10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM  TO

Commission file number 000-19319

____________________________________________

Vertex Pharmaceuticals Incorporated

(Exact name of registrant as specified in its charter)

Massachusetts	04-3039129
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
50 Northern Avenue, Boston, Massachusetts	02210
(Address of principal executive offices)	(Zip Code)

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

____________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

Indicate 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 and posted 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 and post such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
Emerging 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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, par value $0.01 per share	255,559,939
Class	Outstanding at July 20, 2018

VERTEX PHARMACEUTICALS INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2018

TABLE OF CONTENTS

		Page
Part I. Financial Information
Item 1.	Financial Statements	2
	Condensed Consolidated Financial Statements (unaudited)	2
	Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2018 and 2017	2
	Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2018 and 2017	3
	Condensed Consolidated Balance Sheets - June 30, 2018 and December 31, 2017	4
	Condensed Consolidated Statements of Shareholders' Equity and Noncontrolling Interest - Six Months Ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2018 and 2017	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
Part II. Other Information
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	52
Signatures		54

“We,” “us,” “Vertex” and the “Company” as used in this Quarterly Report on Form 10-Q refer to Vertex Pharmaceuticals Incorporated, a Massachusetts corporation, and its subsidiaries.

“Vertex,” “KALYDECO^®,” “ORKAMBI^®” and “SYMDEKO^®” are registered trademarks of Vertex. Other brands, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners.

Part I. Financial Information

Item 1.    Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues:
Product revenues, net	$	749,912		$	513,988		$	1,387,641		$	994,610
Royalty revenues	1,085			2,861			2,441			4,412
Collaborative revenues	1,160			27,286			2,874			259,831
Total revenues	752,157			544,135			1,392,956			1,258,853
Costs and expenses:
Cost of sales	104,382			71,205			175,995			118,193
Research and development expenses	337,532			289,451			648,085			563,014
Sales, general and administrative expenses	137,303			127,249			267,111			240,575
Restructuring expenses (income)	62			3,523			(14		)	13,522
Total costs and expenses	579,279			491,428			1,091,177			935,304
Income from operations	172,878			52,707			301,779			323,549
Interest expense, net	(10,106		)	(14,664		)	(21,203		)	(31,429		)
Other income (expense), net	53,819			(2,537		)	150,657			(3,081		)
Income before provision for (benefit from) income taxes	216,591			35,506			431,233			289,039
Provision for (benefit from) income taxes	10,341			4,337			(2,318		)	8,322
Net income	206,250			31,169			433,551			280,717
Loss (income) attributable to noncontrolling interest	1,110			(13,173		)	(15,928		)	(14,965		)
Net income attributable to Vertex	$	207,360		$	17,996		$	417,623		$	265,752
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	0.82		$	0.07		$	1.65		$	1.08
Diluted	$	0.80		$	0.07		$	1.61		$	1.06
Shares used in per share calculations:
Basic	254,135			247,521			253,685			246,782
Diluted	258,584			251,635			258,557			250,199

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

2

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Net income	$	206,250	$	31,169		$	433,551		$	280,717
Changes in other comprehensive income (loss):
Unrealized holding gains (losses) on marketable securities, net of tax of zero, $1.0 million, zero and zero, respectively	373		(17,281		)	(87		)	(13,747		)
Unrealized gains (losses) on foreign currency forward contracts, net of tax of $0.2 million, $1.1 million, $0.5 million and $2.0 million, respectively	25,895		(15,245		)	25,033			(21,926		)
Foreign currency translation adjustment	8,870		(5,252		)	6,141			(7,253		)
Total changes in other comprehensive income (loss)	35,138		(37,778		)	31,087			(42,926		)
Comprehensive income (loss)	241,388		(6,609		)	464,638			237,791
Comprehensive loss (income) attributable to noncontrolling interest	1,110		(13,173		)	(15,928		)	(14,965		)
Comprehensive income (loss) attributable to Vertex	$	242,498	$	(19,782	)	$	448,710		$	222,826

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

3

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

	June 30,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	2,145,359		$	1,665,412
Marketable securities	622,396			423,254
Restricted cash and cash equivalents (VIE)	8,510			1,489
Accounts receivable, net	393,439			281,343
Inventories	115,025			111,830
Prepaid expenses and other current assets	122,694			165,635
Total current assets	3,407,423			2,648,963
Property and equipment, net	815,928			789,437
Intangible assets	29,000			29,000
Goodwill	50,384			50,384
Other assets	32,651			28,230
Total assets	$	4,335,386		$	3,546,014
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	83,034		$	73,994
Accrued expenses	479,120			443,961
Capital lease obligations, current portion	15,060			22,531
Early access sales accrual	290,457			232,401
Other liabilities, current portion	59,629			34,373
Total current liabilities	927,300			807,260
Capital lease obligations, excluding current portion	15,030			20,496
Deferred tax liability	9,335			6,341
Construction financing lease obligation, excluding current portion	562,645			563,406
Advance from collaborator, excluding current portion	80,602			78,431
Other liabilities, excluding current portion	25,591			27,774
Total liabilities	1,620,503			1,503,708
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.01 par value; 500,000,000 shares authorized, 254,882,837 and 253,253,362 shares issued and outstanding, respectively	2,542			2,512
Additional paid-in capital	7,357,042			7,157,362
Accumulated other comprehensive loss	(4,605		)	(11,572		)
Accumulated deficit	(4,668,751		)	(5,119,723		)
Total Vertex shareholders’ equity	2,686,228			2,028,579
Noncontrolling interest	28,655			13,727
Total shareholders’ equity	2,714,883			2,042,306
Total liabilities and shareholders’ equity	$	4,335,386		$	3,546,014

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

4

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Shareholders’ Equity and Noncontrolling Interest

(unaudited)

(in thousands)

	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Vertex Shareholders’ Equity			Noncontrolling Interest			Total Shareholders’ Equity
	Shares		Amount
Balance at December 31, 2016	248,301		$	2,450		$	6,506,795		$	21,173		$	(5,373,836	)	$	1,156,582		$	181,609		$	1,338,191
Cumulative effect adjustment for adoption of new accounting guidance	—		—			9,371			—			(9,371		)	—			—			—
Other comprehensive loss, net of tax	—		—			—			(42,926		)	—			(42,926		)	—			(42,926		)
Net income	—		—			—			—			265,752			265,752			14,965			280,717
Issuance of common stock under benefit plans	2,469		29			147,979			—			—			148,008			—			148,008
Stock-based compensation expense	—		—			143,857			—			—			143,857			—			143,857
Other VIE activity	—		—			—			—			—			—			(616		)	(616		)
Balance at June 30, 2017	250,770		$	2,479		$	6,808,002		$	(21,753	)	$	(5,117,455	)	$	1,671,273		$	195,958		$	1,867,231
Balance at December 31, 2017	253,253		$	2,512		$	7,157,362		$	(11,572	)	$	(5,119,723	)	$	2,028,579		$	13,727		$	2,042,306
Cumulative effect adjustment for adoption of new accounting guidance	—		—			—			(24,120		)	33,349			9,229			—			9,229
Other comprehensive loss, net of tax	—		—			—			31,087			—			31,087			—			31,087
Net income	—		—			—			—			417,623			417,623			15,928			433,551
Repurchases of common stock	(768	)	(8		)	(119,026		)	—			—			(119,034		)	—			(119,034		)
Issuance of common stock under benefit plans	2,398		38			157,589			—			—			157,627			—			157,627
Stock-based compensation expense	—		—			161,117			—			—			161,117			—			161,117
Other VIE activity	—		—			—			—			—			—			(1,000		)	(1,000		)
Balance at June 30, 2018	254,883		$	2,542		$	7,357,042		$	(4,605	)	$	(4,668,751	)	$	2,686,228		$	28,655		$	2,714,883

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

5

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Six Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	433,551		$	280,717
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	160,572			142,534
Depreciation expense	34,402			29,740
Write-downs of inventories to net realizable value	6,928			9,479
Deferred income taxes	3,516			4,626
Impairment of property and equipment	—			1,946
Unrealized gain on equity securities	(149,376		)	—
Other non-cash items, net	10,014			(4,834		)
Changes in operating assets and liabilities:
Accounts receivable, net	(88,166		)	(49,767		)
Inventories	(9,366		)	(22,998		)
Prepaid expenses and other assets	33,408			(39,531		)
Accounts payable	12,229			14,047
Accrued expenses and other liabilities	126,648			81,386
Net cash provided by operating activities	574,360			447,345
Cash flows from investing activities:
Purchases of marketable securities	(202,002		)	(377,667		)
Maturities of marketable securities	171,028			168,882
Expenditures for property and equipment	(58,891		)	(28,477		)
Investment in equity securities	(21,500		)	—
Net cash used in investing activities	(111,365		)	(237,262		)
Cash flows from financing activities:
Issuances of common stock under benefit plans	144,837			147,887
Repurchase of common stock	(115,033		)	—
Payments on revolving credit facility	—			(300,000		)
Advance from collaborator	5,000			7,500
Payments on capital lease obligations	(14,061		)	(10,637		)
Proceeds related to construction financing lease obligation	9,566			—
Repayments of advanced funding	(2,412		)	(2,044		)
Other financing activities	(149		)	(238		)
Net cash provided by (used in) financing activities	27,748			(157,532		)
Effect of changes in exchange rates on cash	(4,201		)	3,500
Net increase in cash and cash equivalents	486,542			56,051
Cash, cash equivalents and restricted cash—beginning of period	1,667,526			1,231,707
Cash, cash equivalents and restricted cash—end of period	$	2,154,068		$	1,287,758
Supplemental disclosure of cash flow information:
Cash paid for interest	$	33,444		$	35,003
Cash paid for income taxes	$	7,069		$	2,218
Capitalization of costs related to construction financing lease obligation	$	5,176		$	38,930
Issuances of common stock from employee benefit plans receivable	$	13,634		$	188
Accrued share repurchase liability	$	4,001		$	—

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

6

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

A. Basis of Presentation and Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) consolidated variable interest entities (VIEs). All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. As of September 30, 2017, the Company deconsolidated Parion Sciences, Inc. (“Parion”), a VIE the Company had consolidated since 2015. The Company's condensed consolidated statement of operations for the interim period ended June 30, 2018 excludes Parion. Please refer to Note B, “Collaborative Arrangements and Acquisitions,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2018 (the “2017 Annual Report on Form 10-K”) for further information regarding the deconsolidation of Parion.

Certain information and footnote disclosures normally included in the Company’s 2017 Annual Report on Form 10-K have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2018 and 2017.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2017, which are contained in the 2017 Annual Report on Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, the fair value of intangible assets, goodwill, contingent consideration, noncontrolling interest, the consolidation and deconsolidation 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 that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Recently Adopted Accounting Standards

Revenue Recognition

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606)(“ASC 606”). The new guidance became effective January 1, 2018. ASC 606 applies a more principles-based approach to recognizing revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 on January 1, 2018 using the modified-retrospective adoption method for all contracts that were not completed as of the date of adoption. Under the modified-retrospective method, the Company recognized the cumulative effect of applying the standard within “Accumulated deficit” on its condensed consolidated balance sheet as of January 1, 2018.

For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under

7

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

the adoption rules.

Based on the Company’s review of existing customer contracts as of January 1, 2018, it concluded that the only significant impact that the adoption of ASC 606 had on its financial statements relates to shipments of ORKAMBI under early access programs in France. Prior to the adoption of ASC 606, the Company did not recognize revenue on the proceeds received from sales of ORKAMBI under early access programs in France because the price was not fixed or determinable based on the status of ongoing pricing discussions. As of January 1, 2018, the Company recorded a cumulative effect adjustment to its accumulated deficit of $8.3 million related to the adoption of ASC 606, which primarily represented the Company’s estimated amount of consideration it expects to retain related to these shipments that will not be subject to a significant reversal in amounts recognized, net of costs previously deferred related to these shipments. Please refer to Note B, “Revenue Recognition,” for further information.

The Company concluded that the remaining $6.9 million that was recorded as deferred revenue as of December 31, 2017 related to the Company’s sale of its HIV protease inhibitor royalty stream in 2008 is not subject to ASC 606 because it was initially accounted for pursuant to ASC 470, Debt, which is not under the scope of ASC 606. The Company will continue to recognize the payment received as royalty revenues over the expected life of the collaboration agreement with GlaxoSmithKline plc based on the units-of-revenue method.

The cumulative effect of applying ASC 606 to the Company’s contracts with customers that were not completed as of January 1, 2018 was as follows:

	Balance as of						Balance as of
	December 31, 2017			Adjustments			January 1, 2018
Assets	(in thousands)
Accounts receivable, net	$	281,343		$	29,881		$	311,224
Inventories	111,830			(90		)	111,740
Prepaid expenses and other current assets	165,635			(17,166		)	148,469
Total assets	$	3,546,014		$	12,625		$	3,558,639
Liabilities and Shareholders’ Equity
Accrued expenses	$	443,961		$	8,586		$	452,547
Early access sales accrual	232,401			(7,273		)	225,128
Other liabilities, current portion	34,373			2,083			36,456
Accumulated other comprehensive loss	(11,572		)	949			(10,623		)
Accumulated deficit	(5,119,723		)	8,280			(5,111,443		)
Total liabilities and shareholders’ equity	$	3,546,014		$	12,625		$	3,558,639

8

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

The impact of adoption on the Company’s condensed consolidated balance sheet as of June 30, 2018 was as follows:

	As of June 30, 2018
	As Reported under ASC 606			Balances without Adoption of ASC 606			Effect of Change Higher/(Lower)
Assets	(in thousands)
Accounts receivable, net	$	393,439		$	359,103		$	34,336
Inventories	115,025			115,117			(92		)
Prepaid expenses and other current assets	122,694			142,704			(20,010		)
Total assets	$	4,335,386		$	4,321,152		$	14,234
Liabilities and Shareholders’ Equity
Accrued expenses	$	479,120		$	480,892		$	(1,772	)
Early access sales accrual	290,457			303,637			(13,180		)
Other liabilities, current portion	59,629			44,295			15,334
Accumulated other comprehensive loss	(4,605		)	(4,801		)	196
Accumulated deficit	(4,668,751		)	(4,682,407		)	13,656
Total liabilities and shareholders’ equity	$	4,335,386		$	4,321,152		$	14,234

The impact of adoption on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2018 was as follows:

	Three Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	749,912	$	745,975	$	3,937
Cost of sales	104,382		102,688		1,694
Income from operations	172,878		170,635		2,243
Net income attributable to Vertex	$	207,360	$	205,117	$	2,243
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	0.82	$	0.81	$	0.01
Diluted	$	0.80	$	0.79	$	0.01

	Six Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	1,387,641	$	1,379,039	$	8,602
Cost of sales	175,995		172,769		3,226
Income from operations	301,779		296,403		5,376
Net income attributable to Vertex	$	417,623	$	412,247	$	5,376
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	1.65	$	1.62	$	0.03
Diluted	$	1.61	$	1.59	$	0.02

9

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

ASC 606 did not have an aggregate impact on the Company’s net cash provided by operating activities, but resulted in offsetting changes in certain assets and liabilities presented within net cash provided by operating activities in the Company’s condensed consolidated statement of cash flows.

Equity Investments

In 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which amended guidance related to the recording of financial assets and financial liabilities. Under the amended guidance, equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) are to be measured at fair value with changes in fair value recognized in net income (loss). However, an entity has the option to measure equity investments without readily determinable fair values at (i) fair value or (ii) cost adjusted for changes in observable prices minus impairment. Changes in measurement under either alternative are recognized in net income (loss). The amended guidance became effective January 1, 2018 and required the modified-retrospective adoption approach. As of January 1, 2018, the Company held publicly traded equity investments and equity investments accounted for under the cost method. As a result, in the first quarter of 2018, the Company recorded a $25.1 million cumulative effect adjustment to “Accumulated deficit” related to its publicly traded equity investments equal to the unrealized gain, net of tax, that was recorded in “Accumulated other comprehensive loss” as of December 31, 2017. The adoption of ASU 2016-01 had no effect on the Company’s equity investments accounted for under the cost method because the original cost basis of these investments was recorded on the Company’s condensed consolidated balance sheet as of December 31, 2017. In the three and six months ended June 30, 2018, the Company recorded income of $53.9 million and $149.4 million, respectively, to “Other income (expense), net,” in its condensed consolidated statement of operations related to the change in fair value of its equity investments.

Stock-Based Compensation

In 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718) (“ASU 2017-09”) related to the scope of stock option modification accounting to reduce diversity in practice and provide clarity regarding existing guidance. The new accounting guidance was effective January 1, 2018. The Company does not expect the adoption of ASU 2017-09 to have a significant effect on its condensed consolidated financial statements in future periods and had no effect in the three and six months ended June 30, 2018.

Goodwill

In 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350) (“ASU 2017-04”) related to measurements of goodwill. The amended guidance modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value, which eliminates Step 2 from the goodwill impairment test. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the related reporting unit. The new accounting guidance is required for annual or interim goodwill impairment tests conducted after January 1, 2020. The Company early adopted this new guidance and will utilize this approach for annual and interim goodwill impairment tests conducted after January 1, 2018. The Company does not expect the adoption of this guidance to have a significant effect on its condensed consolidated financial statements.

Intra-Entity Transfers

In 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which removes the previous exception in GAAP prohibiting an entity from recognizing current and deferred income tax expenses or benefits related to the transfer of assets, other than inventory, within the consolidated entity. The exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amended guidance became effective January 1, 2018. In the first quarter of 2018, upon adoption of ASU 2016-16, the Company recorded a deferred tax asset and corresponding full valuation allowance of $204.7 million equal to the unamortized cost of intellectual property rights transferred to the United Kingdom in 2014 multiplied by an appropriate statutory rate. There was no cumulative effect adjustment to “Accumulated deficit” using the modified-retrospective adoption approach.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

Cash Flows - Restricted Cash

In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. Therefore, amounts described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows.  The amended guidance became effective January 1, 2018 and is effective on a retrospective basis. The cash, cash equivalents and restricted cash at the beginning and ending of each period presented in the Company’s condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2017 consisted of the following:

	Six Months Ended June 30, 2018				Six Months Ended June 30, 2017
	Beginning of period		End of period		Beginning of period		End of period
Cash and cash equivalents	$	1,665,412	$	2,145,359	$	1,183,945	$	1,223,130
Restricted cash and cash equivalents (VIE)	1,489		8,510		47,762		64,628
Prepaid expenses and other current assets	625		199		—		—
Cash, cash equivalents and restricted cash per statement of cash flows	$	1,667,526	$	2,154,068	$	1,231,707	$	1,287,758

The Company’s restricted cash is classified in “Prepaid expenses and other current assets” in its condensed consolidated balance sheets. The Company has recorded its VIE’s cash and cash equivalents as “Restricted cash and cash equivalents (VIE)” because (i) the Company does not have any interest in or control over BioAxone’s cash and cash equivalents and (ii) the Company’s agreement with BioAxone does not provide for BioAxone’s cash and cash equivalents to be used for the development of the asset that the Company licensed from BioAxone.

Recently Issued Accounting Standards

Derivatives and Hedging

In 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”), which helps simplify certain aspects of hedge accounting and enables entities to more accurately present their risk management activities in their financial statements. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company is in the process of determining the expected effect on its condensed consolidated financial statements.

Leases

In 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which amends a number of aspects of lease accounting and requires entities to recognize on the balance sheet right-of-use assets and liabilities for leases with lease terms of more than 12 months. ASU 2016-02 requires a modified-retrospective adoption approach. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company has formed a project team to review its portfolio of existing leases and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard. The Company anticipates that the amended guidance will result in the recognition of additional right-of-use assets and corresponding liabilities on its condensed consolidated balance sheets. As discussed in Note K, “Long-term Obligations,” the Company currently applies build-to-suit accounting and is the deemed owner of its leased corporate headquarters in Boston and research site in San Diego, for which it is recognizing depreciation expense over the buildings’ useful lives and imputed interest on the corresponding construction financing lease obligations. Under the amended guidance, the Company expects to account for these buildings as financing leases, resulting in increased depreciation expense over the respective lease terms, which are significantly shorter than the buildings’ useful lives. The Company also expects a reduction in its imputed interest expense in the initial years of each financing lease term. The Company is also in the process of implementing appropriate changes to its controls to support lease accounting and related disclosures under the new standard.

11

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

For a discussion of other recent accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies—Recent Accounting Pronouncements,” in the 2017 Annual Report on Form 10-K.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in the 2017 Annual Report on Form 10-K. The Company is disclosing changes in its accounting policies related to guidance that became effective January 1, 2018 in this Quarterly Report on Form 10-Q. Specifically, the Company’s updated revenue recognition policy pursuant to its adoption of ASC 606 is included in Note B, “Revenue Recognition,” and its policy related to marketable and equity securities is included below.

Marketable and Equity Securities

Effective January 1, 2018, the Company measures publicly traded corporate equity investments that have readily available prices at fair value, with changes in fair value recognized in “Other income (expense), net,” each reporting period.

Effective January 1, 2018, the Company records privately issued corporate equity investments that do not have readily determinable fair values at cost, and adjusts for changes in observable prices minus impairment. Each reporting period, the Company adjusts the carrying value of these investments if it observes that additional shares have been issued in an orderly transaction between market participants resulting in a price increase or decrease per share. Additionally, each reporting period the Company reviews these investments for impairment considering all available information to conclude whether an impairment exists. Changes in measurement for all corporate equity investments are recognized in “Other income (expense), net.”

B. Revenue Recognition

Pursuant to ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. 

The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon delivery.

Product Revenues, Net

The Company sells its products principally to a limited number of specialty pharmacy and specialty distributors in the United States, which account for the largest portion of its total revenues, and makes international sales primarily to specialty distributors and retail chains, as well as hospitals and clinics, many of which are government-owned or supported (collectively, its “Customers”). The Company’s Customers in the United States subsequently resell the products to patients and health care providers. In accordance with ASC 606, the Company recognizes net revenues from product sales when the Customers obtain control of the Company’s products, which typically occurs upon delivery to the Customer. The Company’s payment terms are approximately 30 days in the United States and consistent with prevailing practice in international markets.

Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) trade allowances, which include invoice discounts for prompt payment and

12

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

Customer fees, (b) government and private payor rebates, chargebacks, discounts and fees and (c) costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to “Accounts receivable, net” if payable to a Customer or “Accrued expenses” if payable to a third-party.  Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.  The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.  Actual amounts of consideration ultimately received may differ from the Company’s estimates.  If actual results vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Trade Allowances: The Company generally provides invoice discounts on product sales to its Customers for prompt payment and pays fees for distribution services, such as fees for certain data that Customers provide to the Company. The Company estimates that, based on its experience, its Customers will earn these discounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time such revenues are recognized.

Rebates, Chargebacks, Discounts and Fees: The Company contracts primarily with government agencies (its “Third-party Payors”) so that products will be eligible for purchase by, or partial or full reimbursement from, such Third-party Payors. The Company estimates the rebates, chargebacks, discounts and fees it will provide to Third-party Payors and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. For each product, the Company estimates the aggregate rebates, chargebacks and discounts that it will provide to Third-party Payors based upon (i) the Company’s contracts with these Third-party Payors, (ii) the government-mandated discounts and fees 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) historical experience.

Other Incentives: Other incentives that the Company offers include co-pay mitigation rebates provided by the Company to commercially insured patients who have coverage and who reside in states that permit co-pay mitigation programs. Based upon the terms of the Company’s co-pay mitigation programs, the Company estimates average co-pay mitigation amounts for each of its products in order to establish appropriate accruals.

The Company makes significant estimates and judgments that materially affect its recognition of net product revenues. The Company adjusts its estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates, chargebacks and discounts for its products, as it becomes available. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to the Company significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. The Company’s credits to revenue related to prior period sales have typically been approximately 1% or less of gross product revenues and primarily related to U.S. rebates, chargebacks and discounts.

The Company excludes taxes collected from Customers relating to product sales and remitted to governmental authorities from revenues.

French Early Access Programs

Pursuant to ASC 605, Revenue Recognition, which was applicable until December 31, 2017, the Company only recognized revenues from product sales if it determined that the price was fixed or determinable at the time of delivery. If the Company determined that the price was not fixed or determinable, it deferred the recognition of revenues. If the Company was able to determine that the price was fixed or determinable, it recognized the net product revenues associated with the units.

The Company began distributing ORKAMBI through early access programs in France during the fourth quarter of 2015 and is engaged in ongoing pricing discussions regarding the final price for ORKAMBI in France. The Company’s ORKAMBI net product revenues for 2017, 2016 and 2015 did not include any net product revenues from sales of ORKAMBI

13

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

in France because the price was not fixed or determinable. The Company expects that the difference between the amounts collected based on the invoiced price and the final price for ORKAMBI in France will be returned to the French government.

As of June 30, 2018 and December 31, 2017, the Company’s condensed consolidated balance sheets included $290.5 million and $232.4 million, respectively, classified as “Early access sales accrual” related to amounts collected in France as payment for shipments of ORKAMBI under the early access programs, which is considered to be a refund liability pursuant to ASC 606.

Upon adopting ASC 606 in the first quarter of 2018, the Company recorded an $8.3 million cumulative effect adjustment to “Accumulated deficit” primarily related to shipments of ORKAMBI under early access programs in France. The Company determined the amount of the adjustment based upon (i) the status of pricing discussions in France upon adoption, (ii) the Company’s estimate of the amount of consideration it expects to retain related to ORKAMBI sales in France that occurred on or prior to December 31, 2017 that will not be subject to a significant reversal in amounts recognized and (iii) recognition of costs previously deferred related to the ORKAMBI sales in France. For ORKAMBI sales in France that occurred after December 31, 2017 under the early access programs, the Company has recognized net product revenues based on the estimate of consideration it expects to retain that will not be subject to a significant reversal in amounts recognized.

If the Company’s estimate regarding the amounts it will receive for ORKAMBI supplied pursuant to these early access programs changes, the Company will reflect the effect of the change in estimate in net product revenues in the period in which the change in estimate occurs and will include adjustments to all prior sales of ORKAMBI under the early access programs.

Collaborative Revenues

The Company recognizes collaborative revenues generated through collaborative research, development and/or commercialization agreements. The terms of these agreements typically include payment to the Company related to one or more of the following: nonrefundable, upfront license fees; development and commercial milestones; funding of research and/or development activities; and royalties on net sales of licensed products. Each type of payments results in collaborative revenues except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the collaborator.

For each collaborative research, development and/or commercialization agreement that results in revenue, the Company identifies all material performance obligations, which may include a license to intellectual property and know-how, research and development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimate of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis. In order to account for these agreements, the Company must develop assumptions that require judgment to determine the standalone selling price, which may include (i) 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 potential product sales with respect to the drug candidate and (iv) appropriate discount and tax rates. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company does not include a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not be satisfied within one year.

14

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

Upfront License Fees: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from the related nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total selling price of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments: Depending on facts and circumstances, the Company may conclude that it is appropriate to include certain milestones in the estimated transaction price or that it is appropriate to fully constrain the milestones. A milestone payment is included in the transaction price in the reporting period that the Company concludes that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods. The Company may record revenues from certain milestones in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. These milestones remain fully constrained until the Company concludes that their achievement is probable and that recognition of the related revenue will not result in a significant reversal in amounts recognized in future periods. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period and adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that it has recorded, if necessary.  

Research and Development Activities/Transition Services: If the Company is entitled to reimbursement from its collaborators for specified research and development expenses, the Company accounts for the related services that it provides as separate performance obligations if it determines that these services represent a material right. The Company also determines whether the reimbursement of research and development expenses should be accounted for as collaborative revenues or an offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The Company recognizes the corresponding revenues or records the corresponding offset to research and development expenses as it satisfies the related performance obligations.

Sales-based Milestone and Royalty Payments: The Company’s collaborators may be required to pay the Company sales-based milestones or royalties on future sales of commercial products.  The Company recognizes revenues related to sales-based milestone and royalties upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to the Company’s intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

Contract Liabilities

The following table summarizes changes in the Company’s contract liabilities for the six months endedJune 30, 2018:

	Balance at January 1, 2018 (ASC 606 adoption)		Additions		Deductions			Balance at June 30, 2018
	(in thousands)
Three Months Ended June 30, 2018
Contract liabilities:
Other liabilities, current portion	$	1,654	$	34,513	$	(3,736	)	$	32,431

The Company’s contract liabilities relate to contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement the Company can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right pursuant to ASC 606. These contracts, which are

15

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

classified as “Other liabilities, current portion,” include upfront payments and fees.  The Company defers a portion of the consideration received for shipments made up to the annual reimbursement limit, and the deferred amount is recognized as revenue when the free products are shipped. The Company’s product revenue contracts include performance obligations that are one year or less.

During the six months endedJune 30, 2018, the Company did not recognize any revenues related to its contract liability balance as of January 1, 2018 or revenues related to performance obligations satisfied in previous periods.

Disaggregation of Revenue

Revenues by Product

Product revenues, net consisted of the following:

	Three Months Ended June 30,					Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)			2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
KALYDECO	$	253,093	$	189,633		$	502,632	$	375,348
ORKAMBI	311,261		324,407			665,327		619,268
SYMDEKO	185,558		—			219,682		—
Other	—		(52		)	—		(6		)
Total product revenues, net	$	749,912	$	513,988		$	1,387,641	$	994,610

Revenues by Geographic Location

Net product revenues are attributed to countries based on the location of the Customer. Collaborative and royalty revenues are attributed to countries based on the location of the Company’s subsidiary associated with the collaborative arrangement related to such revenues. Total revenues from external customers and collaborators by geographic region consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)		2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
United States	$	584,811	$	429,804	$	1,067,478	$	1,028,930
Outside of the United States
Europe	135,914		91,992		267,809		184,350
Other	31,432		22,339		57,669		45,573
Total revenues outside of the United States	167,346		114,331		325,478		229,923
Total revenues	$	752,157	$	544,135	$	1,392,956	$	1,258,853

In the three and six months ended June 30, 2018 and 2017, revenues attributable to Germany and the United Kingdom contributed the largest amounts to the Company’s European revenues.

C. Collaborative Arrangements and Acquisitions

Cystic Fibrosis Foundation Therapeutics Incorporated

The Company has a research, development and commercialization agreement with Cystic Fibrosis Foundation Therapeutics Incorporated (“CFFT”) that was originally entered into in 2004, and was most recently amended in 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/or tested 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 any

16

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

approved 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 and SYMDEKO, sales are allocated equally to each of the active pharmaceutical ingredients in the combination product. The Company previously made certain commercial milestone payments to CFFT but there are no remaining commercial milestone payments payable by the Company to CFFT pursuant to the agreement.

Pursuant to the 2016 Amendment, the CFFT provided 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. The upfront payment plus any future development funding represent a form of financing pursuant to ASC 730, Research and Development, and thus the amounts are recorded as a liability on the condensed 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 to “Cost of sales” and as “Interest expense, net”.

The Company began marketing KALYDECO in 2012 and began marketing ORKAMBI in 2015. The Company received approval for SYMDEKO in the United States in February 2018 and has submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) seeking approval for tezacaftor in combination with ivacaftor in the European Union. The Company 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 United States and European Union covering the composition-of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject to potential patent extension. The Company has patents in the United States and European Union covering the composition-of-matter of lumacaftor that expire in 2030 and 2026, respectively, subject to potential extension. The Company has 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 extension.

CRISPR Therapeutics AG

In 2015, the Company entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AG and its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editing technology. The Company has the exclusive right to license up to six CRISPR-Cas9-based targets, including targets for the potential treatment of sickle cell disease. In connection with 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 a convertible loan agreement that subsequently converted into common shares of CRISPR and was recorded on the Company’s condensed consolidated balance sheet. The Company has made several additional investments in CRISPR’s common shares, including a $21.5 million investment in January 2018. As of June 30, 2018, the Company recorded the fair value of its investment in CRISPR common shares of $242.8 million in “Marketable securities” on its condensed consolidated balance sheet.

The Company funds all of the discovery activities conducted pursuant to the CRISPR Agreement. For targets that the Company elects to license, other than hemoglobinopathy treatments, the Company would lead all development and global commercialization activities. For each target that the Company elects to license, other than hemoglobinopathy targets, CRISPR has the potential to receive up to $420.0 million in development, regulatory and commercial milestones and royalties on net product sales. As part of the collaboration, the Company and CRISPR share equally all development costs and potential worldwide revenues related to potential hemoglobinopathy treatments, including treatments for 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 270 days’ notice after a product has received marketing approval. The CRISPR 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 CRISPR Agreement will continue in effect until the expiration of the Company’s payment obligations under the CRISPR Agreement.

In the fourth quarter of 2017, the Company entered into a co-development and co-commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement, under which the Company and CRISPR will co-develop and co-

17

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

commercialize CTX001 for the treatment of hemoglobinopathy treatments, including treatments for sickle cell disease and beta-thalassemia.

Merck KGaA

In January 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 to research, develop and commercialize four oncology research and development programs. Under the Merck KGaA Agreement, the Company granted Merck KGaA exclusive, worldwide rights to two clinical-stage programs targeting DNA damage repair: its ataxia telangiectasia and Rad3-related protein inhibitor program, including VX-970 and VX-803, and its DNA-dependent protein kinase inhibitor program, including VX-984. In addition, the Company granted Merck 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. A portion of the upfront payment that was remitted to the German tax authorities in 2017 was refunded to the Company in February 2018. 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 high single digits for the pre-clinical research programs. Merck KGaA has assumed full responsibility for development and commercialization costs for all programs.

The Company evaluated the deliverables, primarily consisting of a license to the four programs and the obligation to complete certain fully-reimbursable research and development and transition activities as directed by Merck KGaA, pursuant to the Merck KGaA Agreement, under the multiple element arrangement accounting guidance that was applicable in 2017. The Company concluded that the license had stand-alone value from the research and development and transition activities 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 utilized key assumptions to determine the best estimate of selling price for the license, which included future potential net sales of licensed products, development timelines, reimbursement rates for personnel costs, discount rates, and estimated third-party development costs. The Company utilized a discounted cash flow model to determine its best estimate of selling price for the license and determined the best estimate of selling price for the research and development and transition activities based on what it would sell the services for separately. Given the significance of the best estimate of selling price for the license as compared to the best estimate of selling price for the research and development and transition services, reasonable changes in the assumptions used in the discounted cash flow model would not have a significant impact on the relative selling price allocation. Based on this analysis, the Company recognized the $230.0 million upfront payment upon delivery of the license as well as research and development and transition activities during the first quarter of 2017. The Company records the reimbursement for the research and development and transition activities in its condensed consolidated statements of operations as collaborative revenue primarily due to the fact that it is the primary obligor in the arrangement. As of December 31, 2017, the Company’s activities related to research and development and transition activities under the Merck KGaA Agreement were substantially complete.

Merck KGaA may terminate the Merck KGaA Agreement or any individual program by providing 90 days’ notice, or, in the case of termination of a program with a product that has received marketing approval, 180 days’ notice. The Merck KGaA Agreement also may be terminated by either party for a material breach by the other party, subject to notice and cure provisions. Unless earlier terminated, the Merck KGaA Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.

Variable Interest Entities (VIEs)

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 condensed consolidated financial statements as VIEs. In order to account for the fair value of the contingent payments, which could consist of milestone, royalty and option payments, related to these collaborations under GAAP, the Company uses present-value models based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the timing of achieving the milestones, estimates of future product sales and the appropriate discount rates. The

18

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

Company bases its estimates of the probability of achieving the relevant milestones on industry data for similar assets and its own experience. The discount rates used in the valuation model represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Changes in these assumptions could have a material effect on the fair value of the contingent payments. The following collaborations have been reflected in the Company’s financial statements as consolidated VIEs for portions or all of the periods presented:

Parion Sciences, Inc.

In 2015, the Company entered into a strategic collaboration and license agreement (the “Parion Agreement”) with 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.

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 in Parion’s research program.  To date Parion received $85.0 million in upfront and milestone payments under the Parion Agreement. Parion has the potential to receive up to an additional (i) $485.0 million in development and regulatory milestone payments for development of ENaC inhibitors in CF, including $360.0 million related to global filing and approval milestones, (ii) $370.0 million in development and regulatory milestones for VX-371 and VX-551 in non-CF pulmonary indications and (iii) $230.0 million in development and regulatory milestones should the Company elect to develop an additional ENaC inhibitor from Parion’s research program. The Company agreed 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 upon 180 days’ notice after a licensed product has received marketing approval. If the Company experiences a change of control prior to the initiation of the first Phase 3 clinical trial for a licensed product, Parion may terminate the Parion Agreement upon 30 days’ notice, subject to the Company’s right to receive specified royalties on any subsequent commercialization of licensed products. The Parion 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 Parion Agreement will continue in effect until the expiration of the Company’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 product expires 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 the variable 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 fair value 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 significantly affect the economic performance of Parion and that it had the obligation to absorb losses and right to receive benefits that potentially could be significant to Parion.  Accordingly, the Company consolidated Parion's financial statements beginning in June 2015. Notwithstanding the applicable accounting treatment, the Company's interests in Parion have been and continue to be limited to those accorded to the Company in the Parion Agreement.

As of September 30, 2017, the Company determined that the fair value of Parion’s pulmonary ENaC platform had declined significantly based on data received in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. After evaluating the results of the clinical trial 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 was no longer the primary beneficiary of Parion as it no longer had the power to direct the significant activities of Parion. Accordingly, the Company deconsolidated Parion as of September 30, 2017. Please refer to Note B, “Collaborative Arrangements and Acquisitions,” in the 2017 Annual Report on Form 10-K for further information regarding the deconsolidation of Parion.

19

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

BioAxone Biosciences, Inc.

In 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 recorded an in-process research and development intangible asset of $29.0 million for VX-210 and a corresponding deferred tax liability of $11.3 million attributable to BioAxone. The Company made an initial payment to BioAxone of $10.0 million in 2014. In the first quarter of 2018, the Company’s option to purchase BioAxone expired and the Company paid a $10.0 million license continuation fee to BioAxone. BioAxone has the potential to receive up to $80.0 million in milestones, including development and regulatory milestone payments. As of June 30, 2018, the Company continues to conclude that it is the primary beneficiary of BioAxone and continues to consolidate BioAxone as a VIE.

