancesheets: As of December 31, 2017 Gross AmountsRecognized Gross AmountsOffset Gross AmountPresented Gross Amount NotOffset Legal OffsetForeign currency forward contracts(in thousands)Total assets$13 $— $13 $(13) $—Total liabilities(14,508) — (14,508) 13 (14,495) As of December 31, 2016 Gross AmountsRecognized Gross AmountsOffset Gross AmountPresented Gross Amount NotOffset Legal OffsetForeign currency forward contracts(in thousands)Total assets$15,593 $— $15,593 $(144) $15,449Total liabilities(144) — (144) 144 —In 2016, Company began entering into foreign exchange forward contracts with contractual maturities of less than one month designed to mitigate theeffect of changes in foreign exchange rates on monetary assets and liabilities including intercompany balances. The Company recognized a loss of $14.1million and a gain of $6.9 million, recorded in otherF-32VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)income (expense), net, during 2017 and 2016, respectively, related to foreign exchange contracts, which are not designated as hedging instruments underGAAP.As of December 31, 2017, the notional amount of foreign exchange contracts where hedge accounting under GAAP is not applied was $122.8 million.The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts not designated for hedge accounting underGAAP included on the Company’s consolidated balance sheets: As of December 31, 2017 2016 (in thousands)Prepaid expenses and other current assets$— $660Other liabilities, current portion684 —H.InventoriesInventories consisted of the following: As of December 31, 2017 2016 (in thousands)Raw materials$20,924 $6,348Work-in-process74,237 56,672Finished goods16,669 14,584Total$111,830 $77,604I.Property and EquipmentProperty and equipment, net consisted of the following: As of December 31, 2017 2016 (in thousands)Buildings$634,061 $548,232Furniture and equipment256,509 236,634Software151,890 134,321Leasehold improvements117,806 108,702Computers61,294 58,271Total property and equipment, gross1,221,560 1,086,160Less: accumulated depreciation(432,123) (387,798)Total property and equipment, net$789,437 $698,362Total property and equipment, gross, as of December 31, 2017 and 2016, included $100.9 million and $101.3 million, respectively, for property andequipment recorded under capital leases. Accumulated depreciation, as of December 31, 2017 and 2016, included $43.4 million and $37.9 million,respectively, for property and equipment recorded under capital leases.Total property and equipment, gross, as of December 31, 2017 and 2016, included $21.1 million and $17.8 million, respectively, for capitalizedinternally developed software. Accumulated depreciation, as of December 31, 2017 and 2016, included $13.0 million and $9.2 million, respectively, forcapitalized internally developed software.The Company recorded depreciation expense of $61.4 million, $60.8 million and $60.0 million in 2017, 2016 and 2015, respectively.F-33VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)J.Intangible Assets and GoodwillIntangible AssetsAs of December 31, 2017 and December 31, 2016, in-process research and development intangible assets of $29.0 million and $284.3 million,respectively, were recorded on the Company’s consolidated balance sheet. In 2015, the Company recorded an in-process research development intangibleasset of $255.3 million related to Parion’s pulmonary ENaC platform, including the intellectual property related to VX-371 and VX-551, that are licensed byParion to the Company. In 2014, the Company recorded an in-process research and development intangible asset of $29.0 million related to VX-210 that islicensed by BioAxone to the Company.In connection with its preparation of its financial statements for September 30, 2017, the Company determined that there were indicators that the value ofthe pulmonary ENaC platform intangible asset had become impaired. The Company determined that the fair value of the intangible asset had decreasedsignificantly based on data received in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. Based on thisdata, the Company evaluated the fair value of Parion’s pulmonary ENaC platform using the discounted cash flow approach from the perspective of a marketparticipant and determined that the fair value of the intangible asset was zero as of September 30, 2017. The discounted cash flow model pertaining to theimpairment of the pulmonary ENaC platform includes (i) assumptions regarding the probability of obtaining marketing approval for the drug candidate, (ii)estimates regarding the timing of and the expected costs to develop and commercialize the drug candidate, (iii) estimates of future cash flows from potentialproduct sales with respect to the drug candidate and (iv) appropriate discount and tax rates. The Company recorded a $255.3 million impairment charge and abenefit from income taxes of $97.7 million in 2017 attributable to noncontrolling interest.GoodwillAs of each of December 31, 2017 and December 31, 2016, goodwill of $50.4 million was recorded on the Company’s consolidated balance sheet.K.Additional Balance Sheet DetailPrepaid and other current assets consisted of the following: As of December 31, 2017 2016 (in thousands)Prepaid expenses$62,475 $36,134Collaborative accounts receivable28,907 719Other receivables and assets74,253 34,400Total$165,635 $71,253Accrued expenses consisted of the following: As of December 31, 2017 2016 (in thousands)Payroll and benefits$113,026 $86,387Research, development and commercial contract costs98,411 62,756Product revenue allowances119,919 86,533Royalty payable73,044 52,845Other39,561 26,728Total$443,961 $315,249F-34VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)L.Long Term ObligationsFan Pier LeasesIn 2011, the Company entered into two lease agreements, pursuant to which the Company leases approximately 1.1 million square feet of office andlaboratory space in two buildings (the “Buildings”) at Fan Pier in Boston, Massachusetts (the “Fan Pier Leases”). The Company commenced lease paymentsin December 2013, and will make lease payments pursuant to the Fan Pier Leases through December 2028. The Company has an option to extend the term ofthe Fan Pier Leases for an additional 10 years.Because the Company was involved in the construction project, the Company was deemed for accounting purposes to be the owner of the Buildingsduring the construction period and recorded project construction costs incurred by the landlord. Upon completion of the Buildings, the Company evaluatedthe Fan Pier Leases and determined that the Fan Pier Leases did not meet the criteria for “sale-leaseback” treatment. Accordingly, the Company begandepreciating the asset and incurring interest expense related to the financing obligation in 2013. The Company bifurcates its lease payments pursuant to theFan Pier Leases into (i) a portion that is allocated to the Buildings and (ii) a portion that is allocated to the land on which the Buildings were constructed. Theportion of the lease obligations allocated to the land is treated as an operating lease that commenced in 2011. The Company recorded interest expense of$60.1 million in 2017 and $60.2 million in each of 2016 and 2015. The Company recorded depreciation expense of $13.3 million in each of 2017, 2016 and2015. In each of 2017, 2016 and 2015, the Company recorded rent expense of $6.5 million.Property and equipment, net, included $475.7 million and $489.0 million as of December 31, 2017 and 2016, respectively, related to construction costsfor the Buildings. The carrying value of the construction financing lease obligation related to the Buildings, which excludes interest that will be imputedover the course of the Company’s lease agreement for the Buildings, was $472.1 million and $472.6 million, as of December 31, 2017 and 2016, respectively.San Diego LeaseOn December 2, 2015, the Company entered into a lease agreement for 3215 Merryfield Row, San Diego, California with ARE-SD Region No. 23, LLC.Pursuant to this agreement, the Company agreed to lease approximately 170,000 square feet of office and laboratory space in a building under constructionin San Diego, California (“San Diego Lease”) for a term of 16 years. The Company expects base rent payments will commence in the second quarter of 2019.Pursuant to the San Diego Lease, during the initial 16-year term, the Company will pay an average of approximately $10.2 million per year in aggregate rent,exclusive of operating expenses. The Company has the option to extend the lease term for up to two additional five-year terms.Because the Company is involved in the construction project, the Company is deemed for accounting purposes to be the owner of the San Diegobuilding during the construction period and recorded project construction costs incurred by the landlord. The Company bifurcates its lease paymentspursuant to the San Diego Lease into (i) a portion that is allocated to the San Diego building and (ii) a portion that is allocated to the land on which the SanDiego building was constructed. Although the Company will not begin making lease payments pursuant to the San Diego Lease until the commencementdate, the portion of the lease obligation allocated to the land is treated for accounting purposes as an operating lease that commenced in the fourth quarter of2016. Upon completion of the San Diego building, the Company will evaluate the San Diego Lease and determine if the San Diego Lease meets the criteriafor “sale-leaseback” treatment. If the San Diego Lease meets the “sale-leaseback” criteria, the Company will remove the asset and the related liability from itsconsolidated balance sheet and treat the San Diego Lease as either an operating or a capital lease based on the Company’s assessment of the accountingguidance. The Company expects that upon completion of construction of the San Diego building the San Diego Lease will not meet the “sale-leaseback”criteria. If the San Diego Lease does not meet “sale-leaseback” criteria, the Company will treat the San Diego Lease as a financing obligation and willdepreciate the asset over its estimated useful life.Property and equipment, net, included $94.6 million and $15.0 million as of December 31, 2017 and 2016, respectively, related to construction costs forthe San Diego building. The carrying value of the construction financing lease obligation for the San Diego