
	Restructuring Expenses

Facility Lease Obligations

The Company has adopted several plans to restructure its facility operations for which it has incurred restructuring expenses in the three years ended December 31, 2014. The Company’s initial estimate of its liabilities for net ongoing costs associated with these facility obligations are recorded at fair value on the cease use date. In estimating the expenses and liabilities related to these facilities, the Company utilizes a probability-weighted discounted cash-flows of the Company’s ongoing lease obligations. In estimating the expense and liability under its lease obligations, the Company estimated (i) the costs 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 the estimated cash flows.

The Company reviews its estimates and assumptions on at least a quarterly basis, intends to continue such reviews until the termination of these facility lease obligations, and will make whatever modifications the Company believes necessary, based on the Company’s best judgment, to reflect any changed circumstances. The Company’s estimates have changed in the past, and may change in the future, resulting in additional adjustments to the estimate of these liabilities. Changes to the Company’s estimate of these liabilities are recorded as additional restructuring expenses (credits). In addition, because the Company’s estimate of these liabilities includes the application of a discount rate to reflect the time-value of money, the Company records imputed interest costs related to these liabilities each quarter. These costs are included in restructuring expenses on the Company’s consolidated statements of operations.

2003 Kendall Restructuring

In 2003, the Company adopted a plan to restructure its operations (the “2003 Kendall Restructuring”) to coincide with its increasing internal emphasis on advancing drug candidates through clinical development to commercialization. The restructuring was designed to re-balance the Company’s relative investments in research and development to better support the Company’s long-term strategy. At that time, the restructuring plan included a workforce reduction, write-offs of certain assets and a decision not to occupy approximately 290,000 square feet of specialized laboratory and office space in Cambridge, Massachusetts under lease to Vertex (the “Kendall Square Lease”). The Kendall Square Lease commenced in January 2003 and has a 15-year term. In 2005, the Company revised its assessment of its real estate requirements and decided to use approximately 120,000 square feet of the facility subject to the Kendall Square Lease (the “Kendall Square Facility”) for its operations, beginning in 2006. The rentable square footage of the Kendall Square Facility related to the 2003 Kendall Restructuring currently is subleased to third parties.

The restructuring expense incurred from the second quarter of 2003 through the end of the first quarter of 2005 (i.e., immediately prior to the Company’s decision to use a portion of the Kendall Square Facility for its operations) relates to the estimated incremental net ongoing lease obligations associated with the entire Kendall Square Facility, together with imputed interest costs relating to the restructuring liability. The restructuring expense incurred in the period beginning in the second quarter of 2005 relates only to the portion of the Kendall Square Facility that the Company was not occupying and did not intend to occupy for its operations. The Company uses a discount rate of 10% related to this restructuring activity.

The remaining lease obligations, which are associated with the 120,000 square foot portion of the Kendall Square Facility that the Company occupied and used for its operations, were recorded as rental expense in the period incurred until the Company incurred a cease use charge related to this portion of the Kendall Square Facility in the third quarter of 2014 in connection with transitioning its Massachusetts operations to Fan Pier in Boston, Massachusetts (the “Fan Pier Move Restructuring”).

The activity related to restructuring and other liability for 2003 was as follows:



	Restructuring Expense		Cash Payments			Non-cash Expense			Liability as of December 31, 2003
	(in thousands)
Lease restructuring and other operating lease expense	$	84,726	$	(15,200	)	$	—		$	69,526
Employee severance, benefits and related costs	2,616		(2,616		)	—			—
Leasehold improvements and asset impairments	4,482		—			(4,482		)	—
Total	$	91,824	$	(17,816	)	$	(4,482	)	$	69,526

In 2003, the lease restructuring and other operating lease expense included $78.7 million of lease restructuring expense and $6.0 million of lease operating expense incurred prior to the decision not to occupy the Kendall Square Facility. The restructuring accrual as of December 31, 2003 related only to the lease restructuring expense.

The activities related to 2003 restructuring liability for 2004 through 2014 were as follows:



	2014			2013			2012			2004-2014
	(in thousands)
Liability, beginning of the period	$	19,115		$	23,328		$	26,313		$	69,526
Cash payments	(17,494		)	(15,255		)	(14,853		)	(196,446		)
Cash received from subleases	12,912			10,670			10,024			88,620
Credit for portion of facility Vertex decided to occupy in 2005	—			—			—			(10,018		)
Restructuring expense	(2,937		)	372			1,844			59,914
Liability, end of the period	$	11,596		$	19,115		$	23,328		$	11,596

Fan Pier Move Restructuring

In connection with the relocation of its Massachusetts operations to Fan Pier in Boston, Massachusetts, which commenced in 2013, the Company is incurring restructuring charges related to its remaining lease obligations at its facilities in Cambridge, Massachusetts. The majority of these restructuring charges were recorded in the third quarter of 2014 upon decommissioning three facilities in Cambridge. The Company discounted the estimated cash flows related to the facilities at a discount rate of 9%. The Company will continue to incur charges through April 2018 related to the difference between the Company’s estimated future cash flows related to its lease obligations, which include an estimate for sublease income to be received if applicable, and its actual cash flows. The Fan Pier Move Restructuring included lease obligations related to the 120,000 square feet of the Kendall Square Facility that the Company continued to use for its operations following its 2013 Kendall Restructuring. The remaining rentable square footage of the Kendall Square Facility related to the Fan Pier Move Restructuring was subleased to a third party in February 2015.

The activities related to the Fan Pier relocation restructuring liability for the years ended December 31, 2013 and 2014 were as follows:



	2014			2013
	(in thousands)
Liability, beginning of the period	$	797		$	—
Cash payments	(18,271		)	(401		)
Restructuring expense	50,864			1,198
Liability, end of the period	$	33,390		$	797

Other Restructuring Activities

The Company has incurred several other restructuring activities that are unrelated to its 2003 Kendall Restructuring and the Fan Pier Move Restructuring. The most significant activity commenced in October 2013 when the Company adopted a restructuring plan that included (i) a workforce reduction primarily related to the commercial support of INCIVEK following the continued and rapid decline in the number of patients being treated with INCIVEK as new medicines for the treatment of HCV infection neared approval and (ii) the write-off of certain assets. This action resulted from the Company’s decision to focus its investment on future opportunities in cystic fibrosis and other research and development programs.

The activities related to the Company’s other restructuring liabilities for the years ended December 31, 2013 and 2014 were as follows:



	2014			2013
	(in thousands)
Liability, beginning of the period	$	8,441		$	—
Cash payments	(10,570		)	(22,916		)
Asset impairments and other non-cash expense	—			(7,594		)
Restructuring expense	2,998			38,951
Liability, end of the period	$	869		$	8,441