Aggregate VIE Financial Information

An aggregate summary of net income attributable to noncontrolling interest related to the Company’s VIEs for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Loss (income) attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments	$	426		$	(18,045	)	$	983		$	(16,498	)
(Benefit from) provision for income taxes	(416		)	8,132			5,989			8,523
Decrease (increase) in fair value of contingent payments	1,100			(3,260		)	(22,900		)	(6,990		)
Net loss (income) attributable to noncontrolling interest	$	1,110		$	(13,173	)	$	(15,928	)	$	(14,965	)

The increase in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments for the six months ended June 30, 2018 was primarily due to the expiration of the Company’s option to purchase BioAxone in the first quarter of 2018 that increased the probability of a $10.0 million license continuation fee for VX-210 that was ultimately paid in the first quarter of 2018 and the probability that additional milestone and royalty payments related to the BioAxone Agreement would be paid. The changes in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments for the three months ended June 30, 2018 as well as the three and six months ended June 30, 2017 were primarily due to changes in market interest rates and the time value of money. The fair value of the contingent payments payable by the Company to BioAxone was $31.8 million and $18.9 million as of June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018 and 2017, the decreases and (increases) in the fair value of the contingent payments related to the Company’s VIEs were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
	(in thousands)
Parion	$	—	$	(3,260	)	$	—		$	(6,090	)
BioAxone	1,100		—			(22,900		)	(900		)

Significant amounts related to the Company’s consolidation of BioAxone as a VIE included in the Company’s condensed consolidated balance sheets as of the dates set forth in the table below were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Restricted cash and cash equivalents (VIE)	$	8,510	$	1,489
Intangible assets	29,000		29,000
Deferred tax liability	9,335		4,756
Noncontrolling interest	28,655		13,727

20

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company has recorded BioAxone’s cash and cash equivalents as “Restricted cash and cash equivalents (VIE)” because (i) the Company does not have any interest in or control over BioAxone’s cash and cash equivalents and (ii) the Company’s agreement with BioAxone does not provide for BioAxone’s cash and cash equivalents to be used for the development of the asset that the Company licensed from BioAxone. Assets recorded as a result of consolidating BioAxone’s financial condition into the Company’s balance sheets do not represent additional assets that could be used to satisfy claims against the Company’s general assets.

Other Collaborations

The Company has entered into various agreements pursuant to which it collaborates with third parties, including inlicensing and outlicensing arrangements. Although the Company does not consider any of these arrangements to be material, the most notable of these arrangements are described below.

Moderna Therapeutics, Inc.

In 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. In connection with the Moderna Agreement, the Company made an upfront payment to Moderna of $20.0 million and a $20.0 million investment in Moderna pursuant to a convertible promissory note that converted into preferred stock in 2016. Moderna has the potential to receive future development and regulatory milestones of up to $275.0 million, including $220.0 million in approval and reimbursement milestones, as well as tiered royalty payments on future sales. The carrying value of the Company’s investment in Moderna was $23.0 million as of June 30, 2018.

Under the terms of the Moderna Agreement, Moderna leads discovery efforts and the Company leads all preclinical, development and commercialization activities associated with the advancement of mRNA Therapeutics that result from this collaboration and will fund all expenses related to the collaboration.

The Company may terminate the Moderna Agreement by providing advance notice to Moderna, with the required length of notice dependent on whether any product developed under the Moderna Agreement has received marketing approval. The Moderna 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 Moderna Agreement will continue in effect until the expiration of the Company’s payment obligations under the Moderna Agreement.

Janssen Pharmaceuticals, Inc.

In 2014, the Company entered into an agreement (the “Janssen Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”). Pursuant to the agreement, Janssen has an exclusive worldwide license to develop and commercialize certain drug candidates for the treatment of influenza, including pimodivir (formerly VX-787). The Company received non-refundable payments of $35.0 million from Janssen in 2014 and recognized a $25.0 million milestone in the fourth quarter of 2017. The milestone, which was achieved based on the Phase 3 clinical trial Janssen initiated in the fourth quarter of 2017, was collected in the first quarter of 2018. The Company has the potential to receive additional regulatory and commercial milestone payments as well as royalties on future product sales, if any. Janssen is responsible for costs related to the development and commercialization of the compounds. Janssen may terminate the Janssen Agreement, subject to certain exceptions, upon six months’ notice.

Asset Acquisition

Concert Pharmaceuticals

In 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 CFTR potentiator that has the potential to be used as part of combination regimens of CFTR modulators to treat CF. Pursuant to the Concert Agreement, Vertex paid Concert $160.0 million in cash for the Concert Assets. If VX-561 is approved as part of a combination regimen to treat CF, Concert could

21

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

receive up to an additional $90.0 million in milestones based on regulatory approval in the United States and reimbursement in the United Kingdom, Germany or France. The Company determined that 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 not constitute 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 to “Research and Development Expenses” in the third quarter of 2017. The total cost of the transaction was $165.1 million including $5.1 million of transaction costs that were recorded to “Sales, general and administrative expenses”. If the Company achieves regulatory approval and reimbursement milestones, the Company will record the value of the milestone as an intangible asset and will begin amortizing the asset in cost of sales in the period that the relevant milestone is achieved.

D. Earnings Per Share

Basic net income per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock, restricted stock units and performance-based restricted stock units, or “PSUs,” that have been issued but are not yet vested. Diluted net income per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.

The following table sets forth the computation of basic and diluted net income per share for the periods ended:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands, except per share amounts)
Basic net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(65		)	(23		)	(163		)	(387		)
Net income attributable to Vertex common shareholders—basic	$	207,295		$	17,973		$	417,460		$	265,365
Basic weighted-average common shares outstanding	254,135			247,521			253,685			246,782
Basic net income attributable to Vertex per common share	$	0.82		$	0.07		$	1.65		$	1.08
Diluted net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(64		)	(23		)	(160		)	(382		)
Net income attributable to Vertex common shareholders—diluted	$	207,296		$	17,973		$	417,463		$	265,370
Weighted-average shares used to compute basic net income per common share	254,135			247,521			253,685			246,782
Effect of potentially dilutive securities:
Stock options	2,758			2,787			3,003			2,407
Restricted stock and restricted stock units (including PSUs)	1,689			1,264			1,851			958
Employee stock purchase program	2			63			18			52
Weighted-average shares used to compute diluted net income per common share	258,584			251,635			258,557			250,199
Diluted net income attributable to Vertex per common share	$	0.80		$	0.07		$	1.61		$	1.06

The Company did not include the securities in the following table in the computation of the net income per share attributable to Vertex common shareholders calculations because the effect would have been anti-dilutive during each period:

22

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(in thousands)
Stock options	2,253	3,112	1,943	7,065
Unvested restricted stock and restricted stock units (including PSUs)	6	6	5	32

E. Fair Value Measurements

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1:	Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:	Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:	Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of June 30, 2018, the Company’s investments were primarily in money market funds, U.S. Treasury securities, government-sponsored enterprise securities, corporate equity securities, corporate debt securities and commercial paper. Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its condensed consolidated statement of operations.

As of June 30, 2018, all of the Company’s financial assets and liabilities that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, U.S. Treasury securities, government-sponsored enterprise securities and corporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of corporate debt securities and commercial paper, which consisted of investments in highly-rated investment-grade corporations, and foreign currency forward contracts with reputable and creditworthy counterparties. During the three and six months ended June 30, 2018 and 2017, the Company did not record any other-than-temporary impairment charges related to its financial assets.

The following table sets forth the Company’s financial assets and liabilities (excluding VIE cash and cash equivalents) subject to fair value measurements:

23

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

	Fair Value Measurements as of June 30, 2018
				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	$	971,044		$	971,044	$	—		$	—
Government-sponsored enterprise securities	10,982			10,982		—			—
Commercial paper	21,263			—		21,263			—
Marketable securities:
Corporate equity securities	242,775			242,775		—			—
U.S. Treasury securities	11,020			11,020		—			—
Government-sponsored enterprise securities	2,491			2,491		—			—
Corporate debt securities	232,704			—		232,704			—
Commercial paper	133,406			—		133,406			—
Prepaid and other current assets:
Foreign currency forward contracts	10,812			—		10,812			—
Other assets:
Foreign currency forward contracts	1,451			—		1,451			—
Total financial assets	$	1,637,948		$	1,238,312	$	399,636		$	—
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts	$	(1,948	)	$	—	$	(1,948	)	$	—
Other liabilities, excluding current portion:
Foreign currency forward contracts	(299		)	—		(299		)	—
Total financial liabilities	$	(2,247	)	$	—	$	(2,247	)	$	—

24

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

	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 securities	12,678			12,678		—			—
Commercial paper	57,357			—		57,357			—
Marketable securities:
Corporate equity securities	74,821			74,821		—			—
Government-sponsored enterprise securities	2,303			2,303		—			—
Corporate debt securities	265,867			—		265,867			—
Commercial paper	80,263			—		80,263			—
Prepaid and other current assets:
Foreign currency forward contracts	13			—		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	)	$	—

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of the Company’s financial assets and liabilities.

The Company’s VIE invested in cash equivalents consisting of U.S. Treasury securities of $5.0 million as of June 30, 2018, which are valued based on Level 1 inputs. These cash equivalents are not included in the table above. The Company’s noncontrolling interest related to the Company’s VIE includes the fair value of the contingent payments, which could consist of milestone, royalty and option payments, which are valued based on Level 3 inputs. Please refer to Note C, “Collaborative Arrangements and Acquisitions,” for further information.

F. Marketable Securities and Equity Investments

Pursuant to the adoption of ASU 2016-01 on January 1, 2018, the Company began recording changes in the fair value of its investments in corporate equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) to “Other income (expense), net” in the Company’s condensed consolidated statements of operations. Prior to its adoption of ASU 2016-01, the Company recorded changes in the fair value of its investments in corporate equity securities to “Accumulated other comprehensive loss” on its condensed consolidated balance sheet until the related gains or losses were realized. The Company continues to record unrealized gains (losses) on available-for-sale debt securities as a component of accumulated other comprehensive income (loss) until such gains and losses are realized.

25

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

A summary of the Company’s cash equivalents and marketable securities is shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
As of June 30, 2018
Cash equivalents:
Money market funds	$	971,044	$	—	$	—		$	971,044
Government-sponsored enterprise securities	10,981		1		—			10,982
Commercial paper	21,270		—		(7		)	21,263
Total cash equivalents	1,003,295		1		(7		)	1,003,289
Marketable securities:
U.S. Treasury securities (matures within 1 year)	11,022		—		(2		)	11,020
Government-sponsored enterprise securities (matures within 1 year)	2,491		—		—			2,491
Corporate debt securities (matures within 1 year)	178,692		—		(564		)	178,128
Corporate debt securities (matures after 1 year through 5 years)	54,613		1		(38		)	54,576
Commercial paper (matures within 1 year)	133,478		4		(76		)	133,406
Total marketable debt securities	380,296		5		(680		)	379,621
Corporate equity securities	64,713		178,062		—			242,775
Total marketable securities	$	445,009	$	178,067	$	(680	)	$	622,396
As of December 31, 2017
Cash equivalents:
Money market funds	$	614,951	$	—	$	—		$	614,951
Government-sponsored enterprise securities	12,679		—		(1		)	12,678
Commercial paper	57,371		—		(14		)	57,357
Total cash equivalents	685,001		—		(15		)	684,986
Marketable securities:
Government-sponsored enterprise securities (matures within 1 year)	2,304		—		(1		)	2,303
Corporate debt securities (matures within 1 year)	215,639		—		(363		)	215,276
Corporate debt securities (matures after 1 year through 5 years)	50,697		—		(106		)	50,591
Commercial paper (matures within 1 year)	80,372		—		(109		)	80,263
Total marketable debt securities	349,012		—		(579		)	348,433
Available-for-sale corporate equity securities	43,213		31,608		—			74,821
Total marketable securities	$	392,225	$	31,608	$	(579	)	$	423,254

Available-for-sale debt securities were recorded in the Company's condensed consolidated balance sheets as follows:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Cash and cash equivalents	$	1,003,289	$	684,986
Marketable securities	379,621		348,433
Total	$	1,382,910	$	1,033,419

The Company has a limited number of available-for-sale debt securities in insignificant loss positions as of June 30, 2018, which it does not intend to sell and has concluded it will not be required to sell before recovery of the amortized costs for the investments at maturity. The Company did not record any charges for other-than-temporary declines in the fair value of available-for-sale debt securities or gross realized gains or losses in the three and six months ended June 30, 2018 and 2017.

26

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities. During the three and six months ended June 30, 2018, the Company recorded an aggregate unrealized gain of $53.9 million and $149.4 million, respectively, related to its investments in corporate equity securities, as follows:

• $53.9 million and $146.5 million, respectively, related to its equity investment in CRISPR, a publicly traded company. The CRISPR common stock held by the Company has a readily determinable fair value that is recorded in “Marketable securities” on the Company’s condensed consolidated balance sheets. In January 2018, the Company purchased an additional $21.5 million of CRISPR’s common shares.

• Zero and $2.9 million, respectively, related to its equity investment in Moderna, which is not a publicly traded company that has a readily determinable fair value for its stock. The Company increased the carrying value of its investment in Moderna, which is recorded in “Other assets” on its condensed consolidated balance sheets, to $23.0 million as of June 30, 2018 based on an observable price increase for additional shares privately issued by Moderna in an orderly transaction between market participants in the first quarter of 2018.

G. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component:

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2017	$	(21,031	)	$	(594	)	$	25,069		$	(15,016	)	$	(11,572	)
Other comprehensive income before reclassifications	6,141			(87		)	—			15,352			21,406
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			9,681			9,681
Net current period other comprehensive income (loss)	$	6,141		$	(87	)	$	—		$	25,033		$	31,087
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	949			—			(25,069		)	—			(24,120		)
Balance at June 30, 2018	$	(13,941	)	$	(681	)	$	—		$	10,017		$	(4,605	)

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2016	$	(7,862	)	$	(10	)	$	17,531		$	11,514		$	21,173
Other comprehensive (loss) income before reclassifications	(7,253		)	(236		)	(13,511		)	(17,215		)	(38,215		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			(4,711		)	(4,711		)
Net current period other comprehensive (loss) income	$	(7,253	)	$	(236	)	$	(13,511	)	$	(21,926	)	$	(42,926	)
Balance at June 30, 2017	$	(15,115	)	$	(246	)	$	4,020		$	(10,412	)	$	(21,753	)

27

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

H. Hedging

Foreign currency forward contracts - Designated as hedging instruments

The Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’s forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under GAAP having contractual durations from one to eighteen months. The Company recognizes realized gains and losses for the effective portion of such contracts in “Product revenues, net” in its condensed consolidated statements of operations in the same period that it recognizes the product revenues that were impacted by the cash flow hedge contracts.

The Company formally documents the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as the Company’s risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If the Company were to determine that a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, the Company would discontinue hedge accounting treatment prospectively. The Company measures effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of June 30, 2018, all hedges were determined to be highly effective, and the Company has not recorded any ineffectiveness related to its hedging program since its inception.

The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of June 30, 2018 and December 31, 2017, credit risk did not change the fair value of the Company’s foreign currency forward contracts.

The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP:

	As of June 30, 2018		As of December 31, 2017
Foreign Currency	(in thousands)
Euro	$	317,429	$	257,230
British pound sterling	71,288		77,481
Australian dollar	31,853		30,501
Canadian dollar	32,789		—
Total foreign currency forward contracts	$	453,359	$	365,212

Foreign currency forward contracts - Not designated as hedging instruments

The Company also enters into foreign exchange forward contracts with contractual maturities of less than one month designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under GAAP. The Company recognizes realized gains and losses for such contracts in “Other income (expense), net” in its condensed consolidated statements of operations each period. As of June 30, 2018, the notional amount of foreign exchange contracts where hedge accounting under GAAP is not applied was $90.4 million.

28

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	(2,675	)	$	1,973	$	(9,159	)	$	6,752
Not designated as hedging instruments
Other income (expense), net	$	(4,152	)	$	5,304	$	(2,614	)	$	8,823

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts included on its condensed consolidated balance sheets:

As of June 30, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	10,812	Other liabilities, current portion	$	(1,948	)
Other assets	1,451		Other liabilities, excluding current portion	(299		)
Not designated as hedging instruments
Prepaid expenses and other current assets	206		Other liabilities, current portion	—
Total assets	$	12,469	Total liabilities	$	(2,247	)

As of December 31, 2017
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	13	Other liabilities, current portion	$	(13,642	)
Other assets	—		Other liabilities, excluding current portion	(866		)
Not designated as hedging instruments
Prepaid expenses and other current assets	—		Other liabilities, current portion	(684		)
Total assets	$	13	Total liabilities	$	(15,192	)

As of June 30, 2018, the Company expects amounts that are related to foreign exchange forward contracts designated as cash flow hedges under GAAP recorded in “Prepaid expenses and other current assets” and “Other liabilities, current portion” to be reclassified to earnings within twelve months.

The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under GAAP on the Company’s condensed consolidated balance sheets:

	As of June 30, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	12,263		$	—	$	12,263		$	(2,247	)	$	10,016
Total liabilities	$	(2,247	)	$	—	$	(2,247	)	$	2,247		$	—

29

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

	As of December 31, 2017
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	13		$	—	$	13		$	(13	)	$	—
Total liabilities	$	(14,508	)	$	—	$	(14,508	)	$	13		$	(14,495	)

I. Inventories

Inventories consisted of the following:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Raw materials	$	16,124	$	20,924
Work-in-process	74,818		74,237
Finished goods	24,083		16,669
Total	$	115,025	$	111,830

J. Intangible Assets and Goodwill

Intangible Assets

As of June 30, 2018 and December 31, 2017, the Company had $29.0 million of in-process research and development intangible assets recorded on the Company’s condensed consolidated balance sheet related to VX-210, that is licensed by BioAxone to the Company.

Goodwill

As of June 30, 2018 and December 31, 2017, goodwill of $50.4 million was recorded on the Company’s condensed consolidated balance sheet.

K. Long-term Obligations

Construction Financing Lease Obligation

As a result of the Company being involved in the construction of several of its leased buildings in Boston and San Diego, the Company was deemed for accounting purposes to be the owner of these buildings during their construction periods and recorded project construction costs incurred by its landlords. Upon completion of these buildings, the Company determined that the underlying leases did not meet the criteria for “sale-leaseback” treatment. Accordingly, the Company depreciates the lease assets and records interest expense associated with the financing obligations for these buildings. The Company bifurcates the lease payments pursuant to these 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. The portion of the lease obligations allocated to the land is treated as an operating lease.

Fan Pier Leases

In 2011, the Company entered into two lease agreements, pursuant to which the Company leases approximately 1.1 million square feet of office and laboratory space in two buildings (the “Fan Pier Buildings”) at Fan Pier in Boston, Massachusetts (the “Fan Pier Leases”). The Company commenced lease payments in 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 of the Fan Pier Leases for an additional ten years.

30

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

San Diego Lease

In December 2015, the Company entered into a lease agreement for 3215 Merryfield Row, San Diego, California with ARE-SD Region No. 23, LLC (the “San Diego Building”). Pursuant to this agreement, the Company agreed to lease approximately 170,000 square feet of office and laboratory space in San Diego, California (“San Diego Lease”) for a term of 16 years. 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, excluding operating expenses. The Company has the option to extend the lease term for up to two additional five-year terms.

In the second quarter of 2018, the Company determined that the San Diego lease did not meet the criteria for “sale-leaseback” treatment when construction of the San Diego Building was completed. The Company based this determination on, among other things, its continuing involvement with the property in the form of non-recourse financing to the lessor. Accordingly, the Company began depreciating the asset and incurring interest expense related to the financing obligation during the second quarter of 2018. The portion of the lease obligations allocated to the land is treated as an operating lease that commenced in the fourth quarter of 2016.

Property and equipment, net and the carrying value of the Company’s construction financing lease obligation (including current and non-current portions and excluding interest that will be imputed over the course of the Company’s underlying lease agreements for these buildings) related to the Fan Pier Buildings and the San Diego Building were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Property and equipment, net
Fan Pier Buildings	$	469,508	$	475,725
San Diego Building	$	116,738	$	94,602
Construction financing lease obligation
Fan Pier Buildings	$	471,797	$	472,070
San Diego Building	$	93,879	$	87,392

Revolving Credit Facility

In October 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and the lenders 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 request that the borrowing capacity under the Credit Agreement be increased by an additional $300.0 million. The Credit Agreement matures on October 13, 2021.

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 Credit Agreement, 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% to 2.50%, 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 of the Company’s domestic subsidiaries (excluding intellectual property, owned and leased real property and certain other excluded property) and by the equity interests of the Company’s subsidiaries, subject to certain exceptions. Under the terms of the Credit Agreement, the Company must maintain, subject to certain limited exceptions, a consolidated leverage ratio of 3.00 to 1.00 and consolidated EBITDA of at least $200.0 million, in each case measured on a quarterly basis.

The Credit Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The Credit Agreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.

31

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

L. Stock-based Compensation Expense and Share Repurchase

Stock-based compensation expense

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following stock-based compensation expense:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Stock-based compensation expense by type of award:
Stock options	$	28,591		$	27,915		$	54,646		$	54,896
Restricted stock and restricted stock units (including PSUs)	51,497			43,906			101,915			84,651
ESPP share issuances	2,428			2,246			4,556			4,310
Stock-based compensation expense related to inventories	(80		)	(972		)	(545		)	(1,323		)
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534
Stock-based compensation expense by line item:
Cost of sales	$	1,191		$	513		$	2,004		$	970
Research and development expenses	51,612			43,832			100,100			88,669
Sales, general and administrative expenses	29,633			28,750			58,468			52,895
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534

The following table sets forth the Company’s unrecognized stock-based compensation expense as of June 30, 2018, by type of award and the weighted-average period over which that expense is expected to be recognized:

	As of June 30, 2018
	Unrecognized Expense		Weighted-average Recognition Period
	(in thousands)		(in years)
Type of award:
Stock options	$	169,237	2.65
Restricted stock and restricted stock units (including PSUs)	$	343,132	2.57
ESPP share issuances	$	5,777	0.63

32

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2018:

	Options Outstanding				Options Exercisable
Range 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)
$26.73–$40.00	707	1.37	$	34.48	707	$	34.48
$40.01–$60.00	557	4.01	$	49.57	557	$	49.57
$60.01–$80.00	615	5.75	$	75.16	603	$	75.15
$80.01–$100.00	3,441	7.70	$	89.36	1,336	$	90.09
$100.01–$120.00	874	6.61	$	109.28	613	$	109.17
$120.01–$140.00	1,034	7.13	$	130.42	702	$	130.36
$140.01–$160.00	1,500	9.59	$	155.52	132	$	155.02
$160.01–$163.74	584	9.02	$	162.94	114	$	162.94
Total	9,312	7.09	$	103.58	4,764	$	87.14

Share repurchase program

The Board of Directors approved a share repurchase program, pursuant to which the Company is authorized to repurchase up to $500.0 million of its common stock between February 1, 2018 and December 31, 2019. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may be made pursuant to Rule 10b5-1 plans or other means as determined by the Company’s management and in accordance with the requirements of the SEC.

During the six months ended June 30, 2018, the Company repurchased 767,551 shares of its common stock under the share repurchase program for an aggregate of $119.0 million (of which $4.0 million was accrued as of June 30, 2018), including commissions and fees. The Company expects to fund further repurchases of its common stock through a combination of cash on hand and cash generated by operations.

M. Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. For the three and six months ended June 30, 2018, the Company recorded a provision for income taxes of $10.3 million and a benefit from income taxes of $2.3 million, respectively. The provision for income taxes for the three months ended June 30, 2018 included $5.0 million related to the reversing effect of discrete items associated with stock-based compensation and $5.7 million related to the Company’s U.S. state and foreign taxes partially offset by a benefit from income taxes of $0.4 million related to BioAxone’s income taxes. The benefit from income taxes for the six months ended June 30, 2018 included $16.8 million from discrete items related to stock-based compensation partially offset by provisions for income taxes of $6.0 million related to BioAxone’s income taxes and $8.5 million related to the Company’s U.S. state and foreign taxes. The Company has no liability for taxes payable by BioAxone and the income tax provision and related liability have been allocated to noncontrolling interest. For the three and six months ended June 30, 2017, the Company recorded a provision for income taxes of $4.3 million and $8.3 million, respectively, which included $8.1 million and $8.5 million, respectively, primarily related to Parion’s income taxes.

As of June 30, 2018 and December 31, 2017, the Company has unrecognized tax benefits of $5.9 million and $3.8 million, respectively. The Company recognizes interest and penalties related to income taxes as a component of income tax expense. As of June 30, 2018, no interest and penalties have been accrued. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company did not recognize any material interest or penalties related to uncertain tax positions as of June 30, 2018 and December 31, 2017.

The Company maintains a valuation allowance on the majority of its net operating losses and other deferred tax assets.  Accordingly, the Company has not reported any benefits from income taxes relating to the remaining net operating losses and

33

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

income tax credit carryforwards that will be utilized in future periods in those jurisdictions in which a valuation allowance is recorded.  

On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets, weighing positive and negative evidence 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 December 31, 2017. After assessing both the negative and positive evidence, the Company concluded that it should maintain the valuation allowance on its net operating losses and the majority of its other deferred tax assets as of December 31, 2017. The Company may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to, among other things, the Company’s level of profitability, revenue growth, clinical program progression and expectations regarding future profitability. The Company’s total deferred tax asset balance subject to the valuation allowance was approximately $1.6 billion at December 31, 2017.

As described in Note A, “Basis of Presentation and Accounting Policies,” the Company adopted amended guidance on the recognition of the deferred tax effects of intra-entity transfers of assets other than inventory, effective January 1, 2018. In connection with the adoption of this new standard, the Company recorded a deferred tax asset and corresponding full valuation allowance of $204.7 million equal to the unamortized cost of intellectual property rights transferred to the United Kingdom in 2014 multiplied by an appropriate statutory rate. As a result, there was no cumulative effect adjustment to accumulated deficit using the modified-retrospective adoption approach.

In December 2017, the SEC staff issued SAB 118 to address the application of GAAP in situations when a registrant does not have the necessary information 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 and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company has an accumulated deficit from its foreign operations and does not have an associated liability from the repatriation tax on accumulated earnings in H.R.1. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, 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 is expected to be complete no later than one year from the enactment of H.R.1 in the fourth quarter of 2018.

As of June 30, 2018, foreign earnings, which were not significant, have been retained indefinitely by foreign subsidiary companies for reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.

The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the U.S. or any other major taxing jurisdiction for years before 2014, except where the Company has net operating losses or tax credit carryforwards that originate before 2014. The Company currently is under examination in Canada for 2011 through 2013, Germany for 2012 through 2015 and Italy for 2015 and 2016. No adjustments have been reported. The Company is not under examination by any other jurisdictions for any tax year.

N. Restructuring Liabilities

The Company has adopted several plans to restructure its facilities and operations for which it has incurred restructuring expenses. During the three and six months ended June 30, 2018, the Company’s restructuring expenses were not significant. During the six months ended June 30, 2017, the Company’s restructuring expenses primarily related to its decision to consolidate its research activities into its Boston, Milton Park and San Diego locations commencing in February 2017. The Company closed its research site in Canada as a result of this decision affecting approximately 70 positions. As of June 30, 2018, the restructuring liability associated with this event primarily relates to the lease for the research site in Canada that

34

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

terminates in October 2018 and is not material to the Company’s condensed consolidated balance sheet. The Company does not anticipate any significant additional charges related to this restructuring event in the future.

O. Commitments and Contingencies

Guaranties and Indemnifications

As permitted under Massachusetts law, the Company’s Articles of Organization and By-laws provide that the Company will indemnify certain of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased directors’ and officers’ liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. No indemnification claims currently are outstanding, and the Company believes the estimated fair value of these indemnification arrangements is minimal.

The Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trial investigators and sites in its drug development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for the Company and its real estate leases. The Company also customarily agrees to certain indemnification provisions in its drug discovery, development and commercialization collaboration agreements. With respect to the Company’s clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations arising out of the research or clinical testing of the Company’s compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by the Company or to certain breaches of the Company’s contractual obligations. The indemnification provisions appearing in the Company’s collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although the Company believes the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these provisions is generally unlimited. The Company has purchased insurance policies covering personal injury, property damage and general liability that reduce its exposure for indemnification and would enable it in many cases to recover all or a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.

Other Contingencies

The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no material contingent liabilities accrued as of June 30, 2018 or December 31, 2017.

35

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

OVERVIEW

We invest in scientific innovation to create transformative medicines for serious diseases. Our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis, or CF, and advancing our research and development programs in other diseases. Our marketed products are KALYDECO (ivacaftor), ORKAMBI (lumacaftor in combination with ivacaftor) and SYMDEKO (tezacaftor in combination with ivacaftor), which are collectively approved to treat approximately 45% of the 75,000 CF patients in North America, Europe and Australia.

Cystic Fibrosis

Current Medicines

KALYDECO is approved for the treatment of approximately 6,000 CF patients who have the G551D mutation or other specified mutations in their cystic fibrosis transmembrane conductance regulator, or CFTR, gene. ORKAMBI is approved as a treatment for approximately 28,000 patients who have two copies of the F508del mutation, or F508del homozygous, in their CFTR gene. SYMDEKO was approved by the United States Food and Drug Administration, 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 at least one mutation that is responsive to tezacaftor/ivacaftor and by Health Canada in June 2018 for the treatment of patients with CF twelve years of age and older who are F508del homozygous or who have other specified mutations in their CFTR gene. SYMDEKO provides an additional treatment option to CF patients who were already eligible for either KALYDEKO or ORKAMBI. We expect the European Medicines Agency, or EMA, to complete its review of the Marketing Authorization Application, or MAA, we submitted for tezacaftor in combination with ivacaftor in the second half of 2018. We use the brand name of a product only when we refer to the product that has been approved and with respect to the indications on the approved label. Otherwise, we use the scientific (or generic) name of the applicable compound or compounds comprising a drug candidate.

We continuously seek to increase the number of patients eligible to receive our medicines through label expansions. Activities in support of this effort include the following:

• We have submitted a supplemental new drug application, or sNDA, to the FDA and an MAA line extension to the EMA for ivacaftor in patients with CF 12 months to two years of age. The target date for the FDA to complete its review of the sNDA under the Prescription Drug User Fee Act, or PDUFA, is August 15, 2018. We expect the EMA to complete its review in the first half of 2019.

• We have submitted a new drug application, or NDA, to the FDA and an MAA line extension to the EMA for lumacaftor in combination with ivacaftor in patients with CF two to five years of age. The target date for the FDA to complete its review of the NDA under PDUFA is August 7, 2018. We expect the EMA to complete its review in the first half of 2019.

• We have completed enrollment in a Phase 3 clinical trial evaluating tezacaftor in combination with ivacaftor in patients with CF six to eleven years of age who are F508del homozygous or who have at least one mutation in their CFTR gene that is responsive to tezacaftor/ivacaftor.  We expect to receive data from this clinical trial in the second half of 2018.

• We are evaluating ivacaftor in a Phase 3 clinical trial in patients with CF six to 12 months of age. We expect to receive data from this clinical trial in the second half of 2018.

• We expect to commence a Phase 3 clinical trial evaluating lumacaftor in combination with ivacaftor in patients with CF 12 months to two years of age in the second half of 2018.

Next-generation CFTR Corrector Compounds

We have initiated Phase 3 clinical trials for two next-generation corrector compounds, VX-659 and VX-445, as part of separate triple combination regimens with tezacaftor and ivacaftor. Each of the VX-659 and VX-445 Phase 3 development programs is comprised of two clinical trials. The first clinical trial in each program will enroll approximately 360 patients with CF twelve years of age and older who have one copy of the F508del mutation in their CFTR gene and a second mutation that results in minimal CFTR function, who we refer to as F508del/Min patients. The primary efficacy endpoint of the first clinical trial in each program is the mean absolute change from baseline in percent predicted forced expiratory volume in one second, or ppFEV1, at week four of treatment with the triple combination regimen versus placebo. The second clinical trial in each program will enroll approximately 100 F508del homozygous patients twelve years of age and older. The primary efficacy endpoint of the second clinical trial in each program is the mean absolute change from baseline in ppFEV1 at week

36

four of treatment with the triple combination regimen compared to tezacaftor in combination with ivacaftor. The clinical trials are designed to support the approval for the respective triple combination regimen in the respective patient populations using data from the primary efficacy endpoints and 12- or 24-week safety data. We expect to complete enrollment of the Phase 3 clinical programs for VX-445 and VX-659 in the second half of 2018. Based on the anticipated completion of enrollment for the Phase 3 programs, we expect to submit an NDA to the FDA no later than mid-2019.

We believe the triple combination regimens we are evaluating could potentially provide benefits to all CF patients who have at least one F508del mutation in their CFTR gene (approximately 90% of all CF patients). This would include (i) the first treatment option that treats the underlying cause of CF for F508del/Min patients, and (ii) an additional treatment option for patients with CF who are eligible for KALYDECO, ORKAMBI and/or SYMDEKO.

In the second quarter of 2018, we announced positive clinical data from (i) a Phase 2 clinical trial arm evaluating VX-561 in combination with ivacaftor and VX-659 and (ii) a Phase 2 clinical trial arm evaluating VX-561 in combination with ivacaftor and VX-445. Pending discussions with the FDA, we are planning to conduct additional dose-ranging with VX-561 to support potential late-stage development of future once-daily triple combination regimens.

Research and Development

We have a number of ongoing research and development programs in other diseases that we are conducting independently or in collaboration with third parties. This includes development of VX-150 as a treatment for pain and VX-210 as a treatment for acute spinal cord injury. Based on data from a Phase 1 clinical trial, we are no longer evaluating VX-128 as a treatment for pain. We are co-developing CTX001, an investigational gene editing treatment, for the treatment of beta-thalassemia and sickle cell disease, with CRISPR Therapeutics AG, or CRISPR. We and CRISPR have obtained approval in the United Kingdom and Canada of a clinical trial application, or CTA, for CTX001 for the treatment of beta-thalassemia. We expect a Phase 1/2 clinical trial of CTX001 in adult patients with transfusion dependent beta-thalassemia to be initiated in the second half of 2018. We and CRISPR have also obtained approval in the United Kingdom and Canada of a CTA for the treatment of sickle cell disease. In May 2018, the FDA placed a clinical hold on the investigational new drug application, or IND, for CTX001 for the treatment of sickle cell disease pending the resolution of certain questions provided by the FDA as part of its review of the IND. We are working with CRISPR to reach resolution with the FDA on the FDA’s questions to support the potential initiation of a Phase 1/2 clinical trial.

We plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines for people with serious diseases. In addition to continuing our research in cystic fibrosis, pain and hemoglobinopathies, our current internal research programs include programs targeting alpha-1 antitrypsin deficiency, focal segmental glomerulosclerosis and polycystic kidney disease. To supplement our internal research programs, we seek to collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations as needed to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy. We believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years.

Drug Discovery and Development

Discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluations, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated as potential drug candidates never progress into development, and most drug candidates that do advance into development never receive marketing approval. Because our investments in drug candidates are subject to considerable risks, we closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in abrupt changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

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 to market the drug candidate in the United States and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions. To obtain approval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture of the drug candidate are adequate. The FDA and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate

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should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for the drug candidate involved will be harmed.

Regulatory Compliance

Our marketing of pharmaceutical products is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems, and through the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state laws, and comparable foreign laws, pertaining to health care fraud and abuse, including anti-kickback and false claims laws, and laws prohibiting the promotion of drugs for unapproved or off-label uses. Anti-kickback laws 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 knowingly or willfully presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. We are subject to laws and regulations that regulate the sales and marketing practices of pharmaceutical manufacturers, as well as laws such as the U.S. Foreign Corrupt Practices Act that govern our international 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.

Reimbursement

Sales of our products depend, to a large degree, on the extent to which our products are covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations. We dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the 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 with government health programs that are typically managed by authorities in the individual states. In Europe and other ex-U.S. markets, we are seeking government reimbursement for ORKAMBI on a country-by-country basis, because in many foreign countries patients are unable to access prescription pharmaceutical 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 our medicines. We successfully obtained reimbursement for KALYDECO in each significant ex-U.S. market within two years of approval. Since we obtained approval for ORKAMBI in 2015, we have experienced significant challenges in obtaining reimbursement for ORKAMBI in ex-U.S. markets. To date, we have reached a pricing and reimbursement agreement for ORKAMBI in several European countries, including Germany, Ireland, Sweden and Italy, but remain in negotiations with a number of other European countries that represent significant potential markets for ORKAMBI, including the United Kingdom and France. We have innovative reimbursement arrangements in place in certain ex-U.S. jurisdictions, such as Ireland, that will allow rapid access to tezacaftor in combination with ivacaftor, if approved, and ORKAMBI and KALYDECO for younger patients. However, in most significant markets we will need to obtain country-by-country reimbursement for each new medicine and each label expansion for a current medicine.

Collaboration Arrangements and Strategic Investments

In-License Agreements

We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates or technologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with:

• CRISPR, pursuant to which we are collaborating on the discovery and development of potential new treatments aimed at the underlying genetic 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, pursuant to which we are evaluating VX-210 as a potential treatment for patients who have spinal cord injuries; and

• Parion Sciences, Inc., or Parion, pursuant to which we are developing epithelial sodium channel, or ENaC, inhibitors for the treatment of pulmonary diseases.

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Generally, when we in-license a technology or drug candidate, we make upfront payments to the collaborator, assume the costs of the program and agree to make contingent payments, which could consist of milestone, royalty and option payments. Depending on many factors, including the structure of the collaboration, the significance of the drug candidate that we license to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. For example, the upfront payments and expenses incurred in connection with our CRISPR and Moderna collaborations are being expensed as research expenses because the collaboration represents a small portion of each of these collaborator’s overall business. CRISPR and Moderna’s activities unrelated to our collaborations have no effect on our consolidated financial statements. Parion and BioAxone have historically been accounted for as variable interest entities, or VIEs, and historically have been included in our consolidated financial statements due to (i) the significance of the respective licensed programs to Parion and BioAxone as a whole, (ii) our power to control the significant activities under each collaboration and (iii) our obligation to absorb losses and right to receive benefits that potentially could be significant. As of September 30, 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-371 that did not meet its primary efficacy endpoint. As a result, we deconsolidated Parion from our consolidated financial statements as of September 30, 2017. BioAxone continues to be accounted for as a VIE and remains included in our consolidated financial statements as of June 30, 2018.

Collaborators we account for as a VIE may engage in activities unrelated to our collaboration. The revenues and expenses unrelated to the programs we in-license from our VIEs have historically been immaterial to our consolidated financial statements. With respect to each of Parion, prior to its deconsolidation as of September 30, 2017, and BioAxone, the activities unrelated to our collaborations with these entities have represented approximately 2% 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 in future 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 value of these contingent future payments affect net income attributable to Vertex on a dollar-for-dollar basis, with increases in the fair value of contingent payments 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 in the 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 attributable to Vertex). For additional information regarding our VIEs see Note C, “Collaborative Arrangements and Acquisitions,” and our critical accounting policies in our 2017 Annual Report on Form 10-K.

Out-License Agreements

We also out-licensed internally developed programs to collaborators who are leading the development of these programs. These outlicense arrangements include our collaboration agreements with:

• Janssen Pharmaceuticals, Inc., or Janssen, Inc., which is developing pimodivir (formerly VX-787) for the treatment of influenza; and

• Merck KGaA, which licensed four oncology research and development programs from us in early 2017.

Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development and commercialization costs associated with these programs and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative and/or royalty revenues resulting from these programs.

Strategic Investments

In connection with our business development activities, we have periodically made equity investments in our collaborators. As of June 30, 2018 and December 31, 2017, we held strategic equity investments in CRISPR, a public company, and Moderna, a private company, and we may make additional strategic equity investments in the future. While our general investment strategy is focused on capital preservation, our strategic investments are maintained and managed separately from our other cash, cash equivalents and marketable securities.