building was $87.4 million and $12.6 million asof December 31, 2017 and 2016, respectively.F-35VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Revolving Credit FacilityIn October 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and thelenders referred to therein. The Credit Agreement provides for a $500.0 million revolving facility, $300.0 million of which was drawn at closing (the“Loans”) and was repaid in February 2017. The Credit Agreement also provides that, subject to satisfaction of certain conditions, the Company may requestthat the borrowing capacity under the Credit Agreement be increased by an additional $300.0 million. The Credit Agreement matures on October 13, 2021.The proceeds of the borrowing under the Credit Agreement were used primarily to repay the Company's existing indebtedness under the MacquarieLoan. The Loans will bear interest, at the Company's option, at either a base rate or a Eurodollar rate, in each case plus an applicable margin. Under the CreditAgreement, the applicable margins on base rate loans range from 0.75% to 1.50% and the applicable margins on Eurodollar loans range from 1.75% to2.50%, in each case based on the Company's consolidated leverage ratio (the ratio of the Company's total consolidated debt to the Company's trailing twelve-month EBITDA).The Loans are guaranteed by certain of the Company's domestic subsidiaries and secured by substantially all of the Company's assets and the assets ofthe Company's domestic subsidiaries (excluding intellectual property, owned and leased real property and certain other excluded property) and by the equityinterests of the Company's subsidiaries, subject to certain exceptions. Under the terms of the Credit Agreement, the Company must maintain, subject tocertain limited exceptions, a consolidated leverage ratio of 3.00 to 1.00 and consolidated EBITDA of at least $200.0 million, in each case to be measured ona quarterly basis.The Credit Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The CreditAgreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercisevarious remedies, including the acceleration of amounts due under outstanding loans.Term LoanIn 2014, the Company entered into a credit agreement with the lenders party thereto, and Macquarie US Trading LLC (“Macquarie”), as administrativeagent. The credit agreement provided for a $300.0 million senior secured term loan (“Macquarie Loan”). On October 13, 2016, the Company terminated andrepaid all outstanding obligations under the Macquarie Loan. The Company incurred a charge of $2.2 million in the fourth quarter of 2016 related to a losson extinguishment attributable to the Macquarie Loan that was recorded as “Interest expense, net” in the Company’s consolidated statements of operations.The Macquarie Loan initially bore interest at a rate of 7.2% per annum, which was reduced to 6.2% per annum based on the FDA’s approval ofORKAMBI and was reduced to a rate of LIBOR plus 5.0% per annum during the third year of the term. The Company incurred $5.3 million in fees paid toMacquarie that were recorded as a discount on the term loan and that were recorded as additional interest expense using the effective interest method over theterm of the loan in the Company’s consolidated statements of operations.M.Common Stock, Preferred Stock and Equity PlansThe Company is authorized to issue 500,000,000 shares of common stock. Holders of common stock are entitled to one vote per share. Holders ofcommon stock are entitled to receive dividends, if and when declared by the Company’s Board of Directors, and to share ratably in the Company’s assetslegally available for distribution to the Company’s shareholders in the event of liquidation. Holders of common stock have no preemptive, subscription,redemption or conversion rights. The holders of common stock do not have cumulative voting rights.The Company is authorized to issue 1,000,000 shares of preferred stock in one or more series and to fix the powers, designations, preferences and relativeparticipating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and thenumber of shares constituting any series, without any further vote or action by the Company’s shareholders. As of December 31, 2017 and 2016, theCompany had no shares of preferred stock issued or outstanding.F-36VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Stock and Option PlansThe purpose of each of the Company’s stock and option plans is to attract, retain and motivate its employees, consultants and directors. Awards grantedunder these plans can be incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), restricted stock (“RSs”), restricted stock units (“RSUs”)including performance-based RSUs (“PSUs”) or other equity-based awards, as specified in the individual plans.Shares issued under all of the Company’s plans are funded through the issuance of new shares. The following table contains information about theCompany’s equity plans: As of December 31, 2017Title of Plan Group Eligible Type of Award Granted Awards Outstanding Additional Awards Authorized for Grant2013 Stock and Option Plan Employees, Non-employee Directors andConsultants NSO, RS, RSU and PSU 10,388,723 11,427,1142006 Stock and Option Plan Employees, Non-employee Directors andConsultants NSO, RS and RSU 3,102,768 — Total 13,491,491 11,427,114All options granted under the Company’s 2013 Stock and Option Plan (“2013 Plan”) and 2006 Stock and Option Plan (“2006 Plan”) were granted withan exercise price equal to the fair value of the underlying common stock on the date of grant. As of December 31, 2017, the stock and option plan underwhich the Company is authorized to make new equity awards is the Company’s 2013 Plan. Under the 2013 Plan, no stock options can be awarded with anexercise price less than the fair market value on the date of grant. In the three years ended December 31, 2017, the Company’s shareholders approvedincreases in the number of shares authorized for issuance pursuant to the 2013 Stock and Option Plan of (i) 6,750,000 shares in 2017, and (ii) 7,800,000shares in 2015, plus the number of shares that remained available for issuance under the Company’s 2006 Stock and Option Plan, which rolled-over into the2013 Stock and Option Plan in 2015.During the three years ended December 31, 2017, grants to current employees and directors primarily had a grant date that was the same as the date theaward was approved by the Company’s Board of Directors. During the three years ended December 31, 2017, for grants to new employees and directors, thedate of grant for awards was the employee’s first day of employment or the date the director was elected to the Company’s Board of Directors. All optionsawarded under the Company’s stock and option plans expire not more than 10 years from the grant date.Stock OptionsThe following table summarizes information related to the outstanding and exercisable options during the year ended December 31, 2017: Stock Options Weighted-average Exercise Price Weighted-average Remaining Contractual Life Aggregate Intrinsic Value (in thousands) (per share) (in years) (in thousands)Outstanding at December 31, 201612,642 $81.41 Granted2,359 $108.43 Exercised(4,561) $70.90 Forfeited(611) $99.53 Expired(62) $105.24 Outstanding at December 31, 20179,767 $91.57 6.95 $585,293Exercisable at December 31, 20175,313 $80.14 5.75 $375,472The aggregate intrinsic value in the table above represents the total pre-tax amount, net of exercise price, that would have been received by optionholders if all option holders had exercised all options with an exercise price lower than the marketF-37VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)price on the last business day of 2017, which was $150.71 based on the average of the high and low price of the Company’s common stock on that date.The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during 2017, 2016 and 2015was $302.8 million, $48.6 million and $252.9 million, respectively. The total cash received by the Company as a result of employee stock option exercisesduring 2017, 2016 and 2015 was $323.3 million, $48.5 million and $165.6 million, respectively.The following table summarizes information about stock options outstanding and exercisable at December 31, 2017: Options Outstanding Options ExercisableRange of Exercise Prices Number Outstanding Weighted-average Remaining Contractual Life Weighted-average Exercise Price Number Exercisable Weighted-average Exercise Price (in thousands) (in years) (per share) (in thousands) (per share)$18.93–$20.00 128 0.10 $18.93 128 $18.93$20.01–$40.00 810 1.88 $34.43 810 $34.43$40.01–$60.00 798 4.49 $49.15 798 $49.15$60.01–$80.00 746 6.19 $75.49 653 $75.40$80.01–$100.00 4,350 8.07 $89.31 1,514 $89.51$100.01–$120.00 1,087 7.11 $109.34 633 $109.24$120.01–$140.00 1,223 7.63 $130.20 734 $129.89$140.01–$160.00 — — $— — $—$160.01–$163.74 625 9.54 $162.94 43 $162.94Total 9,767 6.95 $91.57 5,313 $80.14Restricted Stock and Restricted Stock Units (excluding PSUs)The following table summarizes the restricted stock and restricted stock unit activity of the Company during the year ended December 31, 2017: Restricted Stock Restricted Stock Units (excluding PSUs) Number of Units Weighted-average Grant-date Fair Value Number of Shares Weighted-average Grant-date Fair Value (in thousands) (per share) (in thousands) (per share)Unvested at December 31, 20162,613 $102.54 798 $92.62Granted— $— 1,719 $113.13Vested(1,206) $102.99 (278) $94.72Cancelled(178) $102.45 (228) $97.86Unvested at December 31, 20171,229 $102.12 2,011 $109.27The total fair value of restricted stock that vested during 2017, 2016 and 2015 (measured on the date of vesting) was $157.0 million, $74.1 million and$124.0 million, respectively. The total fair value of restricted stock units that vested during 2017, 2016 and 2015 (measured on the date of vesting) was $33.2million, $5.3 million and $8.0 million, respectively.Performance-based RSUs (PSUs)The potential range of shares issuable pursuant to the Company’s PSU awards range from 0% to 200% of the target shares based on financial and non-financial measures. Fifty percent of PSUs that could be earned have a one-year performance period with the amount actually earned dependent upon theCompany’s product revenue performance and with vesting of the earned shares in three equal installments over a three-year period. The remaining 50% ofPSUs that could be earned have a three-year performance period with the amount actually earned dependent upon the achievement of multiple clinicaldevelopment milestones and with the earned shares cliff vesting at the end of the three-year performance period.F-38VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The following table summarizes the PSU activity of the Company during the year ended December 31, 2017: Performance-Based RSU Number of Units Weighted-average Grant-date Fair Value (in thousands) (per share)Unvested at December 31, 2016 (1)135 $91.05Granted (2)392 $86.71Vested(15) $91.05Cancelled(28) $86.52Unvested at December 31, 2017484 $87.59 (1) Represents the Company’s 2016 PSUs based on the target number of shares issuable at the end of each of the financial and non-financial performance periods.(2) Represents (i) the target number of shares issuable for the Company’s 2017 PSUs at the end of each of the financial and non-financial performance periods and (ii) a decrease in shares issuable under 2016 PSUs based on 2016 financial performance.The total fair value of PSUs that vested during 2017 (measured on the date of vesting) was $1.3 million. There were no PSUs that vested during 2016,which was the first year that the Company granted PSUs.Employee Stock Purchase PlanThe Company has an employee stock purchase plan (the “ESPP”). The ESPP permits eligible employees to enroll in a twelve-month offering periodcomprising two six-month purchase periods. Participants may purchase shares of the Company’s common stock, through payroll deductions, at a price equalto 85% of the fair market value of the common stock on the first day of the applicable twelve-month offering period, or the last day of the applicable six-month purchase period, whichever is lower. Purchase dates under the ESPP occur on or about May 14 and November 14 of each year. As of December 31,2017, there were 616,256 shares of common stock authorized for issuance pursuant to the ESPP.In 2017, the following shares were issued to employees under the ESPP: Year Ended December 31, 2017 (in thousands, except per share amount)Number of shares275Average price paid per share$80.71N.Stock-based Compensation ExpenseThe Company recognizes share-based payments to employees as compensation expense using the fair value method. The fair value of stock options andshares purchased pursuant to the ESPP is calculated using the Black-Scholes option pricing model. The fair value of restricted stock and restricted stockunits, including PSUs, is based on the intrinsic value on the date of grant. Stock-based compensation, measured at the grant date based on the fair value of theaward, is typically recognized as expense ratably over the requisite service period. The expense recognized over the requisite service period is recorded net ofthe impact for actual awards that were forfeited prior to vesting in the year ended December 31, 2017 in accordance with new accounting guidance thatbecame effective in 2017. Prior to adoption, the expense recognized included an estimate of awards that would be forfeited prior to vesting for the yearsended December 31, 2016 and 2015.F-39VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The effect of stock-based compensation expense during the three years ended December 31, 2017 was as follows: 2017 2016 2015 (in thousands)Stock-based compensation expense by line item: Research and development expenses$181,900 $153,451 $152,955Sales, general and administrative expenses108,836 84,254 78,070Total stock-based compensation expense included in costs and expenses$290,736 $237,705 $231,025The stock-based compensation expense by type of award during the three years ended December 31, 2017 was as follows: 2017 2016 2015 (in thousands)Stock-based compensation expense by type of award: Stock options$105,367 $114,768 $129,276Restricted stock and restricted stock units (including PSUs)181,258 118,709 98,811ESPP share issuances9,017 7,835 7,025Less: stock-based compensation expense capitalized to inventories(4,906) (3,607) (4,087)Total stock-based compensation expense included in costs and expenses$290,736 $237,705 $231,025The Company capitalizes stock-based compensation expense to inventories, all of which is attributable to employees who support the Company’smanufacturing operations for the Company’s products.The following table sets forth the Company’s unrecognized stock-based compensation expense as of December 31, 2017, by type of award and theweighted-average period over which that expense is expected to be recognized: As of December 31, 2017 Unrecognized Expense Weighted-average RecognitionPeriod (in thousands) (in years)Type of award: Stock options$147,402 2.45Restricted stock and restricted stock units (including PSUs)$254,302 2.47ESPP share issuances$4,245 0.59Stock OptionsThe Company issues stock options with service conditions, which are generally the vesting periods of the awards. The Company uses the Black-Scholesoption pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes option pricing model uses the option exercise price aswell as estimates and assumptions related to the expected price volatility of the Company’s stock, the rate of return on risk-free investments, the expectedperiod during which the options will be outstanding, and the expected dividend yield for the Company’s stock to estimate the fair value of a stock option onthe grant date. The options granted during 2017, 2016 and 2015 had a weighted-average grant-date fair value per share of $43.27, $37.93 and $52.16,respectively.The fair value of each option granted during 2017, 2016 and 2015 was estimated on the date of grant using the Black-Scholes option pricing model withthe following weighted-average assumptions: 2017 2016 2015Expected stock price volatility45.31% 46.77% 47.29%Risk-free interest rate1.94% 1.32% 1.61%Expected term of options (in years)4.68 4.91 5.28Expected annual dividends— — —F-40VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)The weighted-average valuation assumptions were determined as follows:•Expected stock price volatility: Expected stock price volatility is calculated using the trailing one month average of daily impliedvolatilities prior to the grant date. Implied volatility is based on options to purchase the Company’s stock with remaining terms of greaterthan one year that are regularly traded in the market.•Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at thetime of grant for a period that is commensurate with the assumed expected option term.•Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The Companyuses historical data to estimate employee exercise and post-vest termination behavior. The Company believes that all groups of employeesexhibit similar exercise and post-vest termination behavior and therefore does not stratify employees into multiple groups in determiningthe expected term of options.•Expected annual dividends: The estimate for annual dividends is $0.00 because the Company has not historically paid, and does not intendfor the foreseeable future to pay, a dividend.Restricted Stock, Restricted Stock Units and Performance-based Restricted Stock UnitsThe Company awards restricted stock and restricted stock units with service conditions, which are generally the vesting periods of the awards. Prior to2017, the Company also awarded, to certain members of senior management, on an annual basis restricted stock and restricted stock units that vest upon theearlier of the satisfaction of (i) a performance condition or (ii) a service condition.In February 2016, the Company began granting PSUs to certain members of senior management. Half of the PSUs contained financial goals as theperformance metric and the other half contained non-financial goals. A target number of shares was established for each award, however the actual number ofshares that will be issued when an award vests may range from zero to 200% of the target amount depending upon the level of achievement of the applicableperformance metric. The financial-based PSUs vest in three equal installments over a three-year period and are expensed ratably over that same period basedupon an assessment of the likely level of achievement. The non-financial based PSUs cliff vest at the end of the three-year performance period and areexpensed on a straight-line basis over that same period based upon an assessment of the likely level of achievement.In addition, in 2015 and 2014, the Company issued, pursuant to a retention program, restricted stock awards to certain members of senior managementthat vested on various dates in the fourth quarter of 2017 and in January 2018 upon the satisfaction of both (i) a performance condition and (ii) a servicecondition.Employee Stock Purchase PlanThe weighted-average fair value of each purchase right granted during 2017, 2016 and 2015 was $35.90, $26.86 and $37.84, respectively. The followingtable reflects the weighted-average assumptions used in the Black-Scholes option pricing model for 2017, 2016 and 2015: 2017 2016 2015Expected stock price volatility39.09% 48.22% 47.20%Risk-free interest rate1.24% 0.56% 0.40%Expected term (in years)0.75 0.75 0.72Expected annual dividends— — —The expected stock price volatility for ESPP offerings is based on implied volatility. The Company bases the risk-free interest rate on the interest ratepayable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. The expected termrepresents purchases and purchase periods that take placeF-41VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)within the offering period. The expected annual dividends estimate is $0.00 because the Company has not historically paid, and does not for the foreseeablefuture intend to pay, a dividend.O.Other ArrangementsSale of HIV Protease Inhibitor Royalty StreamIn 2008, the Company sold to a third party its rights to receive royalty payments from GlaxoSmithKline plc, net of royalty amounts to be earned by anddue to a third party, for a one-time cash payment of $160.0 million. These royalty payments relate to net sales of HIV protease inhibitors, which had beendeveloped pursuant to a collaboration agreement between the Company and GlaxoSmithKline plc. The Company has been recognizing the payment receivedover the expected life of the collaboration agreement with GlaxoSmithKline plc based on the units-of-revenue method. As of December 31, 2017, theCompany had $6.9 