Until December 31, 2017, changes in the fair value of these strategic investments were reflected on our balance sheet, but did not affect our net income until the related gains or losses were realized. As a result of new accounting guidance, effective January 1, 2018, any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities such as CRISPR) are recorded to other income (expense), net in our condensed consolidated statement of operations. For equity investments without readily determinable fair values (including private equity investments such as Moderna), each reporting period we are required to re-evaluate the carrying value of the investment, which may result in other income (expense).

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In the second quarter and first half of 2018, we recorded other income, net of $53.9 million and $146.5 million, respectively, related to the increase in the fair value of our investment in CRISPR, which is included in net income attributable to Vertex. To the extent that we continue to hold strategic investments and in particular strategic investments in publicly traded companies, we will record on a quarterly basis other income (expense) related to these strategic investments. Due to the high volatility of stocks in the biotechnology industry, we expect the value of these strategic investments to fluctuate and that the increases or decreases in the fair value of these strategic investments may have a material impact on our net income (expense) and our profitability under GAAP on a quarterly and/or annual basis.

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RESULTS OF OPERATIONS

	Three Months Ended June 30,					Increase/(Decrease)				Six Months Ended June 30,					Increase/(Decrease)
	2018		2017			$		%		2018		2017			$		%
	(in thousands)									(in thousands)
Revenues	$	752,157	$	544,135		$	208,022	38	%	$	1,392,956	$	1,258,853		$	134,103	11	%
Operating costs and expenses	579,279		491,428			87,851		18	%	1,091,177		935,304			155,873		17	%
Other items, net	34,482		(34,711		)	69,193		n/a		115,844		(57,797		)	173,641		n/a
Net income attributable to Vertex	$	207,360	$	17,996		$	189,364	n/a		$	417,623	$	265,752		$	151,871	57	%
Net income per diluted share attributable to Vertex common shareholders	$	0.80	$	0.07						$	1.61	$	1.06
Diluted shares used in per share calculations	258,584		251,635							258,557		250,199

Net Income Attributable to Vertex

Net income attributable to Vertex was $207.4 million in the second quarter of 2018 as compared to net income attributable to Vertex of $18.0 million in the second quarter of 2017. Net income attributable to Vertex in the second quarter of 2018 reflected increases in CF net product revenues of $235.9 million as compared to the second quarter of 2017. The increase in operating costs and expenses in the second quarter of 2018 as compared to the second quarter of 2017 was due to increases in cost of sales, research and development expenses and sales, general and administrative expenses.

Net income attributable to Vertex was $417.6 million in the first half of 2018 as compared to net income attributable to Vertex of $265.8 million in the first half of 2017. Our total revenues increased in the first half of 2018 as compared to the first half of 2017 primarily due to a $393.0 million increase in CF net product revenues partially offset by $230.0 million in one-time collaborative revenues in the first quarter of 2017 related to an upfront payment from Merck KGaA. The increase in operating costs and expenses in the first half of 2018 as compared to the first half of 2017 included increases in cost of sales, research and development expenses and sales, general and administrative expenses partially offset by a decrease in restructuring expenses.

Other items, net, in the second quarter and first half of 2018 primarily related to unrealized gains of $53.9 million and $146.5 million, respectively, associated with an increase in the fair value of our investment in CRISPR. These unrealized gains are included in other items, net due to new accounting guidance that became effective on January 1, 2018. Other items, net, in the second quarter and first half of 2017 primarily related to interest expense and income attributable to noncontrolling interest.

Diluted Net Income Per Share Attributable to Vertex Common Shareholders

Diluted net income per share attributable to Vertex common shareholders was $0.80 in the second quarter of 2018 as compared to diluted net income per share attributable to Vertex common shareholders of $0.07 in the second quarter of 2017.

Diluted net income per share attributable to Vertex common shareholders was $1.61 in the first half of 2018 as compared to diluted net income per share attributable to Vertex common shareholders of $1.06 in the first half of 2017.

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Revenues

	Three Months Ended June 30,				Increase/(Decrease)					Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$			%		2018		2017		$			%
	(in thousands)									(in thousands)
Product revenues, net	$	749,912	$	513,988	$	235,924		46	%	$	1,387,641	$	994,610	$	393,031		40	%
Royalty revenues	1,085		2,861		(1,776		)	(62	)%	2,441		4,412		(1,971		)	(45	)%
Collaborative revenues	1,160		27,286		(26,126		)	(96	)%	2,874		259,831		(256,957		)	(99	)%
Total revenues	$	752,157	$	544,135	$	208,022		38	%	$	1,392,956	$	1,258,853	$	134,103		11	%

Product Revenues, Net

	Three Months Ended June 30,				Increase/(Decrease)					Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$			%		2018		2017		$		%
	(in thousands)									(in thousands)
KALYDECO	$	253,093	$	189,633	$	63,460		33	%	$	502,632	$	375,348	$	127,284	34	%
ORKAMBI	311,261		324,407		(13,146		)	(4	)%	665,327		619,268		46,059		7	%
SYMDEKO	185,558		—		185,558			n/a		219,682		—		219,682		n/a
Total CF product revenues, net	$	749,912	$	514,040	$	235,872		46	%	$	1,387,641	$	994,616	$	393,025	40	%

In the second quarter and first half of 2018, our total CF net product revenues increased by $235.9 million and $393.0 million, respectively, as compared to the second quarter and first half of 2017. The increase in total CF net product revenues was due to net product revenues from sales of SYMDEKO, which was approved by the FDA in February 2018, and increased KALYDECO net product revenues. We believe that our total CF net product revenues will continue to increase on a quarterly basis during the remainder of 2018, largely driven by continued growth of SYMDEKO.

SYMDEKO net product revenues were $185.6 million and $219.7 million in the second quarter and first half of 2018, respectively. We expect SYMDEKO net product revenues to continue to increase on a quarterly basis for the remainder of 2018 as additional patients initiate treatment. We believe that these additional patients will be comprised of both patients who were not previously receiving treatment with one of our CF medicines and patients who are switching from either ORKAMBI or KALYDECO to SYMDEKO. We expect the EMA to complete its review of the MAA we submitted for tezacaftor in combination with ivacaftor in the second half of 2018, but even if approved, we do not expect to recognize significant net product revenues from sales of tezacaftor in combination with ivacaftor outside of the United States during 2018.

KALYDECO net product revenues increased in the second quarter and first half of 2018 as compared to the second quarter and first half of 2017 primarily due to additional patients being treated with KALYDECO as we completed reimbursement discussions in various ex-U.S. jurisdictions and as we increased the number of patients eligible to receive KALYDECO through label expansions. In the second quarter and first half of 2018, we recognized $91.6 million and $177.8 million, respectively, in ex-U.S. KALYDECO net product revenues as compared to $78.0 million and $162.2 million in the second quarter and first half of 2017, respectively. We expect that quarterly net product revenues from sales of KALYDECO for the remainder of 2018 will be similar to KALYDECO net product revenues from the second quarter of 2018.

The approval of SYMDEKO has had, and we expect it will continue to have, a negative effect on the U.S. net product revenues from ORKAMBI as patients switch from ORKAMBI to SYMDEKO. In the second quarter of 2018, ORKAMBI U.S. net product revenues decreased by $46.7 million as compared to the first quarter of 2018. In the second quarter of 2018, worldwide ORKAMBI net product revenues decreased by $13.1 million as compared to the second quarter of 2017, due to a decrease in U.S. net product revenues, partially offset by an increase in ex-U.S. ORKAMBI net product revenues. In the first half of 2018, worldwide ORKAMBI net product revenues increased by $46.1 million as compared to the first half of 2017 due to an increase in ex-U.S. ORKAMBI net product revenues, partially offset by a decrease in U.S. ORKAMBI net product revenues. In the second quarter and first half of 2018, we recognized approximately $75.7 million and $147.5 million, respectively, in ex-U.S. ORKAMBI net product revenues as compared to $36.3 million and $67.7 million in the second quarter and first half of 2017, respectively.

Our condensed consolidated balance sheet includes $290.5 million collected as of June 30, 2018 in France related to ORKAMBI supplied under early access programs at the invoiced price. Pursuant to revenue recognition guidance that became effective under GAAP on January 1, 2018, we have recognized limited net product revenues to date on sales of ORKAMBI in France due to ongoing pricing discussions regarding the reimbursement rate for ORKAMBI. Please refer to Note A, “Basis of Presentation and Accounting Policies,” for a discussion of the application of the new revenue recognition guidance and to Note

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B, “Revenue Recognition,” for a discussion of our accounting treatment for our early access programs for ORKAMBI in France.

Royalty Revenues

Our royalty revenues were $1.1 million and $2.4 million in the second quarter and first half of 2018, respectively, as compared to $2.9 million and $4.4 million in the second quarter and first half of 2017, respectively. Our royalty revenues consist of revenues related to a cash payment we received in 2008 when we sold our rights to certain HIV royalties. We expect to continue to record royalty revenues related to this payment through the first half of 2019. Other future royalty revenues will be dependent on if, and when, our collaborators, including Janssen, Inc. and Merck KGaA, are able to successfully develop drug candidates that we have outlicensed to them.

Collaborative Revenues

Our collaborative revenues were $1.2 million and $2.9 million in the second quarter and first half of 2018, respectively, as compared to $27.3 million and $259.8 million in the second quarter and first half of 2017, respectively. The decrease in our collaborative revenues during the first half of 2018 as compared to the first half of 2017 was primarily due to revenue recognized related to the one-time $230.0 million upfront payment earned in the first quarter of 2017 from Merck KGaA. The decrease in our collaborative revenues during the second quarter of 2018 as compared to the second quarter of 2017 was primarily due to a $20.0 million upfront payment earned by Parion in the second quarter of 2017 pursuant to a license agreement Parion entered into with a third party. These revenues were included in our condensed consolidated financial statements even though we are not a party to such license agreement and have no economic interest in either the license or the $20.0 million upfront payment because during that period we were consolidating Parion as a VIE. Parion was deconsolidated as a VIE as of September 30, 2017 and future payments received by Parion pursuant to this license agreement will no longer be recognized by us as collaborative revenues. Our collaborative revenues have historically fluctuated significantly from one period to another and may continue to fluctuate in the future.

Operating Costs and Expenses

`	Three Months Ended June 30,				Increase/(Decrease)					Six Months Ended June 30,					Increase/(Decrease)
	2018		2017		$			%		2018			2017		$			%
	(in thousands)									(in thousands)
Cost of sales	$	104,382	$	71,205	$	33,177		47	%	$	175,995		$	118,193	$	57,802		49	%
Research and development expenses	337,532		289,451		48,081			17	%	648,085			563,014		85,071			15	%
Sales, general and administrative expenses	137,303		127,249		10,054			8	%	267,111			240,575		26,536			11	%
Restructuring expenses (income)	62		3,523		(3,461		)	(98	)%	(14		)	13,522		(13,536		)	(100	)%
Total costs and expenses	$	579,279	$	491,428	$	87,851		18	%	$	1,091,177		$	935,304	$	155,873		17	%

Cost of Sales

Our cost of sales primarily consists of 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. Cost of sales also includes a small subroyalty payable to a third party related to royalty revenues that we historically classified under “Royalty Expenses.” Pursuant to our agreement with Cystic Fibrosis Foundation Therapeutics Incorporated, or CFFT, our tiered third-party royalties on sales of SYMDEKO, KALYDECO and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens. As a result of the tiered royalty rate, which resets annually, our cost of sales as a percentage of CF net product revenues are lower at the beginning of each calendar year.

Our cost of sales have been increasing primarily because of increased net product revenues. In the second half of 2018, we expect our cost of sales as a percentage of total CF net product revenues to be similar to the cost of sales as a percentage of total CF net product revenues in the second quarter of 2018.

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Research and Development Expenses

	Three Months Ended June 30,				Increase/(Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$		%		2018		2017		$		%
	(in thousands)								(in thousands)
Research expenses	$	86,015	$	77,222	$	8,793	11	%	$	163,957	$	150,278	$	13,679	9	%
Development expenses	251,517		212,229		39,288		19	%	484,128		412,736		71,392		17	%
Total research and development expenses	$	337,532	$	289,451	$	48,081	17	%	$	648,085	$	563,014	$	85,071	15	%

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

Since January 2015, we have incurred $4.0 billion in research and development expenses associated with drug discovery and development. The successful development of our drug candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may vary substantially according to the type, complexity and novelty of the drug candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available.

In 2017 and the first half of 2018, costs related to our CF programs represented the largest portion of our development costs. Any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and subject to change. We expect the EMA to complete its review of our MAA for tezacaftor in combination with ivacaftor in the second half of 2018. We cannot make a meaningful estimate when, if ever, our other clinical development programs will generate revenues and cash flows.

Research Expenses

	Three Months Ended June 30,				Increase/(Decrease)					Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$			%		2018		2017		$			%
	(in thousands)									(in thousands)
Research Expenses:
Salary and benefits	$	21,245	$	19,508	$	1,737		9	%	$	45,333	$	41,041	$	4,292		10	%
Stock-based compensation expense	16,281		15,034		1,247			8	%	31,041		28,725		2,316			8	%
Laboratory supplies and other direct expenses	14,099		11,824		2,275			19	%	25,015		23,189		1,826			8	%
Outsourced services	10,949		12,077		(1,128		)	(9	)%	18,846		19,414		(568		)	(3	)%
Collaboration and asset acquisition payments	2,251		—		2,251			n/a		2,559		—		2,559			n/a
Infrastructure costs	21,188		18,779		2,409			13	%	41,161		37,909		3,252			9	%
Total research expenses	$	86,013	$	77,222	$	8,791		11	%	$	163,955	$	150,278	$	13,677		9	%

We maintain a substantial investment in research activities. Our research expenses increased by 11% in the second quarter of 2018 as compared to the second quarter of 2017 and increased by 9% in the first half of 2018 as compared to the first half of 2017. We expect to continue to invest in our research programs with a focus on identifying drug candidates with the goal of creating transformative medicines for serious diseases.

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Development Expenses

	Three Months Ended June 30,				Increase/(Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$		%		2018		2017		$		%
	(in thousands)								(in thousands)
Development Expenses:
Salary and benefits	$	53,789	$	46,363	$	7,426	16	%	$	110,791	$	95,334	$	15,457	16	%
Stock-based compensation expense	35,331		28,798		6,533		23	%	69,059		59,944		9,115		15	%
Laboratory supplies and other direct expenses	22,039		16,630		5,409		33	%	36,512		30,643		5,869		19	%
Outsourced services	93,459		88,855		4,604		5	%	178,178		162,040		16,138		10	%
Collaboration and asset acquisition payments	—		—		—		n/a		250		250		—		—	%
Drug supply costs	11,292		1,043		10,249		983	%	19,713		2,992		16,721		559	%
Infrastructure costs	35,609		30,540		5,069		17	%	69,627		61,533		8,094		13	%
Total development expenses	$	251,519	$	212,229	$	39,290	19	%	$	484,130	$	412,736	$	71,394	17	%

Our development expenses increased by 19% in the second quarter of 2018 as compared to the second quarter of 2017 and increased by 17% in the first half of 2018 as compared to the first half of 2017, primarily due to costs associated with ongoing clinical trials, including trials involving our next-generation CFTR corrector compounds that we are evaluating as part of triple combination treatment regimens, as well as an increase in costs associated with an increase in our headcount. We expect our development expenses to increase in the second half of 2018 as compared to the first half of 2018 due to expenses related to the ongoing Phase 3 development of our triple combination regimens.

Sales, General and Administrative Expenses

	Three Months Ended June 30,				Increase/(Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2018		2017		$		%		2018		2017		$		%
	(in thousands)								(in thousands)
Sales, general and administrative expenses	$	137,303	$	127,249	$	10,054	8	%	$	267,111	$	240,575	$	26,536	11	%

Sales, general and administrative expenses increased by 8% in the second quarter of 2018 as compared to the second quarter of 2017 and increased by 11% in the first half of 2018 as compared to the first half of 2017, primarily due to increased global support for KALYDECO and ORKAMBI and costs related to the launch of SYMDEKO in the United States.

Restructuring Expenses (Income)

We recorded restructuring expenses of $62 thousand in the second quarter of 2018 and restructuring income of $14 thousand in the first half of 2018, as compared to restructuring expenses of $3.5 million and $13.5 million in the second quarter and first half of 2017, respectively. The restructuring expenses in the second quarter and first half of 2017 primarily related to our decision to consolidate our research activities into our Boston, Milton Park and San Diego locations and to close our research site in Canada.

Other Items, Net

Interest Expense, Net

Our interest expense, net relates primarily to interest expenses associated with certain of our real estate leases and outstanding debt, if any, partially offset by interest income from the investment of our cash equivalents and marketable securities. Net interest expense was $10.1 million in the second quarter of 2018 as compared to $14.7 million in the second quarter of 2017. The decrease in net interest expense in the second quarter of 2018 was primarily due to an increase in our interest income resulting from an increase in our cash equivalents and marketable securities, partially offset by additional interest expense associated with our lease in San Diego, California that we incurred for the first time in the second quarter of 2018.

Interest expense, net was $21.2 million in the first half of 2018 as compared to $31.4 million in the first half of 2017. The decrease in net interest expense in the first half of 2018 was primarily due to an increase in our interest income resulting from an increase in our cash equivalents and marketable securities and a decrease in interest expense due to the repayment of $300.0

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million outstanding under our revolving credit facility in February 2017, partially offset by additional interest expense associated with our lease in San Diego, California.

For the remainder of 2018, we expect to incur approximately $34 million in imputed interest expenses related to our real estate leases. We expect our imputed interest expenses related to our real estate leases to decrease in 2019 as compared to 2018 based on updated guidance related to aspects of lease accounting that becomes effective in 2019. In addition to the updated accounting guidance, our future net interest expense will also be dependent on whether, and to what extent, we reborrow amounts under our credit facility and the amount of and prevailing market interest rates on our outstanding cash equivalents and marketable securities.

Other Income (Expense), Net

Other income (expense), net was income of $53.8 million and $150.7 million in the second quarter and first half of 2018, respectively, as compared to expense of $2.5 million and $3.1 million in the second quarter and first half of 2017, respectively. Other income (expense), net in the second quarter and first half of 2018 was primarily related to an increase in the fair value of our equity investment in CRISPR of $53.9 million and $146.5 million in the second quarter and first half of 2018, respectively. Accounting guidance, which became effective January 1, 2018, requires that changes in the fair value of our equity investments are recorded in other income (expense), net in our condensed consolidated statement of operations. In prior periods, changes in the fair value of our equity investments were not reflected in our condensed consolidated statement of operations and a gain or loss was only recognized upon a sale of the underlying securities. As a result of the new guidance, our other income (expense), net will fluctuate based on increases or decreases in the fair value of these investments.

Other expense, net in the second quarter and first half of 2017 was primarily due to foreign exchange losses.

Income Taxes

In the second quarter of 2018, we recorded a provision for income taxes of $10.3 million as compared to a provision for income taxes of $4.3 million in the second quarter of 2017. The provision for income taxes in the second quarter of 2018 was primarily due to $5.0 million related to the reversing effect of discrete items associated with stock-based compensation and $5.7 million related to our U.S. state and foreign taxes. The provision for income taxes in the second quarter of 2017 related primarily to income taxes attributable to our VIEs.

In the first half of 2018, we recorded a benefit from income taxes of $2.3 million as compared to a provision for income taxes of $8.3 million in the first half of 2017. The benefit from income taxes in the first half of 2018 was primarily due to $16.8 million related to discrete items associated with stock-based compensation, partially offset by a provision for income taxes of $8.5 million related to our U.S. state and foreign taxes and $6.0 million of income taxes attributable to our VIEs. The provision for income taxes in the first half of 2017 related primarily to income taxes attributable to our VIEs.

Since the adoption of new accounting guidance in 2017, we have been recording discrete tax adjustments associated with stock-based compensation on a quarterly basis. As noted above, we have recorded a net benefit of $16.8 million related to these discrete items in the first half of 2018. In the fourth quarter of 2018, we expect the net benefit from or provision for income taxes recorded in the first three quarters of 2018 related to these adjustments to reverse, resulting in these discrete items having no effect on our annual provision for income taxes. 

As discussed in Note M, “Income Taxes,” we continue to maintain a valuation allowance on the majority of our net operating losses and other deferred tax assets. Due to this valuation allowance, we did not record a significant provision for income taxes in the second quarter and first half of 2018 and 2017. We are profitable from a U.S. federal income tax perspective and have used a portion of our net operating losses to offset this income since becoming profitable. We may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and amount of such release, continue to be subject to, among other things, our level of profitability, our revenue growth, the progress of our clinical programs and expectations regarding future profitability. In the period of the release of the valuation allowance, we will recognize a significant non-cash credit to net income and we will reflect a deferred tax asset, which is currently subject to the valuation allowance, on our condensed consolidated balance sheet. Following the release, we expect to continue to utilize our net operating losses to offset income, but would begin recording a provision for income taxes reflecting the utilization of the deferred tax assets. Our total deferred tax asset balance subject to the valuation allowance was approximately $1.6 billion at December 31, 2017.

Noncontrolling Interest (VIEs)

The net (income) loss attributable to noncontrolling interest (VIEs) recorded on our condensed consolidated statements of operations reflects our VIE’s net (income) loss for the reporting period, adjusted for any changes in the noncontrolling interest

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holders’ claim to net assets, including contingent milestone, royalty and option payments. A summary of net income attributable to noncontrolling interest related to our VIEs for the second quarter and first half of 2018 and 2017 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Loss (income) attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments	$	426		$	(18,045	)	$	983		$	(16,498	)
(Benefit from) provision for income taxes	(416		)	8,132			5,989			8,523
Decrease (increase) in fair value of contingent payments	1,100			(3,260		)	(22,900		)	(6,990		)
Net loss (income) attributable to noncontrolling interest	$	1,110		$	(13,173	)	$	(15,928	)	$	(14,965	)

The net income attributable to noncontrolling interest in the first half of 2018 was primarily due to an increase in the fair value of contingent payments related to the expiration of our option to purchase BioAxone that increased the probability of a $10.0 million license continuation fee for VX-210 that was ultimately paid in the first quarter of 2018 and the probability that additional milestone and royalty payments related to the BioAxone Agreement would be paid, partially offset by a provision for income taxes related to this increase. The net income attributable to noncontrolling interest in the second quarter and first half of 2017 was primarily due to a $20.0 million upfront payment earned by Parion in the second quarter of 2017 pursuant to a license agreement Parion entered into with a third party.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of June 30, 2018 and December 31, 2017:

	June 30,		December 31,		Increase/(Decrease)
	2018		2017		$		%
	(in thousands)
Cash, cash equivalents and marketable securities	$	2,767,755	$	2,088,666	$	679,089	33	%
Working Capital
Total current assets	3,407,423		2,648,963		758,460		29	%
Total current liabilities	927,300		807,260		120,040		15	%
Total working capital	$	2,480,123	$	1,841,703	$	638,420	35	%

As of June 30, 2018, we had cash, cash equivalents and marketable securities of $2.8 billion, which represented an increase of $679.1 million from $2.1 billion as of December 31, 2017. In the first half of 2018, our cash, cash equivalents and marketable securities balance increased due to cash receipts from product sales, a $146.5 million increase in the fair value of our investment in CRISPR based on an increase in the price of CRISPR’s common stock and $144.8 million cash received from issuances of common stock under our employee benefit plans partially offset by cash expenditures to fund our operations and $115.0 million of cash used to repurchase shares of our common stock. We expect that our future cash flows will be substantially dependent on CF product sales.

As of June 30, 2018, total working capital was $2.5 billion, which represented an increase of $638 million from $1.8 billion as of December 31, 2017. The most significant items that increased total working capital in the first half of 2018 were $574.4 million cash provided by operations, a $146.5 million increase in the fair value of our investment in CRISPR based on an increase in the price of CRISPR’s common stock and $144.8 million cash received from issuances of common stock under our employee benefit plans partially offset by $115.0 million of cash used to repurchase shares of our common stock and expenditures for property and equipment of $58.9 million as well as other expenditures.

Sources of Liquidity

We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity. We are receiving cash flows from sales of SYMDEKO, KALYDECO and ORKAMBI in the United States and ORKAMBI and KALYDECO from ex-U.S. markets. We expect the EMA to complete its review of the MAA we submitted for tezacaftor in combination with ivacaftor in the second half of 2018. Future net product revenues for ORKAMBI and, if approved, tezacaftor in combination with ivacaftor, from ex-U.S. markets will be dependent on, among other things, the timing of and our ability to complete reimbursement discussions in European countries.

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We may borrow up to $500.0 million pursuant to a revolving credit facility that we entered into in October 2016. We may repay and reborrow amounts under the revolving credit agreement without penalty. Subject to certain conditions, we may request that the borrowing capacity under this credit agreement be increased by an additional $300.0 million.

In the first half of 2018, we received significant proceeds from the issuance of common stock under our employee benefit plans, but the amount and timing of future proceeds from employee benefits plans is uncertain. In the first half of 2018, the value of our strategic investment in CRISPR increased significantly but the future value of this strategic investment is uncertain. Other possible sources of future liquidity include strategic collaborative agreements that include research and/or development funding, commercial debt, public and private offerings of our equity and debt securities, development milestones and royalties on sales of products, software and equipment leases, strategic sales of assets or businesses and financial transactions. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity.

Future Capital Requirements

We incur substantial operating expenses to conduct research and development activities and to operate our organization. We have substantial facility and capital lease obligations, including leases for two buildings in Boston, Massachusetts that continue through 2028 and a lease in San Diego, California that continues through 2034. As of June 30, 2018, we have accrued approximately $290.5 million from ORKAMBI early access programs in France. We expect we will be required to repay a portion of the collected amounts to the French government based on the difference between the invoiced price of ORKAMBI and the final price for ORKAMBI in France once we conclude our ongoing pricing discussions with the French government. To the extent we borrow amounts under the credit agreement we entered into in October 2016, we would be required to repay any outstanding principal amounts in 2021.

In addition, we have entered into certain collaboration agreements with third parties that include the funding of certain research, development and commercialization efforts with the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets and we may enter into additional business development transactions, including acquisitions, collaborations and equity investments, that require additional capital.

Our board of directors also has authorized a share repurchase program to repurchase up to $500.0 million of shares of our common stock through December 31, 2019. As of June 30, 2018, $381.0 million remained available to fund repurchases under the share repurchase program.

We expect that cash flows from SYMDEKO, KALYDECO and ORKAMBI, together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by SYMDEKO, KALYDECO and ORKAMBI and the potential introduction of one or more of our other drug candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.

Financing Strategy

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

CONTRACTUAL COMMITMENTS AND OBLIGATIONS

Our commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission, or SEC, on February 15, 2018. There have been no material changes from the contractual commitments and obligations previously disclosed in that Annual Report on Form 10-K.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. During the six months ended June 30, 2018, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2017, which we filed with the SEC on February 15, 2018, except as set forth below:

Product Revenues - Early Access Programs

We began distributing ORKAMBI in France in 2015 through early access programs and are engaged in ongoing pricing discussions regarding the final price for ORKAMBI in France. We did not recognize any revenues from these product sales through December 31, 2017 based on accounting guidance in effect during this time because the price was not fixed or determinable. As of June 30, 2018 and December 31, 2017, our condensed consolidated balance sheet includes $290.5 million and $232.4 million, respectively, under the caption “Early access sales accrual” related to amounts accrued in France as payment for shipments of ORKAMBI under the early access programs. We expect to return the difference between the amounts collected based on the invoiced price and the final price for ORKAMBI in France to the French government.

Upon adopting ASC 606 in the first quarter of 2018, we recorded an $8.3 million cumulative effect adjustment to “Accumulated deficit” primarily related to shipments of ORKAMBI under early access programs in France. We determined the amount of the adjustment based upon (i) the status of pricing discussions in France upon adoption and (ii) our estimate of the amount of consideration it expects to retain related to ORKAMBI sales in France that occurred on or prior to December 31, 2017 that will not be subject to a significant reversal in amounts recognized. For ORKAMBI sales in France that occurred after December 31, 2017 under the early access programs, we have recognized net product revenues based on the estimate of consideration we expect to retain that will not be subject to a significant reversal in amounts recognized. If our estimate regarding the amounts we will receive for ORKAMBI supplied pursuant to these early access programs changes, we will reflect the effect of the change in estimate in net product revenues in the period in which the change in estimate occurs and will include adjustments to all prior sales of ORKAMBI under the early access programs. Depending on the final price of ORKAMBI and because the current estimate is based on the amount that will not be subject to a significant reversal in amounts recognized this adjustment could be material. For more information regarding the new guidance please see Note B, “Revenue Recognition.” 

RECENT ACCOUNTING PRONOUNCEMENTS

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

As part of our investment portfolio, we own financial instruments that are sensitive to market risks. The investment portfolio is used to preserve our capital until it is required to fund operations, including our research and development activities. None of these market risk-sensitive instruments are held for trading purposes. We do not have derivative financial instruments in our investment portfolio.

Interest Rate Risk

We invest our cash in a variety of financial instruments, principally securities issued by the U.S. government and its agencies, investment-grade corporate bonds and commercial paper, and money market funds. These investments are denominated in U.S. Dollars. All of our interest-bearing securities are subject to interest rate risk and could decline in value if interest rates fluctuate. Substantially all of our investment portfolio consists of marketable securities with active secondary or resale markets to help ensure portfolio liquidity, and we have implemented guidelines limiting the term-to-maturity of our

49

investment instruments. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. If interest rates were to increase or decrease by 1%, the fair value of our investment portfolio would increase or decrease by an immaterial amount.

In 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 Eurodollar rate, 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 Eurodollar loans 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 changes in interest rates related to the credit agreement would have a material effect on our financial statements. As of June 30, 2018, we had no principal or interest outstanding. A portion of our interest expense, net in 2018 will be dependent on whether, and to what extent, we reborrow amounts under the existing facility.

Foreign Exchange Market Risk

As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro and British Pound against the U.S. Dollar. The current exposures arise primarily from cash, accounts receivable, intercompany receivables and payables, payables and accruals and inventories. Both positive and negative effects to our net revenues from international product sales from movements in exchange rates are partially mitigated by the natural, opposite effect that exchange rates have on our international operating costs and expenses.

We have a foreign currency management program with the objective of reducing the effect of exchange rate fluctuations on our operating results and forecasted revenues and expenses denominated in foreign currencies. We currently have cash flow hedges for the Euro, British Pound, Canadian Dollar and Australian Dollar related to a portion of our forecasted product revenues that qualify for hedge accounting treatment under U.S. GAAP. We do not seek hedge accounting treatment for our foreign currency forward contracts related to monetary assets and liabilities that impact our operating results. As of June 30, 2018, we held foreign exchange forward contracts that were designated as cash flow hedges with notional amounts totaling $453.4 million and had a net fair value of $10.0 million recorded on our condensed consolidated balance sheet.

Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably possible near-term change in exchange rates. Assuming that the June 30, 2018 exchange rates were to change by a hypothetical 10%, the fair value recorded on our condensed consolidated balance sheet related to our foreign exchange forward contracts that were designated as cash flow hedges as of June 30, 2018 would change by approximately $45.3 million. However, since these contracts hedge a specific portion of our forecasted product revenues denominated in certain foreign currencies, any change in the fair value of these contracts is recorded in “Accumulated other comprehensive loss” on our condensed consolidated balance sheet and is reclassified to earnings in the same periods during which the underlying product revenues affect earnings. Therefore, any change in the fair value of these contracts that would result from a hypothetical 10% change in exchange rates would be entirely offset by the change in value associated with the underlying hedged product revenues resulting in no impact on our future anticipated earnings and cash flows with respect to the hedged portion of our forecasted product revenues.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, as of June 30, 2018 our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Controls Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the three months ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

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Item 1.     Legal Proceedings

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors

Information regarding risk factors appears in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 15, 2018. There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I-Item 2, contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 CF net product revenues;

• our expectations regarding clinical trials, development timelines, timing of our receipt of data from our ongoing and planned clinical trials and regulatory authority filings and submissions for ivacaftor, lumacaftor, tezacaftor, VX-659, VX-445, VX-561, VX-150, VX-210 and CTX001 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 KALYDECO, ORKAMBI and 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-561, VX-150, VX-210 and CTX001, and the expected timing of our receipt of data from our ongoing and planned clinical trials;

• the data that will be generated by ongoing and planned clinical trials and the ability to use that data to advance compounds, continue development or support regulatory filings;

• our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates 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 medical needs; and

• our liquidity and our expectations regarding the possibility of raising additional capital.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many factors mentioned in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results. We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 15, 2018. These are factors and uncertainties that we think could cause our actual results to differ materially from expected results. Other factors and uncertainties besides those listed there could also adversely affect us.

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Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “intends,” “expects” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon 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, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

The table set forth below shows all repurchases of securities by us during the three months ended June 30, 2018:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2)
April 1, 2018 to April 30, 2018	124,982	$150.01	118,079	470,002,816
May 1, 2018 to May 31, 2018	310,281	$151.55	306,627	422,980,285
June 1, 2018 to June 30, 2018	277,555	$151.31	275,761	380,982,293
Total	712,818	$151.19	700,467	380,982,293

(1)Consists of 700,467 shares repurchased pursuant to our share repurchase program (described in footnote 2 below) at an average price per share of $153.85 and 12,351 restricted shares repurchased for $0.01 per share from our employees pursuant to our equity plans. While we have restricted shares that are continuing to vest under our equity plans that are subject to repurchase rights upon termination of service, we have transitioned our equity program to granting restricted stock units. Unvested restricted stock units are forfeited upon termination of service and do not result in an issuer repurchase that would be reflected in this table.

(2)Our Board of Directors has approved a share repurchase program pursuant to which we are authorized to repurchase up to $500.0 million of our common stock by December 31, 2019; the program was announced on January 31, 2018. Under the share repurchase program, we are authorized to purchase shares from time to time through open market or privately negotiated transactions and such purchases may be made pursuant to Rule 10b5-1 plans or other means as determined by our management and in accordance with the requirements of the Securities and Exchange Commission. The approximate dollar value of shares that may yet be repurchased is based solely on shares that may be repurchased under the share repurchase program and excludes any shares that may be repurchased under our employee equity programs.

Item 6.    Exhibits

Exhibit Number	Exhibit Description
3.1	Restated Articles of Organization of Vertex Pharmaceuticals Incorporated, as amended.
3.2	Amended and Restated By-Laws of Vertex Pharmaceuticals Incorporated.
10.1	Amended and Restated 2013 Stock and Option Plan. (1) *
31.1	Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation
101.DEF	XBRL Taxonomy Extension Definition

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(1) Incorporated by reference to Appendix C to the Registrant's definitive proxy statement on Schedule 14A, filed with the Securities and Exchange Commission on April 17, 2018.

* Management contract, compensatory plan or agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Vertex Pharmaceuticals Incorporated
July 26, 2018	By:	/s/ Thomas Graney
		Thomas Graney
		Senior Vice President and Chief Financial Officer (principal financial officer and duly authorized officer)

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EX-3.1

Exhibit 3.1

Federal Identification

No. 04-3039129

The Commonwealth of Massachusetts

MICHAEL JOSEPH CONNOLLY

Secretary of State

ONE ASHBURTON PLACE, BOSTON, MASS: 02108

RESTATED ARTICLES OF ORGANIZATION

General Laws, Chapter 156B, Section 74

This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B Section 114. Make check payable to the Commonwealth of Massachusetts.

We, Joshua Boger, President

Richard H. Aldrich, Clerk of

Vertex Pharmaceuticals Incorporated

(Name of Corporation)

located at 40 Allston Street, Cambridge, Massachusetts 02139 do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted at a meeting held on May 24 , 1991, by vote of

1,080,000 shares of common out of 2,702,500 shares outstanding,

(Class of Stock)

5,051,955 shares of Series A Convertible Preferred Stock out of 5,279,227 shares outstanding, and

(Class of Stock)

1,343,655 shares of Series B Convertible Preferred Stock out of 1,404,000 shares outstanding,

(Class of Stock)

*

being at least two-third of each class of stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby:

1. The name by which the corporation shall be known is:

Vertex Pharmaceuticals Incorporated

2. The purpose for which the corporation is formed are as follows:

To develop, manufacture, market, and sell pharmaceutical products.

To carry on any business or other activity which may be lawfully carried on by a corporation organized under the Business Corporation Law of the Commonwealth of Massachusetts whether or not related to those referred to in the foregoing paragraph.

* 571,429 shares of Series C Convertible Preferred Stock out of 571,429 shares outstanding

Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated.

3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows:

Class of Stock    Without Par Value      With Par Value

Number of Shares     Number of Shares     Par Value

--------------      -----------------      ----------------          ---------

Preferred      None      1,000,000 $.01

Common      None      25,000,000 $.01

*4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established:

See Attached.

*5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows:

None.

*6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders:

See Attached.

*If there are no such provisions, state "None".

AMENDMENTS

1. Article 3 is amended as follows:

(i) Every three shares of the Common Stock, $.01 par value, of the Corporation outstanding on the effective date of these Restated Articles of Organization shall on such effective date be combined into two shares of Common Stock, $.01 par value; provided, that no fractional shares shall be issued in connection with such combination and the fair value of fractional shares resulting therefrom shall be paid in cash to holders who would otherwise have received such fractional shares; and provided, further, that in connection with the foregoing, no changes shall be made in the capital or surplus account of the Corporation.

(ii) In connection and simultaneously with the combination described above, the authorized Common Stock, $.01 par value, of the Corporation shall be reduced from 11,024,000 shares to 7,349,333 shares; provided, that in connection with the foregoing, no changes shall be made in the capital or surplus account of the Corporation.

(iii) Every three shares of each series of the Convertible Preferred Stock, $.01 par value, of the Corporation outstanding on the effective date of these Restated Articles of Organization shall on such effective date, pursuant to the terms of such Convertible Preferred Stock, be automatically converted into two shares of Common Stock, $.01 par value; provided, that no fractional shares shall be issued in connection with said conversion and the fair value of fractional shares resulting therefrom shall be paid in cash to holders who would have otherwise received such fractional shares.

(iv) In connection and simultaneously with the conversion described above, the entire class, including each series of such class, of Convertible Preferred Stock, $.01 par value, of the Corporation shall be cancelled and withdrawn from the authorized capital stock of the Corporation.

(v) Immediately following the foregoing, the amount of the authorized capital stock of the Corporation shall be increased to 26,000,000 shares, consisting of 25,000,000 shares of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01 par value.

2. Article 4 is amended as follows:

(i) The class of Preferred Stock, $.01 par value, authorized pursuant to Article 3 is authorized to be issued by the Board of Directors, in one or more series, as set forth in Article 4 of these Restated Articles of Organization.

3. Article 6 is amended as follows:

(i) The first paragraph, relating to Amendment of the By-Laws, is designated as Part A.

(ii) The second paragraph, relating to Meetings of Stockholders, is designated as Part B.

(iii)The third paragraph, relating to Partnership Agreements, is designated as Part C.

(iv) The fourth paragraph, relating to liability of Directors, is designated as Part D.

(v) There is added as a new Part E provisions relating to (a) the election of a classified Board of Directors, (b) nomination of directors, (c) filling of newly created directorships and vacancies, (d) removal of directors, (e) election of directors by holders of Preferred Stock, and (f) amendment or repeal of the provisions set forth in Part E.