million in deferred revenues related to the one-time cash payment. In the first quarter of 2018, the Company will record a cumulativeeffect adjustment to its accumulated deficit equal to the amount the Company deferred as of December 31, 2017, net of deferred costs, as there are no materialperformance obligations remaining related to the Company’s sales of HIV protease inhibitors. This adjustment will be pursuant to the new guidanceapplicable to revenue recognition that became effective January 1, 2018 that is described in Note A, “Nature of Business and Accounting Policies.”P.Income TaxesThe components of loss before provision for (benefit from) income taxes during the three years ended December 31, 2017 consisted of the following: 2017 2016 2015 (in thousands)United States$330,340 $(147,860) $(272,326)Foreign(346,029) 80,494 (285,474)Loss before (benefit from) provision for income taxes$(15,689) $(67,366) $(557,800)The components of the provision for (benefit from) income taxes during the three years ended December 31, 2017 consisted of the following: 2017 2016 2015 (in thousands)Current taxes: United States$11,559 $(3,821) $25,623Foreign3,576 1,794 831State5,025 1,836 3,629Total current taxes$20,160 $(191) $30,083Deferred taxes: United States$(113,805) $18,659 $497Foreign(3,222) (3,359) (355)State(10,457) 1,556 156Total deferred taxes$(127,484) $16,856 $298(Benefit from) provision for income taxes$(107,324) $16,665 $30,381F-42VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)A reconciliation of the provision for (benefit from) income taxes as computed by applying the U.S. federal statutory rate of 35% to the provision for(benefit from) income taxes during the three years ended December 31, 2017 is as follows: 2017 2016 2015 (in thousands)Loss before (benefit from) provision for income taxes$(15,689) $(67,366) $(557,800) Expected benefit from income taxes(5,491) (23,578) (195,230)State taxes, net of federal benefit4,742 3,621 3,800Foreign income tax rate differential77,801 21,346 47,402Tax credits(49,088) (47,773) (55,696)Provision for (benefit from) income taxes attributable to valuation allowances(584,917) 14,837 226,169Permanent items21,825 24,749 5,817Rate change575,192 12,836 (1,224)Stock compensation (benefit) shortfalls and cancellations(21,453) 4,162 951Tax attribute expiration— 9,947 —Deconsolidation of VIE(126,183) — —Other248 (3,482) (1,608)(Benefit from) provision for income taxes$(107,324) $16,665 $30,381The Company operates in many foreign tax jurisdictions, which impose income taxes at different rates than the U.S. The impact of these rate differences,which is primarily related to the Company’s operations in the U.K., is included in the “Foreign income tax rate differential” in the Company’s tax ratereconciliation above, which reconciles the U.S. federal statutory tax rate to the Company’s effective tax rate. In 2017, the effect of “Permanent items” wasrelated to equity compensation, Research and Development Credits, Orphan Drug Credits, and foreign amortization.The change in the “Provision for (benefit from) income taxes attributable to valuation allowances” on deferred tax assets in the tax rate reconciliationtable above is primarily related to the U.S., U.K. and Canada. In 2017, the valuation allowance decreased by $178.2 million primarily due to the utilization ofnet operating losses (“NOLs”) in the U.S. and a decrease in the U.S. corporate tax rate from 35% to 21% partially offset by the adoption of ASU 2016-09. In2016, the valuation allowance increased by $14.8 million primarily due to an increase in tax credits in the U.S. and an increase in the net operating loss in theU.K., both due to the uncertainty in the Company’s ability to use them in future periods. In 2015, the valuation allowance increased by $306.4 millionprimarily related to an increase in net operating losses that were incurred with no corresponding benefit due to the uncertainty in the Company’s ability touse them in future periods.On December 22, 2017, H.R.1., known as the Tax Cuts and Jobs Act, was signed into law. The new law did not have a significant impact on theCompany’s consolidated financial statements for the year ended December 31, 2017 because it maintains a valuation allowance on the majority of its netoperating losses and other deferred tax assets. However, the reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in increases to theamounts reflected in “Provision for (benefit from) income taxes attributable to valuation allowances” and “Rate change” in the Company’s tax reconciliationtable above for the year ended December 31, 2017 compared to the years ended December 31, 2016 and 2015. The change in the U.S. federal corporate taxrate, which is effective January 1, 2018, is also reflected in the Company’s deferred tax table below. Lastly, the Company has discussed Staff AccountingBulletin No. 118’s (“SAB 118”) possible impact on the Company’s consolidated financial statements below.F-43VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect forthe year in which the differences are expected to reverse. The components of the deferred taxes were as follows: As of December 31, 2017 2016 (in thousands)Deferred tax assets: Net operating loss$1,004,404 $1,232,399Tax credit carryforwards440,429 367,402Intangible assets54,091 34,938Deferred revenues19,593 31,205Stock-based compensation83,196 110,446Inventories4,250 4,705Accrued expenses17,808 23,078 Construction financing lease obligation109,354 177,735 Other1,417 27Gross deferred tax assets1,734,542 1,981,935Valuation allowance(1,552,942) (1,731,186)Total deferred tax assets181,600 250,749Deferred tax liabilities: Property and equipment(101,019) (169,089)Acquired intangibles(6,341) (134,063)Deferred revenue(73,357) (73,357)Unrealized gain(6,401) (7,967)Net deferred tax liabilities$(5,518) $(133,727)The Company presents its deferred tax assets and deferred tax liabilities gross on its consolidated balance sheets. As of December 31, 2017, $4.8 millionof the deferred tax liabilities were attributable to the Company’s collaboration with BioAxone. As of December 31, 2016, $131.4 million of the deferred taxliabilities were attributable to the Company’s collaborations with BioAxone and Parion. Please refer to Note B, “Collaborative Arrangements andAcquisitions,” and Note J, “Intangible Assets and Goodwill,” for further information regarding the decrease in the deferred tax liability in 2017, which wasprimarily related to the Company’s collaboration with Parion.For U.S. federal income tax purposes, as of December 31, 2017, the Company had net operating loss carryforwards of approximately $3.6 billion and taxcredits of $312.5 million, which may be used to offset future federal income and tax liability, respectively. For U.S. state income tax purposes, as ofDecember 31, 2017, the Company had net operating loss carryforwards of approximately $880.7 million and tax credits of $115.7 million, which may beused to offset future state income and tax liability, respectively. These U.S. federal and state net operating loss carryforwards and tax credits expire at variousdates through 2037.The Company maintains a valuation allowance on the majority of its net operating losses and other deferred tax assets. Accordingly, the Company hasnot reported any benefits from income taxes relating to the remaining NOLs and income tax credit carryforwards that will be utilized in future periods in thesejurisdictions. On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets weighing positive and negativeevidence to assess the recoverability of the deferred tax assets. In 2017, the Company reassessed the valuation allowance and considered negative evidence,including its cumulative losses over the three years ended December 31, 2017, and positive evidence, including its income during the year ended December31, 2017. After assessing both the negative evidence and the positive evidence, the Company concluded that it should continue to maintain the valuationallowance on its net operating losses and the majority of its other deferred tax assets as of December 31, 2017. Based on the Company’s recent financialperformance and its future projections, it could record a reversal of all, or a portion of the valuation allowance associated with U.S. deferred tax assets infuture periods. However, any such change is subject to actual performance and other considerations that may present positiveF-44VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)or negative evidence at the time of the assessment. The Company’s total deferred tax asset balance subject to the valuation allowance was approximately$1.6 billion at December 31, 2017.Unrecognized tax benefits during the three years ended December 31, 2017 were not material to the Company’s consolidated financial statements. TheCompany 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. The totalamount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the financialstatements, as of December 31, 2017, 2016 and 2015 were $3.8 million, zero and $0.4 million, respectively. The Company recognizes interest and penaltiesrelated to income taxes as a component of provision for (benefit from) income taxes. As of December 31, 2017, no interest and penalties have been accrued.The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longersubject to any tax assessment from an income tax examination in the U.S. or any other major taxing jurisdiction for years before 2011, except where theCompany has net operating losses or tax credit carryforwards that originate before 2011. The Company currently is under examination in Canada for 2011through 2013, Germany for 2012 through 2015 and Italy for 2015 and 2016. No adjustments have been reported. The Company is not under examination byany other jurisdictions for any tax year. The Company concluded audits with Internal Revenue Service, Delaware, Pennsylvania, Texas and Revenue Quebecduring 2016, and Massachusetts and New York during 2015, with no material adjustments.On December 22, 2017, the SEC staff issued SAB 118 to address the application of GAAP in situations when a registrant does not have the necessaryinformation available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R.1.The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities andincluded these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company has an accumulated deficit