2

ARTICLE 4

A. Common Stock

The holders of shares of Common Stock of the Corporation shall be entitled to one vote for each share of such stock held by them, respectively, upon all matters presented to the stockholders. The Common Stock shall be subject to the special provisions applicable to any series of Preferred Stock issued by the Board of Directors, as hereinafter provided.

B. Preferred Stock.

The Preferred Stock may be issued by the Board of Directors, in one or more series and with such rights, powers, preferences, and terms and at such times and for such consideration as the Board of Directors shall determine, without further stockholder action. With respect to any such series of Preferred Stock, prior to issuance, the Board of Directors by resolution shall designate that series to distinguish it from other series and classes of stock of the Corporation, shall specify that number of shares to be included in the series, and shall fix the rights, powers, preferences, and terms of the shares of the series, including but without limitation: (i) the dividend rate, its preference as to any other class or series of capital stock, and whether dividends will be cumulative or non cumulative; (ii) whether the shares are to be redeemable and, if so, at what times and prices and on what other terms and conditions; (iii) the terms and amount of any sinking fund provided for the purchase of redemption for the shares; (iv) whether the shares shall be convertible or exchangeable and, if so, the times, prices, rates, adjustments, and other terms of such conversion or exchange; (v) the voting rights, if any, applicable to the shares in addition to those prescribed by law; (vi) the restrictions and conditions, if any, on the issue or reissue of any additional shares of such series or of any other series of Preferred Stock ranking on a parity with or prior to the shares of such series; and (vii) the rights of the holders of such shares upon voluntary or involuntary liquidation, dissolution, or winding up of the Corporation.

4A

ARTICLE 6

A. Amendment of By-Laws

To the extent and the manner provided in the By-Laws, the Board of Directors may make, amend, or repeal the By-Laws in whole or in part, except with respect to any provision thereof which by law or by the By-Laws requires action by the stockholders.

B. Meetings of Stockholders

To the extent and in the manner provided in the By-Laws, meetings of the stockholders may be held anywhere within the Commonwealth of Massachusetts or elsewhere in the United States.

C. Partnership Agreements

The Corporation may enter into partnership agreements (general or limited) and joint ventures with any person, firm, association, or corporation engaged in carrying on any business in which the Corporation is authorized to engage, or in connection with carrying out all or any of the purposes of the Corporation.

D. Liability of Directors

No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this provision shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 61 or 62 of the Business Corporation Law, Chapter 156B, of the Commonwealth of Massachusetts, or (iv) for any transactions from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

E. Board of Directors

1. Number, Election and Terms. Subject to the rights of the holders of any series of Preferred Stock to elect directors who shall serve for such term and have such voting powers as shall be provided in Article 4 of these Articles, the Board of Directors shall consist of such number of persons as shall be provided in the Corporation's By-Laws. The Board of Directors shall be classified with respect to the time for which its members shall severally hold office by dividing them into three classes, as nearly equal in number as possible, with the term of office of one class expiring at the annual meeting of stockholders each year. At each annual meeting of the stockholders of the Corporation, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. If the number of directors

6A

is changed, any increase or decrease shall be apportioned by the Board of Directors among the classes so as maintain the number of directors in each class as nearly equal as possible. Each director shall hold office until the annual meeting for the year in which such director's term expires and until such director's successor shall be elected and shall qualify. No director need be a stockholder.

2. Nomination. Advance notice of nominations for the election of directors, other than by the Board of Directors or a committee thereof, shall be given within the time and in the manner provided in the By-Laws.

3. Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

4. Removal of Directors. Any director may be removed from office by stockholder vote at any time, but only for cause, by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Any director may also be removed from office for cause by vote of a majority of the directors then in office.

5. Directors Elected by Holders of Preferred Stock. Whenever the holders of any class or series of Preferred Stock or of any other class or series of shares issued by the Corporation shall have the right, voting separately as a class or series, to elect one or more directors under specified circumstances, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of these Articles applicable to such class or series, and none of the provisions of this Part E shall apply with respect to directors so elected.

6. Amendment, Repeal, etc. Notwithstanding any other provision of these Articles to the contrary, the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal this Part E or any provision thereof.

6B

*We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles 3, 4 and 6.

(*If there are no such amendments, state "None".)

Briefly describe amendments in space below:

See Attached.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 30th day of July in the year 1991

/S/ Joshua Boger

-------------------------------

Joshua Boger President

/S/ Richard H. Aldrich

-------------------------------

Richard H. Aldrich Clerk

THE COMMONWEALTH OF MASSACHUSETTS

RESTATED ARTICLES OF ORGANIZATION

(General Laws, Chapter 156B, Section 74)

I hereby approve the within restated articles of organization and, the filing fee in the amount of $19,150.67 having been paid, said articles are deemed to have been filed with me this 31st day of July, 1991

/S/ MICHAEL JOSEPH CONNOLLY

-----------------------

MICHAEL JOSEPH CONNOLLY

Secretary of State

TO BE FILLED IN BY CORPORATION

PHOTOCOPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT TO:

Timothy B. Bancroft, Esq.

Warner & Stackpole

75 State Street, Boston, MA 02109

Telephone (617) 951-9000

Copy Mailed

The Commonwealth of Massachusetts

OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE

MICHAEL JOSEPH CONNOLLY, Secretary

ONE ASHBURTON PLACE, BOSTON, MASS. 02108

CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING

A SERIES OF A CLASS OF STOCK

General Laws, Chapter 156B, Section 26

We, Joshua Boger, President and

Richard H. Aldrich, Clerk of

Vertex Pharmaceuticals Incorporated

(Name of Corporation)

located at 40 Allston Street, Cambridge, Massachusetts 02139 do hereby certify that by unanimous written consent of the Board of Directors as of July 1, 1991, the following vote establishing and designating a series of class of stock and determining the relative rights and preferences thereof was duly adopted.

See attached.

Note: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B etc. Continuation sheets must have a left-hand margin 1 inch wide for binding and shall be 8 1/2" x 11". Only one side should be used.

VOTED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") by the provisions of the Restated Articles of Organization of the Corporation approved by the Board on May 23, 1991 and approved by the stockholders of the Corporation on May 24, 1991, the Board of Directors hereby establishes a series of Preferred Stock (the "Preferred Stock") of the Corporation, effective as of the date of the filing of the Restated Articles of Organization with the Secretary of the Commonwealth of Massachusetts, and hereby states the designation and number of shares, and prescribes the relative rights and preferences thereof as follows:

Series A Junior Participating Preferred Stock:

Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants, or the conversion of any outstanding securities, issued by the Corporation exercisable for or convertible into Series A Preferred Stock.

Section 2. Dividends and Distributions.

(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provisions for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly

Continuation Sheet 2A

Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in

paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be

Continuation Sheet 2B

not more than 60 days prior to the date fixed for the payment thereof.

Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:

(A) Each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation.

(B) Except as otherwise provided herein, in any other Certificate of Vote of Directors establishing a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of the stockholders of the Corporation.

(C) Except as otherwise provided herein, or by law, holders of shares of Series A Preferred Stock shall have no special voting rights and - their consent shall not be required (except to the extent they are entitled to vote with holders of shares of Common Stock as set forth herein) for taking any corporate action.

Section 4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; provided,

Continuation Sheet 2C

that the Corporation may at any time redeem, purchase or otherwise acquire shares of such junior stock in exchange for shares of stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A-Preferred Stock; or

(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except-in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section, purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Articles of Organization, or in any other Certificate of Vote of Directors establishing a series of Preferred Stock or any similar stock or as otherwise required by law.

Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided, that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares

Continuation Sheet 2D

of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock-in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders or shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso to clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.

Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock.

Continuation Sheet 2E

Section 10. Amendment. The Restated Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.

Continuation Sheet 2F

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 30th day of July in the year 1991.

/S/ Joshua Boger

----------------------------

Joshua Boger, President

/S/ Richard H. Aldrich

----------------------------

Richard H. Aldrich, Clerk

    THE COMMONWEALTH OF MASSACHUSETTS

Certificate of Vote of Directors Establishing

A Series of a Class of Stock

(General Laws, Chapter 156B, Section 26)

    I hereby approve the within certificate and, the

filing fee in the amount of $100.00

    having been paid, said certificate is hereby filed this

31st day of July, 1991

    /S/ MICHAEL JOSEPH CONNOLLY

    MICHAEL JOSEPH CONNOLLY

Secretary of State

    TO BE FILLED IN BY CORPORATION

    Photo copy of certificate to be sent

TO:

        Timothy B. Bancroft, Esq.

        Warner & Stackpole

        75 State Street, Boston, MA 02109

    Telephone: (617) 951-9000

THE COMMONWEALTH OF MASSACHUSETTS

WILLIAM FRANCIS GALVIN

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156B, Section 72)

We, Joshua S. Boger, President

and Richard H. Aldrich, Clerk

of

Vertex Pharmaceuticals Incorporated ,

(EXACT NAME OF CORPORATION)

located at 40 Allston Street, Cambridge, Massachusetts 02139 ,

--------------------------------------------------------------------

(STREET ADDRESS OF CORPORATION IN MASSACHUSETTS)

certify that these Articles of Amendment affecting articles numbered: 3

---------- --------------------------------

(NUMBER THOSE ARTICLES 1, 2, 3, 4, 5 AND/OR 6 BEING AMENDED)

of the Articles of Organization were duly adopted at a meeting held on May 11, 1995 , by vote of:

11,800,239 shares of Common Stock of 17,189,713 shares outstanding, ---------- ------------- ---------------

(TYPE, CLASS & series, if any)

shares of of shares outstanding, and ------- ----------------- -----------------

(TYPE, CLASS & series, if any)

shares of of shares outstanding --------- ------------------- --------------

(TYPE, CLASS & series, if any)

being at least a majority of each type, class or series outstanding and entitled to vote thereon:

VOTED: To increase the number of shares of Common Stock, $.01 par value per share that the Corporation shall have authority to issue from 25,000,000 shares to 50,000,000 shares; and that Article 3 of the

Corporation's Restated Articles of Organization be, and hereby is, amended to read as follows:

3. The total number of shares and the par value, if any, of each class of stock which the Corporation shall be authorized to issue is as follows: 1,000,000 shares of Preferred Stock, $.01 par value per share and 50,000,000 shares of Common Stock, $.01 par value per share.

To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:

The total PRESENTLY authorized is:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     25,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

CHANGE the total authorized to:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     50,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

2

The foregoing amendment will become effective when these Article of Amendments are filed in accordance with General Laws, Chapter 156B, Section 6 unless the articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

EFFECTIVE DATE:_________________________________.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed

our names this 15th day of May, in the year 1995,

/s/ Joshua S. Boger , President

-------------------------------------------

/s/ Richard H. Aldrich , Clerk

-------------------------------------------

3

THE COMMONWEALTH OF MASSACHUSETTS

ARTICLES OF AMENDMENT

(GENERAL LAWS, CHAPTER 156B, SECTION 72)

I hereby approve the within Articles of Amendment and, the filing fee in the amount of $25,000.00 having been paid, said articles are deemed to have been filed with me this 17th day of May 1995.

/s/ William Francis Galvin

WILLIAM FRANCIS GALVIN

SECRETARY OF THE COMMONWEALTH

TO BE FILLED IN BY CORPORATION

PHOTOCOPY OF DOCUMENT TO BE SENT TO:

KENNETH S. BOGER, ESQUIRE

WARNER & STACKPOLE

75 STATE STREET

BOSTON, MA 02109

617-951-9000

FEDERAL IDENTIFICATION

                    NO. 04-3039129

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General laws, Chapter 156B, Section 72)

We, Thomas G. Auchincloss, Jr., Vice President,

---------------------------------------

and Richard H. Aldrich , Clerk,

of

Vertex Pharmaceuticals Incorporated

(Exact name of corporation)

located at: 130 Waverly Street, Cambridge, Massachusetts 02139-4242

(Street address of corporation in Massachusetts)

certify that these Articles of Amendments affecting articles numbered:

3

-------------------------------------------------------------

(number those articles 1, 2, 3, 4, 5, and/or 6 being amended)

of the Articles of Organization were duly adopted at a meeting held on May 8, 1997, by vote of: 18,591,245 shares of Common Stock of 24,680,649 shares outstanding.

(type, class & series if any)

shares of of shares outstanding and ---------- ------------- -----------

(type, class & series if any)

shares of of shares outstanding. ---------- ------------- -----------

(type, class & series if any)

being at least a majority of each type, class or series outstanding and entitled to vote thereon/

(see page 2)

(1) For amendments adopted pursuant to Chapter 156B, Section 70. (2) For amendments adopted pursuant to Chapter 156B, Section 71. Note: if the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8-1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated.

To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:

The total presently authorized is:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     50,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

Change the total authorized to:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     100,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

VOTED:     To increase the number of shares of Common Stock, $.01 par value per share that the Corporation shall have authority to issue from 50,000,000 shares to 100,000,000 shares; and that Article 3 of the Corporation's Restated Articles of Organization be, and hereby is, amended to read as follows:

3. The total number of shares and the par value, if any, of each class of stock which the Corporation shall be authorized to issue is as follows: 1,000,000 shares of Preferred Stock, $.01 par value per share and 100,000,000 shares of Common Stock, $.01 par value per share.

The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

Later effective date: _______________________

SIGNED UNDER THE PENALTIES OF PERJURY, this 30th day of May, 1997.

/s/ Thomas G. Auchincloss, Jr., Vice President,
---------------------------------

Thomas G. Auchincloss, Jr.

/s/ Richard H. Aldrich. Clerk

------------------------------
Richard H. Aldrich

THE COMMONWEALTH OF MASSACHUSETTS

ARTICLES OF AMENDMENT

(General Laws, Chapter 156B, Section 72)

------------------------------------------------------------------------------- ----------------------------------------------------------------

I hereby approve the within Articles of Amendment, and the filing fee in the amount of $50,000 having been paid, said article is deemed to have been filed with me this 4th day of June, 1997.

Effective date: _________________________

/S/ WILLIAM FRANCIS GALVIN

WILLIAM FRANCIS GALVIN

     Secretary of the Commonwealth

TO BE FILLED IN BY CORPORATION

    Photocopy of document to be sent to:

Sarah P. Cecil

Vertex Pharmaceuticals Incorporated

130 Waverly Street

Cambridge, MA 02139-4242

FEDERAL IDENTIFICATION

                NO. 04-3039129

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156B, Section 72)

We, Vicki L. Sato, PH.D., President,

and Sarah P. Cecil, Clerk,

of

VERTEX PHARMACEUTICALS INCORPORATED,

(Exact name of corporation)

located at 130 WAVERLY STREET, CAMBRIDGE, MASSACHUSETTS 02139-4242,

(Street address of corporation in Massachusetts)

certify that these Articles of Amendment affecting articles numbered: 3

(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)

of the Articles of Organization were duly adopted at a meeting held on MAY 8, 2001, by vote of:

40,020,139 shares of Common Stock of 60,150,471 shares outstanding,

(type, class & series, if any)

____________ shares of _________________ of ___________ shares outstanding, and

(type, class & series, if any)

____________ shares of _________________ of _______________ shares outstanding,

(type, class & series, if any)

being at least a majority of each type, class or series outstanding and entitled to vote thereon:

Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated.

To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:

The total presently authorized is:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     100,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

Change the total authorized to:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     200,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

VOTED:     To increase the number of shares of Common Stock, $.01 par value per share that the Corporation shall have authorized to issue from 100,000,000 shares to 200,000,000 shares; and that ARTICLE 3 of the Corporation's Restated Articles of Organization be, and hereby is, amended to read as follows:

3. The total number of shares and the par value, if any, of each class of stock which the Corporation shall be authorized to issue is as follows: 1,000,000 shares of Preferred Stock, $.01 par value per share and 200,000,000 shares of Common Stock, $.01 par value per share.

The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

Later effective date: ___________________________________ .

SIGNED UNDER THE PENALTIES OF PERJURY, this 16TH day of May, 2001,

/s/ Vicki L. Sato, Ph.D., President,

-------------------------------------

Vicki L. Sato, Ph.D.

/s/ Sarah P. Cecil, Clerk.

-------------------------------------

Sarah P. Cecil

THE COMMONWEALTH OF MASSACHUSETTS

ARTICLES OF AMENDMENT

(General Laws, Chapter 156B, Section 72)

I hereby approve the within Articles of Amendment and, the filing

fee in the amount of $100,000 having been paid, said articles

are deemed to have been filed with me this 21^st day of May, 2001.

Effective date: ______________________________________________

/S/ WILLIAM FRANCIS GALVIN

WILLIAM FRANCIS GALVIN

    Secretary of the Commonwealth

TO BE FILLED IN BY CORPORATION

Photocopy of document to be sent to:

Sarah P. Cecil, Esq.

Vertex Pharmaceuticals Incorporated

130 Waverly Street

Cambridge, MA 02139-4242

Telephone: (617) 577-6000

FEDERAL IDENTIFICATION

                NO. 04-3039129

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06; 950 CMR 113.34)

(1) Exact name of corporation: Vertex Pharmaceuticals Incorporated                    

(2) Registered office address: 130 Waverly Street, Cambridge, Massachusetts 02139            

(number, street, city or town, state, zip code)

(3) These articles of amendment affect article(s): 3                        

(specify the number(s) of article(s) being amended (I-VI))

(4) Date adopted: May 15, 2008                                

(5) Approved by:

(check appropriate box)

o the incorporation

o the board of directors without shareholder approval and shareholder approval was not required.

ý the board of directors and the shareholders in the manner required by law and the articles of organization.

(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.

VOTED: To increase the number of shares of Common Stock, $.01 par value per share, that the Corporation shall have authorized to issue from 200,000,000 shares to 300,000,000 shares; and that ARTICLE 3 of the Corporation’s Restated Articles of Organization be, and hereby is, amended to read as follows:

3. The total number of shares and the par value, if any, of each class of stock that the Corporation shall be authorized to issue is as follows: 1,000,000 shares of Preferred Stock, $.01 par value per share, and 300,000,000 shares of Common Stock, $.01 par value per share.

To change the number of shares and the par value, *if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:

Total authorized prior to amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     200,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

Total authorized after amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     300,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

(7) The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

*G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

Signed by: /s/ Joshua Boger                                ,

o Chairman of the board of directors,

ý President,

o Other officer,

o Court-appointed fiduciary,

on this 15^th day of May                , 2008        .

THE COMMONWEALTH OF MASSACHUSETTS

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06;950 CMR 113.34)

I hereby certify that upon examination of these articles of amendment,

it appears that the provision of the General Laws relative thereto have

been compiled with, and the filing fee in the amount of $100,000 having

been paid, said articles are deemed to have been filed with me this 20^th 

day of May, 2008, at 12:24 p.m.

time

    Effective date: ______________________________________________

(must be within 90 days of date submitted)

/S/ WILLIAM FRANCIS GALVIN

                 WILLIAM FRANCIS GALVIN

                 Secretary of the Commonwealth

Filing fee: Minimum filing fee $100 per article amended, stock increases $100

per 100,000 shares, plus $100 for each additional 100,000 shares or any

fraction thereof.

TO BE FILLED IN BY CORPORATION

Contact Information

KENNETH S. BOGER

SENIOR VICE PRESIDENT AND GENERAL COUNSEL

130 WAVERLY STREET

CAMBRIDGE, MA 02139-4242

Telephone: (617) 444-6417

Email: KEN_BOGER@VRTX.COM

Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor.

If the document is rejected, a copy of the rejection sheet and rejected document

will be available in the rejected queue.

FEDERAL IDENTIFICATION

                NO. 04-3039129

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06;950 CMR 113.34)

(1) Exact name of corporation: Vertex Pharmaceuticals Incorporated                    

(2) Registered office address: 155 Federal Street, Suite 700, Boston MA 02110                

(number, street, city or town, state, zip code)

(3) These articles of amendment affect article(s): 3                        

(specify the number(s) of article(s) being amended (I-VI))

(4) Date adopted: June 4, 2015                                

(5) Approved by:

(check appropriate box)

o the incorporators

o the board of directors without shareholder approval and shareholder approval was not required.

ý the board of directors and the shareholders in the manner required by law and the articles of organization.

(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.

ARTICLE 3 of the Corporation’s Restated Articles of Organization be, and hereby is, amended to read as follows:

3. The total number of shares and the par value, if any, of each class of stock that the Corporation shall be authorized to issue is as follows: 1,000,000 shares of Preferred Stock, $0.01 par value per share, and 500,000,000 shares of Common Stock, $0.01 par value per share.

To change the number of shares and the par value, *if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:

Total authorized prior to amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     300,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

Total authorized after amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common: 0     Common:     500,000,000     $ 0.01

Preferred: 0     Preferred:     1,000,000     $ 0.01

(7) The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

*G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

THE COMMONWEALTH OF MASSACHUSETTS

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06;950 CMR 113.34)

I hereby certify that upon examination of these articles of amendment,

it appears that the provision of the General Laws relative thereto have

been compiled with, and the filing fee in the amount of $200,000 having

been paid, said articles are deemed to have been filed with me this 11^th 

day of June, 2015, at 2:21 p.m.

time

    Effective date: ______________________________________________

(must be within 90 days of date submitted)

/S/ WILLIAM FRANCIS GALVIN

                 WILLIAM FRANCIS GALVIN

                 Secretary of the Commonwealth

Filing fee: Minimum filing fee $100 per article amended, stock increases $100

per 100,000 shares, plus $100 for each additional 100,000 shares or any

fraction thereof.

TO BE FILLED IN BY CORPORATION

Contact Information

MICHAEL J. LACASCIA

50 NORTHERN AVENUE

BOSTON, MASSACHUSETTS 02210

Telephone: (617) 961-7018

Email: MICHAEL_LACASCIA@VRTX.COM

Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor.

If the document is rejected, a copy of the rejection sheet and rejected document

will be available in the rejected queue.

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth, Corporations Division

One Ashburton Place, 17th floor

Boston, MA 02108-1512

Telephone: (617) 727-9640

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06;950 CMR 113.34)

Identification Number: 043039129

(1) Exact name of corporation: Vertex Pharmaceuticals Incorporated                    

(2) Registered office address: 50 Northern Avenue Boston MA 02110 USA                

(number, street, city or town, state, zip code)

(3) These articles of amendment affect article(s): 6

(specify the number(s) of article(s) being amended (I-VI))

(4) Date adopted: June 8, 2017                                

(5) Approved by:

(check appropriate box)

o the incorporators

o the board of directors without shareholder approval and shareholder approval was not required.

ý the board of directors and the shareholders in the manner required by law and the articles of organization.

(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.

ARTICLE I

The exact name of the corporation, as amended, is:

(Do not state Article I if it has not been amended.)

ARTICLE II

The purpose of the corporation, as amended, is to engage in the following business activities:

(Do not state Article II if it has not been amended.)

ARTICLE III

Amendments to Article III cannot be filed on-line at this time.

ARTICLE IV

If more than one class of stock is authorized, state a distinguishing designation for each class, if amended. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the Business Entity must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class.

(Do not state Article IV if it has not been amended.)

ARTICLE V

As amended, the restrictions imposed by the Articles of Organization upon the transfer of shares of stock of any class are:

(Do not state Article V if it has not been amended.)

ARTICLE VI

As amended, other lawful provisions for the conduct and regulation of the business and affairs of the business entity, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the business entity, or of its directors or stockholders, or of any class of stockholders:

(Do not state Article VI if it has not been amended.)

Article VI.

A. Amendment of By-Laws.

To the extent and the manner provided in the By-Laws, the Board of Directors may make, amend, or repeal the By-Laws in whole or in part, except with respect to any provision thereof which by law or by the By-Laws requires action by the stockholders.

B. Meetings of Stockholders.

To the extent and in the manner provided in the By-Laws, meetings of the stockholders may be held anywhere within the Commonwealth of Massachusetts or elsewhere in the United States.

C. Partnership Agreements.

The Corporation may enter into partnership agreements (general or limited) and joint ventures with any person, firm, association, or corporation engaged in carrying on any business in which the Corporation is authorized to engage, or in connection with carrying out all or any of the purposes of the Corporation.

D. Liability of Directors.

No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this provision shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 61 or 62 of the Business Corporation Law, Chapter 156B, of the Commonwealth of Massachusetts, or (iv) for any transactions from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability

of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

E. Board of Directors.

1. Number, Election and Terms. Subject to the rights of the holders of any series of Preferred Stock to elect directors who shall serve for such term and have such voting powers as shall be provided in Article 4 of these Articles, the Board of Directors shall consist of such number of persons as shall be provided in the Corporation's By-Laws. The Board of Directors currently is classified with respect to the time for which its members severally hold office by division into three classes, as nearly equal in number as possible. Each director shall hold office until the annual meeting for the year in which such director's term expires and until such director's successor shall be elected and qualified, subject to prior death, resignation, retirement or removal. At the 2017 annual meeting of stockholders of the Corporation, the successors to the directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the 2020 annual meeting of stockholders; at the 2018 annual meeting of stockholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2019 annual meeting of stockholders; and at the 2019 annual meeting of shareholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2020 annual meeting of stockholders. Thereafter all directors shall be elected for terms expiring at the next annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. No director need be a stockholder.

2. Nomination. Advance notice of nominations for the election of directors, other than by the Board of Directors or a committee thereof, shall be given within the time and in the manner provided in the By-Laws.

3. Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Director. Each director chosen to fill a newly created directorship resulting from an increase in the number of directors shall be elected for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified. Each director chosen to fill a vacancy on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall hold office for the remainder of the full term of office of the director who is being succeeded and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

4. Removal of Directors. Any director may be removed from office by stockholder vote at any time, but only for cause, by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Any director may also be removed from office for cause by vote of a majority of the directors then in office.

5. Directors Elected by Holders of Preferred Stock. Whenever the holders of any class or series of Preferred Stock or of any other class or series of shares issued by the Corporation shall have the right, voting separately as a class or series, to elect one or more directors under specified circumstances, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of these Articles applicable to such class or series, and none of the provisions of this Part E shall apply with respect to directors so elected.

6. Amendment, Repeal, etc. Notwithstanding any other provision of these Articles to the contrary, the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal this Part E or any provision thereof.

The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

Later Effective Date:     Time:

Signed by: /s/ Jeffrey M. Leiden, its President                    

on this 12         day of June                , 2017        .

THE COMMONWEALTH OF MASSACHUSETTS

I hereby certify that upon examination of this document, duly submitted

to me, it appears that the provision of the General Laws relative to corporations

have been compiled with, and I hereby approve said articles, and the filing fee

having been paid, said articles are deemed to have been filed with me on

day of June 12, 2017, at 09:54 a.m.

time

/S/ WILLIAM FRANCIS GALVIN

                 WILLIAM FRANCIS GALVIN

                 Secretary of the Commonwealth

The Commonwealth of Massachusetts

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

ARTICLES OF AMENDMENT

(General Laws, Chapter 156D, Section 10.06; 950 CMR 113.34)

(1) Exact name of corporation: Vertex Pharmaceuticals Incorporated                    

(2) Registered office address: 50 Northern Avenue Boston MA 02210 USA                

(number, street, city or town, state, zip code)

(3) These articles of amendment affect article(s): 6

(specify the number(s) of article(s) being amended (I-VI))

(4) Date adopted: May 17, 2018                                

(5) Approved by:

(check appropriate box)

o the incorporators

o the board of directors without shareholder approval and shareholder approval was not required.

ý the board of directors and the shareholders in the manner required by law and the articles of organization.

(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.

See Exhibit A.

To change the number of shares and the par value, *if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:

Total authorized prior to amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common:     Common:         

Preferred:     Preferred:         

Total authorized after amendment:

    WITHOUT PAR VALUE STOCKS         WITH PAR VALUE STOCKS

--------------------------         ---------------------------------

NUMBER OF        NUMBER OF

TYPE SHARES    TYPE    SHARES    PAR VALUE

--------------- ---------    ---------    ---------    ---------

Common:     Common:         

Preferred:     Preferred:          

(7) The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

Signed by: /s/ Jeffrey Leiden                            ,

ý Chairman of the board of directors,

ý President,

o Other officer,

o Court-appointed fiduciary,

Exhibit A

ARTICLE 6

A. Amendment of By-Laws

To the extent and the manner provided in the By-Laws, the Board of Directors may make, amend, or repeal the By-Laws in whole or in part, except with respect to any provision thereof which by law or by the By-Laws requires action by the stockholders.

B. Meetings of Stockholders

To the extent and in the manner provided in the By-Laws, meetings of the stockholders may be held anywhere within the Commonwealth of Massachusetts or elsewhere in the United States.

C. Partnership Agreements

The Corporation may enter into partnership agreements (general or limited) and joint ventures with any person, firm, association, or corporation engaged in carrying on any business in which the Corporation is authorized to engage, or in connection with carrying out all or any of the purposes of the Corporation.

D. Liability of Directors

No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this provision shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 61 or 62 of the Business Corporation Law, Chapter 156B, of the Commonwealth of Massachusetts, or (iv) for any transactions from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

E. Board of Directors

1.Number, Election and Terms. Subject to the rights of the holders of any series of Preferred Stock to elect directors who shall serve for such term and have such voting powers as shall be provided in Article 4 of these Articles, the Board of Directors shall consist of such number of persons as shall be provided in the Corporation’s By-Laws. The Board of Directors currently is classified with respect to the time for which its members severally hold office by division into three classes, as nearly equal in number as possible. Each director shall hold office until the annual meeting for the year in which such director’s term expires and until such director’s successor shall be elected and qualified, subject to prior death, resignation, retirement or removal. At the 2017 annual meeting of stockholders of the Corporation, the successors to the directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the 2020 annual meeting of stockholders; at the 2018 annual meeting of stockholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2019 annual meeting of stockholders; and at the 2019 annual meeting of shareholders, the successors to the directors whose terms expire at that meeting shall be elected for terms expiring at the 2020 annual meeting of stockholders. Thereafter all directors shall be elected for terms expiring at the next annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. No director need be a stockholder.

2.Nomination. Advance notice of nominations for the election of directors, other than by the Board of Directors or a committee thereof, shall be given within the time and in the manner provided in the By-Laws.

3.Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Director. Each director chosen to fill a newly created directorship resulting from an increase in the number of directors shall be elected for a term expiring at the next annual

meeting of stockholders and until such director’s successor shall have been elected and qualified. Each director chosen to fill a vacancy on the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall hold office for the remainder of the full term of office of the director who is being succeeded and until such director’s successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

4.Removal of Directors. Any director may be removed from office by stockholder vote at any time, but only for cause, by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Any director may also be removed from office for cause by vote of a majority of the directors then in office.

5.Directors Elected by Holders of Preferred Stock. Whenever the holders of any class or series of Preferred Stock or of any other class or series of shares issued by the Corporation shall have the right, voting separately as a class or series, to elect one or more directors under specified circumstances, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of these Articles applicable to such class or series, and none of the provisions of this Part E shall apply with respect to directors so elected.

THE COMMONWEALTH OF MASSACHUSETTS

I hereby certify that upon examination of this document, duly submitted

to me, it appears that the provision of the General Laws relative to corporations

have been compiled with, and I hereby approve said articles, and the filing fee

having been paid, said articles are deemed to have been filed with me on:

May 21, 2018 11:29 AM

/S/ WILLIAM FRANCIS GALVIN

WILLIAM FRANCIS GALVIN

Secretary of the Commonwealth

EX-3.2

AMENDED AND RESTATED

BY-LAWS

of

VERTEX PHARMACEUTICALS INCORPORATED

ARTICLE I

STOCKHOLDERS

Section 1. Annual Meeting. The annual meeting of the stockholders shall be held on the second Monday of May in each year, or on such other date within six months after the end of the fiscal year of the Corporation as the Board of Directors shall fix, at such time as shall be fixed by the Board of Directors in the call of the meeting. Purposes for which an annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization, or by these By-Laws, may be specified by the Board of Directors in the notice of the meeting.

Section 2. Special Meeting in Lieu of Annual Meeting. If no annual meeting has been held in accordance with the foregoing provisions, a special meeting of the stockholders may be held in lieu thereof. Any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. Any such special meeting shall be called as provided in Section 3 of this Article 1.

Section 3. Special Meetings. A special meeting of the stockholders may be called at any time by the Chairman of the Board, the President, or by the Board of Directors. A special meeting of the stockholders shall also be called by the Clerk (or, in the case of the death, absence, incapacity, or refusal of the Clerk, by any other officer) upon written application of one or more stockholders who hold at least forty percent in interest of the capital stock entitled to vote at the meeting. Each call of a meeting shall state the place, date, hour, and purposes of the meeting.

Section 4. Place of the Meetings. All meetings of the stockholders shall be held at such place, either within or without The Commonwealth of Massachusetts, within the United States as shall be fixed by the Board of Directors in the notice of the meeting. Any adjourned session of any meeting of the stockholders shall be held within the United States at the place designated in the vote of adjournment.

Section 5. Notice of Meeting. A written notice of each meeting of stockholders, stating the place, date, hour and purposes of the meeting, shall be given at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the Articles of Organization, or by these By-Laws, is entitled to notice.

Such notice shall be given by the Clerk or an Assistant Clerk or by an officer designated by the Board of Directors. Whenever notice of a meeting is required to be given to a stockholder under any provision of the Business Corporation Law of the Commonwealth of Massachusetts or of the Articles of Organization or these By-Laws, a written waiver thereof, executed before or after the meeting by such stockholder or his attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice.

Section 6. Quorum of Stockholders. At any meeting of the stockholders, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting, except when a larger quorum is required by law, by the Articles of Organization, or by these By-Laws. Stock owned directly or indirectly by the Corporation, if any, shall not be deemed outstanding for this purpose.

Section 7. Adjournment of Meetings. Any meeting of the stockholders may be adjourned (a) prior to the time the meeting has been convened, by the Board of Directors, or (b) after the meeting has been convened, by a majority of the votes properly cast upon the question, whether or not a quorum is present at the meeting, and the meeting may be held as adjourned without further notice.

Section 8. Action by Vote. When a quorum is present at any meeting, (a) upon any question other than an election of a director, a majority of the votes properly cast shall decide the question, except when a larger vote is required by law, by the Articles of Organization, or by these By-Laws, (b) in an uncontested election, votes properly cast in favor of election of a director exceeding the votes properly withheld in such election shall effect the election of a director, and (c) in a contested election, a plurality of the votes properly cast for election shall effect the election of a director. An election of directors shall be considered contested if, as of the record date for the applicable meeting, there are more nominees for election than positions on the board of directors to be filled by election at the meeting. All other elections of directors shall be considered uncontested.

Section 9. Voting. Stockholders entitled to vote shall have one vote for each share of stock held by them of record according to the records of the Corporation, unless otherwise provided by the Articles of Organization. No ballot shall be required for any vote for election to any office unless requested by a stockholder present or represented at the meeting and entitled to vote in such election. The Corporation shall not, directly or indirectly, vote any share of its own stock.

Section 10. Proxies. To the extent permitted by law, stockholders entitled to vote may vote either in person or by written proxy. Unless otherwise specified or limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting.

Section 11. Action by Consent. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, but only if all stockholders entitled to vote on the matter consent to the action in

writing and the written consents are filed with the records of meetings of stockholders. Such consents shall be treated for all purposes as a vote taken at a meeting.

ARTICLE II

BOARD OF DIRECTORS

Section 1. Number and Elections. Subject to the rights of the holders of Preferred Stock to elect one or more additional directors under specified circumstances as provided in Article 4 of the Articles of Organization, the Board of Directors shall consist of not less than three nor more than eleven persons, the exact number to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority vote of the directors then in office. The directors shall be elected in the manner provided in the Articles of Organization, by such stockholders as have the right to vote thereon.

Section 2. Nominations. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one of more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by mailing it, postage prepaid, to the Clerk of the Corporation not later than (a) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting, and (b) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

Section 3. Newly Created Directorships and Vacancies. Newly created directorships and vacancies on the Board of Directors shall be filled as provided in the Articles of Organization.

Section 4. Removal of Directors. Directors may be removed from office only as provided in the Articles of Organization.

Section 5. Directors Elected by Holders of Preferred Stock. Whenever the holders of any class or series or Preferred Stock or of any other class or series of shares issued by the Corporation shall have the right, voting separately as a class or series, to elect one or more directors under specified circumstances, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of the Articles of Organization applicable thereto, and none of the provisions of Sections 1 to 4 of this Article II shall apply with respect to directors so elected.

Section 6. Resignations. Any director, member of a committee, or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board, the President, the Clerk, or to a meeting of the Board of Directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time.

Section 7. Powers. Except as reserved to the stockholders by law, by the Articles of Organization, or by these By-Laws, the business of the Corporation shall be managed by the Board of Directors who shall have and may exercise all the powers of the Corporation.

Section 8. Proxy Access for Director Nominations.

(a)Information to be Included in the Corporation’s Proxy Materials. Whenever the Board of Directors solicits proxies with respect to the election of directors at an annual meeting of stockholders (following the 2016 annual meeting of stockholders), subject to the provisions of this Section 8, the Corporation shall include in its proxy statement for such annual meeting, in addition to any persons nominated for election by the Board of Directors or a committee appointed by the Board of Directors, the name, together with the Required Information (as defined below), of any person to be nominated for election to the Board of Directors by a stockholder pursuant to Section 2 of this Article II (a “Stockholder Nominee”) if (i) the stockholder of record who intends to make the nomination qualifies as, or is acting on behalf of, an Eligible Stockholder (as defined in Section 8(c) of this Article II), (ii) the Eligible Stockholder expressly elects, in a written statement accompanying the notice required by Section 2 of this Article II (a “Nomination Notice”), to have its Stockholder Nominee included in the Corporation’s proxy materials pursuant to this Section 8 and (iii) all of the other requirements set forth in this Section 8 and in Section 2 of this Article II are satisfied. For purposes of this Section 8, the “Required Information” that the Corporation will include in its proxy statement is (A) the information provided to the Clerk of the Corporation concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the Corporation’s proxy statement pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (B) if the Eligible Stockholder so elects, a Supporting Statement (as defined in Section 8(g) of this Article II). For the avoidance of doubt, nothing in this Section 8 shall limit the Corporation’s ability to solicit against any Stockholder Nominee or include in

its proxy materials the Corporation’s own statements or other information relating to any Eligible Stockholder or Stockholder Nominee, including any information provided to the Corporation pursuant to this Section 8. Subject to the provisions of this Section 8, the name of any Stockholder Nominee included in the Corporation’s proxy statement for an annual meeting of stockholders shall also be set forth on the form of proxy distributed by the Corporation in connection with such annual meeting.

(b)Permitted Number of Stockholder Nominees. The maximum number of Stockholder Nominees that will be included in the Corporation’s proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (i) two or (ii) 20% of the number of directors in office as of the last day on which a Nomination Notice may be delivered pursuant to Section 2 of this Article II (the “Final Proxy Access Date”) or, if such amount is not a whole number, the closest whole number below 20% (such greater number, as it may be adjusted pursuant to this Section 8(b)), the “Permitted Number”). In the event that one or more vacancies for any reason occurs on the Board of Directors after the Final Proxy Access Date but before the date of the annual meeting and the Board of Directors resolves to reduce the size of the Board of Directors in connection therewith, the Permitted Number shall be calculated based on the number of directors in office as so reduced. In addition, the Permitted Number shall be reduced by (i) the number of individuals who will be included in the Corporation’s proxy materials as nominees recommended by the Board of Directors pursuant to an agreement, arrangement or other understanding with a stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into in connection with an acquisition of stock from the Corporation by such stockholder or group of stockholders), together with the number of directors in office as of the Final Proxy Access Date who were either elected by the Board of Directors to fill a vacancy pursuant to such an agreement, arrangement or other understanding, or included in the Corporation’s proxy materials as nominees recommended by the Board of Directors pursuant to such an agreement, arrangement or other understanding for any of the two preceding annual meetings of stockholders, and whose remaining terms extend beyond the upcoming annual meeting, and (ii) the number of directors in office as of the Final Proxy Access Date who were included in the Corporation’s proxy materials as Stockholder Nominees for any of the two preceding annual meetings of stockholders (including any persons counted as Stockholder Nominees pursuant to the immediately succeeding sentence) and whose remaining terms extend beyond the upcoming annual meeting. For purposes of determining when the Permitted Number has been reached, any individual requested by an Eligible Stockholder to be included in the Corporation’s proxy materials pursuant to this Section 8 whose nomination is subsequently withdrawn or whom the Board of Directors decides to nominate for election to the Board of Directors shall be counted as one of the Stockholder Nominees. Any Eligible Stockholder requesting that more than one Stockholder Nominee be included in the Corporation’s proxy materials pursuant to this Section 8 shall rank such Stockholder Nominees based on the order in which the Eligible Stockholder desires such Stockholder Nominees to be selected for inclusion in the Corporation’s proxy materials in the event that the total number of Stockholder Nominees requested by Eligible Stockholders to be included in the Corporation’s proxy materials pursuant to this Section 8 exceeds the Permitted Number. In the event that the number of Stockholder Nominees requested by Eligible Stockholders to be included in the Corporation’s proxy materials pursuant to this Section 8 exceeds the Permitted Number, the highest ranking Stockholder Nominee who meets the

requirements of this Section 8 from each Eligible Stockholder will be selected for inclusion in the Corporation’s proxy materials until the Permitted Number is reached, going in order of the amount (largest to smallest) of shares of stock of the Corporation each Eligible Stockholder disclosed as owned in its Nomination Notice. If the Permitted Number is not reached after the highest ranking Stockholder Nominee who meets the requirements of this Section 8 from each Eligible Stockholder has been selected, then the next highest ranking Stockholder Nominee who meets the requirements of this Section 8 from each Eligible Stockholder will be selected for inclusion in the Corporation’s proxy materials, and this process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached. Notwithstanding anything to the contrary contained in this Section 8, the Corporation shall not be required to include any Stockholder Nominees in its proxy materials pursuant to this Section 8 for any meeting of stockholders for which the Corporation receives a Nomination Notice (whether or not subsequently withdrawn) and the stockholder by whom or on whose behalf the nomination is to be made does not expressly elect, in a written statement accompanying the Nomination Notice, to have its Stockholder Nominee included in the Corporation’s proxy materials pursuant to this Section 8.

(c)Eligible Stockholder. An “Eligible Stockholder” is a stockholder or a group of no more than 20 stockholders (counting as one stockholder, for this purpose, any two or more funds that are part of the same Qualifying Fund Group (as defined below)) that (i) has Owned (as defined in Section 8(d) of this Article II) continuously for at least three years (the “Minimum Holding Period”) a number of shares of stock of the Corporation that represents at least three percent of the voting power of the outstanding shares of stock as of the date the Nomination Notice is delivered to or mailed and received by the Clerk of the Corporation in accordance with Section 2 of this Article II (the “Required Shares”) and (ii) continues to Own the Required Shares through the date of the annual meeting. A “Qualifying Fund Group” is any two or more funds that are (A) under common management and investment control, (B) under common management and funded primarily by the same employer or (C) a “group of investment companies” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended. Whenever the Eligible Stockholder consists of a group of stockholders (including a group of funds that are part of the same Qualifying Fund Group), (1) each provision in this Section 8 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to meet any other conditions shall be deemed to require each stockholder (including each individual fund within a Qualifying Fund Group) that is a member of such group to provide such statements, representations, undertakings, agreements or other instruments and to meet such other conditions (except that the members of such group may aggregate the shares that each member has Owned continuously for the Minimum Holding Period in order to meet the three percent Ownership requirement of the “Required Shares” definition) and (2) a breach of any obligation, agreement or representation under this Section 8 by any member of such group shall be deemed a breach by the Eligible Stockholder. No person may be a member of more than one group of stockholders constituting an Eligible Stockholder with respect to any annual meeting.

(d)Definition of Ownership. For purposes of this Section 8, a stockholder shall be deemed to “Own” only those outstanding shares of stock of the Corporation as to which the stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit

from and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (A) sold by such stockholder or any of its affiliates in any transaction that has not been settled or closed, (B) borrowed by such stockholder or any of its affiliates for any purposes or purchased by such stockholder or any of its affiliates pursuant to an agreement to resell, or (C) subject to any option, warrant, forward contract, swap, contract of sale, or other derivative or similar instrument or agreement entered into by such stockholder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of shares of outstanding capital stock of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder’s or its affiliates’ full right to vote or direct the voting of any such shares or (2) hedging, offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such shares by such stockholder or affiliate. For purposes of this Section 8, a beneficial owner shall be considered a “stockholder” and shall “Own” shares held in the name of a nominee or other intermediary so long as such person retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. A stockholder’s Ownership of shares shall be deemed to continue during any period in which (i) the stockholder has loaned such shares, provided that the stockholder has the power to recall such loaned shares on five business days’ notice and includes with its Nomination Notice an agreement that it (A) will promptly recall such loaned shares upon being notified that any of its Stockholder Nominees will be included in the Corporation’s proxy materials and (B) will continue to hold such shares through the date of the annual meeting, or (ii) the stockholder has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement that is revocable at any time by the stockholder. The terms “Owned,” “Owning” and other variations of the word “Own” shall have correlative meanings. Whether outstanding shares of stock of the Corporation are “Owned” for these purposes shall be determined by the Board of Directors. For purposes of this Section 8, the term “affiliate” or “affiliates” shall have the meaning ascribed thereto under the General Rules and Regulations under the Exchange Act.

(e)Information to be Included with a Nomination Notice. In addition to containing the information, representations and other documents required to be set forth in a Nomination Notice pursuant to Section 2 of this Article II, in order for a Stockholder Nominee to be eligible for inclusion in the Corporation’s proxy materials pursuant to this Section 8, the Nomination Notice must also set forth or be accompanied by the following:

(i)A written statement by the Eligible Stockholder setting forth and certifying as to the number of shares of stock it Owns and has Owned continuously for the Minimum Holding Period;

(ii)one or more written statements from the record holder of the Required Shares (and from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period) verifying that, as of a date within seven calendar days prior to the date the Nomination Notice is delivered to or mailed and received by the Clerk of the Corporation in accordance with Section 2 of this Article II, the Eligible Stockholder Owns, and has Owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible

Stockholder’s agreement to provide, within five business days following the later of the record date for the determination of stockholders certified to vote at the annual meeting and the date notice of the record date is first publicly disclosed, one or more written statements from the record holder and such intermediaries verifying the Eligible Stockholder’s continuous Ownership of the Required Shares through the record date;

(iii)    a copy of the Schedule 14N that has been or is concurrently being filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act;

(iv)    a representation and agreement that the Eligible Stockholder (A) will continue to hold the Required Shares through the date of the annual meeting, (B) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent, (C) has not nominated and will not nominate for election to the Board of Directors at the annual meeting any person whom it has not requested be included in the Corporation’s proxy materials pursuant to this Section 8, (D) has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors, (E) has not distributed and will not distribute to any stockholder of the Corporation any form of proxy for the annual meeting other than the form distributed by the Corporation, (F) has complied and will comply with all laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting and (G) has provided and will provide facts, statements and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

(v)    an undertaking that the Eligible Stockholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder’s communications with the stockholders of the Corporation or out of the information provided to the Corporation by or on behalf of the Eligible Stockholder, (B) indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of any nomination of any person for election to the Board of Directors submitted by or on behalf of the Eligible Stockholder or any solicitation or other activity in connection therewith, and (C) file with the Securities and Exchange Commission any solicitation or other communication with the stockholders of the Corporation relating to the meeting at which its Stockholder Nominee(s) will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act;

(vi)    a written representation and agreement from each Stockholder Nominee that such Stockholder Nominee (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such Stockholder Nominee, if elected

as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation in such representation and agreement or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with such person’s nomination or service or action as a director that has not been disclosed to the Corporation in such representation and agreement, (C) would be in compliance, if elected as a director of the Corporation, and will comply with the Corporation’s code of business conduct and ethics, corporate governance guidelines, stock ownership and trading policies and guidelines and any other policies or guidelines of the Corporation applicable to directors and (D) will make such other acknowledgments, enter into such agreements and provide such information as the Board of Directors requires of all directors, including promptly submitting all completed and signed questionnaires required of the Corporation’s directors;

(vii)    if the Eligible Stockholder consists of a group of stockholders, the designation by all group members of one member of the group that is authorized to receive communications, notices and inquiries from the Corporation and to act on behalf of all members of the group with respect to all matters relating to the request under this Section 8 (including withdrawal of the nomination); and

(viii)    if two or more funds that are part of the same Qualifying Fund Group are intended to be counted as one stockholder for purposes of qualifying as an Eligible Stockholder, documentation reasonably satisfactory to the Corporation that demonstrates that the funds are part of the same Qualifying Fund Group.

(f)Additional Required Information. In addition to the information required pursuant to Section 8(e) of this Article II or any other provision of these By-Laws, the Corporation may require (i) any proposed Stockholder Nominee requested to be included in the Corporation’s proxy materials to furnish any other information (A) that may reasonably be requested by the Corporation to determine whether the Stockholder Nominee would be independent under the Independence Standards (as defined in Section 8(i) of this Article II), (B) that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such Stockholder Nominee or (C) that may reasonably be requested by the Corporation to determine the eligibility of such Stockholder Nominee to be included in the Corporation’s proxy materials pursuant to this Section 8 or to serve as a director of the Corporation, and (ii) any Eligible Stockholder to furnish any other information that may reasonably be requested by the Corporation to verify the Eligible Stockholder’s continuous ownership of the Required Shares for the Minimum Holding Period and through the date of the annual meeting.

(g)Supporting Statement. The Eligible Stockholder may, at its option, provide to the Clerk of the Corporation, at the time the Nomination Notice is provided, a written statement, not to exceed 500 words, in support of its Stockholder Nominee(s)’ candidacy (a “Supporting Statement”). Only one Supporting Statement may be submitted by an Eligible Stockholder (including any group of stockholders together constituting an Eligible Stockholder) in support of its Stockholder Nominee(s). Notwithstanding anything to the contrary contained in this

Section 8, the Corporation may omit from its proxy materials any information or Supporting Statement (or portion thereof) that it, in good faith, believes would violate any applicable law, rule or regulation.

(h)Correction of Defects; Updates and Supplements. In the event that any information or communications provided by or on behalf of an Eligible Stockholder or a Stockholder Nominee to the Corporation or its stockholders ceases to be true and correct in all material respects or omits to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, such Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Clerk of the Corporation of any such defect and of the information that is required to correct any such defect. Without limiting the forgoing, an Eligible Stockholder must provide immediate notice to the Corporation if the Eligible Stockholder ceases to Own any of the Required Shares prior to the date of the annual meeting. For the avoidance of doubt, no notification, update or supplement provided pursuant to this Section 8(h) shall be deemed to cure any defect in any previously provided information or communications or limit the remedies available to the Corporation relating to any such defect (including the right to omit a Stockholder Nominee from its proxy materials pursuant to this Section 8).

(i)Stockholder Nominee Eligibility. Notwithstanding anything to the contrary contained in this Section 8, the Corporation shall not be required to include in its proxy materials, pursuant to this Section 8, a Stockholder Nominee (i) who would not be an independent director under the rules and listing standards of the United States securities exchanges upon which the capital stock of the Corporation is listed or traded, any applicable rules of the Securities and Exchange Commission, or any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Corporation’s directors (collectively, the “Independence Standards”), (ii) whose election as a member of the Board of Directors would cause the Corporation to be in violation of these By-Laws, the Articles of Organization, the rules and listing standards of the United States securities exchanges upon which the capital stock of the Corporation is listed or traded, or any applicable law, rule or regulation, (iii) who is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (iv) who is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past 10 years, (v) who is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended, or (vi) who shall have provided any information to the Corporation or its stockholders that was untrue in any material respect or that omitted to state a material fact necessary to make the statements made, in light of the circumstances in which they were made, not misleading.

(j)Omission and Removal of Stockholder Nominees. Notwithstanding anything to the contrary set forth herein, if (i) a Stockholder Nominee and/or the applicable Eligible Stockholder breaches any of its representations, agreements or undertakings or fails to comply with any of its obligations under this Section 8 or Section 2 of this Article II, or (ii) a Stockholder Nominee otherwise becomes ineligible for inclusion in the Corporation’s proxy materials pursuant to this Section 8 or dies, becomes disabled or otherwise becomes ineligible or unavailable for election at the annual meeting, in each case as determined by the Board of Directors or the presiding officer of the annual meeting,

then (A) the Corporation may omit or, to the extent feasible, remove the information concerning such Stockholder Nominee and the related Supporting Statement from its proxy materials and otherwise communicate to its stockholders that such Stockholder Nominee will not be eligible for election at the annual meeting and, (B) the Corporation shall not be required to include in its proxy materials any successor or replacement nominee proposed by the applicable Eligible Stockholder or any other Eligible Stockholder.

(k)Restrictions on Re-Nominations. Any Stockholder Nominee who is included in the Corporation’s proxy materials for a particular annual meeting of stockholders but either (i) withdraws from or becomes ineligible or unavailable for election at the annual meeting, or (ii) does not receive at least 10% of the votes cast in favor of such Stockholder Nominee’s election, will be ineligible to be included in the Corporation’s proxy materials pursuant to this Section 8 for the next two annual meetings of stockholders.

(l)General. This Section 8 provides the exclusive method for a stockholder to include nominees for election to the Board of Directors in the Corporation’s proxy materials.

Section 9. Other Committees. The Board of Directors may, by vote of a majority of the directors then in office, elect from their number other committees and may delegate to any such committee or committees some or all of the powers of the Board of Directors except those powers which by law, by the Articles of Organization, or by these By-Laws they are prohibited from delegating. Except as the Board of Directors may otherwise determine, each committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the conduct of business by the Board of Directors. The Board of Directors shall have the power to rescind any vote, resolution, or other action of any committee, provided that the rights of third parties shall not be impaired by such rescission.

Section 10. Regular Meetings. A regular meeting of the Board of Directors shall be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. Other regular meetings of the Board of Directors may be held without call or notice at such places and at such times as the Board of Directors may, from time to time, determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors.

Section 11. Special Meetings. Special meetings of the Board of Directors may be held at any time and at any place designated in the call of the meeting, when called by the Chairman of the Board, the President, or by two or more directors.

Section 12. Notice of the Meetings. It shall be sufficient notice to a director of a meeting of the Board of Directors (i) to send notice by mail at least forty-eight (48) hours before the meeting, addressed to such directors at his usual or last known business or residence address, (ii) to send notice by electronic mail (to the electronic mail address designated by such director) at least twenty-four (24) hours before the meeting, or (iii) to give notice to such director in person

or by telephone at least twenty-four (24) hours before the meeting. A director may waive any notice before or after the date and time of the meeting. The waiver shall be in writing, signed by the director entitled to the notice, or in the form of an electronic transmission by the director to a representative of the Corporation, and filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.

Section 13. Quorum of Directors. At any meeting of the Board of Directors, a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice.

Section 14. Action by Vote. When a quorum is present at any meeting, a majority of the directors present may take any action, except when a larger vote is required by law, by the Articles of Organization, or by these By-Laws.

Section 15. Action by Written Consent. Unless the Articles of Organization otherwise provide, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all the directors or members of the committee as the case may be, consent to the action. The action must be evidenced by one or more consents describing the action taken, in writing, signed by each director or delivered to the Corporation by electronic transmission, and included in the minutes or filed with the corporate records reflecting the action taken. Such consents shall be treated for all purposes as a vote taken at a meeting.

Section 16. Participation Through Communications Equipment. Unless otherwise provided by law or the Articles of Organization, members of the Board of Directors or of any committee thereof may participate in a meeting of such Board or committee, as the case may be, through conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting.

Section 17. Compensation of Directors. The Board of Directors may provide for the payment to any of the directors, other than officers or employees of the Corporation, of a specified amount for services as a director or member of a committee of the Board, or of a specified amount for attendance at each regular or special Board or committee meeting or of both, and all directors shall be reimbursed for expenses of attendance at any such meeting; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE III

OFFICERS AND AGENTS

Section 1. Enumeration; Qualification. The officers of the Corporation shall be a President, a Treasurer, a Secretary, who may also be referred to in these By-Laws as the Clerk, and such other officers, including, without limitation, a Chairman of the Board, one or more Vice Presidents, Assistant Treasurers, and Assistant Clerks as the Board of Directors from time to time may in their discretion elect or appoint. In addition, the Corporation shall have such other agents as may be appointed by management in accordance with these By-Laws. The Chairman of the Board shall be a director. The President need not be a director. Any two or more offices may be held by the same person.

Section 2. Powers. Subject to law, to the Articles of Organization, and to the other provisions of these By-Laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such duties and powers as the Board of Directors may from time to time designate.

Section 3. Election. The Chairman of the Board, if any, the President, the Treasurer, and the Clerk shall be elected annually by the Board of Directors at their first meeting following the annual meeting of the stockholders. Other officers, if any, may be elected or appointed by the Board of Directors at said meeting or at any other time.

Section 4. Tenure. Except as otherwise provided by law, by the Articles of Organization, or by these By-Laws, the Chairman of the Board, if any, the President, the Treasurer, and the Clerk shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders and until their respective successors are chosen and qualified, and each other officer shall hold office for such term as may be designated in the vote electing or appointing him, or in each case until such officer sooner dies, resigns, is removed, or becomes disqualified.

Section 5. Chief Executive Officer. The Chief Executive Officer of the Corporation shall be the Chairman of the Board, the President, or such other officer as may from time to time be designated by the Board of Directors. If no such designation is made, the President shall be the Chief Executive Officer. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general charge and supervision of the business of the Corporation and, except as the Board of Directors shall otherwise determine, shall preside at all meetings of the stockholders and of the Executive Committee. Unless otherwise determined by the Board of Directors, the Chief Executive Officer shall have the authority to appoint such agents, in addition to those officers enumerated in Section 2 of this Article III as being elected or appointed by the Board of Directors, as he shall deem appropriate and to define their respective duties and powers.

Section 6. Chairman of the Board. If a Chairman of the Board of Directors is elected, he shall preside at all meetings of the Board of Directors and shall have the duties and powers specified in these By-Laws and such other duties and powers as may be determined by the Board of Directors.

Section 7. President and Vice Presidents. The President shall have the duties and powers specified in these By-Laws and shall have such other duties and powers as may be determined by the Board of Directors.

The Vice Presidents shall have such duties and powers as shall be designated from time to time by the Board of Directors. Unless the Board of Directors otherwise determines, one Vice President shall be designated as the Chief Financial officer of the Corporation and, as such, shall be the chief financial and accounting officer of the Corporation and shall have the duties and powers commonly incident thereto.

Section 8. Treasurer and Assistant Treasurers. The Treasurer shall have general responsibility for the corporate treasury function, shall be in charge of its funds and valuable papers, books of account, and accounting records, and shall have such other duties and powers as may be designated from time to time by the Board of Directors.

Any Assistant Treasurer shall have such duties and powers as shall be designated from time to time by the Board of Directors or the Treasurer.

Section 9. Clerk and Assistant Clerks. The Clerk shall record all proceedings of the stockholders and Board of Directors in a book or series of books to be kept for that purpose, which book or books shall be kept as the principal office of the Corporation and shall be open at all reasonable times to the inspection of any stockholder. In the absence of the Clerk from any meeting of the stockholders or Board of Directors, an Assistant Clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid book.

Any Assistant Clerks shall have such other duties and powers as shall be designated from time by the Board of Directors or the Clerk.

ARTICLE IV

CAPITAL STOCK

Section 1. Stock Certificates. The Board of Directors may authorize the issue without certificates of some or all of the shares of any or all of the Corporation’s classes or series of stock.  Except to the extent the Board of Directors has determined to issue shares without certificates, a stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity

to law, be prescribed from time to time by the Board of Directors. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a director, officer, or employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the time of its issue.

Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws, or any agreement to which the Corporation is a party shall have the existence of the restriction noted conspicuously on the certificate and shall also set forth on the face or back either a summary of the restriction or a statement of the existence of such restriction and a statement that the Corporation will, upon written request, furnish a copy thereof to the holder of such certificate without charge.

Every certificate issued when the Corporation is authorized to issue more that one class or series of stock shall set forth on its face or back either a summary of the preferences, voting powers, qualifications, and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications, and rights and a statement that the Corporation will, upon written request, furnish a copy thereof to the holder of such certificate without charge.

Section 2. Lost Certificates. In the case of the alleged loss, destruction, or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such conditions as the Board of Directors may prescribe. When authorizing such issue of a new certificate, the Board may in its discretion require the owner of such lost, destroyed, or mutilated certificate, or his legal representative, to give the Corporation a bond, with or without surety, sufficient in the Board's opinion to indemnify the Corporation against any loss or claim that may be made against it with request to the certificate alleged to have been lost, destroyed, or mutilated.

Section 3. Transfer of Shares. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the Board of Directors or the transfer agent of the Corporation may reasonably require. Except as may be otherwise required by law, by the Articles of Organization, or by these By-Laws, the Corporation shall be entitled to treat the record holder of stock as shown on its on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge, or other disposition of such stock, until the shares have been transferred on the books of the stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws.

Section 4. Record Date and Closing Transfer Books. The Board of Directors may fix in advance a time, which shall not be more than sixty (60) days before the date of any meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date; or without fixing such record date the Board of Directors may for any such purposes close the transfer books for all or any part of such period.

If no record date is fixed and the transfer books are not closed, the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given, and the record date for determining stockholders for any other purpose shall be at the close of business on the date on which the Board of Directors acts with respect thereto.

ARTICLE V

INDEMNIFICATION

Section 1. Directors and Officers. The Corporation shall indemnify, and advance funds to pay for or reimburse the reasonable expenses incurred by, its directors and the officers that have been appointed by the Board of Directors (including persons who serve at its request as directors, officers, or trustees of another organization in which it has any interest, direct or indirect, as a shareholder, creditor, or otherwise or who serve at its request in any capacity with respect to any employee benefit plan) to the fullest extent permitted by law, and may indemnify, and advance funds to pay for or reimburse the reasonable expenses incurred by, such other employees and agents as are identified by the Board of Directors.

The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director or officer may be entitled. As used in this section, the terms "director" and "officer" include their respective heirs, executors, and administrators, an "interested" director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending or threatened, and a "disinterested" director is one against whom no such proceeding is then pending or threatened. Nothing contained in this section shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law.

The Board of Directors may authorize the purchase and maintenance of insurance, in such amounts as the Board of Directors may from time to time deem appropriate, on behalf of any person who is or was a director or officer or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, or agent of another organization in which it has any interest, direct or indirect, as a shareholder, creditor, or otherwise, or with respect to any employee benefit plan, against any liability incurred by him in any such capacity, or arising out of his status as such, whether or not such person is entitled to indemnification by the Corporation pursuant to this Article V or otherwise and whether or not the Corporation would have the power to indemnify him against such liability.

ARTICLE VI

MISCELLANEOUS

Section 1. Corporate Seal. The seal of the Corporation shall be in such form as the Board of Directors may from time to time determine.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be such period as shall from time to time be determined by the Board of Directors.

Section 3. [Intentionally Omitted]

Section 4. Execution of Documents. Except as the Board of Directors may generally or in specific instances authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, checks, drafts, and other orders for the payment of money out of the funds of the Corporation, and all bonds, notes, debentures, guarantees, and other obligations or evidences or indebtedness of the Corporation shall be executed by the Chairman of the Board, the President, any Vice President, or the Treasurer.

Section 5. Voting of Securities. Except as the Board of Directors may generally or in specific instances direct otherwise, the Chairman of the Board, the President, any Vice President, or the Treasurer shall have the power, in the name and on behalf of the Corporation, to waive notice of, appoint any person or persons to act as proxy or attorney-in-fact of the Corporation (with or without power of substitution) to vote at, or attend and act for the Corporation at, any meeting of holders of shares or other securities of any other organization of which the Corporation holds shares or securities.

Section 6. Appointment of Auditor. The Board of Directors, or a committee thereof, shall each year select independent public accountants to report to the stockholders on the financial statements of the Corporation for such year. The selection of such accountants shall be presented to the stockholders for their approval at the annual meeting

each year; provided, however, that if the shareholders shall not approve the selection made by the Board, the Board shall appoint other independent public accountants for such year.

ARTICLE VII

AMENDMENTS

These By-Laws may be altered, amended, or repealed, and new By-Laws not inconsistent with any provision of the Articles of organization or applicable statute may be made either by the affirmative vote of a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, at any annual or special meeting of the stockholders called for the purpose, or (except with respect to any provision hereof which by law, the Articles of Organization, or these By-Laws requires action by the stockholders) by the affirmative vote of a majority of the Board of Directors then in office. Not later that the time of giving notice of the meeting of stockholders next following the making, amending, or repealing by the Board of Directors of any By-Law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-Laws. Any By-Law made, amended, or repealed by the Board of Directors may be altered, amended, repealed, or reinstated by the stockholders.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jeffrey M. Leiden, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 26, 2018	/s/ Jeffrey M. Leiden
		Jeffrey M. Leiden
		Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas Graney, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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 within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 26, 2018	/s/ Thomas Graney
		Thomas Graney
		Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 906 CEO/CFO CERTIFICATION

Pursuant 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’s knowledge, that the Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	July 26, 2018
		/s/ Jeffrey M. Leiden
		Jeffrey M. Leiden
		Chief Executive Officer and President
Date:	July 26, 2018
		/s/ Thomas Graney
		Thomas Graney
		Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Jul. 20, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	VERTEX PHARMACEUTICALS INC / MA
Entity Central Index Key	0000875320
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding (in shares)		255,559,939

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Revenues	$ 752,157	$ 544,135	$ 1,392,956	$ 1,258,853
Costs and expenses:
Cost of sales	104,382	71,205	175,995	118,193
Research and development expenses	337,532	289,451	648,085	563,014
Sales, general and administrative expenses	137,303	127,249	267,111	240,575
Restructuring expenses (income)	62	3,523	(14)	13,522
Total costs and expenses	579,279	491,428	1,091,177	935,304
Income from operations	172,878	52,707	301,779	323,549
Interest expense, net	(10,106)	(14,664)	(21,203)	(31,429)
Other income (expense), net	53,819	(2,537)	150,657	(3,081)
Income before provision for (benefit from) income taxes	216,591	35,506	431,233	289,039
Provision for (benefit from) income taxes	10,341	4,337	(2,318)	8,322
Net income	206,250	31,169	433,551	280,717
Loss (income) attributable to noncontrolling interest	1,110	(13,173)	(15,928)	(14,965)
Net income attributable to Vertex	$ 207,360	$ 17,996	$ 417,623	$ 265,752
Net income:
Basic (in dollars per share)	$ 0.82	$ 0.07	$ 1.65	$ 1.08
Diluted (in dollars per share)	$ 0.80	$ 0.07	$ 1.61	$ 1.06
Shares used in per share calculations:
Basic (in shares)	254,135	247,521	253,685	246,782
Diluted (in shares)	258,584	251,635	258,557	250,199
Product revenues, net
Revenues:
Revenues	$ 749,912	$ 513,988	$ 1,387,641	$ 994,610
Royalty revenues
Revenues:
Revenues	1,085	2,861	2,441	4,412
Collaborative revenues
Revenues:
Revenues	$ 1,160	$ 27,286	$ 2,874	$ 259,831

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
Net income	$ 206,250	$ 31,169	$ 433,551	$ 280,717
Changes in other comprehensive income (loss):
Unrealized holding gains (losses) on marketable securities, net of tax of zero, $1.0 million, zero and zero, respectively	373	(17,281)	(87)	(13,747)
Unrealized gains (losses) on foreign currency forward contracts, net of tax of $0.2 million, $1.1 million, $0.5 million and $2.0 million, respectively	25,895	(15,245)	25,033	(21,926)
Foreign currency translation adjustment	8,870	(5,252)	6,141	(7,253)
Total changes in other comprehensive income (loss)	35,138	(37,778)	31,087	(42,926)
Comprehensive income (loss)	241,388	(6,609)	464,638	237,791
Comprehensive loss (income) attributable to noncontrolling interest	1,110	(13,173)	(15,928)	(14,965)
Comprehensive income (loss) attributable to Vertex	$ 242,498	$ (19,782)	$ 448,710	$ 222,826

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Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
Unrealized holding (losses) gains on marketable securities, net of tax of zero	$ 0.0	$ (1.0)	$ 0.0	$ 0.0
Unrealized losses on foreign currency forward contracts, net of tax	$ (0.2)	$ (1.1)	$ (0.5)	$ (2.0)

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 2,145,359	$ 1,665,412
Marketable securities	622,396	423,254
Restricted cash and cash equivalents (VIE)	8,510	1,489
Accounts receivable, net	393,439	281,343
Inventories	115,025	111,830
Prepaid expenses and other current assets	122,694	165,635
Total current assets	3,407,423	2,648,963
Property and equipment, net	815,928	789,437
Intangible assets	29,000	29,000
Goodwill	50,384	50,384
Other assets	32,651	28,230
Total assets	4,335,386	3,546,014
Current liabilities:
Accounts payable	83,034	73,994
Accrued expenses	479,120	443,961
Capital lease obligations, current portion	15,060	22,531
Early access sales accrual	290,457	232,401
Other liabilities, current portion	59,629	34,373
Total current liabilities	927,300	807,260
Capital lease obligations, excluding current portion	15,030	20,496
Deferred tax liability	9,335	6,341
Construction financing lease obligation, excluding current portion	562,645	563,406
Advance from collaborator, excluding current portion	80,602	78,431
Other liabilities, excluding current portion	25,591	27,774
Total liabilities	1,620,503	1,503,708
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding	0	0
Common stock, $0.01 par value; 500,000,000 shares authorized, 254,882,837 and 253,253,362 shares issued and outstanding, respectively	2,542	2,512
Additional paid-in capital	7,357,042	7,157,362
Accumulated other comprehensive loss	(4,605)	(11,572)
Accumulated deficit	(4,668,751)	(5,119,723)
Total Vertex shareholders’ equity	2,686,228	2,028,579
Noncontrolling interest	28,655	13,727
Total shareholders’ equity	2,714,883	2,042,306
Total liabilities and shareholders’ equity	$ 4,335,386	$ 3,546,014

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	254,882,837	253,253,362
Common stock, shares outstanding	254,882,837	253,253,362

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Condensed Consolidated Statements of Shareholders' Equity and Noncontrolling Interest - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total Vertex Shareholders’ Equity	Noncontrolling Interest
Increase (Decrease) in Stockholders' Equity
Cumulative effect adjustment for adoption of new accounting guidance	$ 0		$ 9,371		$ (9,371)
Balance (shares) at Dec. 31, 2016		248,301,000
Beginning Balance at Dec. 31, 2016	1,338,191	$ 2,450	6,506,795	$ 21,173	(5,373,836)	$ 1,156,582	$ 181,609
Increase (Decrease) in Stockholders' Equity
Other comprehensive loss, net of tax	(42,926)			(42,926)		(42,926)
Net income	280,717				265,752	265,752	14,965
Issuance of common stock under benefit plans (shares)		2,469,000
Issuance of common stock under benefit plans	148,008	$ 29	147,979			148,008
Stock-based compensation expense	143,857		143,857			143,857
Other VIE activity	(616)						(616)
Balance (shares) at Jun. 30, 2017		250,770,000
Ending Balance at Jun. 30, 2017	1,867,231	$ 2,479	6,808,002	(21,753)	(5,117,455)	1,671,273	195,958
Increase (Decrease) in Stockholders' Equity
Cumulative effect adjustment for adoption of new accounting guidance	9,229			(24,120)	33,349	9,229
Balance (shares) at Dec. 31, 2017		253,253,000
Beginning Balance at Dec. 31, 2017	2,042,306	$ 2,512	7,157,362	(11,572)	(5,119,723)	2,028,579	13,727
Increase (Decrease) in Stockholders' Equity
Other comprehensive loss, net of tax	31,087			31,087		31,087
Net income	$ 433,551				417,623	417,623	15,928
Repurchases of common stock (shares)	(767,551)	(768,000)
Repurchases of common stock	$ (119,034)	$ (8)	(119,026)			(119,034)
Issuance of common stock under benefit plans (shares)		2,398,000
Issuance of common stock under benefit plans	157,627	$ 38	157,589			157,627
Stock-based compensation expense	161,117		161,117			161,117
Other VIE activity	(1,000)						(1,000)
Balance (shares) at Jun. 30, 2018		254,883,000
Ending Balance at Jun. 30, 2018	$ 2,714,883	$ 2,542	$ 7,357,042	$ (4,605)	$ (4,668,751)	$ 2,686,228	$ 28,655

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 433,551	$ 280,717
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	160,572	142,534
Depreciation expense	34,402	29,740
Write-downs of inventories to net realizable value	6,928	9,479
Deferred income taxes	3,516	4,626
Impairment of property and equipment	0	1,946
Unrealized gain on equity securities	(149,376)	0
Other non-cash items, net	10,014	(4,834)
Changes in operating assets and liabilities:
Accounts receivable, net	(88,166)	(49,767)
Inventories	(9,366)	(22,998)
Prepaid expenses and other assets	33,408	(39,531)
Accounts payable	12,229	14,047
Accrued expenses and other liabilities	126,648	81,386
Net cash provided by operating activities	574,360	447,345
Cash flows from investing activities:
Purchases of marketable securities	(202,002)
Purchases of marketable securities		(377,667)
Maturities of marketable securities	171,028	168,882
Expenditures for property and equipment	(58,891)	(28,477)
Investment in equity securities	(21,500)	0
Net cash used in investing activities	(111,365)	(237,262)
Cash flows from financing activities:
Issuances of common stock under benefit plans	144,837	147,887
Repurchase of common stock	(115,033)	0
Payments on revolving credit facility	0	(300,000)
Advance from collaborator	5,000	7,500
Payments on capital lease obligations	(14,061)	(10,637)
Proceeds related to construction financing lease obligation	9,566	0
Repayments of advanced funding	(2,412)	(2,044)
Other financing activities	(149)	(238)
Net cash provided by (used in) financing activities	27,748	(157,532)
Effect of changes in exchange rates on cash	(4,201)	3,500
Net increase in cash and cash equivalents	486,542	56,051
Cash, cash equivalents and restricted cash—beginning of period	1,667,526	1,231,707
Cash, cash equivalents and restricted cash—end of period	2,154,068	1,287,758
Supplemental disclosure of cash flow information:
Cash paid for interest	33,444	35,003
Cash paid for income taxes	7,069	2,218
Capitalization of costs related to construction financing lease obligation	5,176	38,930
Issuances of common stock from employee benefit plans receivable	13,634	188
Accrued share repurchase liability	$ 4,001	$ 0

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Basis of Presentation and Accounting Policies

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation and Accounting Policies

Basis of Presentation and Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) consolidated variable interest entities (VIEs). All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. As of September 30, 2017, the Company deconsolidated Parion Sciences, Inc. (“Parion”), a VIE the Company had consolidated since 2015. The Company's condensed consolidated statement of operations for the interim period ended June 30, 2018 excludes Parion. Please refer to Note B, “Collaborative Arrangements and Acquisitions,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2018 (the “2017 Annual Report on Form 10-K”) for further information regarding the deconsolidation of Parion.

Certain information and footnote disclosures normally included in the Company’s 2017 Annual Report on Form 10-K have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2018 and 2017.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2017, which are contained in the 2017 Annual Report on Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, the fair value of intangible assets, goodwill, contingent consideration, noncontrolling interest, the consolidation and deconsolidation 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 that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Recently Adopted Accounting Standards

Revenue Recognition

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606)(“ASC 606”). The new guidance became effective January 1, 2018. ASC 606 applies a more principles-based approach to recognizing revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 on January 1, 2018 using the modified-retrospective adoption method for all contracts that were not completed as of the date of adoption. Under the modified-retrospective method, the Company recognized the cumulative effect of applying the standard within “Accumulated deficit” on its condensed consolidated balance sheet as of January 1, 2018.

For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adoption rules.

Based on the Company’s review of existing customer contracts as of January 1, 2018, it concluded that the only significant impact that the adoption of ASC 606 had on its financial statements relates to shipments of ORKAMBI under early access programs in France. Prior to the adoption of ASC 606, the Company did not recognize revenue on the proceeds received from sales of ORKAMBI under early access programs in France because the price was not fixed or determinable based on the status of ongoing pricing discussions. As of January 1, 2018, the Company recorded a cumulative effect adjustment to its accumulated deficit of $8.3 million related to the adoption of ASC 606, which primarily represented the Company’s estimated amount of consideration it expects to retain related to these shipments that will not be subject to a significant reversal in amounts recognized, net of costs previously deferred related to these shipments. Please refer to Note B, “Revenue Recognition,” for further information.

The Company concluded that the remaining $6.9 million that was recorded as deferred revenue as of December 31, 2017 related to the Company’s sale of its HIV protease inhibitor royalty stream in 2008 is not subject to ASC 606 because it was initially accounted for pursuant to ASC 470, Debt, which is not under the scope of ASC 606. The Company will continue to recognize the payment received as royalty revenues over the expected life of the collaboration agreement with GlaxoSmithKline plc based on the units-of-revenue method.