from itsforeign operations and does not have an associated liability from the repatriation tax on accumulated earnings in H.R.1. The ultimate impact may differ fromthese provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company hasmade, additional regulatory guidance that may be issued, and actions the Company may take as a result of H.R.1. The Company’s accounting treatment isexpected to be complete when the 2017 U.S. corporate income tax return is filed in 2018. As of December 31, 2017, foreign earnings, which were notsignificant, have been retained indefinitely by the Company’s foreign subsidiaries for reinvestment. Upon repatriation of those earnings, in the form ofdividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.Q.Restructuring ExpensesThe Company has adopted several plans to restructure its facilities and operations for which it has incurred restructuring expenses in the three yearsended December 31, 2017. The most significant restructuring event during the three years ended December 31, 2017 commenced in February 2017 upon theCompany’s decision to consolidate its research activities into its Boston, Milton Park and San Diego locations. The Company closed its research site inCanada as a result of this decision affecting approximately 70 positions. As of December 31, 2017, the restructuring liability associated with thisrestructuring event relates to the lease for the research site in Canada that terminates in October 2018. The Company does not anticipate any significantadditional charges related to this restructuring event in the future. The restructuring charge and other activities related to this restructuring event recordedduring the year ended December 31, 2017 were as follows: 2017 (in thousands)Liability, beginning of the period$—Restructuring expense12,503Cash payments(8,602)Asset impairments and other non-cash items(1,812)Liability, end of the period$2,089F-45VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)R.Employee BenefitsThe Company has a 401(k) retirement plan (the “Vertex 401(k) Plan”) in which substantially all of its permanent U.S. employees are eligible toparticipate. Participants may contribute up to 60% of their annual compensation to the Vertex 401(k) Plan, subject to statutory limitations. The Companymay declare discretionary matching contributions to the Vertex 401(k) Plan. Beginning in mid-2013, the Company began paying matching contributions inthe form of cash. For the years ended December 31, 2017, 2016 and 2015, the Company contributed approximately $12.3 million, $11.8 million and $12.8million to the plan, respectively. As of December 31, 2017, 754,744 shares of common stock remained available for grant under the Vertex 401(k) Plan.S.Commitments and ContingenciesLease ObligationsThe Company moved into its corporate headquarters to Boston, Massachusetts in January 2014. In December 2015, the Company entered into a leaseagreement for 3215 Merryfield Row, San Diego, California. Please refer to Note L, “Long Term Obligations,” for additional information regarding both ofthese commitments.As of December 31, 2017, future minimum commitments under the facility leases with initial terms of more than one year were as follows:Year Fan Pier Leases San DiegoLeases Other Leases Total Lease Commitments (in thousands)2018 $61,606 $2,979 $19,866 $84,4512019 72,589 5,324 15,002 92,9152020 72,589 9,127 13,956 95,6722021 72,589 9,127 12,163 93,8792022 72,589 9,127 11,542 93,258Thereafter 462,442 129,394 57,949 649,785Total minimum lease payments $814,404 $165,078 $130,478 $1,109,960As of December 31, 2017, the Company’s total sublease income to be received related to its facility leases was $6.0 million, all of which relates tosubleases expiring in 2018.During 2017, 2016 and 2015, rental expense was $19.2 million, $19.1 million and $18.1 million, respectively. The majority of the Company’s leasepayments related to the Fan Pier Leases are recorded as interest expense because the Company is deemed for accounting purposes to be the owner of theBuildings. Please refer to Note L, “Long Term Obligations,” for further information.The Company has outstanding leases, which are accounted for as capital leases, for equipment and leasehold improvements. The capital leases bearinterest at rates ranging from less than 1% to 9% per year. The following table sets forth the Company’s future minimum payments due under capital leases asof December 31, 2017:Year (in thousands)2018 $24,0042019 10,2522020 5,4342021 3,6762022 1,706Thereafter 387Total payments 45,459Less: amount representing interest (2,432)Present value of payments $43,027F-46VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)In addition, the Company has committed to make potential future milestone and royalty payments pursuant to certain collaboration agreements.Payments generally become due and payable upon the achievement of certain developmental, regulatory and/or commercial milestones. Please refer to NoteB, “Collaborative Arrangements and Acquisitions,” for further information.Guaranties and IndemnificationsAs permitted under Massachusetts law, the Company’s Articles of Organization and By-laws provide that the Company will indemnify certain of itsofficers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount offuture payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchaseddirectors’ and officers’ liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. Noindemnification 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 andsites in its drug development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreementsinvolving parties performing services for the Company, and its real estate leases. The Company also customarily agrees to certain indemnification provisionsin its drug discovery, development and commercialization collaboration agreements. With respect to the Company’s clinical trials and sponsored researchagreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating topersonal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations arising out of the research or clinicaltesting of the Company’s compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims assertedagainst 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 theCompany’s contractual obligations. The indemnification provisions appearing in the Company’s collaboration agreements are similar to those for the otheragreements discussed above, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleginginfringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement forsome extended period, although the Company believes the obligation typically has the most relevance during the contract term and for a short period of timethereafter. 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 indemnificationand 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 defendlawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnificationarrangements is minimal.Other ContingenciesThe Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingentliabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no material contingentliabilities accrued as of December 31, 2017 or 2016.T.Segment InformationSegment reporting is prepared on the same basis that the Company’s chief executive officer, who is the Company’s chief operating decision maker,manages the business, makes operating decisions and assesses performance. The Company operates in one segment, pharmaceuticals. Enterprise-widedisclosures about revenues, significant customers, and property and equipment, net by location are presented below.F-47VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Revenues by ProductProduct revenues, net consisted of the following: 2017 2016 2015 (in thousands)ORKAMBI$1,320,850 $979,590 $350,663KALYDECO844,630 703,432 631,674 INCIVEK— 610 17,987 Total product revenues, net$2,165,480 $1,683,632 $1,000,324Revenues by Geographic LocationNet product revenues are attributed to countries based on the location of the customer. Collaborative and royalty revenues are attributed to countriesbased on the location of the Company’s subsidiary associated with the collaborative arrangement related to such revenues. Total revenues from externalcustomers and collaborators by geographic region consisted of the following: 2017 2016 2015 (in thousands)United States$1,986,786 $1,321,807 $763,316Outside of the United States Europe420,317 320,456 219,596Other81,549 59,914 49,424Total revenues outside of the United States501,866 380,370 269,020Total revenues$2,488,652 $1,702,177 $1,032,336In 2017, 2016 and 2015, revenues attributable to the U.K. were the largest contributor to the Company’s European revenues.Significant CustomersGross revenues and accounts receivable from each of the Company’s customers who individually accounted for 10% or more of total gross revenuesand/or 10% or more of total gross accounts receivable consisted of the following: Percent of Total Gross Revenues Percent of Gross Accounts Receivable Year Ended December 31, As of December 31, 2017 2016 2015 2017 2016Walgreen Co.17% 19% 20% 20% 15%Accredo/Curascript14% 15% 15% 12% 10%CVS/Caremark<10% 19% 17% n/a 17%F-48VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued)Property and Equipment, Net by LocationProperty and equipment, net by location consisted of the following: As of December 31, 2017 2016 (in thousands)United States$753,128 $665,552Outside of the United States United Kingdom31,279 26,921Other5,030 5,889Total property and equipment, net outside of the United States36,309 32,810 Total property and equipment, net$789,437 $698,362U.Quarterly Financial Data (unaudited)The following table sets forth the Company’s quarterly financial data for the two years ended December 31, 2017. Three Months Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 (in thousands, except per share amounts)Revenues: Product revenues, net$480,622 $513,988 $549,642 $621,228Royalty revenues1,551 2,861 2,231 1,345Collaborative revenues (1)232,545 27,286 26,292 29,061Total revenues714,718 544,135 578,165 651,634Costs and expenses: Cost of product revenues46,242 70,535 72,186 83,712Royalty expenses746 670 688 340Research and development expenses (2)273,563 289,451 454,947 306,664Sales, general and administrative expenses113,326 127,249 120,710 134,794Restructuring expenses9,999 3,523 337 387Intangible asset impairment charge (3)— — 255,340 —Total costs and expenses443,876 