The cumulative effect of applying ASC 606 to the Company’s contracts with customers that were not completed as of January 1, 2018 was as follows:

	Balance as of						Balance as of
	December 31, 2017			Adjustments			January 1, 2018
Assets	(in thousands)
Accounts receivable, net	$	281,343		$	29,881		$	311,224
Inventories	111,830			(90		)	111,740
Prepaid expenses and other current assets	165,635			(17,166		)	148,469
Total assets	$	3,546,014		$	12,625		$	3,558,639
Liabilities and Shareholders’ Equity
Accrued expenses	$	443,961		$	8,586		$	452,547
Early access sales accrual	232,401			(7,273		)	225,128
Other liabilities, current portion	34,373			2,083			36,456
Accumulated other comprehensive loss	(11,572		)	949			(10,623		)
Accumulated deficit	(5,119,723		)	8,280			(5,111,443		)
Total liabilities and shareholders’ equity	$	3,546,014		$	12,625		$	3,558,639

The impact of adoption on the Company’s condensed consolidated balance sheet as of June 30, 2018 was as follows:

	As of June 30, 2018
	As Reported under ASC 606			Balances without Adoption of ASC 606			Effect of Change Higher/(Lower)
Assets	(in thousands)
Accounts receivable, net	$	393,439		$	359,103		$	34,336
Inventories	115,025			115,117			(92		)
Prepaid expenses and other current assets	122,694			142,704			(20,010		)
Total assets	$	4,335,386		$	4,321,152		$	14,234
Liabilities and Shareholders’ Equity
Accrued expenses	$	479,120		$	480,892		$	(1,772	)
Early access sales accrual	290,457			303,637			(13,180		)
Other liabilities, current portion	59,629			44,295			15,334
Accumulated other comprehensive loss	(4,605		)	(4,801		)	196
Accumulated deficit	(4,668,751		)	(4,682,407		)	13,656
Total liabilities and shareholders’ equity	$	4,335,386		$	4,321,152		$	14,234

The impact of adoption on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2018 was as follows:

	Three Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	749,912	$	745,975	$	3,937
Cost of sales	104,382		102,688		1,694
Income from operations	172,878		170,635		2,243
Net income attributable to Vertex	$	207,360	$	205,117	$	2,243
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	0.82	$	0.81	$	0.01
Diluted	$	0.80	$	0.79	$	0.01

	Six Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	1,387,641	$	1,379,039	$	8,602
Cost of sales	175,995		172,769		3,226
Income from operations	301,779		296,403		5,376
Net income attributable to Vertex	$	417,623	$	412,247	$	5,376
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	1.65	$	1.62	$	0.03
Diluted	$	1.61	$	1.59	$	0.02

ASC 606 did not have an aggregate impact on the Company’s net cash provided by operating activities, but resulted in offsetting changes in certain assets and liabilities presented within net cash provided by operating activities in the Company’s condensed consolidated statement of cash flows.

Equity Investments

In 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which amended guidance related to the recording of financial assets and financial liabilities. Under the amended guidance, equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) are to be measured at fair value with changes in fair value recognized in net income (loss). However, an entity has the option to measure equity investments without readily determinable fair values at (i) fair value or (ii) cost adjusted for changes in observable prices minus impairment. Changes in measurement under either alternative are recognized in net income (loss). The amended guidance became effective January 1, 2018 and required the modified-retrospective adoption approach. As of January 1, 2018, the Company held publicly traded equity investments and equity investments accounted for under the cost method. As a result, in the first quarter of 2018, the Company recorded a $25.1 million cumulative effect adjustment to “Accumulated deficit” related to its publicly traded equity investments equal to the unrealized gain, net of tax, that was recorded in “Accumulated other comprehensive loss” as of December 31, 2017. The adoption of ASU 2016-01 had no effect on the Company’s equity investments accounted for under the cost method because the original cost basis of these investments was recorded on the Company’s condensed consolidated balance sheet as of December 31, 2017. In the three and six months ended June 30, 2018, the Company recorded income of $53.9 million and $149.4 million, respectively, to “Other income (expense), net,” in its condensed consolidated statement of operations related to the change in fair value of its equity investments.

Stock-Based Compensation

In 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718) (“ASU 2017-09”) related to the scope of stock option modification accounting to reduce diversity in practice and provide clarity regarding existing guidance. The new accounting guidance was effective January 1, 2018. The Company does not expect the adoption of ASU 2017-09 to have a significant effect on its condensed consolidated financial statements in future periods and had no effect in the three and six months ended June 30, 2018.

Goodwill

In 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350) (“ASU 2017-04”) related to measurements of goodwill. The amended guidance modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value, which eliminates Step 2 from the goodwill impairment test. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the related reporting unit. The new accounting guidance is required for annual or interim goodwill impairment tests conducted after January 1, 2020. The Company early adopted this new guidance and will utilize this approach for annual and interim goodwill impairment tests conducted after January 1, 2018. The Company does not expect the adoption of this guidance to have a significant effect on its condensed consolidated financial statements.

Intra-Entity Transfers

In 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which removes the previous exception in GAAP prohibiting an entity from recognizing current and deferred income tax expenses or benefits related to the transfer of assets, other than inventory, within the consolidated entity. The exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amended guidance became effective January 1, 2018. In the first quarter of 2018, upon adoption of ASU 2016-16, the Company recorded a deferred tax asset and corresponding full valuation allowance of $204.7 million equal to the unamortized cost of intellectual property rights transferred to the United Kingdom in 2014 multiplied by an appropriate statutory rate. There was no cumulative effect adjustment to “Accumulated deficit” using the modified-retrospective adoption approach.

Cash Flows - Restricted Cash

In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. Therefore, amounts described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows.  The amended guidance became effective January 1, 2018 and is effective on a retrospective basis. The cash, cash equivalents and restricted cash at the beginning and ending of each period presented in the Company’s condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2017 consisted of the following:

	Six Months Ended June 30, 2018				Six Months Ended June 30, 2017
	Beginning of period		End of period		Beginning of period		End of period
Cash and cash equivalents	$	1,665,412	$	2,145,359	$	1,183,945	$	1,223,130
Restricted cash and cash equivalents (VIE)	1,489		8,510		47,762		64,628
Prepaid expenses and other current assets	625		199		—		—
Cash, cash equivalents and restricted cash per statement of cash flows	$	1,667,526	$	2,154,068	$	1,231,707	$	1,287,758

The Company’s restricted cash is classified in “Prepaid expenses and other current assets” in its condensed consolidated balance sheets. The Company has recorded its VIE’s cash and cash equivalents as “Restricted cash and cash equivalents (VIE)” because (i) the Company does not have any interest in or control over BioAxone’s cash and cash equivalents and (ii) the Company’s agreement with BioAxone does not provide for BioAxone’s cash and cash equivalents to be used for the development of the asset that the Company licensed from BioAxone.

Recently Issued Accounting Standards

Derivatives and Hedging

In 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”), which helps simplify certain aspects of hedge accounting and enables entities to more accurately present their risk management activities in their financial statements. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company is in the process of determining the expected effect on its condensed consolidated financial statements.

Leases

In 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which amends a number of aspects of lease accounting and requires entities to recognize on the balance sheet right-of-use assets and liabilities for leases with lease terms of more than 12 months. ASU 2016-02 requires a modified-retrospective adoption approach. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company has formed a project team to review its portfolio of existing leases and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard. The Company anticipates that the amended guidance will result in the recognition of additional right-of-use assets and corresponding liabilities on its condensed consolidated balance sheets. As discussed in Note K, “Long-term Obligations,” the Company currently applies build-to-suit accounting and is the deemed owner of its leased corporate headquarters in Boston and research site in San Diego, for which it is recognizing depreciation expense over the buildings’ useful lives and imputed interest on the corresponding construction financing lease obligations. Under the amended guidance, the Company expects to account for these buildings as financing leases, resulting in increased depreciation expense over the respective lease terms, which are significantly shorter than the buildings’ useful lives. The Company also expects a reduction in its imputed interest expense in the initial years of each financing lease term. The Company is also in the process of implementing appropriate changes to its controls to support lease accounting and related disclosures under the new standard.

For a discussion of other recent accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies—Recent Accounting Pronouncements,” in the 2017 Annual Report on Form 10-K.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in the 2017 Annual Report on Form 10-K. The Company is disclosing changes in its accounting policies related to guidance that became effective January 1, 2018 in this Quarterly Report on Form 10-Q. Specifically, the Company’s updated revenue recognition policy pursuant to its adoption of ASC 606 is included in Note B, “Revenue Recognition,” and its policy related to marketable and equity securities is included below.

Marketable and Equity Securities

Effective January 1, 2018, the Company measures publicly traded corporate equity investments that have readily available prices at fair value, with changes in fair value recognized in “Other income (expense), net,” each reporting period.

Effective January 1, 2018, the Company records privately issued corporate equity investments that do not have readily determinable fair values at cost, and adjusts for changes in observable prices minus impairment. Each reporting period, the Company adjusts the carrying value of these investments if it observes that additional shares have been issued in an orderly transaction between market participants resulting in a price increase or decrease per share. Additionally, each reporting period the Company reviews these investments for impairment considering all available information to conclude whether an impairment exists. Changes in measurement for all corporate equity investments are recognized in “Other income (expense), net.”

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Revenue Recognition

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Pursuant to ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. 

The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon delivery.

Product Revenues, Net

The Company sells its products principally to a limited number of specialty pharmacy and specialty distributors in the United States, which account for the largest portion of its total revenues, and makes international sales primarily to specialty distributors and retail chains, as well as hospitals and clinics, many of which are government-owned or supported (collectively, its “Customers”). The Company’s Customers in the United States subsequently resell the products to patients and health care providers. In accordance with ASC 606, the Company recognizes net revenues from product sales when the Customers obtain control of the Company’s products, which typically occurs upon delivery to the Customer. The Company’s payment terms are approximately 30 days in the United States and consistent with prevailing practice in international markets.

Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) trade allowances, which include invoice discounts for prompt payment and Customer fees, (b) government and private payor rebates, chargebacks, discounts and fees and (c) costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to “Accounts receivable, net” if payable to a Customer or “Accrued expenses” if payable to a third-party.  Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.  The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.  Actual amounts of consideration ultimately received may differ from the Company’s estimates.  If actual results vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Trade Allowances: The Company generally provides invoice discounts on product sales to its Customers for prompt payment and pays fees for distribution services, such as fees for certain data that Customers provide to the Company. The Company estimates that, based on its experience, its Customers will earn these discounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time such revenues are recognized.

Rebates, Chargebacks, Discounts and Fees: The Company contracts primarily with government agencies (its “Third-party Payors”) so that products will be eligible for purchase by, or partial or full reimbursement from, such Third-party Payors. The Company estimates the rebates, chargebacks, discounts and fees it will provide to Third-party Payors and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. For each product, the Company estimates the aggregate rebates, chargebacks and discounts that it will provide to Third-party Payors based upon (i) the Company’s contracts with these Third-party Payors, (ii) the government-mandated discounts and fees 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) historical experience.

Other Incentives: Other incentives that the Company offers include co-pay mitigation rebates provided by the Company to commercially insured patients who have coverage and who reside in states that permit co-pay mitigation programs. Based upon the terms of the Company’s co-pay mitigation programs, the Company estimates average co-pay mitigation amounts for each of its products in order to establish appropriate accruals.

The Company makes significant estimates and judgments that materially affect its recognition of net product revenues. The Company adjusts its estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates, chargebacks and discounts for its products, as it becomes available. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to the Company significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. The Company’s credits to revenue related to prior period sales have typically been approximately 1% or less of gross product revenues and primarily related to U.S. rebates, chargebacks and discounts.

The Company excludes taxes collected from Customers relating to product sales and remitted to governmental authorities from revenues.

French Early Access Programs

Pursuant to ASC 605, Revenue Recognition, which was applicable until December 31, 2017, the Company only recognized revenues from product sales if it determined that the price was fixed or determinable at the time of delivery. If the Company determined that the price was not fixed or determinable, it deferred the recognition of revenues. If the Company was able to determine that the price was fixed or determinable, it recognized the net product revenues associated with the units.

The Company began distributing ORKAMBI through early access programs in France during the fourth quarter of 2015 and is engaged in ongoing pricing discussions regarding the final price for ORKAMBI in France. The Company’s ORKAMBI net product revenues for 2017, 2016 and 2015 did not include any net product revenues from sales of ORKAMBI in France because the price was not fixed or determinable. The Company expects that the difference between the amounts collected based on the invoiced price and the final price for ORKAMBI in France will be returned to the French government.

As of June 30, 2018 and December 31, 2017, the Company’s condensed consolidated balance sheets included $290.5 million and $232.4 million, respectively, classified as “Early access sales accrual” related to amounts collected in France as payment for shipments of ORKAMBI under the early access programs, which is considered to be a refund liability pursuant to ASC 606.

Upon adopting ASC 606 in the first quarter of 2018, the Company recorded an $8.3 million cumulative effect adjustment to “Accumulated deficit” primarily related to shipments of ORKAMBI under early access programs in France. The Company determined the amount of the adjustment based upon (i) the status of pricing discussions in France upon adoption, (ii) the Company’s estimate of the amount of consideration it expects to retain related to ORKAMBI sales in France that occurred on or prior to December 31, 2017 that will not be subject to a significant reversal in amounts recognized and (iii) recognition of costs previously deferred related to the ORKAMBI sales in France. For ORKAMBI sales in France that occurred after December 31, 2017 under the early access programs, the Company has recognized net product revenues based on the estimate of consideration it expects to retain that will not be subject to a significant reversal in amounts recognized.

If the Company’s estimate regarding the amounts it will receive for ORKAMBI supplied pursuant to these early access programs changes, the Company will reflect the effect of the change in estimate in net product revenues in the period in which the change in estimate occurs and will include adjustments to all prior sales of ORKAMBI under the early access programs.

Collaborative Revenues

The Company recognizes collaborative revenues generated through collaborative research, development and/or commercialization agreements. The terms of these agreements typically include payment to the Company related to one or more of the following: nonrefundable, upfront license fees; development and commercial milestones; funding of research and/or development activities; and royalties on net sales of licensed products. Each type of payments results in collaborative revenues except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the collaborator.

For each collaborative research, development and/or commercialization agreement that results in revenue, the Company identifies all material performance obligations, which may include a license to intellectual property and know-how, research and development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimate of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis. In order to account for these agreements, the Company must develop assumptions that require judgment to determine the standalone selling price, which may include (i) 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 potential product sales with respect to the drug candidate and (iv) appropriate discount and tax rates. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company does not include a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not be satisfied within one year.

Upfront License Fees: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from the related nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total selling price of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments: Depending on facts and circumstances, the Company may conclude that it is appropriate to include certain milestones in the estimated transaction price or that it is appropriate to fully constrain the milestones. A milestone payment is included in the transaction price in the reporting period that the Company concludes that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods. The Company may record revenues from certain milestones in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. These milestones remain fully constrained until the Company concludes that their achievement is probable and that recognition of the related revenue will not result in a significant reversal in amounts recognized in future periods. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period and adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that it has recorded, if necessary.  

Research and Development Activities/Transition Services: If the Company is entitled to reimbursement from its collaborators for specified research and development expenses, the Company accounts for the related services that it provides as separate performance obligations if it determines that these services represent a material right. The Company also determines whether the reimbursement of research and development expenses should be accounted for as collaborative revenues or an offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The Company recognizes the corresponding revenues or records the corresponding offset to research and development expenses as it satisfies the related performance obligations.

Sales-based Milestone and Royalty Payments: The Company’s collaborators may be required to pay the Company sales-based milestones or royalties on future sales of commercial products.  The Company recognizes revenues related to sales-based milestone and royalties upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to the Company’s intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

Contract Liabilities

The following table summarizes changes in the Company’s contract liabilities for the six months endedJune 30, 2018:

	Balance at January 1, 2018 (ASC 606 adoption)		Additions		Deductions			Balance at June 30, 2018
	(in thousands)
Three Months Ended June 30, 2018
Contract liabilities:
Other liabilities, current portion	$	1,654	$	34,513	$	(3,736	)	$	32,431

The Company’s contract liabilities relate to contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement the Company can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right pursuant to ASC 606. These contracts, which are classified as “Other liabilities, current portion,” include upfront payments and fees.  The Company defers a portion of the consideration received for shipments made up to the annual reimbursement limit, and the deferred amount is recognized as revenue when the free products are shipped. The Company’s product revenue contracts include performance obligations that are one year or less.

During the six months endedJune 30, 2018, the Company did not recognize any revenues related to its contract liability balance as of January 1, 2018 or revenues related to performance obligations satisfied in previous periods.

Disaggregation of Revenue

Revenues by Product

Product revenues, net consisted of the following:

	Three Months Ended June 30,					Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)			2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
KALYDECO	$	253,093	$	189,633		$	502,632	$	375,348
ORKAMBI	311,261		324,407			665,327		619,268
SYMDEKO	185,558		—			219,682		—
Other	—		(52		)	—		(6		)
Total product revenues, net	$	749,912	$	513,988		$	1,387,641	$	994,610

Revenues by Geographic Location

Net product revenues are attributed to countries based on the location of the Customer. Collaborative and royalty revenues are attributed to countries based on the location of the Company’s subsidiary associated with the collaborative arrangement related to such revenues. Total revenues from external customers and collaborators by geographic region consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)		2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
United States	$	584,811	$	429,804	$	1,067,478	$	1,028,930
Outside of the United States
Europe	135,914		91,992		267,809		184,350
Other	31,432		22,339		57,669		45,573
Total revenues outside of the United States	167,346		114,331		325,478		229,923
Total revenues	$	752,157	$	544,135	$	1,392,956	$	1,258,853

In the three and six months ended June 30, 2018 and 2017, revenues attributable to Germany and the United Kingdom contributed the largest amounts to the Company’s European revenues.

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Collaborative Arrangements and Acquisitions

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Collaborative Arrangements and Acquisitions

Collaborative Arrangements and Acquisitions

Cystic Fibrosis Foundation Therapeutics Incorporated

The Company has a research, development and commercialization agreement with Cystic Fibrosis Foundation Therapeutics Incorporated (“CFFT”) that was originally entered into in 2004, and was most recently amended in 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/or tested 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 any approved 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 and SYMDEKO, sales are allocated equally to each of the active pharmaceutical ingredients in the combination product. The Company previously made certain commercial milestone payments to CFFT but there are no remaining commercial milestone payments payable by the Company to CFFT pursuant to the agreement.

Pursuant to the 2016 Amendment, the CFFT provided 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. The upfront payment plus any future development funding represent a form of financing pursuant to ASC 730, Research and Development, and thus the amounts are recorded as a liability on the condensed 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 to “Cost of sales” and as “Interest expense, net”.

The Company began marketing KALYDECO in 2012 and began marketing ORKAMBI in 2015. The Company received approval for SYMDEKO in the United States in February 2018 and has submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) seeking approval for tezacaftor in combination with ivacaftor in the European Union. The Company 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 United States and European Union covering the composition-of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject to potential patent extension. The Company has patents in the United States and European Union covering the composition-of-matter of lumacaftor that expire in 2030 and 2026, respectively, subject to potential extension. The Company has 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 extension.

CRISPR Therapeutics AG

In 2015, the Company entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AG and its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editing technology. The Company has the exclusive right to license up to six CRISPR-Cas9-based targets, including targets for the potential treatment of sickle cell disease. In connection with 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 a convertible loan agreement that subsequently converted into common shares of CRISPR and was recorded on the Company’s condensed consolidated balance sheet. The Company has made several additional investments in CRISPR’s common shares, including a $21.5 million investment in January 2018. As of June 30, 2018, the Company recorded the fair value of its investment in CRISPR common shares of $242.8 million in “Marketable securities” on its condensed consolidated balance sheet.

The Company funds all of the discovery activities conducted pursuant to the CRISPR Agreement. For targets that the Company elects to license, other than hemoglobinopathy treatments, the Company would lead all development and global commercialization activities. For each target that the Company elects to license, other than hemoglobinopathy targets, CRISPR has the potential to receive up to $420.0 million in development, regulatory and commercial milestones and royalties on net product sales. As part of the collaboration, the Company and CRISPR share equally all development costs and potential worldwide revenues related to potential hemoglobinopathy treatments, including treatments for 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 270 days’ notice after a product has received marketing approval. The CRISPR 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 CRISPR Agreement will continue in effect until the expiration of the Company’s payment obligations under the CRISPR Agreement.

In the fourth quarter of 2017, the Company entered into a co-development and co-commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement, under which the Company and CRISPR will co-develop and co-commercialize CTX001 for the treatment of hemoglobinopathy treatments, including treatments for sickle cell disease and beta-thalassemia.

Merck KGaA

In January 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 to research, develop and commercialize four oncology research and development programs. Under the Merck KGaA Agreement, the Company granted Merck KGaA exclusive, worldwide rights to two clinical-stage programs targeting DNA damage repair: its ataxia telangiectasia and Rad3-related protein inhibitor program, including VX-970 and VX-803, and its DNA-dependent protein kinase inhibitor program, including VX-984. In addition, the Company granted Merck 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. A portion of the upfront payment that was remitted to the German tax authorities in 2017 was refunded to the Company in February 2018. 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 high single digits for the pre-clinical research programs. Merck KGaA has assumed full responsibility for development and commercialization costs for all programs.

The Company evaluated the deliverables, primarily consisting of a license to the four programs and the obligation to complete certain fully-reimbursable research and development and transition activities as directed by Merck KGaA, pursuant to the Merck KGaA Agreement, under the multiple element arrangement accounting guidance that was applicable in 2017. The Company concluded that the license had stand-alone value from the research and development and transition activities 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 utilized key assumptions to determine the best estimate of selling price for the license, which included future potential net sales of licensed products, development timelines, reimbursement rates for personnel costs, discount rates, and estimated third-party development costs. The Company utilized a discounted cash flow model to determine its best estimate of selling price for the license and determined the best estimate of selling price for the research and development and transition activities based on what it would sell the services for separately. Given the significance of the best estimate of selling price for the license as compared to the best estimate of selling price for the research and development and transition services, reasonable changes in the assumptions used in the discounted cash flow model would not have a significant impact on the relative selling price allocation. Based on this analysis, the Company recognized the $230.0 million upfront payment upon delivery of the license as well as research and development and transition activities during the first quarter of 2017. The Company records the reimbursement for the research and development and transition activities in its condensed consolidated statements of operations as collaborative revenue primarily due to the fact that it is the primary obligor in the arrangement. As of December 31, 2017, the Company’s activities related to research and development and transition activities under the Merck KGaA Agreement were substantially complete.

Merck KGaA may terminate the Merck KGaA Agreement or any individual program by providing 90 days’ notice, or, in the case of termination of a program with a product that has received marketing approval, 180 days’ notice. The Merck KGaA Agreement also may be terminated by either party for a material breach by the other party, subject to notice and cure provisions. Unless earlier terminated, the Merck KGaA Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.

Variable Interest Entities (VIEs)

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 condensed consolidated financial statements as VIEs. In order to account for the fair value of the contingent payments, which could consist of milestone, royalty and option payments, related to these collaborations under GAAP, the Company uses present-value models based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the timing of achieving the milestones, estimates of future product sales and the appropriate discount rates. The Company bases its estimates of the probability of achieving the relevant milestones on industry data for similar assets and its own experience. The discount rates used in the valuation model represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Changes in these assumptions could have a material effect on the fair value of the contingent payments. The following collaborations have been reflected in the Company’s financial statements as consolidated VIEs for portions or all of the periods presented:

Parion Sciences, Inc.

In 2015, the Company entered into a strategic collaboration and license agreement (the “Parion Agreement”) with 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.

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 in Parion’s research program.  To date Parion received $85.0 million in upfront and milestone payments under the Parion Agreement. Parion has the potential to receive up to an additional (i) $485.0 million in development and regulatory milestone payments for development of ENaC inhibitors in CF, including $360.0 million related to global filing and approval milestones, (ii) $370.0 million in development and regulatory milestones for VX-371 and VX-551 in non-CF pulmonary indications and (iii) $230.0 million in development and regulatory milestones should the Company elect to develop an additional ENaC inhibitor from Parion’s research program. The Company agreed 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 upon 180 days’ notice after a licensed product has received marketing approval. If the Company experiences a change of control prior to the initiation of the first Phase 3 clinical trial for a licensed product, Parion may terminate the Parion Agreement upon 30 days’ notice, subject to the Company’s right to receive specified royalties on any subsequent commercialization of licensed products. The Parion 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 Parion Agreement will continue in effect until the expiration of the Company’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 product expires 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 the variable 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 fair value 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 significantly affect the economic performance of Parion and that it had the obligation to absorb losses and right to receive benefits that potentially could be significant to Parion.  Accordingly, the Company consolidated Parion's financial statements beginning in June 2015. Notwithstanding the applicable accounting treatment, the Company's interests in Parion have been and continue to be limited to those accorded to the Company in the Parion Agreement.

As of September 30, 2017, the Company determined that the fair value of Parion’s pulmonary ENaC platform had declined significantly based on data received in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. After evaluating the results of the clinical trial 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 was no longer the primary beneficiary of Parion as it no longer had the power to direct the significant activities of Parion. Accordingly, the Company deconsolidated Parion as of September 30, 2017. Please refer to Note B, “Collaborative Arrangements and Acquisitions,” in the 2017 Annual Report on Form 10-K for further information regarding the deconsolidation of Parion.

BioAxone Biosciences, Inc.

In 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 recorded an in-process research and development intangible asset of $29.0 million for VX-210 and a corresponding deferred tax liability of $11.3 million attributable to BioAxone. The Company made an initial payment to BioAxone of $10.0 million in 2014. In the first quarter of 2018, the Company’s option to purchase BioAxone expired and the Company paid a $10.0 million license continuation fee to BioAxone. BioAxone has the potential to receive up to $80.0 million in milestones, including development and regulatory milestone payments. As of June 30, 2018, the Company continues to conclude that it is the primary beneficiary of BioAxone and continues to consolidate BioAxone as a VIE.

Aggregate VIE Financial Information

An aggregate summary of net income attributable to noncontrolling interest related to the Company’s VIEs for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Loss (income) attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments	$	426		$	(18,045	)	$	983		$	(16,498	)
(Benefit from) provision for income taxes	(416		)	8,132			5,989			8,523
Decrease (increase) in fair value of contingent payments	1,100			(3,260		)	(22,900		)	(6,990		)
Net loss (income) attributable to noncontrolling interest	$	1,110		$	(13,173	)	$	(15,928	)	$	(14,965	)

The increase in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments for the six months ended June 30, 2018 was primarily due to the expiration of the Company’s option to purchase BioAxone in the first quarter of 2018 that increased the probability of a $10.0 million license continuation fee for VX-210 that was ultimately paid in the first quarter of 2018 and the probability that additional milestone and royalty payments related to the BioAxone Agreement would be paid. The changes in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments for the three months ended June 30, 2018 as well as the three and six months ended June 30, 2017 were primarily due to changes in market interest rates and the time value of money. The fair value of the contingent payments payable by the Company to BioAxone was $31.8 million and $18.9 million as of June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018 and 2017, the decreases and (increases) in the fair value of the contingent payments related to the Company’s VIEs were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
	(in thousands)
Parion	$	—	$	(3,260	)	$	—		$	(6,090	)
BioAxone	1,100		—			(22,900		)	(900		)

Significant amounts related to the Company’s consolidation of BioAxone as a VIE included in the Company’s condensed consolidated balance sheets as of the dates set forth in the table below were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Restricted cash and cash equivalents (VIE)	$	8,510	$	1,489
Intangible assets	29,000		29,000
Deferred tax liability	9,335		4,756
Noncontrolling interest	28,655		13,727

The Company has recorded BioAxone’s cash and cash equivalents as “Restricted cash and cash equivalents (VIE)” because (i) the Company does not have any interest in or control over BioAxone’s cash and cash equivalents and (ii) the Company’s agreement with BioAxone does not provide for BioAxone’s cash and cash equivalents to be used for the development of the asset that the Company licensed from BioAxone. Assets recorded as a result of consolidating BioAxone’s financial condition into the Company’s balance sheets do not represent additional assets that could be used to satisfy claims against the Company’s general assets.

Other Collaborations

The Company has entered into various agreements pursuant to which it collaborates with third parties, including inlicensing and outlicensing arrangements. Although the Company does not consider any of these arrangements to be material, the most notable of these arrangements are described below.

Moderna Therapeutics, Inc.

In 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. In connection with the Moderna Agreement, the Company made an upfront payment to Moderna of $20.0 million and a $20.0 million investment in Moderna pursuant to a convertible promissory note that converted into preferred stock in 2016. Moderna has the potential to receive future development and regulatory milestones of up to $275.0 million, including $220.0 million in approval and reimbursement milestones, as well as tiered royalty payments on future sales. The carrying value of the Company’s investment in Moderna was $23.0 million as of June 30, 2018.

Under the terms of the Moderna Agreement, Moderna leads discovery efforts and the Company leads all preclinical, development and commercialization activities associated with the advancement of mRNA Therapeutics that result from this collaboration and will fund all expenses related to the collaboration.

The Company may terminate the Moderna Agreement by providing advance notice to Moderna, with the required length of notice dependent on whether any product developed under the Moderna Agreement has received marketing approval. The Moderna 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 Moderna Agreement will continue in effect until the expiration of the Company’s payment obligations under the Moderna Agreement.

Janssen Pharmaceuticals, Inc.

In 2014, the Company entered into an agreement (the “Janssen Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”). Pursuant to the agreement, Janssen has an exclusive worldwide license to develop and commercialize certain drug candidates for the treatment of influenza, including pimodivir (formerly VX-787). The Company received non-refundable payments of $35.0 million from Janssen in 2014 and recognized a $25.0 million milestone in the fourth quarter of 2017. The milestone, which was achieved based on the Phase 3 clinical trial Janssen initiated in the fourth quarter of 2017, was collected in the first quarter of 2018. The Company has the potential to receive additional regulatory and commercial milestone payments as well as royalties on future product sales, if any. Janssen is responsible for costs related to the development and commercialization of the compounds. Janssen may terminate the Janssen Agreement, subject to certain exceptions, upon six months’ notice.

Asset Acquisition

Concert Pharmaceuticals

In 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 CFTR potentiator that has the potential to be used as part of combination regimens of CFTR modulators to treat CF. Pursuant to the Concert Agreement, Vertex paid Concert $160.0 million in cash for the Concert Assets. If VX-561 is approved as part of a combination regimen to treat CF, Concert could receive up to an additional $90.0 million in milestones based on regulatory approval in the United States and reimbursement in the United Kingdom, Germany or France. The Company determined that 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 not constitute 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 to “Research and Development Expenses” in the third quarter of 2017. The total cost of the transaction was $165.1 million including $5.1 million of transaction costs that were recorded to “Sales, general and administrative expenses”. If the Company achieves regulatory approval and reimbursement milestones, the Company will record the value of the milestone as an intangible asset and will begin amortizing the asset in cost of sales in the period that the relevant milestone is achieved.

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Earnings Per Share

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic net income per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock, restricted stock units and performance-based restricted stock units, or “PSUs,” that have been issued but are not yet vested. Diluted net income per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.

The following table sets forth the computation of basic and diluted net income per share for the periods ended:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands, except per share amounts)
Basic net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(65		)	(23		)	(163		)	(387		)
Net income attributable to Vertex common shareholders—basic	$	207,295		$	17,973		$	417,460		$	265,365
Basic weighted-average common shares outstanding	254,135			247,521			253,685			246,782
Basic net income attributable to Vertex per common share	$	0.82		$	0.07		$	1.65		$	1.08
Diluted net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(64		)	(23		)	(160		)	(382		)
Net income attributable to Vertex common shareholders—diluted	$	207,296		$	17,973		$	417,463		$	265,370
Weighted-average shares used to compute basic net income per common share	254,135			247,521			253,685			246,782
Effect of potentially dilutive securities:
Stock options	2,758			2,787			3,003			2,407
Restricted stock and restricted stock units (including PSUs)	1,689			1,264			1,851			958
Employee stock purchase program	2			63			18			52
Weighted-average shares used to compute diluted net income per common share	258,584			251,635			258,557			250,199
Diluted net income attributable to Vertex per common share	$	0.80		$	0.07		$	1.61		$	1.06

The Company did not include the securities in the following table in the computation of the net income per share attributable to Vertex common shareholders calculations because the effect would have been anti-dilutive during each period:

	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(in thousands)
Stock options	2,253	3,112	1,943	7,065
Unvested restricted stock and restricted stock units (including PSUs)	6	6	5	32

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1:	Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:	Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:	Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of June 30, 2018, the Company’s investments were primarily in money market funds, U.S. Treasury securities, government-sponsored enterprise securities, corporate equity securities, corporate debt securities and commercial paper. Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its condensed consolidated statement of operations.

As of June 30, 2018, all of the Company’s financial assets and liabilities that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, U.S. Treasury securities, government-sponsored enterprise securities and corporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of corporate debt securities and commercial paper, which consisted of investments in highly-rated investment-grade corporations, and foreign currency forward contracts with reputable and creditworthy counterparties. During the three and six months ended June 30, 2018 and 2017, the Company did not record any other-than-temporary impairment charges related to its financial assets.

The following table sets forth the Company’s financial assets and liabilities (excluding VIE cash and cash equivalents) subject to fair value measurements:

	Fair Value Measurements as of June 30, 2018
				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	$	971,044		$	971,044	$	—		$	—
Government-sponsored enterprise securities	10,982			10,982		—			—
Commercial paper	21,263			—		21,263			—
Marketable securities:
Corporate equity securities	242,775			242,775		—			—
U.S. Treasury securities	11,020			11,020		—			—
Government-sponsored enterprise securities	2,491			2,491		—			—
Corporate debt securities	232,704			—		232,704			—
Commercial paper	133,406			—		133,406			—
Prepaid and other current assets:
Foreign currency forward contracts	10,812			—		10,812			—
Other assets:
Foreign currency forward contracts	1,451			—		1,451			—
Total financial assets	$	1,637,948		$	1,238,312	$	399,636		$	—
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts	$	(1,948	)	$	—	$	(1,948	)	$	—
Other liabilities, excluding current portion:
Foreign currency forward contracts	(299		)	—		(299		)	—
Total financial liabilities	$	(2,247	)	$	—	$	(2,247	)	$	—

	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 securities	12,678			12,678		—			—
Commercial paper	57,357			—		57,357			—
Marketable securities:
Corporate equity securities	74,821			74,821		—			—
Government-sponsored enterprise securities	2,303			2,303		—			—
Corporate debt securities	265,867			—		265,867			—
Commercial paper	80,263			—		80,263			—
Prepaid and other current assets:
Foreign currency forward contracts	13			—		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	)	$	—

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of the Company’s financial assets and liabilities.

The Company’s VIE invested in cash equivalents consisting of U.S. Treasury securities of $5.0 million as of June 30, 2018, which are valued based on Level 1 inputs. These cash equivalents are not included in the table above. The Company’s noncontrolling interest related to the Company’s VIE includes the fair value of the contingent payments, which could consist of milestone, royalty and option payments, which are valued based on Level 3 inputs. Please refer to Note C, “Collaborative Arrangements and Acquisitions,” for further information.

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Marketable Securities and Equity Investments

6 Months Ended

Jun. 30, 2018

Cash and Cash Equivalents [Abstract]

Marketable Securities and Equity Investments

Marketable Securities and Equity Investments

Pursuant to the adoption of ASU 2016-01 on January 1, 2018, the Company began recording changes in the fair value of its investments in corporate equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) to “Other income (expense), net” in the Company’s condensed consolidated statements of operations. Prior to its adoption of ASU 2016-01, the Company recorded changes in the fair value of its investments in corporate equity securities to “Accumulated other comprehensive loss” on its condensed consolidated balance sheet until the related gains or losses were realized. The Company continues to record unrealized gains (losses) on available-for-sale debt securities as a component of accumulated other comprehensive income (loss) until such gains and losses are realized.

A summary of the Company’s cash equivalents and marketable securities is shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
As of June 30, 2018
Cash equivalents:
Money market funds	$	971,044	$	—	$	—		$	971,044
Government-sponsored enterprise securities	10,981		1		—			10,982
Commercial paper	21,270		—		(7		)	21,263
Total cash equivalents	1,003,295		1		(7		)	1,003,289
Marketable securities:
U.S. Treasury securities (matures within 1 year)	11,022		—		(2		)	11,020
Government-sponsored enterprise securities (matures within 1 year)	2,491		—		—			2,491
Corporate debt securities (matures within 1 year)	178,692		—		(564		)	178,128
Corporate debt securities (matures after 1 year through 5 years)	54,613		1		(38		)	54,576
Commercial paper (matures within 1 year)	133,478		4		(76		)	133,406
Total marketable debt securities	380,296		5		(680		)	379,621
Corporate equity securities	64,713		178,062		—			242,775
Total marketable securities	$	445,009	$	178,067	$	(680	)	$	622,396
As of December 31, 2017
Cash equivalents:
Money market funds	$	614,951	$	—	$	—		$	614,951
Government-sponsored enterprise securities	12,679		—		(1		)	12,678
Commercial paper	57,371		—		(14		)	57,357
Total cash equivalents	685,001		—		(15		)	684,986
Marketable securities:
Government-sponsored enterprise securities (matures within 1 year)	2,304		—		(1		)	2,303
Corporate debt securities (matures within 1 year)	215,639		—		(363		)	215,276
Corporate debt securities (matures after 1 year through 5 years)	50,697		—		(106		)	50,591
Commercial paper (matures within 1 year)	80,372		—		(109		)	80,263
Total marketable debt securities	349,012		—		(579		)	348,433
Available-for-sale corporate equity securities	43,213		31,608		—			74,821
Total marketable securities	$	392,225	$	31,608	$	(579	)	$	423,254

Available-for-sale debt securities were recorded in the Company's condensed consolidated balance sheets as follows:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Cash and cash equivalents	$	1,003,289	$	684,986
Marketable securities	379,621		348,433
Total	$	1,382,910	$	1,033,419

The Company has a limited number of available-for-sale debt securities in insignificant loss positions as of June 30, 2018, which it does not intend to sell and has concluded it will not be required to sell before recovery of the amortized costs for the investments at maturity. The Company did not record any charges for other-than-temporary declines in the fair value of available-for-sale debt securities or gross realized gains or losses in the three and six months ended June 30, 2018 and 2017.

The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities. During the three and six months ended June 30, 2018, the Company recorded an aggregate unrealized gain of $53.9 million and $149.4 million, respectively, related to its investments in corporate equity securities, as follows:

• $53.9 million and $146.5 million, respectively, related to its equity investment in CRISPR, a publicly traded company. The CRISPR common stock held by the Company has a readily determinable fair value that is recorded in “Marketable securities” on the Company’s condensed consolidated balance sheets. In January 2018, the Company purchased an additional $21.5 million of CRISPR’s common shares.

• Zero and $2.9 million, respectively, related to its equity investment in Moderna, which is not a publicly traded company that has a readily determinable fair value for its stock. The Company increased the carrying value of its investment in Moderna, which is recorded in “Other assets” on its condensed consolidated balance sheets, to $23.0 million as of June 30, 2018 based on an observable price increase for additional shares privately issued by Moderna in an orderly transaction between market participants in the first quarter of 2018.

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Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component:

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2017	$	(21,031	)	$	(594	)	$	25,069		$	(15,016	)	$	(11,572	)
Other comprehensive income before reclassifications	6,141			(87		)	—			15,352			21,406
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			9,681			9,681
Net current period other comprehensive income (loss)	$	6,141		$	(87	)	$	—		$	25,033		$	31,087
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	949			—			(25,069		)	—			(24,120		)
Balance at June 30, 2018	$	(13,941	)	$	(681	)	$	—		$	10,017		$	(4,605	)

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2016	$	(7,862	)	$	(10	)	$	17,531		$	11,514		$	21,173
Other comprehensive (loss) income before reclassifications	(7,253		)	(236		)	(13,511		)	(17,215		)	(38,215		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			(4,711		)	(4,711		)
Net current period other comprehensive (loss) income	$	(7,253	)	$	(236	)	$	(13,511	)	$	(21,926	)	$	(42,926	)
Balance at June 30, 2017	$	(15,115	)	$	(246	)	$	4,020		$	(10,412	)	$	(21,753	)

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Hedging

6 Months Ended

Jun. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Hedging

Hedging

Foreign currency forward contracts - Designated as hedging instruments

The Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’s forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under GAAP having contractual durations from one to eighteen months. The Company recognizes realized gains and losses for the effective portion of such contracts in “Product revenues, net” in its condensed consolidated statements of operations in the same period that it recognizes the product revenues that were impacted by the cash flow hedge contracts.

The Company formally documents the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as the Company’s risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If the Company were to determine that a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, the Company would discontinue hedge accounting treatment prospectively. The Company measures effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of June 30, 2018, all hedges were determined to be highly effective, and the Company has not recorded any ineffectiveness related to its hedging program since its inception.

The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of June 30, 2018 and December 31, 2017, credit risk did not change the fair value of the Company’s foreign currency forward contracts.

The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP:

	As of June 30, 2018		As of December 31, 2017
Foreign Currency	(in thousands)
Euro	$	317,429	$	257,230
British pound sterling	71,288		77,481
Australian dollar	31,853		30,501
Canadian dollar	32,789		—
Total foreign currency forward contracts	$	453,359	$	365,212

Foreign currency forward contracts - Not designated as hedging instruments

The Company also enters into foreign exchange forward contracts with contractual maturities of less than one month designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under GAAP. The Company recognizes realized gains and losses for such contracts in “Other income (expense), net” in its condensed consolidated statements of operations each period. As of June 30, 2018, the notional amount of foreign exchange contracts where hedge accounting under GAAP is not applied was $90.4 million.

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	(2,675	)	$	1,973	$	(9,159	)	$	6,752
Not designated as hedging instruments
Other income (expense), net	$	(4,152	)	$	5,304	$	(2,614	)	$	8,823

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts included on its condensed consolidated balance sheets:

As of June 30, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	10,812	Other liabilities, current portion	$	(1,948	)
Other assets	1,451		Other liabilities, excluding current portion	(299		)
Not designated as hedging instruments
Prepaid expenses and other current assets	206		Other liabilities, current portion	—
Total assets	$	12,469	Total liabilities	$	(2,247	)

As of December 31, 2017
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	13	Other liabilities, current portion	$	(13,642	)
Other assets	—		Other liabilities, excluding current portion	(866		)
Not designated as hedging instruments
Prepaid expenses and other current assets	—		Other liabilities, current portion	(684		)
Total assets	$	13	Total liabilities	$	(15,192	)

As of June 30, 2018, the Company expects amounts that are related to foreign exchange forward contracts designated as cash flow hedges under GAAP recorded in “Prepaid expenses and other current assets” and “Other liabilities, current portion” to be reclassified to earnings within twelve months.

The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under GAAP on the Company’s condensed consolidated balance sheets:

	As of June 30, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	12,263		$	—	$	12,263		$	(2,247	)	$	10,016
Total liabilities	$	(2,247	)	$	—	$	(2,247	)	$	2,247		$	—

	As of December 31, 2017
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	13		$	—	$	13		$	(13	)	$	—
Total liabilities	$	(14,508	)	$	—	$	(14,508	)	$	13		$	(14,495	)

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Inventories

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consisted of the following:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Raw materials	$	16,124	$	20,924
Work-in-process	74,818		74,237
Finished goods	24,083		16,669
Total	$	115,025	$	111,830

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Intangible Assets and Goodwill

Intangible Assets

As of June 30, 2018 and December 31, 2017, the Company had $29.0 million of in-process research and development intangible assets recorded on the Company’s condensed consolidated balance sheet related to VX-210, that is licensed by BioAxone to the Company.

Goodwill

As of June 30, 2018 and December 31, 2017, goodwill of $50.4 million was recorded on the Company’s condensed consolidated balance sheet.

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Long-term Obligations

6 Months Ended

Jun. 30, 2018

Long-term Debt and Capital Lease Obligations [Abstract]

Long-term Obligations

Long-term Obligations

Construction Financing Lease Obligation

As a result of the Company being involved in the construction of several of its leased buildings in Boston and San Diego, the Company was deemed for accounting purposes to be the owner of these buildings during their construction periods and recorded project construction costs incurred by its landlords. Upon completion of these buildings, the Company determined that the underlying leases did not meet the criteria for “sale-leaseback” treatment. Accordingly, the Company depreciates the lease assets and records interest expense associated with the financing obligations for these buildings. The Company bifurcates the lease payments pursuant to these 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. The portion of the lease obligations allocated to the land is treated as an operating lease.

Fan Pier Leases

In 2011, the Company entered into two lease agreements, pursuant to which the Company leases approximately 1.1 million square feet of office and laboratory space in two buildings (the “Fan Pier Buildings”) at Fan Pier in Boston, Massachusetts (the “Fan Pier Leases”). The Company commenced lease payments in 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 of the Fan Pier Leases for an additional ten years.

San Diego Lease

In December 2015, the Company entered into a lease agreement for 3215 Merryfield Row, San Diego, California with ARE-SD Region No. 23, LLC (the “San Diego Building”). Pursuant to this agreement, the Company agreed to lease approximately 170,000 square feet of office and laboratory space in San Diego, California (“San Diego Lease”) for a term of 16 years. 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, excluding operating expenses. The Company has the option to extend the lease term for up to two additional five-year terms.

In the second quarter of 2018, the Company determined that the San Diego lease did not meet the criteria for “sale-leaseback” treatment when construction of the San Diego Building was completed. The Company based this determination on, among other things, its continuing involvement with the property in the form of non-recourse financing to the lessor. Accordingly, the Company began depreciating the asset and incurring interest expense related to the financing obligation during the second quarter of 2018. The portion of the lease obligations allocated to the land is treated as an operating lease that commenced in the fourth quarter of 2016.

Property and equipment, net and the carrying value of the Company’s construction financing lease obligation (including current and non-current portions and excluding interest that will be imputed over the course of the Company’s underlying lease agreements for these buildings) related to the Fan Pier Buildings and the San Diego Building were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Property and equipment, net
Fan Pier Buildings	$	469,508	$	475,725
San Diego Building	$	116,738	$	94,602
Construction financing lease obligation
Fan Pier Buildings	$	471,797	$	472,070
San Diego Building	$	93,879	$	87,392

Revolving Credit Facility

In October 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and the lenders 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 request that the borrowing capacity under the Credit Agreement be increased by an additional $300.0 million. The Credit Agreement matures on October 13, 2021.

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 Credit Agreement, 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% to 2.50%, 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 of the Company’s domestic subsidiaries (excluding intellectual property, owned and leased real property and certain other excluded property) and by the equity interests of the Company’s subsidiaries, subject to certain exceptions. Under the terms of the Credit Agreement, the Company must maintain, subject to certain limited exceptions, a consolidated leverage ratio of 3.00 to 1.00 and consolidated EBITDA of at least $200.0 million, in each case measured on a quarterly basis.

The Credit Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The Credit Agreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.

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Stock-based Compensation Expense and Share Repurchase

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation Expense and Share Repurchase

Stock-based Compensation Expense and Share Repurchase

Stock-based compensation expense

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following stock-based compensation expense:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Stock-based compensation expense by type of award:
Stock options	$	28,591		$	27,915		$	54,646		$	54,896
Restricted stock and restricted stock units (including PSUs)	51,497			43,906			101,915			84,651
ESPP share issuances	2,428			2,246			4,556			4,310
Stock-based compensation expense related to inventories	(80		)	(972		)	(545		)	(1,323		)
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534
Stock-based compensation expense by line item:
Cost of sales	$	1,191		$	513		$	2,004		$	970
Research and development expenses	51,612			43,832			100,100			88,669
Sales, general and administrative expenses	29,633			28,750			58,468			52,895
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534

The following table sets forth the Company’s unrecognized stock-based compensation expense as of June 30, 2018, by type of award and the weighted-average period over which that expense is expected to be recognized:

	As of June 30, 2018
	Unrecognized Expense		Weighted-average Recognition Period
	(in thousands)		(in years)
Type of award:
Stock options	$	169,237	2.65
Restricted stock and restricted stock units (including PSUs)	$	343,132	2.57
ESPP share issuances	$	5,777	0.63

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2018:

	Options Outstanding				Options Exercisable
Range 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)
$26.73–$40.00	707	1.37	$	34.48	707	$	34.48
$40.01–$60.00	557	4.01	$	49.57	557	$	49.57
$60.01–$80.00	615	5.75	$	75.16	603	$	75.15
$80.01–$100.00	3,441	7.70	$	89.36	1,336	$	90.09
$100.01–$120.00	874	6.61	$	109.28	613	$	109.17
$120.01–$140.00	1,034	7.13	$	130.42	702	$	130.36
$140.01–$160.00	1,500	9.59	$	155.52	132	$	155.02
$160.01–$163.74	584	9.02	$	162.94	114	$	162.94
Total	9,312	7.09	$	103.58	4,764	$	87.14

Share repurchase program

The Board of Directors approved a share repurchase program, pursuant to which the Company is authorized to repurchase up to $500.0 million of its common stock between February 1, 2018 and December 31, 2019. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may be made pursuant to Rule 10b5-1 plans or other means as determined by the Company’s management and in accordance with the requirements of the SEC.

During the six months ended June 30, 2018, the Company repurchased 767,551 shares of its common stock under the share repurchase program for an aggregate of $119.0 million (of which $4.0 million was accrued as of June 30, 2018), including commissions and fees. The Company expects to fund further repurchases of its common stock through a combination of cash on hand and cash generated by operations.

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. For the three and six months ended June 30, 2018, the Company recorded a provision for income taxes of $10.3 million and a benefit from income taxes of $2.3 million, respectively. The provision for income taxes for the three months ended June 30, 2018 included $5.0 million related to the reversing effect of discrete items associated with stock-based compensation and $5.7 million related to the Company’s U.S. state and foreign taxes partially offset by a benefit from income taxes of $0.4 million related to BioAxone’s income taxes. The benefit from income taxes for the six months ended June 30, 2018 included $16.8 million from discrete items related to stock-based compensation partially offset by provisions for income taxes of $6.0 million related to BioAxone’s income taxes and $8.5 million related to the Company’s U.S. state and foreign taxes. The Company has no liability for taxes payable by BioAxone and the income tax provision and related liability have been allocated to noncontrolling interest. For the three and six months ended June 30, 2017, the Company recorded a provision for income taxes of $4.3 million and $8.3 million, respectively, which included $8.1 million and $8.5 million, respectively, primarily related to Parion’s income taxes.

As of June 30, 2018 and December 31, 2017, the Company has unrecognized tax benefits of $5.9 million and $3.8 million, respectively. The Company recognizes interest and penalties related to income taxes as a component of income tax expense. As of June 30, 2018, no interest and penalties have been accrued. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company did not recognize any material interest or penalties related to uncertain tax positions as of June 30, 2018 and December 31, 2017.

The Company maintains a valuation allowance on the majority of its net operating losses and other deferred tax assets.  Accordingly, the Company has not reported any benefits from income taxes relating to the remaining net operating losses and income tax credit carryforwards that will be utilized in future periods in those jurisdictions in which a valuation allowance is recorded.  

On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets, weighing positive and negative evidence 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 December 31, 2017. After assessing both the negative and positive evidence, the Company concluded that it should maintain the valuation allowance on its net operating losses and the majority of its other deferred tax assets as of December 31, 2017. The Company may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to, among other things, the Company’s level of profitability, revenue growth, clinical program progression and expectations regarding future profitability. The Company’s total deferred tax asset balance subject to the valuation allowance was approximately $1.6 billion at December 31, 2017.

As described in Note A, “Basis of Presentation and Accounting Policies,” the Company adopted amended guidance on the recognition of the deferred tax effects of intra-entity transfers of assets other than inventory, effective January 1, 2018. In connection with the adoption of this new standard, the Company recorded a deferred tax asset and corresponding full valuation allowance of $204.7 million equal to the unamortized cost of intellectual property rights transferred to the United Kingdom in 2014 multiplied by an appropriate statutory rate. As a result, there was no cumulative effect adjustment to accumulated deficit using the modified-retrospective adoption approach.

In December 2017, the SEC staff issued SAB 118 to address the application of GAAP in situations when a registrant does not have the necessary information 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 and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company has an accumulated deficit from its foreign operations and does not have an associated liability from the repatriation tax on accumulated earnings in H.R.1. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, 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 is expected to be complete no later than one year from the enactment of H.R.1 in the fourth quarter of 2018.

As of June 30, 2018, foreign earnings, which were not significant, have been retained indefinitely by foreign subsidiary companies for reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.

The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the U.S. or any other major taxing jurisdiction for years before 2014, except where the Company has net operating losses or tax credit carryforwards that originate before 2014. The Company currently is under examination in Canada for 2011 through 2013, Germany for 2012 through 2015 and Italy for 2015 and 2016. No adjustments have been reported. The Company is not under examination by any other jurisdictions for any tax year.

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Restructuring Liabilities

6 Months Ended

Jun. 30, 2018

Restructuring and Related Activities [Abstract]

Restructuring Liabilities

Restructuring Liabilities

The Company has adopted several plans to restructure its facilities and operations for which it has incurred restructuring expenses. During the three and six months ended June 30, 2018, the Company’s restructuring expenses were not significant. During the six months ended June 30, 2017, the Company’s restructuring expenses primarily related to its decision to consolidate its research activities into its Boston, Milton Park and San Diego locations commencing in February 2017. The Company closed its research site in Canada as a result of this decision affecting approximately 70 positions. As of June 30, 2018, the restructuring liability associated with this event primarily relates to the lease for the research site in Canada that terminates in October 2018 and is not material to the Company’s condensed consolidated balance sheet. The Company does not anticipate any significant additional charges related to this restructuring event in the future.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Guaranties and Indemnifications

As permitted under Massachusetts law, the Company’s Articles of Organization and By-laws provide that the Company will indemnify certain of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased directors’ and officers’ liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. No indemnification claims currently are outstanding, and the Company believes the estimated fair value of these indemnification arrangements is minimal.

The Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trial investigators and sites in its drug development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for the Company and its real estate leases. The Company also customarily agrees to certain indemnification provisions in its drug discovery, development and commercialization collaboration agreements. With respect to the Company’s clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations arising out of the research or clinical testing of the Company’s compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by the Company or to certain breaches of the Company’s contractual obligations. The indemnification provisions appearing in the Company’s collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although the Company believes the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these provisions is generally unlimited. The Company has purchased insurance policies covering personal injury, property damage and general liability that reduce its exposure for indemnification and would enable it in many cases to recover all or a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.

Other Contingencies

The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no material contingent liabilities accrued as of June 30, 2018 or December 31, 2017.

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Basis of Presentation and Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) consolidated variable interest entities (VIEs). All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. As of September 30, 2017, the Company deconsolidated Parion Sciences, Inc. (“Parion”), a VIE the Company had consolidated since 2015. The Company's condensed consolidated statement of operations for the interim period ended June 30, 2018 excludes Parion. Please refer to Note B, “Collaborative Arrangements and Acquisitions,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2018 (the “2017 Annual Report on Form 10-K”) for further information regarding the deconsolidation of Parion.

Certain information and footnote disclosures normally included in the Company’s 2017 Annual Report on Form 10-K have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2018 and 2017.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2017, which are contained in the 2017 Annual Report on Form 10-K.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, the fair value of intangible assets, goodwill, contingent consideration, noncontrolling interest, the consolidation and deconsolidation 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 that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Recently Adopted Accounting Standards

ASC 606 did not have an aggregate impact on the Company’s net cash provided by operating activities, but resulted in offsetting changes in certain assets and liabilities presented within net cash provided by operating activities in the Company’s condensed consolidated statement of cash flows.

Equity Investments

In 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which amended guidance related to the recording of financial assets and financial liabilities. Under the amended guidance, equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) are to be measured at fair value with changes in fair value recognized in net income (loss). However, an entity has the option to measure equity investments without readily determinable fair values at (i) fair value or (ii) cost adjusted for changes in observable prices minus impairment. Changes in measurement under either alternative are recognized in net income (loss). The amended guidance became effective January 1, 2018 and required the modified-retrospective adoption approach. As of January 1, 2018, the Company held publicly traded equity investments and equity investments accounted for under the cost method. As a result, in the first quarter of 2018, the Company recorded a $25.1 million cumulative effect adjustment to “Accumulated deficit” related to its publicly traded equity investments equal to the unrealized gain, net of tax, that was recorded in “Accumulated other comprehensive loss” as of December 31, 2017. The adoption of ASU 2016-01 had no effect on the Company’s equity investments accounted for under the cost method because the original cost basis of these investments was recorded on the Company’s condensed consolidated balance sheet as of December 31, 2017. In the three and six months ended June 30, 2018, the Company recorded income of $53.9 million and $149.4 million, respectively, to “Other income (expense), net,” in its condensed consolidated statement of operations related to the change in fair value of its equity investments.

Stock-Based Compensation

In 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718) (“ASU 2017-09”) related to the scope of stock option modification accounting to reduce diversity in practice and provide clarity regarding existing guidance. The new accounting guidance was effective January 1, 2018. The Company does not expect the adoption of ASU 2017-09 to have a significant effect on its condensed consolidated financial statements in future periods and had no effect in the three and six months ended June 30, 2018.

Goodwill

In 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350) (“ASU 2017-04”) related to measurements of goodwill. The amended guidance modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value, which eliminates Step 2 from the goodwill impairment test. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the related reporting unit. The new accounting guidance is required for annual or interim goodwill impairment tests conducted after January 1, 2020. The Company early adopted this new guidance and will utilize this approach for annual and interim goodwill impairment tests conducted after January 1, 2018. The Company does not expect the adoption of this guidance to have a significant effect on its condensed consolidated financial statements.

Intra-Entity Transfers

In 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which removes the previous exception in GAAP prohibiting an entity from recognizing current and deferred income tax expenses or benefits related to the transfer of assets, other than inventory, within the consolidated entity. The exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amended guidance became effective January 1, 2018. In the first quarter of 2018, upon adoption of ASU 2016-16, the Company recorded a deferred tax asset and corresponding full valuation allowance of $204.7 million equal to the unamortized cost of intellectual property rights transferred to the United Kingdom in 2014 multiplied by an appropriate statutory rate. There was no cumulative effect adjustment to “Accumulated deficit” using the modified-retrospective adoption approach.

Cash Flows - Restricted Cash

In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. Therefore, amounts described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows.  The amended guidance became effective January 1, 2018 and is effective on a retrospective basis.

Recently Adopted Accounting Standards

Revenue Recognition

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606)(“ASC 606”). The new guidance became effective January 1, 2018. ASC 606 applies a more principles-based approach to recognizing revenue. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 on January 1, 2018 using the modified-retrospective adoption method for all contracts that were not completed as of the date of adoption. Under the modified-retrospective method, the Company recognized the cumulative effect of applying the standard within “Accumulated deficit” on its condensed consolidated balance sheet as of January 1, 2018.

For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adoption rules.

Based on the Company’s review of existing customer contracts as of January 1, 2018, it concluded that the only significant impact that the adoption of ASC 606 had on its financial statements relates to shipments of ORKAMBI under early access programs in France. Prior to the adoption of ASC 606, the Company did not recognize revenue on the proceeds received from sales of ORKAMBI under early access programs in France because the price was not fixed or determinable based on the status of ongoing pricing discussions. As of January 1, 2018, the Company recorded a cumulative effect adjustment to its accumulated deficit of $8.3 million related to the adoption of ASC 606, which primarily represented the Company’s estimated amount of consideration it expects to retain related to these shipments that will not be subject to a significant reversal in amounts recognized, net of costs previously deferred related to these shipments. Please refer to Note B, “Revenue Recognition,” for further information.

The Company concluded that the remaining $6.9 million that was recorded as deferred revenue as of December 31, 2017 related to the Company’s sale of its HIV protease inhibitor royalty stream in 2008 is not subject to ASC 606 because it was initially accounted for pursuant to ASC 470, Debt, which is not under the scope of ASC 606. The Company will continue to recognize the payment received as royalty revenues over the expected life of the collaboration agreement with GlaxoSmithKline plc based on the units-of-revenue method.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

Derivatives and Hedging

In 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”), which helps simplify certain aspects of hedge accounting and enables entities to more accurately present their risk management activities in their financial statements. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company is in the process of determining the expected effect on its condensed consolidated financial statements.

Leases

In 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which amends a number of aspects of lease accounting and requires entities to recognize on the balance sheet right-of-use assets and liabilities for leases with lease terms of more than 12 months. ASU 2016-02 requires a modified-retrospective adoption approach. The new guidance will become effective for the Company on January 1, 2019. Early adoption is permitted. The Company has formed a project team to review its portfolio of existing leases and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard. The Company anticipates that the amended guidance will result in the recognition of additional right-of-use assets and corresponding liabilities on its condensed consolidated balance sheets. As discussed in Note K, “Long-term Obligations,” the Company currently applies build-to-suit accounting and is the deemed owner of its leased corporate headquarters in Boston and research site in San Diego, for which it is recognizing depreciation expense over the buildings’ useful lives and imputed interest on the corresponding construction financing lease obligations. Under the amended guidance, the Company expects to account for these buildings as financing leases, resulting in increased depreciation expense over the respective lease terms, which are significantly shorter than the buildings’ useful lives. The Company also expects a reduction in its imputed interest expense in the initial years of each financing lease term. The Company is also in the process of implementing appropriate changes to its controls to support lease accounting and related disclosures under the new standard.

For a discussion of other recent accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies—Recent Accounting Pronouncements,” in the 2017 Annual Report on Form 10-K.

Marketable and Equity Securities

Marketable and Equity Securities

Effective January 1, 2018, the Company measures publicly traded corporate equity investments that have readily available prices at fair value, with changes in fair value recognized in “Other income (expense), net,” each reporting period.

Effective January 1, 2018, the Company records privately issued corporate equity investments that do not have readily determinable fair values at cost, and adjusts for changes in observable prices minus impairment. Each reporting period, the Company adjusts the carrying value of these investments if it observes that additional shares have been issued in an orderly transaction between market participants resulting in a price increase or decrease per share. Additionally, each reporting period the Company reviews these investments for impairment considering all available information to conclude whether an impairment exists. Changes in measurement for all corporate equity investments are recognized in “Other income (expense), net.”

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Basis of Presentation and Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Schedule of cash and cash equivalents

The cash, cash equivalents and restricted cash at the beginning and ending of each period presented in the Company’s condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2017 consisted of the following:

	Six Months Ended June 30, 2018				Six Months Ended June 30, 2017
	Beginning of period		End of period		Beginning of period		End of period
Cash and cash equivalents	$	1,665,412	$	2,145,359	$	1,183,945	$	1,223,130
Restricted cash and cash equivalents (VIE)	1,489		8,510		47,762		64,628
Prepaid expenses and other current assets	625		199		—		—
Cash, cash equivalents and restricted cash per statement of cash flows	$	1,667,526	$	2,154,068	$	1,231,707	$	1,287,758

Schedule of new accounting pronouncements and changes in accounting principles

The cumulative effect of applying ASC 606 to the Company’s contracts with customers that were not completed as of January 1, 2018 was as follows:

	Balance as of						Balance as of
	December 31, 2017			Adjustments			January 1, 2018
Assets	(in thousands)
Accounts receivable, net	$	281,343		$	29,881		$	311,224
Inventories	111,830			(90		)	111,740
Prepaid expenses and other current assets	165,635			(17,166		)	148,469
Total assets	$	3,546,014		$	12,625		$	3,558,639
Liabilities and Shareholders’ Equity
Accrued expenses	$	443,961		$	8,586		$	452,547
Early access sales accrual	232,401			(7,273		)	225,128
Other liabilities, current portion	34,373			2,083			36,456
Accumulated other comprehensive loss	(11,572		)	949			(10,623		)
Accumulated deficit	(5,119,723		)	8,280			(5,111,443		)
Total liabilities and shareholders’ equity	$	3,546,014		$	12,625		$	3,558,639

The impact of adoption on the Company’s condensed consolidated balance sheet as of June 30, 2018 was as follows:

	As of June 30, 2018
	As Reported under ASC 606			Balances without Adoption of ASC 606			Effect of Change Higher/(Lower)
Assets	(in thousands)
Accounts receivable, net	$	393,439		$	359,103		$	34,336
Inventories	115,025			115,117			(92		)
Prepaid expenses and other current assets	122,694			142,704			(20,010		)
Total assets	$	4,335,386		$	4,321,152		$	14,234
Liabilities and Shareholders’ Equity
Accrued expenses	$	479,120		$	480,892		$	(1,772	)
Early access sales accrual	290,457			303,637			(13,180		)
Other liabilities, current portion	59,629			44,295			15,334
Accumulated other comprehensive loss	(4,605		)	(4,801		)	196
Accumulated deficit	(4,668,751		)	(4,682,407		)	13,656
Total liabilities and shareholders’ equity	$	4,335,386		$	4,321,152		$	14,234

The impact of adoption on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2018 was as follows:

	Three Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	749,912	$	745,975	$	3,937
Cost of sales	104,382		102,688		1,694
Income from operations	172,878		170,635		2,243
Net income attributable to Vertex	$	207,360	$	205,117	$	2,243
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	0.82	$	0.81	$	0.01
Diluted	$	0.80	$	0.79	$	0.01

	Six Months Ended June 30, 2018
	As Reported under ASC 606		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
	(in thousands)
Product revenues, net	$	1,387,641	$	1,379,039	$	8,602
Cost of sales	175,995		172,769		3,226
Income from operations	301,779		296,403		5,376
Net income attributable to Vertex	$	417,623	$	412,247	$	5,376
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic	$	1.65	$	1.62	$	0.03
Diluted	$	1.61	$	1.59	$	0.02

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

Summary in changes in contract liabilities

The following table summarizes changes in the Company’s contract liabilities for the six months endedJune 30, 2018:

	Balance at January 1, 2018 (ASC 606 adoption)		Additions		Deductions			Balance at June 30, 2018
	(in thousands)
Three Months Ended June 30, 2018
Contract liabilities:
Other liabilities, current portion	$	1,654	$	34,513	$	(3,736	)	$	32,431

Schedule of disaggregation of revenue

Total revenues from external customers and collaborators by geographic region consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)		2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
United States	$	584,811	$	429,804	$	1,067,478	$	1,028,930
Outside of the United States
Europe	135,914		91,992		267,809		184,350
Other	31,432		22,339		57,669		45,573
Total revenues outside of the United States	167,346		114,331		325,478		229,923
Total revenues	$	752,157	$	544,135	$	1,392,956	$	1,258,853

Product revenues, net consisted of the following:

	Three Months Ended June 30,					Six Months Ended June 30, 2018
	2018 (as reported under ASC 606)		2017 (as reported under ASC 605)			2018 (as reported under ASC 606)		2017 (as reported under ASC 605)
	(in thousands)
KALYDECO	$	253,093	$	189,633		$	502,632	$	375,348
ORKAMBI	311,261		324,407			665,327		619,268
SYMDEKO	185,558		—			219,682		—
Other	—		(52		)	—		(6		)
Total product revenues, net	$	749,912	$	513,988		$	1,387,641	$	994,610

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Collaborative Arrangements and Acquisitions (Tables)

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of net income attributable to noncontrolling interest

An aggregate summary of net income attributable to noncontrolling interest related to the Company’s VIEs for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Loss (income) attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments	$	426		$	(18,045	)	$	983		$	(16,498	)
(Benefit from) provision for income taxes	(416		)	8,132			5,989			8,523
Decrease (increase) in fair value of contingent payments	1,100			(3,260		)	(22,900		)	(6,990		)
Net loss (income) attributable to noncontrolling interest	$	1,110		$	(13,173	)	$	(15,928	)	$	(14,965	)

Summary of increase in fair value of contingent payments

During the three and six months ended June 30, 2018 and 2017, the decreases and (increases) in the fair value of the contingent payments related to the Company’s VIEs were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
	(in thousands)
Parion	$	—	$	(3,260	)	$	—		$	(6,090	)
BioAxone	1,100		—			(22,900		)	(900		)

Schedule of collaborative arrangement summary of items related to variable interest entities

Significant amounts related to the Company’s consolidation of BioAxone as a VIE included in the Company’s condensed consolidated balance sheets as of the dates set forth in the table below were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Restricted cash and cash equivalents (VIE)	$	8,510	$	1,489
Intangible assets	29,000		29,000
Deferred tax liability	9,335		4,756
Noncontrolling interest	28,655		13,727

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

The following table sets forth the computation of basic and diluted net income per share for the periods ended:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands, except per share amounts)
Basic net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(65		)	(23		)	(163		)	(387		)
Net income attributable to Vertex common shareholders—basic	$	207,295		$	17,973		$	417,460		$	265,365
Basic weighted-average common shares outstanding	254,135			247,521			253,685			246,782
Basic net income attributable to Vertex per common share	$	0.82		$	0.07		$	1.65		$	1.08
Diluted net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$	207,360		$	17,996		$	417,623		$	265,752
Less: Undistributed earnings allocated to participating securities	(64		)	(23		)	(160		)	(382		)
Net income attributable to Vertex common shareholders—diluted	$	207,296		$	17,973		$	417,463		$	265,370
Weighted-average shares used to compute basic net income per common share	254,135			247,521			253,685			246,782
Effect of potentially dilutive securities:
Stock options	2,758			2,787			3,003			2,407
Restricted stock and restricted stock units (including PSUs)	1,689			1,264			1,851			958
Employee stock purchase program	2			63			18			52
Weighted-average shares used to compute diluted net income per common share	258,584			251,635			258,557			250,199
Diluted net income attributable to Vertex per common share	$	0.80		$	0.07		$	1.61		$	1.06

Potential gross common equivalent shares

The Company did not include the securities in the following table in the computation of the net income per share attributable to Vertex common shareholders calculations because the effect would have been anti-dilutive during each period:

	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(in thousands)
Stock options	2,253	3,112	1,943	7,065
Unvested restricted stock and restricted stock units (including PSUs)	6	6	5	32

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Financial assets subject to fair value measurements (excluding VIE cash and cash equivalents, which are recorded as Restricted cash and cash equivalents (VIE))

The following table sets forth the Company’s financial assets and liabilities (excluding VIE cash and cash equivalents) subject to fair value measurements:

	Fair Value Measurements as of June 30, 2018
				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	$	971,044		$	971,044	$	—		$	—
Government-sponsored enterprise securities	10,982			10,982		—			—
Commercial paper	21,263			—		21,263			—
Marketable securities:
Corporate equity securities	242,775			242,775		—			—
U.S. Treasury securities	11,020			11,020		—			—
Government-sponsored enterprise securities	2,491			2,491		—			—
Corporate debt securities	232,704			—		232,704			—
Commercial paper	133,406			—		133,406			—
Prepaid and other current assets:
Foreign currency forward contracts	10,812			—		10,812			—
Other assets:
Foreign currency forward contracts	1,451			—		1,451			—
Total financial assets	$	1,637,948		$	1,238,312	$	399,636		$	—
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts	$	(1,948	)	$	—	$	(1,948	)	$	—
Other liabilities, excluding current portion:
Foreign currency forward contracts	(299		)	—		(299		)	—
Total financial liabilities	$	(2,247	)	$	—	$	(2,247	)	$	—

	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 securities	12,678			12,678		—			—
Commercial paper	57,357			—		57,357			—
Marketable securities:
Corporate equity securities	74,821			74,821		—			—
Government-sponsored enterprise securities	2,303			2,303		—			—
Corporate debt securities	265,867			—		265,867			—
Commercial paper	80,263			—		80,263			—
Prepaid and other current assets:
Foreign currency forward contracts	13			—		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	)	$	—

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Marketable Securities and Equity Investments (Tables)

6 Months Ended

Jun. 30, 2018

Cash and Cash Equivalents [Abstract]

Summary of cash equivalents and marketable securities

A summary of the Company’s cash equivalents and marketable securities is shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
As of June 30, 2018
Cash equivalents:
Money market funds	$	971,044	$	—	$	—		$	971,044
Government-sponsored enterprise securities	10,981		1		—			10,982
Commercial paper	21,270		—		(7		)	21,263
Total cash equivalents	1,003,295		1		(7		)	1,003,289
Marketable securities:
U.S. Treasury securities (matures within 1 year)	11,022		—		(2		)	11,020
Government-sponsored enterprise securities (matures within 1 year)	2,491		—		—			2,491
Corporate debt securities (matures within 1 year)	178,692		—		(564		)	178,128
Corporate debt securities (matures after 1 year through 5 years)	54,613		1		(38		)	54,576
Commercial paper (matures within 1 year)	133,478		4		(76		)	133,406
Total marketable debt securities	380,296		5		(680		)	379,621
Corporate equity securities	64,713		178,062		—			242,775
Total marketable securities	$	445,009	$	178,067	$	(680	)	$	622,396
As of December 31, 2017
Cash equivalents:
Money market funds	$	614,951	$	—	$	—		$	614,951
Government-sponsored enterprise securities	12,679		—		(1		)	12,678
Commercial paper	57,371		—		(14		)	57,357
Total cash equivalents	685,001		—		(15		)	684,986
Marketable securities:
Government-sponsored enterprise securities (matures within 1 year)	2,304		—		(1		)	2,303
Corporate debt securities (matures within 1 year)	215,639		—		(363		)	215,276
Corporate debt securities (matures after 1 year through 5 years)	50,697		—		(106		)	50,591
Commercial paper (matures within 1 year)	80,372		—		(109		)	80,263
Total marketable debt securities	349,012		—		(579		)	348,433
Available-for-sale corporate equity securities	43,213		31,608		—			74,821
Total marketable securities	$	392,225	$	31,608	$	(579	)	$	423,254

Available-for-sale debt securities were recorded in the Company's condensed consolidated balance sheets as follows:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Cash and cash equivalents	$	1,003,289	$	684,986
Marketable securities	379,621		348,433
Total	$	1,382,910	$	1,033,419

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Accumulated Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component:

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2017	$	(21,031	)	$	(594	)	$	25,069		$	(15,016	)	$	(11,572	)
Other comprehensive income before reclassifications	6,141			(87		)	—			15,352			21,406
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			9,681			9,681
Net current period other comprehensive income (loss)	$	6,141		$	(87	)	$	—		$	25,033		$	31,087
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	949			—			(25,069		)	—			(24,120		)
Balance at June 30, 2018	$	(13,941	)	$	(681	)	$	—		$	10,017		$	(4,605	)

				Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment			On Available-For-Sale Debt Securities			On Equity Securities			On Foreign Currency Forward Contracts			Total
	(in thousands)
Balance at December 31, 2016	$	(7,862	)	$	(10	)	$	17,531		$	11,514		$	21,173
Other comprehensive (loss) income before reclassifications	(7,253		)	(236		)	(13,511		)	(17,215		)	(38,215		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			—			(4,711		)	(4,711		)
Net current period other comprehensive (loss) income	$	(7,253	)	$	(236	)	$	(13,511	)	$	(21,926	)	$	(42,926	)
Balance at June 30, 2017	$	(15,115	)	$	(246	)	$	4,020		$	(10,412	)	$	(21,753	)

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Hedging (Tables)

6 Months Ended

Jun. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Cash Flow Hedging Instruments

The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP:

	As of June 30, 2018		As of December 31, 2017
Foreign Currency	(in thousands)
Euro	$	317,429	$	257,230
British pound sterling	71,288		77,481
Australian dollar	31,853		30,501
Canadian dollar	32,789		—
Total foreign currency forward contracts	$	453,359	$	365,212

Schedule of Foreign Exchange Contracts, Condensed Consolidated Statements of Operations

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	(2,675	)	$	1,973	$	(9,159	)	$	6,752
Not designated as hedging instruments
Other income (expense), net	$	(4,152	)	$	5,304	$	(2,614	)	$	8,823

Schedule of Foreign Exchange Contracts

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts included on its condensed consolidated balance sheets:

As of June 30, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	10,812	Other liabilities, current portion	$	(1,948	)
Other assets	1,451		Other liabilities, excluding current portion	(299		)
Not designated as hedging instruments
Prepaid expenses and other current assets	206		Other liabilities, current portion	—
Total assets	$	12,469	Total liabilities	$	(2,247	)

As of December 31, 2017
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	13	Other liabilities, current portion	$	(13,642	)
Other assets	—		Other liabilities, excluding current portion	(866		)
Not designated as hedging instruments
Prepaid expenses and other current assets	—		Other liabilities, current portion	(684		)
Total assets	$	13	Total liabilities	$	(15,192	)

Derivatives Offsetting

The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under GAAP on the Company’s condensed consolidated balance sheets:

	As of June 30, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	12,263		$	—	$	12,263		$	(2,247	)	$	10,016
Total liabilities	$	(2,247	)	$	—	$	(2,247	)	$	2,247		$	—

	As of December 31, 2017
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	13		$	—	$	13		$	(13	)	$	—
Total liabilities	$	(14,508	)	$	—	$	(14,508	)	$	13		$	(14,495	)

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Inventories (Tables)

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Schedule of Inventories by Type

Inventories consisted of the following:

	As of June 30, 2018		As of December 31, 2017
	(in thousands)
Raw materials	$	16,124	$	20,924
Work-in-process	74,818		74,237
Finished goods	24,083		16,669
Total	$	115,025	$	111,830

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Long-term Obligations Long-term Obligations (Tables)

6 Months Ended

Jun. 30, 2018

Long-term Debt and Capital Lease Obligations [Abstract]

Property and Equipment, net

Property and equipment, net and the carrying value of the Company’s construction financing lease obligation (including current and non-current portions and excluding interest that will be imputed over the course of the Company’s underlying lease agreements for these buildings) related to the Fan Pier Buildings and the San Diego Building were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Property and equipment, net
Fan Pier Buildings	$	469,508	$	475,725
San Diego Building	$	116,738	$	94,602
Construction financing lease obligation
Fan Pier Buildings	$	471,797	$	472,070
San Diego Building	$	93,879	$	87,392

Construction Financing Lease Obligation

Property and equipment, net and the carrying value of the Company’s construction financing lease obligation (including current and non-current portions and excluding interest that will be imputed over the course of the Company’s underlying lease agreements for these buildings) related to the Fan Pier Buildings and the San Diego Building were as follows:

	June 30, 2018		December 31, 2017
	(in thousands)
Property and equipment, net
Fan Pier Buildings	$	469,508	$	475,725
San Diego Building	$	116,738	$	94,602
Construction financing lease obligation
Fan Pier Buildings	$	471,797	$	472,070
San Diego Building	$	93,879	$	87,392

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Stock-based Compensation Expense and Share Repurchase (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based compensation expense by line item

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following stock-based compensation expense:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Stock-based compensation expense by type of award:
Stock options	$	28,591		$	27,915		$	54,646		$	54,896
Restricted stock and restricted stock units (including PSUs)	51,497			43,906			101,915			84,651
ESPP share issuances	2,428			2,246			4,556			4,310
Stock-based compensation expense related to inventories	(80		)	(972		)	(545		)	(1,323		)
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534
Stock-based compensation expense by line item:
Cost of sales	$	1,191		$	513		$	2,004		$	970
Research and development expenses	51,612			43,832			100,100			88,669
Sales, general and administrative expenses	29,633			28,750			58,468			52,895
Total stock-based compensation included in costs and expenses	$	82,436		$	73,095		$	160,572		$	142,534