491,428 904,208 525,897Income (loss) from operations270,842 52,707 (326,043) 125,737Interest expense, net(16,765) (14,664) (13,574) (12,547)Other expense, net (3)(544) (2,537) (77,553) (748)Income (loss) before provision for (benefit from) income taxes253,533 35,506 (417,170) 112,442Provision for (benefit from) income taxes (3)3,985 4,337 (125,903) 10,257Net income (loss)249,548 31,169 (291,267) 102,185(Income) loss attributable to noncontrolling interest (3)(1,792) (13,173) 188,315 (1,501)Net income (loss) attributable to Vertex$247,756 $17,996 $(102,952) $100,684 Amounts per share attributable to Vertex common shareholders: Net income (loss): Basic$1.01 $0.07 $(0.41) $0.40 Diluted$0.99 $0.07 $(0.41) $0.39Shares used in per share calculations: Basic246,024 247,521 250,268 251,557 Diluted248,700 251,635 250,268 256,804F-49VERTEX PHARMACEUTICALS INCORPORATEDNotes to Consolidated Financial Statements (Continued) Three Months Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 (in thousands, except per share amounts)Revenues: Product revenues, net$394,410 $425,651 $409,689 $453,882Royalty revenues3,596 5,282 3,835 3,887Collaborative revenues74 675 259 937Total revenues398,080 431,608 413,783 458,706Costs and expenses: Cost of product revenues49,789 44,154 53,222 59,646Royalty expenses860 1,098 855 836Research and development expenses (4)255,860 271,008 272,370 248,452Sales, general and administrative expenses105,214 111,652 106,055 109,908Restructuring expenses687 343 8 224Total costs and expenses412,410 428,255 432,510 419,066(Loss) income from operations(14,330) 3,353 (18,727) 39,640Interest expense, net(20,698) (20,155) (20,140) (20,439)Other income (expense), net4,411 (1,219) (167) 1,105(Loss) income before provision for (benefit from) income taxes(30,617) (18,021) (39,034) 20,306Provision for (benefit from) income taxes5,485 18,130 503 (7,453)Net (loss) income(36,102) (36,151) (39,537) 27,759(Income) loss attributable to noncontrolling interest(5,529) (28,374) 696 5,186Net (loss) income attributable to Vertex$(41,631) $(64,525) $(38,841) $32,945 Amounts per share attributable to Vertex common shareholders: Net (loss) income: Basic$(0.17) $(0.26) $(0.16) $0.13 Diluted$(0.17) $(0.26) $(0.16) $0.13Shares used in per share calculations: Basic243,831 244,482 244,920 245,454 Diluted243,831 244,482 244,920 247,7571.In the first quarter of 2017, the Company recognized $230.0 million of collaborative revenues related to an upfront payment from Merck KGaA pursuant to the Company’scollaboration with Merck KGaA. In each of the second and third quarters of 2017, the Company recognized $20.0 million of collaborative revenues related to payments thatParion, which was a variable interest entity during these periods, received from Shire pursuant to a license agreement. In the fourth quarter of 2017, the Company recognized$25.0 million of collaborative revenues related to a milestone achieved pursuant to its license agreement with Janssen Inc. pursuant to which Janssen is developing JNJ-63623872 for the treatment of influenza. See Note B, “Collaborative Arrangements and Acquisitions,” for further information.2.In the third quarter of 2017, the Company incurred research and development expenses of approximately $160.0 million to acquire certain CF assets including VX-561 fromConcert. See Note B, “Collaborative Arrangements and Acquisitions,” for further information.3.In the third quarter of 2017, the Company recorded a $255.3 million intangible asset impairment charge related to Parion’s pulmonary ENaC platform indefinite-lived in-processresearch and development asset, a decrease in the fair value of the contingent payments payable by the Company to Parion of $69.6 million and benefit from income taxes of$126.2 million resulting from these charges. These charges and benefit from income taxes were attributable to noncontrolling interest. See Note B, “Collaborative Arrangementsand Acquisitions,” and Note J, “Intangible Assets and Goodwill,” for further information.4.In the second quarter of 2016, the Company incurred research and development expenses of approximately $10.0 million to acquire certain early-stage research assets. In thethird quarter of 2016, the Company incurred research and development expenses related to a $20.0 million upfront payment to Moderna Therapeutics, Inc. See Note B,“Collaborative Arrangements and Acquisitions,” for further information.F-50THIS CERTIFIES THAT​ is the owner of​ CUSIP​ DATED ​ COUNTERSIGNED AND REGISTERED:​ COMPUTERSHARE TRUST COMPANY, N.A.​ TRANSFER AGENT AND REGISTRAR,​ FULLY PAID AND NON-ASSESSABLE SHARES, $.01 PAR VALUE, OF THE COMMON STOCK OF​ Vertex Pharmaceuticals Incorporated transferable upon the books of the Company in person or by attorney upon surrender​ of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of​ The Commonwealth of Massachusetts and to the Articles of Organization and By-laws of the Company as from time to​ time amended.​ This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.​ IN WITNESS WHEREOF, Vertex Pharmaceuticals Incorporated has caused its facsimile corporate seal and the​ facsimile signatures of its duly authorized officers to be hereunto affixed.​ COMMON STOCK​ PAR VALUE $.01​ COMMON STOCK​ SEE REVERSE FOR CERTAIN DEFINITIONS​ Certificate​ Number​ Shares​ .​ VERTEX PHARMACEUTICALS INCORPORATED​ INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS​ FACSIMILE SIGNATURE TO COME​ FACSIMILE SIGNATURE TO COME​ President​ Treasurer​ By​ AUTHORIZED SIGNATURE​ 1989​ M​ ASSACHUSE​ TT​ S​ IN​ CO​ RPORATED​ VE​ RT​ E​ X​ P​ H​ AR​ MA​ CEU​ TICALS INC​ O​ R​ P​ O​ R​ ATED​ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS#​ 92532F 10 0​ DD-MMM-YYYY​ * * 0 0 0 0 0 0 * * * * * * * * * * * * * * * * * *​ * * * 0 0 0 0 0 0 * * * * * * * * * * * * * * * * *​ * * * * 0 0 0 0 0 0 * * * * * * * * * * * * * * * *​ * * * * * 0 0 0 0 0 0 * * * * * * * * * * * * * * *​ * * * * * * 0 0 0 0 0 0 * * * * * * * * * * * * * *​ ** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample​ **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David​ Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander​ David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.​ Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****​ Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample​ **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David​ Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander​ David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.​ Alexander David Sample **** Mr. AlexanderDavid Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****​ Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample​ **000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares***​ *000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****​ 000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****0​ 00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****00​ 0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000​ 000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****0000​ 00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****00000​ 0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000​**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000*​ *Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**​ Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**S​ ***ZERO HUNDRED THOUSAND​ ZERO HUNDRED AND ZERO***​ MR. SAMPLE & MRS. SAMPLE &​ MR. SAMPLE & MRS. SAMPLE​ ZQ00000000​ Certificate ​ Number​ s​ 1234567890/123456789​ 0​ 1234567890/123456789​ 0​ 1234567890/123456789​ 0​ 1234567890/123456789​ 0​ 1234567890/123456789​ 0​ 1234567890/123456789​ 0​ Total ​ Transactio​ n​ Num/No​ .​ 123456​ Denom​ .​ 123456​ Tota​ l​ 1234567​ MR ​ A SAMPL​ E​ DESIGN​ ATION (IF ANY​ )​ ADD ​ 1​ ADD ​ 2​ ADD ​ 3​ ADD ​ 4​ PO BOX 43004, Providence, RI 02940-3004​ CUSI​ P​ XXXXXX ​ XX ​ X​ Holder ​ ID​ XXXXXXXXX​ X​ Insurance ​ Value​ ​ 1,000,000.0​ 0​ Number ​ of ​ Share​ s​ 12345​ 6​ DT​ C​ 12345678 ​ 12345678901234​ 5​ THIS CERTIFICATE IS TRANSFERABLE IN​ CITIES DESIGNATED BY THE TRANSFER​ AGENT, AVAILABLE ONLINE AT​ www.computershare.com​ ​ The IRS requires that the named transfer agent (“we”) report the cost​ basis of certain shares or units acquired after January 1, 2011. If your​ shares or units are covered by the legislation, and you requested to sell​ or transfer the shares or units using a specific cost basis calculation​ method, then we have processed as you requested. If you did not​ specify a cost basis calculation method, then we have defaulted to the​ first in, first out (FIFO) method. Please consult your tax advisor if you​ need additional information about cost basis. ​ If you do not keep in contact with the issuer or do not have any​ activity in your account for the time period specified by state law,​ your property may become subject to state unclaimed property​ laws and transferred to the appropriate state.​ For value received, ____________________________hereby sell, assign and transfer unto​ ________________________________________________________________________________________________________________________________​ ________________________________________________________________________________________________________________________________​________________________________________________________________________________________________________________________________​ _______________________________________________________________________________________________________________________ Shares​ _______________________________________________________________________________________________________________________ Attorney​ Dated: __________________________________________20__________________​ Signature: ____________________________________________________________​ Signature: ____________________________________________________________​ Notice: The signature to this assignment must correspond with the name​ as written upon the face of the certificate, in every particular,​ without alteration or enlargement, or any change whatever.​ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE​ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)​ of the common stock represented by the within Certificate, and do hereby irrevocablyconstitute and appoint​ to transfer the said stock on the books of the within-named Company with full power of substitution in the premises.​ .​ VERTEX PHARMACEUTICALS INCORPORATED​ THE COMPANY WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE THE DESIGNATIONS, PREFERENCES AND RELATIVE,​ PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS​ OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.​ Signature(s) Guaranteed: Medallion Guarantee Stamp​ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks,​ Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED​ SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.​ The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full​ according to applicable laws or regulations:​ TEN COM - as tenants in common UNIF GIFT MIN ACT -............................................Custodian ................................................​ (Cust) (Minor)​ TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act.........................................................​ (State)​ JT TEN - as joint tenants with right of survivorship UNIF TRF MIN ACT -............................................Custodian (until age ................................)​ and not as tenants in common (Cust)​ .............................under Uniform Transfers to Minors Act ...................​ (Minor) (State)​ Additional abbreviationsmay also be used though not in the above list.​ ​ Exhibit 10.7Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Triple asterisks denoteomissions.AMENDMENT NO. 1TO THESTRATEGIC COLLABORATION, OPTION AND LICENSE AGREEMENTThis Amendment No. 1 to the Strategic Collaboration, Option and License Agreement, dated October 26, 2015, between VertexPharmaceuticals Incorporated (“ Vertex Parent ”) and Vertex Pharmaceuticals (Europe) Limited (“ Vertex UK ” and together withVertex Parent, “ Vertex ”), on the one hand, and CRISPR Therapeutics AG (“ CRISPR AG ”), CRISPR Therapeutics, Inc. (“CRISPR Inc. ”), CRISPR Therapeutics Limited (“ CRISPR UK ”) and TRACR Hematology Ltd (“ Tracr ” and together withCRISPR AG, CRISPR Inc. and CRISPR UK “ CRISPR ”), on the other hand (this “ Amendment ”) is entered into as of this 12thday of December, 2017 (the “ Amendment Effective Date ”) by and between Vertex and CRISPR. Capitalized terms used and notdefined herein have their respective meanings set forth in the Agreement (as defined below).RECITALSWHEREAS , Vertex and CRISPR entered into that certain Strategic Collaboration, Option and License Agreement, datedOctober 26, 2015 (the “ Agreement ”);WHEREAS , pursuant to Section 6.1.2(c) of the Agreement, Vertex and CRISPR are entering into a Joint Development andCommercialization Agreement (the “ JDCA ”) with respect to certain Shared Products; andWHEREAS , in connection with the execution of the JDCA, Vertex and CRISPR now wish to amend and update certainportions of the Agreement as set forth herein;NOW, THEREFORE , in consideration of the respective covenants, representations, warranties and agreements set forth herein,the Parties hereto agree as follows:ARTICLE 1AMENDMENTS1.1 Amendment to Section 1.27 . Section 1.27 of the Agreement is hereby deleted in its entirety and replaced with the following: “1.27.“ Collaboration Target ” means a Vertex Target that Vertex has selected as the subject of a Research Plan inaccordance with Section 2.3.3. For clarity, if Vertex exercises an Option with respect to any such Vertex Target, suchVertex Target shall continue to constitute a “Collaboration Target” under this Agreement during the Agreement Term.”1.2 Amendment to Section 1.117 . The final sentence of the third paragraph of Section 1.117 of the Agreement is hereby deletedin its entirety and replaced with the following: “For clarity, [***].”1.3 Amendment to Section 2.13.2 . The final sentence of Section 2.13.2 of the Agreement is hereby deleted in its entirety andreplaced with the following: “For the avoidance of doubt, each Party’s obligations under this Section 2.13.2 will terminate (a) withrespect to a [***] and (b) with respect to a [***].” 1.4 Amendment to Section 3.1.2 . Clause (h) of Section 3.1.2 of the Agreement is hereby deleted in its entirety and replaced withthe following:(h) perform such other duties as are specifically assigned to the JRC under this Agreement or any Joint Development &Commercialization Agreement.1.5 Amendment to Section 4.1.1 .(a) The first sentence of Section 4.1.1 of the Agreement is hereby deleted in its entirety and replaced with the following:“CRISPR hereby grants to Vertex and its Affiliates an exclusive option to obtain the Exclusive License with respect a maximum of sixCollaboration Targets (each, an “ Option ,” and such six Collaboration Target maximum, the “ Option Cap ”), [***].”(b) The second sentence of Section 4.1.1 of the Agreement is hereby deleted in its entirety and replaced with the following:“On a Collaboration Program-by-Collaboration Program basis, at any time starting on the Effective Date, but no later than [***] daysafter Vertex’s receipt of an Option Exercise Data Package for the applicable Collaboration Program (the “ Option Deadline ”), Vertexwill notify CRISPR as to whether or not Vertex is exercising the Option for such Collaboration Program; provided , that if, followingreceipt of the applicable Option Exercise Data Package, Vertex delivers a Continuation Notice to the JRC, the Option Deadline will beextended until the date that is [***] days after Vertex’s receipt of a revised Option Exercise Data Package reflecting the results of theContinuation Research as provided in Section 2.6.”1.6 Amendment to Section 7.2 . Section 7.2 of the Agreement is hereby deleted in its entirety and replaced with the following: “7.2.Reserved .”1.7 Amendment to Section 11.1 . Section 11.1 of the Agreement is hereby deleted in its entirety and replaced with the following: “11.1.Agreement Term; Expiration . This Agreement is effective as of the Effective Date and, unless earlier terminatedpursuant to the other provisions of this ARTICLE 11, will continue in full force and effect until this Agreement expiresas follows: 11.1.1.on a country-by-country and Product-by-Product basis, on the date of expiration of (a) all payment obligationsunder this Agreement or any Joint Development & Commercialization Agreement and (b) any paymentobligations of either Party with respect to Opt-Out Royalties (as defined in the applicable Joint Development &Commercialization Agreement), in each case ((a) and (b)), with respect to such Product in such country; 11.1.2.in its entirety upon the expiration of (a) all payment obligations under this Agreement or any JointDevelopment & Commercialization Agreement and (b) any payment obligations of either Party with respect toOpt-Out Royalties (as defined in the applicable Joint Development & Commercialization Agreement), in eachcase ((a) and (b)), with respect to all Products in all countries pursuant to Section 11.1.1; and 11.1.3.in its entirety upon expiration of all Options if Vertex has not exercised any Option as provided inSection 4.1.1.”1.8 Amendment to Section 13.5 . Section 13.5 of the Agreement is hereby deleted in its entirety and replaced with the following:  “13.5.Notices . All notices which are required or permitted hereunder will be in writing and sufficient if delivered personally,sent by nationally-recognized overnight courier or sent by electronic mail, confirmation of receipt requested, addressed asfollows:If to Vertex:Vertex Pharmaceuticals IncorporatedAttn: Business Development50 Northern AvenueBoston, Massachusetts 02110E-mail: phil_tinmouth@vrtx.comwith a copy to:Vertex Pharmaceuticals IncorporatedAttn: Corporate Legal50 Northern AvenueBoston, Massachusetts 02110E-mail: paige_goodwin@vrtx.comand:Ropes & Gray LLPAttn: Marc A. RubensteinPrudential Tower800 Boylston StreetBoston, Massachusetts 02199-3600E-mail: marc.rubenstein@ropesgray.comIf to CRISPR:CRISPR Therapeutics AGAttn: Chief Executive OfficerBaarerstrasse 146300 ZugSwitzerlandE-mail: samarth.kulkarni@crisprtx.com with a copy to:Goodwin Proctor LLPAttn: Christopher Denn53 State StreetBoston, Massachusetts 02109E-mail: cdenn@goodwinlaw.comor to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing inaccordance herewith. In addition, each Party will deliver a courtesy copy to the other Party’s Alliance Manager concurrentlywith such notice. Any such notice will be deemed to have been given: (a) when delivered if personally delivered on aBusiness Day (or, if delivered on a non-business day, then on the next Business Day); (b) on receipt if sent by overnightcourier; or (c) when confirmation of receipt is sent, if sent by electronic mail. Any notices required or permitted under thisAgreement that are delivered by Vertex to CRISPR AG pursuant to this Section 13.5 shall be deemed properly deliveredhereunder to each of CRISPR UK, CRISPR AG, CRISPR Inc. and Tracr.”1.9 Amendment of Certain Cross-References .(a) The reference to “this Section 8.1.3” in Section 8.1.2(d) is hereby deleted and replaced with a reference to “thisSection 8.1.2”.(b) The reference to “Section 11.2.5 (Public Announcements; Publications)” in Section 11.4.1(c) is hereby deleted.(c) The reference to “Schedule 2.2” in Section 2.2 of Schedule G is hereby deleted and replaced with a reference to“Schedule I”.(d) The reference to “Schedule F” in Schedule I is hereby deleted and replaced with a reference to “Schedule G”.(e) The reference to “Schedule I” in Schedule L is hereby deleted and replaced with a reference to “this Schedule L”.ARTICLE 2DESIGNATION OF [ *** ] AS COLLABORATION TARGETThe Parties hereby agree that the [***] (“ [ *** ] ”) is a Collaboration Target under the Agreement, effective as of the AmendmentEffective Date. ARTICLE 3DEEMED OPTION EXERCISE BY VERTEXNotwithstanding anything to the contrary in the Agreement, the execution of the JDCA by the Parties shall be deemed toconstitute an exercise by Vertex of the Option with respect to [***]. In accordance with Section 4.1.1 of the Agreement, as amendedby this Amendment, such Option exercise with respect to [***]ARTICLE 4REFERENCE TO AND EFFECT ON THE AGREEMENT4.1 Reference to Agreement . Upon and after the effectiveness of this Amendment, each reference in the Agreement to “thisAgreement”, “hereunder”, “hereof” or words of like import referring to the Agreement shall mean and be a reference to the Agreementas modified and amended hereby.4.2 Effectiveness of Amendment . Upon execution and delivery of this Amendment by both Parties, the amendments set forthabove shall be effective as of the Amendment Effective Date. Except as specifically amended above, the Agreement is and shallcontinue to be in full force and effect and is hereby in all respects ratified and confirmed and shall constitute the legal, valid, bindingand enforceable obligations of the Parties.ARTICLE 5MISCELLANEOUS5.1 Governing Law. This Amendment, and all claims arising under or in connection therewith, will be governed by andinterpreted in accordance with the substantive laws of The Commonwealth of Massachusetts, without regard to conflict of lawprinciples thereof.5.2 Descriptive Headings . The descriptive headings of this Amendment are for convenience only and will be of no force or effectin construing or interpreting any of the provisions of this Amendment.5.3 Counterparts . This Amendment may be executed in two counterparts, each of which will be an original and both of whichwill constitute together the same document. Counterparts may be signed and delivered by facsimile or digital transmission (.pdf), eachof which will be binding when received by the applicable Party.[ Signature Page Follows ] IN WITNESS WHEREOF , the Parties have caused this Amendment to be executed by their representatives thereunto dulyauthorized as of the Amendment Effective Date. VERTEX PHARMACEUTICALSINCORPORATED CRISPR THERAPEUTICS AG By: /s/ Ian Smith By: /s/ Rodger NovakName: Ian Smith Name: Rodger NovakTitle: Executive Vice President, Chief Operating Officer Title: President VERTEX PHARMACEUTICALS (EUROPE) LIMITED CRISPR THERAPEUTICS LIMITED By: /s/ Ian Smith By: /s/ Tyler Dylan-HydeName: Ian Smith Name: Tyler Dylan-HydeTitle: Director Title: Director and Chief Legal Officer CRISPR THERAPEUTICS, INC. By: /s/ Rodger Novak Name: Rodger Novak Title: President TRACR HEMATOLOGY LTD. By: /s/ Tyler Dylan-Hyde Name: Tyler Dylan-Hyde Title: Director Exhibit 10.46 Vertex Employee Compensation PlanOn an annual basis in the first quarter of the fiscal year the Management Development and Compensation Committee of our Board of Directors adopts anemployee compensation plan for our officers and other employees, including our named executive officers, together with performance goals for that fiscalyear. The plan addresses three components of employee compensation—base salary, performance bonuses which serve as short-term incentives and equitygrants which serve as long-term incentives—that are designed to motivate, reward and retain employees by aligning compensation with the achievement ofstrategic corporate goals.Upon completion of each performance period (usually a calendar year), our Board of Directors assigns a performance rating on the basis of achievementof goals for the company set by the Board, in consultation with our chief executive officer, early in the performance period. The amount available forpayment of performance bonuses is established on the basis of this performance rating, and is allocated to employees on the basis of salary tier and individualperformance rating. The base salaries of the executive officers are set based on market and other competitive factors. Merit increases to base salaries for otheremployees are made on the basis of individual performance rating. Annual equity grants, made in the form of stock options, restricted stock grants or units, ora combination of both are made on the basis of salary tier and individual performance.The Board of Directors retains broad discretion to determine the appropriate form and level of compensation, particularly for our executives, on the basisof its assessment of our executives, the demand for talent, our performance and other factors. Key corporate performance factors generally include, amongother things, achievement of regulatory and commercialization goals, research and development productivity, enhancements of organizational capabilities,financial goals and other aspects of our performance. We reserve the right to modify the plan, and the key corporate performance factors and criteria under theplan, at any time.Exhibit 10.47Vertex Pharmaceuticals Annual Non-Employee Board Compensation Annual Retainer$100,000 Committee Chair Compensation Audit & Finance Committee Chair$30,000 annual retainer Management Development & Compensation Committee Chair$25,000 annual retainer Corporate Governance & Nominating Committee Chair$20,000 annual retainer Science & Technology Committee Chair$20,000 annual retainer Committee Membership Fee (Non Chairs) Audit & Finance Committee Member$15,000 annual retainer Management Development & Compensation Committee Member$12,500 annual retainer Corporate Governance & Nominating Committee Member$10,000 annual retainer Science & Technology Committee Member$10,000 annual retainer Lead Independent Director Compensation$40,000 annual retainer Annual Equity Grants On June 1 on each year of service, a $475,000 value-based award, comprised of restricted stock units ($275,000) and options ($200,000)• Options are fully vested upon grant• Restricted shares cliff vest on the 1 year anniversary of the grant date Each of our non-employee directors is eligible to defer the cash and restricted stock portion of his/her compensation set forth above and elect to receive deferred stock units thatconvert to common stock in specified circumstances.Exhibit 21.1Subsidiaries of Vertex Pharmaceuticals IncorporatedVertex Pharmaceuticals (San Diego) LLC, a Delaware limited liability company Vertex Securities Corporation, a Massachusetts corporationVertex Pharmaceuticals (Distribution) Incorporated, a Delaware corporation Vertex Pharmaceuticals (Cayman) Limited, a Cayman Islands company (3)Vertex Pharmaceuticals (Cayman II) Limited, a Cayman Islands companyVertex Pharmaceuticals (Cayman III) Limited, a Cayman Islands company (5)Vertex Pharmaceuticals (Cayman 509) Limited, a Cayman Islands companyVertex Pharmaceuticals (Cayman 765) Limited, a Cayman Islands companyVertex Pharmaceuticals (Cayman 787) Limited, a Cayman Islands company Vertex Pharmaceuticals (Delaware) LLC, a Delaware limited liability companyVertex Pharmaceuticals (Puerto Rico) LLC, a Delaware limited liability companyVertex Pharmaceuticals (Canada) Incorporated, a Canadian company (1)Vertex Pharmaceuticals (Singapore) Pte. Ltd., a Singapore companyVertex Pharmaceuticals Technology (Shanghai) Co., Ltd. (2)Vertex Holdings, Inc., a Delaware corporation Vertex Pharmaceuticals (Europe) Limited, a United Kingdom company (5)Vertex Pharmaceuticals (Switzerland) Sàrl, a Swiss company Vertex Pharmaceuticals (Ireland) Limited, an Irish company (6) Vertex Pharmaceuticals (U.K.) Limited, a United Kingdom company (6) Vertex Pharmaceuticals (France) SAS, a French company Vertex Pharmaceuticals (Germany) GmbH, a German companyVertex Pharmaceuticals (Australia) Pty. Ltd., an Australian companyVertex Pharmaceuticals (Spain), S.L., a Spanish company Vertex Pharmaceuticals (Netherlands) B.V., a Dutch companyVertex Pharmaceuticals (Italy) S.r.L., an Italian companyVertex Farmaceutica do Brasil LTDA, a Brazilian company (4)Vertex Pharmaceuticals GmbH, an Austrian company (6)Vertex Pharmaceuticals (Portugal), Unipessoal Lda., a Portuguese company (6)Vertex Pharmaceuticals (CH) GmbH, a Swiss company (6)Vertex Pharmaceuticals (Sweden) AB, a Sweden company (6)Vertex Pharmaceuticals Single Member Societe Anonyme, a Greek company (6)Vertex Pharmaceuticals (Poland) sp. z.o.o (5) (6)The Vertex Foundation, Inc., a Delaware corporationTorreyana Insurance Company, Inc., a Vermont corporation------------------------------(1) a subsidiary of Vertex Pharmaceuticals (Delaware) LLC(2) a subsidiary of Vertex Pharmaceuticals (Singapore) Pte. Ltd.(3) a subsidiary of Vertex Holdings, Inc.(4) a subsidiary of Vertex Pharmaceuticals (UK) Limited(5) a subsidiary of Vertex Pharmaceuticals (Cayman) Limited(6) a subsidiary of Vertex Pharmaceuticals (Europe) LimitedExhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-3 No. 333-211096) of Vertex Pharmaceuticals Incorporated,(2)Registration Statement (Form S-8 Nos. 333-134482, 333-150946, 333-160442, 333-166803 and 333-184787) pertaining to theVertex Pharmaceuticals Incorporated Amended and Restated 2006 Stock and Option Plan (formerly known as the VertexPharmaceuticals Incorporated 2006 Stock and Option Plan),(3)Registration Statement (Form S-8 No. 333-184784) pertaining to the Vertex Pharmaceuticals Incorporated Employee StockPurchase Plan, and(4)Registration Statement (Form S-8 Nos. 333-219559, 333-188737, 333-197466 and 333-206075) pertaining to the Amended andRestated Vertex Pharmaceuticals Incorporated 2013 Stock and Option Plan (formerly known as the Vertex PharmaceuticalsIncorporated 2013 Stock and Option Plan);of our reports dated February 14, 2018, with respect to the consolidated financial statements of Vertex Pharmaceuticals Incorporatedand the effectiveness of internal control over financial reporting of Vertex Pharmaceuticals Incorporated, included in this AnnualReport (Form 10-K) of Vertex Pharmaceuticals Incorporated for the year ended December 31, 2017./s/ Ernst & Young LLP Boston, MassachusettsFebruary 14, 2018Exhibit 31.1CERTIFICATIONI, Jeffrey M. Leiden, certify that:1.I have reviewed this Annual Report on Form 10-K of Vertex Pharmaceuticals Incorporated;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:February 14, 2018/s/ Jeffrey M. Leiden Jeffrey M. Leiden Chief Executive Officer and PresidentExhibit 31.2CERTIFICATIONI, Thomas Graney, certify that:1.I have reviewed this Annual Report on Form 10-K of Vertex Pharmaceuticals Incorporated;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:February 14, 2018/s/ Thomas Graney Thomas Graney Senior Vice President and Chief Financial OfficerExhibit 32.1SECTION 906 CEO/CFO CERTIFICATIONPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)each of the undersigned officers of Vertex Pharmaceuticals Incorporated, a Massachusetts corporation (the “Company”), does hereby certify, to such officer’sknowledge, that:The Annual Report on Form 10-K for the year ended December 31, 2017 (the “Form 10-K”) of the Company fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company.Date:February 14, 2018 /s/ Jeffrey M. Leiden Jeffrey M. Leiden Chief Executive Officer and President Date:February 14, 2018 /s/ Thomas Graney Thomas Graney Senior Vice President and Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. 

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