Unrecognized stock-based compensation expense, net of estimated forfeitures

The following table sets forth the Company’s unrecognized stock-based compensation expense as of June 30, 2018, by type of award and the weighted-average period over which that expense is expected to be recognized:

	As of June 30, 2018
	Unrecognized Expense		Weighted-average Recognition Period
	(in thousands)		(in years)
Type of award:
Stock options	$	169,237	2.65
Restricted stock and restricted stock units (including PSUs)	$	343,132	2.57
ESPP share issuances	$	5,777	0.63

Stock options outstanding and exercisable

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2018:

	Options Outstanding				Options Exercisable
Range 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)
$26.73–$40.00	707	1.37	$	34.48	707	$	34.48
$40.01–$60.00	557	4.01	$	49.57	557	$	49.57
$60.01–$80.00	615	5.75	$	75.16	603	$	75.15
$80.01–$100.00	3,441	7.70	$	89.36	1,336	$	90.09
$100.01–$120.00	874	6.61	$	109.28	613	$	109.17
$120.01–$140.00	1,034	7.13	$	130.42	702	$	130.36
$140.01–$160.00	1,500	9.59	$	155.52	132	$	155.02
$160.01–$163.74	584	9.02	$	162.94	114	$	162.94
Total	9,312	7.09	$	103.58	4,764	$	87.14

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Basis of Presentation and Accounting Policies - Narrative (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2018 USD ($) segment	Jan. 01, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of operating segments | segment		1
Cumulative effect adjustment to accumulated deficit				$ 9,229	$ 0
Other income (expense), net	$ 53,900	$ 149,400
Deferred tax asset				1,600,000
Deferred tax assets, valuation allowance	204,700	204,700
HIV Protease Inhibitor Royalty
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Deferred revenue				6,900
Accumulated Deficit
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect adjustment to accumulated deficit				33,349	$ (9,371)
Accounting Standards Update 2014-09
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect adjustment to accumulated deficit	$ (24,120)	$ (24,120)
Accounting Standards Update 2014-09 | Accumulated Deficit
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect adjustment to accumulated deficit			$ 8,300
Accounting Standards Update 2016-01 | Accumulated Deficit
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect adjustment to accumulated deficit				$ 25,100
Accounting Standards Update 2016-16
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Deferred tax asset			204,700
Deferred tax assets, valuation allowance			$ 204,700

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Basis of Presentation and Accounting Policies - Cumulative Effect of applying ASC 606 to the Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	$ 393,439	$ 311,224	$ 281,343
Inventories	115,025	111,740	111,830
Prepaid expenses and other current assets	122,694	148,469	165,635
Total assets	4,335,386	3,558,639	3,546,014
Accrued expenses	479,120	452,547	443,961
Early access sales accrual	290,457	225,128	232,401
Other liabilities, current portion	59,629	36,456	34,373
Accumulated other comprehensive loss	(4,605)	(10,623)	(11,572)
Accumulated deficit	(4,668,751)	(5,111,443)	(5,119,723)
Cumulative effect adjustment for adoption of new accounting guidance			9,229	$ 0
Total liabilities and shareholders’ equity	4,335,386	3,558,639	$ 3,546,014
Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cumulative effect adjustment for adoption of new accounting guidance	(24,120)
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	34,336	29,881
Inventories	(92)	(90)
Prepaid expenses and other current assets	(20,010)	(17,166)
Total assets	14,234	12,625
Accrued expenses	(1,772)	8,586
Early access sales accrual	(13,180)	(7,273)
Other liabilities, current portion	15,334	2,083
Accumulated other comprehensive loss	196	949
Accumulated deficit	13,656	8,280
Total liabilities and shareholders’ equity	$ 14,234	$ 12,625

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Basis of Presentation and Accounting Policies - Impact of Adoption to the Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	$ 393,439	$ 311,224	$ 281,343
Inventories	115,025	111,740	111,830
Prepaid expenses and other current assets	122,694	148,469	165,635
Total assets	4,335,386	3,558,639	3,546,014
Accrued expenses	479,120	452,547	443,961
Early access sales accrual	290,457	225,128	232,401
Other liabilities, current portion	59,629	36,456	34,373
Accumulated other comprehensive loss	(4,605)	(10,623)	(11,572)
Accumulated deficit	(4,668,751)	(5,111,443)	(5,119,723)
Total liabilities and shareholders’ equity	4,335,386	3,558,639	$ 3,546,014
Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	359,103
Inventories	115,117
Prepaid expenses and other current assets	142,704
Total assets	4,321,152
Accrued expenses	480,892
Early access sales accrual	303,637
Other liabilities, current portion	44,295
Accumulated other comprehensive loss	(4,801)
Accumulated deficit	(4,682,407)
Total liabilities and shareholders’ equity	4,321,152
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	34,336	29,881
Inventories	(92)	(90)
Prepaid expenses and other current assets	(20,010)	(17,166)
Total assets	14,234	12,625
Accrued expenses	(1,772)	8,586
Early access sales accrual	(13,180)	(7,273)
Other liabilities, current portion	15,334	2,083
Accumulated other comprehensive loss	196	949
Accumulated deficit	13,656	8,280
Total liabilities and shareholders’ equity	$ 14,234	$ 12,625

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Basis of Presentation and Accounting Policies - Schedule of new accounting pronouncements and changes in accounting principles (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenues	$ 752,157	$ 544,135	$ 1,392,956	$ 1,258,853
Cost of sales	104,382	71,205	175,995	118,193
Income from operations	172,878	52,707	301,779	323,549
Net income attributable to Vertex	$ 207,360	$ 17,996	$ 417,623	$ 265,752
Basic (in dollars per share)	$ 0.82	$ 0.07	$ 1.65	$ 1.08
Diluted (in dollars per share)	$ 0.80	$ 0.07	$ 1.61	$ 1.06
Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cost of sales	$ 102,688		$ 172,769
Income from operations	170,635		296,403
Net income attributable to Vertex	$ 205,117		$ 412,247
Basic (in dollars per share)	$ 0.81		$ 1.62
Diluted (in dollars per share)	$ 0.79		$ 1.59
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cost of sales	$ 1,694		$ 3,226
Income from operations	2,243		5,376
Net income attributable to Vertex	$ 2,243		$ 5,376
Basic (in dollars per share)	$ 0.01		$ 0.03
Diluted (in dollars per share)	$ 0.01		$ 0.02
Product revenues, net
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenues	$ 749,912	$ 513,988	$ 1,387,641	$ 994,610
Product revenues, net | Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenues	745,975		1,379,039
Product revenues, net | Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenues	$ 3,937		$ 8,602

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Basis of Presentation and Accounting Policies - Schedule of cash, cash equivalents and restricted cash (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 2,145,359	$ 1,665,412	$ 1,223,130	$ 1,183,945
Restricted cash and cash equivalents (VIE)	8,510	1,489	64,628	47,762
Cash, cash equivalents and restricted cash per statement of cash flows	2,154,068	1,667,526	1,287,758	1,231,707
Prepaid and other current assets
Cash and Cash Equivalents [Line Items]
Restricted cash and cash equivalents (VIE)	$ 199	$ 625	$ 0	$ 0

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Revenue Recognition - Narrative (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, payment term	30 days
Credits to revenue as a percentage of gross product revenues (or less)	1.00%
Early access sales accrual	$ 290,457	$ 225,128	$ 232,401
Cumulative effect adjustment for adoption of new accounting guidance			9,229	$ 0
Accumulated Deficit
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cumulative effect adjustment for adoption of new accounting guidance			$ 33,349	$ (9,371)
Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cumulative effect adjustment for adoption of new accounting guidance	$ (24,120)
Accounting Standards Update 2014-09 | Accumulated Deficit
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Cumulative effect adjustment for adoption of new accounting guidance		$ 8,300

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Revenue Recognition - Summary in changes in contract liabilities (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Contract Liabilities
Beginning balance	$ 1,654
Additions	34,513
Deductions	(3,736)
Ending balance	$ 32,431

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Revenue Recognition - Schedule of disaggregation of revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	$ 752,157	$ 544,135	$ 1,392,956	$ 1,258,853
United States
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	584,811	429,804	1,067,478	1,028,930
Europe
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	135,914	91,992	267,809	184,350
Other
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	31,432	22,339	57,669	45,573
Total revenues outside of the United States
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	167,346	114,331	325,478	229,923
Product revenues, net
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	749,912	513,988	1,387,641	994,610
KALYDECO
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	253,093	189,633	502,632	375,348
ORKAMBI
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	311,261	324,407	665,327	619,268
SYMDEKO
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	185,558	0	219,682	0
Other
Disaggregation of Revenue [Line Items]
Disaggregation of revenue	$ 0	$ (52)	$ 0	$ (6)

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Collaborative Arrangements and Acquisitions - Cystic Fibrosis Foundation Therapeutics Incorporated (Details) - Cystic Fibrosis Foundation Therapeutics Incorporated - USD ($)	1 Months Ended	6 Months Ended
	Oct. 31, 2016	Jun. 30, 2018
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Additional milestone payments		$ 0
Collaborative funding	$ 75,000,000
Additional collaborative funding	$ 6,000,000

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Collaborative Arrangements and Acquisitions - CRISPR Therapeutics AG (Details) - CRISPR Therapeutics AG $ in Millions	1 Months Ended	12 Months Ended
	Jan. 31, 2018 USD ($)	Dec. 31, 2015 USD ($) target	Jun. 30, 2018 USD ($)
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Right to license, number of targets (up to) | target		6
Collaborative arrangement, up-front payment		$ 75.0
Collaborative arrangement, investment in collaborative partner, pursuant to convertible loan agreement		30.0
Collaborative arrangement, development and regulatory potential milestone payments maximum		$ 420.0
Prior to marketing approval, time period of notice required to terminate (in days)		90 days
Subsequent to marketing approval, time period of notice required to terminate (in days)		270 days
Preferred Stock
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, investment in collaborative partner, pursuant to convertible loan agreement	$ 21.5
Common Stock
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Fair value of investment			$ 242.8

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Collaborative Arrangements and Acquisitions - Merck KGaA (Details) - Merck KGaA $ in Millions	1 Months Ended
	Jan. 31, 2017 USD ($) pre-clinical_stage_program clinical-stage_program development_program
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Right to license, number of development programs | development_program	4
Right to license, number of clinical stage programs | clinical-stage_program	2
Number of pre-clinical stage programs | pre-clinical_stage_program	2
Collaborative arrangement, up-front payment | $	$ 230.0
Time period of notice required to terminate	90 days
Time period of notice required to terminate after a product has received marketing approval	180 days

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Collaborative Arrangements and Acquisitions - Parion Sciences, Inc. (Details) - Parion Sciences, Inc. $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($)
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, up-front payment	$ 85.0
Prior to marketing approval, time period of notice required to terminate (in days)	90 days
Subsequent to marketing approval, time period of notice required to terminate (in days)	180 days
Change of control prior to clinical trial, time period of notice required to terminate (in days)	30 days
Term of agreement following first commercial sale (in years)	10 years
ENaC Inhibitors in CF
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, development and regulatory potential milestone payments maximum	$ 485.0
Collaborative arrangement regulatory potential milestone payments maximum, global filling and approval	360.0
Enac Inhibitors in Non Cf
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, development and regulatory potential milestone payments maximum	370.0
Additional Enac Inhibitors
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, development and regulatory potential milestone payments maximum	$ 230.0

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Collaborative Arrangements and Acquisitions - BioAxone Biosciences, Inc. (Details) - USD ($) $ in Thousands		6 Months Ended
	Oct. 01, 2014	Jun. 30, 2018	Dec. 31, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Contingent payments		$ 0	$ 0
BioAxone Biosciences Inc.
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Deferred tax liability, intangible asset	$ 11,300
Collaborative arrangement, up-front payment	10,000	10,000
Maximum license fees and milestone payments	80,000
Contingent payments		$ 31,800	$ 18,900
In Process Research and Development | BioAxone Biosciences Inc.
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Acquired intangible asset	$ 29,000

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Collaborative Arrangements and Acquisitions - Aggregate VIE Financial Information, Summary of Net Income Attributable to noncontrolling (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]
(Benefit from) provision for income taxes	$ 10,341	$ 4,337	$ (2,318)	$ 8,322
Net loss (income) attributable to noncontrolling interest	1,110	(13,173)	(15,928)	(14,965)
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]
Loss (income) attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments	426	(18,045)	983	(16,498)
(Benefit from) provision for income taxes	(416)	8,132	5,989	8,523
Decrease (increase) in fair value of contingent payments	1,100	(3,260)	(22,900)	(6,990)
Net loss (income) attributable to noncontrolling interest	$ 1,110	$ (13,173)	$ (15,928)	$ (14,965)

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Collaborative Arrangements and Acquisitions - Aggregate VIE Financial Information, Increase in the fair value of contingent payments (Details) - Variable Interest Entity, Primary Beneficiary - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Decrease (increase) in fair value of contingent payments	$ 1,100	$ (3,260)	$ (22,900)	$ (6,990)
Parion Sciences, Inc.
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Decrease (increase) in fair value of contingent payments	0	(3,260)	0	(6,090)
BioAxone Biosciences Inc.
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Decrease (increase) in fair value of contingent payments	$ 1,100	$ 0	$ (22,900)	$ (900)

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Collaborative Arrangements and Acquisitions - Aggregate VIE Financial Information, Schedule of collaborative arrangement summary of items related to VIEs (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
Variable Interest Entity, Consolidated, Carrying Amount, Assets and Liabilities, Net [Abstract]
Restricted cash and cash equivalents (VIE)	$ 8,510	$ 1,489	$ 64,628	$ 47,762
Intangible assets	29,000	29,000
Deferred tax liability	9,335	6,341
Noncontrolling interest	28,655	13,727
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity, Consolidated, Carrying Amount, Assets and Liabilities, Net [Abstract]
Restricted cash and cash equivalents (VIE)	8,510	1,489
Intangible assets	29,000	29,000
Deferred tax liability	9,335	4,756
Noncontrolling interest	$ 28,655	$ 13,727

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Collaborative Arrangements and Acquisitions - Moderna Therapeutics, Inc. (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Jun. 30, 2018
Moderna Therapeutics, Inc.
Schedule of Collaborative Arrangement Agreements [Line Items]
Carrying value of investments		$ 23.0
Moderna Therapeutics, Inc.
Schedule of Collaborative Arrangement Agreements [Line Items]
Collaborative arrangement, up-front payment	$ 20.0
Collaborative arrangement, investment in collaborative partner, pursuant to convertible loan agreement	20.0
Collaborative arrangement, development and regulatory potential milestone payments maximum	275.0
Collaborative arrangement approval and reimbursement milestones	$ 220.0

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Collaborative Arrangements and Acquisitions - Janssen Pharmaceuticals, Inc. (Details) - Janssen Pharmaceuticals, Inc. - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2014
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, up-front payment		$ 35.0
Collaborative revenues	$ 25.0
Time period of notice required to terminate		6 months

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Collaborative Arrangements and Acquisitions - Concert Pharmaceuticals (Details) - Concert Pharmaceuticals - USD ($) $ in Millions	1 Months Ended		3 Months Ended
	Jul. 31, 2017	Jul. 30, 2017	Sep. 30, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative arrangement, development and commercialization rights potential maximum milestone payments		$ 160.0
Collaborative arrangement, additional maximum milestone payments based on regulatory approval		$ 90.0
Collaborative funding			$ 160.0
Collaborative arrangement, purchase price	$ 165.1
Collaborative arrangement, transaction costs	$ 5.1

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Earnings Per Share - Schedule of Earnings Per Share Computation Statement (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic net income attributable to Vertex per common share calculation:
Net income attributable to Vertex common shareholders	$ 207,360	$ 17,996	$ 417,623	$ 265,752
Less: Undistributed earnings allocated to participating securities	(65)	(23)	(163)	(387)
Net income attributable to Vertex common shareholders—basic	$ 207,295	$ 17,973	$ 417,460	$ 265,365
Basic weighted-average common shares outstanding (in shares)	254,135	247,521	253,685	246,782
Basic net income (loss) attributable to Vertex per common share (in dollars per share)	$ 0.82	$ 0.07	$ 1.65	$ 1.08
Diluted net income attributable to Vertex per common share calculation:
Less: Undistributed earnings allocated to participating securities	$ (64)	$ (23)	$ (160)	$ (382)
Net income attributable to Vertex common shareholders—diluted	$ 207,296	$ 17,973	$ 417,463	$ 265,370
Effect of potentially dilutive securities:
Employee stock purchase program (in shares)	2	63	18	52
Weighted-average shares used to compute diluted net income per common share (in shares)	258,584	251,635	258,557	250,199
Diluted net income attributable to Vertex per common share (in dollars per share)	$ 0.80	$ 0.07	$ 1.61	$ 1.06
Stock options
Effect of potentially dilutive securities:
Share-based payment arrangements (in shares)	2,758	2,787	3,003	2,407
Restricted stock and restricted stock units (including PSUs)
Effect of potentially dilutive securities:
Share-based payment arrangements (in shares)	1,689	1,264	1,851	958

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Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share
Antidilutive securities excluded from computation of earnings per share (in shares)	2,253	3,112	1,943	7,065
Unvested restricted stock and restricted stock units (including PSUs)
Antidilutive Securities Excluded from Computation of Earnings Per Share
Antidilutive securities excluded from computation of earnings per share (in shares)	6	6	5	32

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Recurring basis
Financial instruments carried at fair value (asset position):
Total financial assets	$ 1,637,948	$ 1,108,253
Financial instruments carried at fair value (liability position):
Total financial liabilities	(2,247)	(14,508)
Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Total financial assets	1,238,312	704,753
Financial instruments carried at fair value (liability position):
Total financial liabilities	0	0
Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Total financial assets	399,636	403,500
Financial instruments carried at fair value (liability position):
Total financial liabilities	(2,247)	(14,508)
Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Total financial assets	0	0
Financial instruments carried at fair value (liability position):
Total financial liabilities	0	0
Prepaid and other current assets | Foreign currency forward contracts | Recurring basis
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	10,812	13
Prepaid and other current assets | Foreign currency forward contracts | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	0	0
Prepaid and other current assets | Foreign currency forward contracts | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	10,812	13
Prepaid and other current assets | Foreign currency forward contracts | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	0	0
Other assets | Foreign currency forward contracts | Recurring basis
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	1,451
Other assets | Foreign currency forward contracts | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	0
Other assets | Foreign currency forward contracts | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	1,451
Other assets | Foreign currency forward contracts | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Foreign currency forward contracts	0
Other liabilities, current portion | Foreign currency forward contracts | Recurring basis
Financial instruments carried at fair value (liability position):
Derivative liability current	(1,948)	(13,642)
Other liabilities, current portion | Foreign currency forward contracts | Recurring basis | Level 1
Financial instruments carried at fair value (liability position):
Derivative liability current	0	0
Other liabilities, current portion | Foreign currency forward contracts | Recurring basis | Level 2
Financial instruments carried at fair value (liability position):
Derivative liability current	(1,948)	(13,642)
Other liabilities, current portion | Foreign currency forward contracts | Recurring basis | Level 3
Financial instruments carried at fair value (liability position):
Derivative liability current	0	0
Other liabilities, excluding current portion | Foreign currency forward contracts | Recurring basis
Financial instruments carried at fair value (liability position):
Derivative liability, noncurrent	(299)	(866)
Other liabilities, excluding current portion | Foreign currency forward contracts | Recurring basis | Level 1
Financial instruments carried at fair value (liability position):
Derivative liability, noncurrent	0	0
Other liabilities, excluding current portion | Foreign currency forward contracts | Recurring basis | Level 2
Financial instruments carried at fair value (liability position):
Derivative liability, noncurrent	(299)	(866)
Other liabilities, excluding current portion | Foreign currency forward contracts | Recurring basis | Level 3
Financial instruments carried at fair value (liability position):
Derivative liability, noncurrent	0	0
Money market funds | Recurring basis
Financial instruments carried at fair value (asset position):
Cash equivalents	971,044	614,951
Money market funds | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Cash equivalents	971,044	614,951
Money market funds | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Money market funds | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Government-sponsored enterprise securities | Recurring basis
Financial instruments carried at fair value (asset position):
Cash equivalents	10,982	12,678
Marketable securities	2,491	2,303
Government-sponsored enterprise securities | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Cash equivalents	10,982	12,678
Marketable securities	2,491	2,303
Government-sponsored enterprise securities | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Marketable securities	0	0
Government-sponsored enterprise securities | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Marketable securities	0	0
Corporate debt securities | Recurring basis
Financial instruments carried at fair value (asset position):
Marketable securities	232,704	265,867
Corporate debt securities | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Marketable securities	0	0
Corporate debt securities | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Marketable securities	232,704	265,867
Corporate debt securities | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Marketable securities	0	0
Commercial paper | Recurring basis
Financial instruments carried at fair value (asset position):
Cash equivalents	21,263	57,357
Marketable securities	133,406	80,263
Commercial paper | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Marketable securities	0	0
Commercial paper | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Cash equivalents	21,263	57,357
Marketable securities	133,406	80,263
Commercial paper | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Cash equivalents	0	0
Marketable securities	0	0
Corporate equity securities | Recurring basis
Financial instruments carried at fair value (asset position):
Marketable securities	242,775	74,821
Corporate equity securities | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Marketable securities	242,775	74,821
Corporate equity securities | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Marketable securities	0	0
Corporate equity securities | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Marketable securities	0	$ 0
US Treasury Securities | Recurring basis
Financial instruments carried at fair value (asset position):
Marketable securities	11,020
US Treasury Securities | Recurring basis | Level 1
Financial instruments carried at fair value (asset position):
Marketable securities	11,020
US Treasury Securities | Recurring basis | Level 2
Financial instruments carried at fair value (asset position):
Marketable securities	0
US Treasury Securities | Recurring basis | Level 3
Financial instruments carried at fair value (asset position):
Marketable securities	0
Variable Interest Entity, Primary Beneficiary | Level 1
Financial instruments carried at fair value (liability position):
Cash and cash equivalents	$ 5,000

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Marketable Securities and Equity Investments - Summary of cash equivalents and marketable securities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Available-for-sale debt securities
Fair Value	$ 1,382,910	$ 1,033,419
Equity securities
Amortized Cost	445,009
Gross Unrealized Gains	178,067
Gross Unrealized Losses	(680)
Fair Value	622,396
Amortized Cost		392,225
Gross Unrealized Gains		31,608
Gross Unrealized Losses		(579)
Fair Value		423,254
US Treasury Securities
Available-for-sale debt securities
Amortized Cost	11,022
Gross Unrealized Gains	0
Gross Unrealized Losses	(2)
Fair Value	11,020
Money market funds
Available-for-sale debt securities
Amortized Cost	971,044	614,951
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	971,044	614,951
Government-sponsored enterprise securities
Available-for-sale debt securities
Amortized Cost	10,981	12,679
Gross Unrealized Gains	1	0
Gross Unrealized Losses	0	(1)
Fair Value	10,982	12,678
Commercial paper
Available-for-sale debt securities
Amortized Cost	21,270	57,371
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(7)	(14)
Fair Value	21,263	57,357
Cash Equivalents
Available-for-sale debt securities
Amortized Cost	1,003,295	685,001
Gross Unrealized Gains	1	0
Gross Unrealized Losses	(7)	(15)
Fair Value	1,003,289	684,986
Total marketable debt securities
Available-for-sale debt securities
Amortized Cost	380,296	349,012
Gross Unrealized Gains	5	0
Gross Unrealized Losses	(680)	(579)
Fair Value	379,621	348,433
Government-sponsored enterprise securities (matures within 1 year)
Available-for-sale debt securities
Amortized Cost	2,491	2,304
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	(1)
Fair Value	2,491	2,303
Corporate debt securities (matures within 1 year)
Available-for-sale debt securities
Amortized Cost	178,692	215,639
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(564)	(363)
Fair Value	178,128	215,276
Corporate debt securities (matures after 1 year through 5 years)
Available-for-sale debt securities
Amortized Cost	54,613	50,697
Gross Unrealized Gains	1	0
Gross Unrealized Losses	(38)	(106)
Fair Value	54,576	50,591
Commercial paper (matures within 1 year)
Available-for-sale debt securities
Amortized Cost	133,478	80,372
Gross Unrealized Gains	4	0
Gross Unrealized Losses	(76)	(109)
Fair Value	133,406	80,263
Corporate equity securities
Equity Securities, FV-NI and without Readily Determinable Fair Value [Abstract]
Amortized Cost	64,713
Gross Unrealized Gains	178,062
Gross Unrealized Losses	0
Fair Value	$ 242,775
Equity securities
Amortized Cost		43,213
Gross Unrealized Gains		31,608
Gross Unrealized Losses		0
Fair Value		$ 74,821

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Marketable Securities and Equity Investments - Marketable securities and equity investments (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jan. 31, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Summary of cash equivalents and marketable securities
Other than temporary impairment losses, investments			$ 0
Gross realized gains (losses)		$ 0	$ 0
Unrealized gain (loss) on investments		53,900,000		$ 149,400,000
Payments to Acquire Investments				21,500,000	$ 0
CRISPR
Summary of cash equivalents and marketable securities
Unrealized gain (loss) on investments		53,900,000		146,500,000
Payments to Acquire Investments	$ 21,500,000
Moderna
Summary of cash equivalents and marketable securities
Unrealized gain (loss) on investments		0		2,900,000
Carrying value of investments		$ 23,000,000		$ 23,000,000

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Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017	Dec. 31, 2016
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			$ 2,042,306	$ 1,338,191
Other comprehensive income before reclassifications			21,406	(38,215)
Amounts reclassified from accumulated other comprehensive income (loss)			9,681	(4,711)
Total changes in other comprehensive income (loss)	$ 35,138	$ (37,778)	31,087	(42,926)
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard					$ 9,229	$ 0
Ending Balance	2,714,883	1,867,231	2,714,883	1,867,231
Foreign Currency Translation Adjustment
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			(21,031)	(7,862)
Other comprehensive income before reclassifications			6,141	(7,253)
Amounts reclassified from accumulated other comprehensive income (loss)			0	0
Total changes in other comprehensive income (loss)			6,141	(7,253)
Ending Balance	(13,941)	(15,115)	(13,941)	(15,115)
Unrealized Holding Gains (Losses), Net of Tax, On Available-For-Sale Debt Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			(594)	(10)
Other comprehensive income before reclassifications			(87)	(236)
Amounts reclassified from accumulated other comprehensive income (loss)			0	0
Total changes in other comprehensive income (loss)			(87)	(236)
Ending Balance	(681)	(246)	(681)	(246)
Unrealized Holding Gains (Losses), Net of Tax, On Equity Securities, Net of Tax
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			25,069	17,531
Other comprehensive income before reclassifications			0	(13,511)
Amounts reclassified from accumulated other comprehensive income (loss)			0	0
Total changes in other comprehensive income (loss)			0	(13,511)
Ending Balance	0	4,020	0	4,020
Unrealized Holding Gains (Losses), Net of Tax, On Foreign Currency Forward Contracts
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			(15,016)	11,514
Other comprehensive income before reclassifications			15,352	(17,215)
Amounts reclassified from accumulated other comprehensive income (loss)			9,681	(4,711)
Total changes in other comprehensive income (loss)			25,033	(21,926)
Ending Balance	10,017	(10,412)	10,017	(10,412)
AOCI Attributable to Parent
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance			(11,572)	21,173
Total changes in other comprehensive income (loss)			31,087	(42,926)
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard					$ (24,120)
Ending Balance	(4,605)	$ (21,753)	(4,605)	$ (21,753)
Accounting Standards Update 2014-09
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	(24,120)		(24,120)
Accounting Standards Update 2014-09 | Foreign Currency Translation Adjustment
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	949		949
Accounting Standards Update 2014-09 | Unrealized Holding Gains (Losses), Net of Tax, On Available-For-Sale Debt Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	0		0
Accounting Standards Update 2014-09 | Unrealized Holding Gains (Losses), Net of Tax, On Equity Securities, Net of Tax
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	(25,069)		(25,069)
Accounting Standards Update 2014-09 | Unrealized Holding Gains (Losses), Net of Tax, On Foreign Currency Forward Contracts
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Amounts reclassified to accumulated deficit pursuant to adoption of new accounting standard	$ 0		$ 0

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Hedging - Narrative (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Derivative [Line Items]
Amount of ineffectiveness on net hedges	$ 0
Cash flow hedging | Foreign currency forward contracts | Minimum
Derivative [Line Items]
Derivative term	1 month
Cash flow hedging | Foreign currency forward contracts | Maximum
Derivative [Line Items]
Derivative term	18 months
Not designated as hedging instrument | Foreign currency forward contracts
Derivative [Line Items]
Derivative term	1 year
Not designated as hedging instrument | Cash flow hedging | Foreign currency forward contracts
Derivative [Line Items]
Notional amount of foreign currency forward contract	$ 90,400

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Hedging - Notional Amount (Details) - Foreign currency forward contracts - Designated as hedging instrument - Cash flow hedging - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional amount of foreign currency forward contract	$ 453,359	$ 365,212
Euro
Derivative [Line Items]
Notional amount of foreign currency forward contract	317,429	257,230
British pound sterling
Derivative [Line Items]
Notional amount of foreign currency forward contract	71,288	77,481
Australian dollar
Derivative [Line Items]
Notional amount of foreign currency forward contract	31,853	30,501
Canadian dollar
Derivative [Line Items]
Notional amount of foreign currency forward contract	$ 32,789	$ 0

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Hedging Hedging - Cash Flow Hedging Instruments (Details) - Foreign currency forward contracts - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Product revenues, net | Designated as hedging instrument
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on Cash Flow Hedging Instruments	$ (2,675)	$ 1,973	$ (9,159)	$ 6,752
Other income (expense), net | Not designated as hedging instrument
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on Cash Flow Hedging Instruments	$ (4,152)	$ 5,304	$ (2,614)	$ 8,823

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Hedging - Derivative Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Foreign currency forward contracts | Cash flow hedging
Derivative [Line Items]
Total assets	$ 12,469	$ 13
Total liabilities	(2,247)	(15,192)
Designated as hedging instrument | Foreign currency forward contracts | Cash flow hedging
Derivative [Line Items]
Total assets	12,263	13
Total liabilities	(2,247)	(14,508)
Prepaid and other current assets | Designated as hedging instrument
Derivative [Line Items]
Fair Value - assets	10,812	13
Prepaid and other current assets | Not designated as hedging instrument
Derivative [Line Items]
Fair Value - assets	206	0
Other liabilities, current portion | Designated as hedging instrument
Derivative [Line Items]
Fair Value - liabilities	(1,948)	(13,642)
Other liabilities, current portion | Not designated as hedging instrument
Derivative [Line Items]
Fair Value - liabilities	0	(684)
Other assets | Designated as hedging instrument
Derivative [Line Items]
Fair Value - assets	1,451	0
Other liabilities, excluding current portion | Designated as hedging instrument
Derivative [Line Items]
Fair Value - liabilities	$ (299)	$ (866)

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Hedging - Offsetting Derivatives (Details) - Cash flow hedging - Foreign currency forward contracts - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Offsetting Derivative Assets [Abstract]
Gross Amounts Recognized	$ 12,469	$ 13
Offsetting Derivative Liabilities [Abstract]
Gross Amounts Recognized	(2,247)	(15,192)
Designated as hedging instrument
Offsetting Derivative Assets [Abstract]
Gross Amounts Recognized	12,263	13
Gross Amounts Offset	0	0
Gross Amounts Presented	12,263	13
Gross Amounts Not Offset	(2,247)	(13)
Legal Offset	10,016	0
Offsetting Derivative Liabilities [Abstract]
Gross Amounts Recognized	(2,247)	(14,508)
Gross Amounts Offset	0	0
Gross Amounts Presented	(2,247)	(14,508)
Gross Amounts Not Offset	2,247	13
Legal Offset	$ 0	$ (14,495)

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Inventories - Schedule of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 16,124		$ 20,924
Work-in-process	74,818		74,237
Finished goods	24,083		16,669
Total Inventories	$ 115,025	$ 111,740	$ 111,830

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Intangible Assets and Goodwill (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Intangible assets	$ 29,000	$ 29,000
Goodwill	50,384	50,384
Variable Interest Entity, Primary Beneficiary
Finite-Lived Intangible Assets [Line Items]
Intangible assets	$ 29,000	$ 29,000

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Long-term Obligations - Fan Pier Leases (Details) - Fan Pier Leases ft² in Millions	12 Months Ended
	Dec. 31, 2011 ft² lease building
Property, Plant and Equipment [Line Items]
Number of leases | lease	2
Area of real estate property (in square feet) | ft²	1.1
Number of buildings under lease agreement | building	2
Optional term of lease agreement (in years)	10 years

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Long-term Obligations - San Diego Lease (Details) ft² in Thousands, $ in Thousands	Dec. 02, 2015 USD ($) ft² term_extension	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Property, Plant and Equipment [Line Items]
Property and equipment, net		$ 815,928	$ 789,437
San Diego Lease
Property, Plant and Equipment [Line Items]
Area of real estate property (in square feet) | ft²	170
Length of lease	16 years
Average yearly aggregate rent	$ 10,200
Amount of optional renewal terms | term_extension	2
Optional renewal term length	5 years

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Long-term Obligations Long-term Obligations - Property and Equipment, Lease Obligations(Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property and equipment, net	$ 815,928	$ 789,437
Fan Pier Leases | Building
Property, Plant and Equipment [Line Items]
Property and equipment, net	469,508	475,725
Construction financing lease obligation	471,797	472,070
San Diego Lease | Building
Property, Plant and Equipment [Line Items]
Property and equipment, net	116,738	94,602
Construction financing lease obligation	$ 93,879	$ 87,392

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Long-term Obligations - Revolving Credit Facility (Details) $ in Millions	1 Months Ended
	Oct. 31, 2016 USD ($)
Line of Credit Facility [Line Items]
Proceeds from lines of credit	$ 300.0
Line of credit facility additional borrowing capacity	300.0
Line of Credit
Line of Credit Facility [Line Items]
Line of credit facility, current borrowing capacity	$ 500.0
Debt covenant, consolidated leverage ratio	3.00
Debt covenant, minimum consolidated EBITDA	$ 200.0
Base Rate | Minimum | Line of Credit
Line of Credit Facility [Line Items]
Interest rate, stated percentage	0.75%
Base Rate | Maximum | Line of Credit
Line of Credit Facility [Line Items]
Interest rate, stated percentage	1.50%
Eurodollar | Minimum | Line of Credit
Line of Credit Facility [Line Items]
Interest rate, stated percentage	1.75%
Eurodollar | Maximum | Line of Credit
Line of Credit Facility [Line Items]
Interest rate, stated percentage	2.50%

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Stock-based Compensation Expense and Share Repurchase - (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock-based compensation expense:
Stock-based compensation expense related to inventories	$ (80)	$ (972)	$ (545)	$ (1,323)
Total stock-based compensation included in costs and expenses	82,436	73,095	160,572	142,534
Cost of sales
Stock-based compensation expense:
Total stock-based compensation included in costs and expenses	1,191	513	2,004	970
Research and development expenses
Stock-based compensation expense:
Total stock-based compensation included in costs and expenses	51,612	43,832	100,100	88,669
Sales, general and administrative expenses
Stock-based compensation expense:
Total stock-based compensation included in costs and expenses	29,633	28,750	58,468	52,895
Stock options
Stock-based compensation expense:
Share-based compensation expense by type of award	28,591	27,915	54,646	54,896
Type of award:
Unrecognized Expense	169,237		$ 169,237
Weighted-average Recognition Period			2 years 7 months 24 days
Restricted stock and restricted stock units (including PSUs)
Stock-based compensation expense:
Share-based compensation expense by type of award	51,497	43,906	$ 101,915	84,651
Type of award:
Unrecognized Expense	343,132		$ 343,132
Weighted-average Recognition Period			2 years 6 months 26 days
ESPP share issuances
Stock-based compensation expense:
Share-based compensation expense by type of award	2,428	$ 2,246	$ 4,556	$ 4,310
Type of award:
Unrecognized Expense	$ 5,777		$ 5,777
Weighted-average Recognition Period			7 months 17 days

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Stock-based Compensation Expense and Share Repurchase - Stock Options Outstanding and Exercisable (Details) shares in Thousands	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price range, options outstanding (in shares) | shares	9,312
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	7 years 1 month 2 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 103.58
Exercise price range, options exercisable (in shares) | shares	4,764
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 87.14
$26.73–$40.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	26.73
Exercise price, high end of range (in dollars per share)	$ 40
Exercise price range, options outstanding (in shares) | shares	707
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	1 year 4 months 13 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 34.48
Exercise price range, options exercisable (in shares) | shares	707
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 34.48
$40.01–$60.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	40.01
Exercise price, high end of range (in dollars per share)	$ 60
Exercise price range, options outstanding (in shares) | shares	557
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	4 years 4 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 49.57
Exercise price range, options exercisable (in shares) | shares	557
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 49.57
$60.01–$80.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	60.01
Exercise price, high end of range (in dollars per share)	$ 80
Exercise price range, options outstanding (in shares) | shares	615
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	5 years 9 months
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 75.16
Exercise price range, options exercisable (in shares) | shares	603
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 75.15
$80.01–$100.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	80.01
Exercise price, high end of range (in dollars per share)	$ 100
Exercise price range, options outstanding (in shares) | shares	3,441
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	7 years 8 months 12 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 89.36
Exercise price range, options exercisable (in shares) | shares	1,336
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 90.09
$100.01–$120.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	100.01
Exercise price, high end of range (in dollars per share)	$ 120
Exercise price range, options outstanding (in shares) | shares	874
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	6 years 7 months 10 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 109.28
Exercise price range, options exercisable (in shares) | shares	613
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 109.17
$120.01–$140.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	120.01
Exercise price, high end of range (in dollars per share)	$ 140.00
Exercise price range, options outstanding (in shares) | shares	1,034
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	7 years 1 month 17 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 130.42
Exercise price range, options exercisable (in shares) | shares	702
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 130.36
$140.01–$160.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	140.01
Exercise price, high end of range (in dollars per share)	$ 160.00
Exercise price range, options outstanding (in shares) | shares	1,500
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	9 years 7 months 2 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 155.52
Exercise price range, options exercisable (in shares) | shares	132
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 155.02
$160.01–$163.74
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Exercise price, low end of range (in dollars per share)	160.01
Exercise price, high end of range (in dollars per share)	$ 163.74
Exercise price range, options outstanding (in shares) | shares	584
Exercise price range, options outstanding, weighted-average remaining contractual life (in years)	9 years 7 days
Exercise price range, options outstanding, weighted-average exercise price (in dollars per share)	$ 162.94
Exercise price range, options exercisable (in shares) | shares	114
Exercise price range, options exercisable, weighted-average exercise price (in dollars per share)	$ 162.94

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Stock-based Compensation Expense and Share Repurchase - Narrative (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($) shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Number of shares authorized to be repurchased | shares	500,000,000.0
Shares repurchased (shares) | shares	767,551
Share repurchased | $	$ 119,034
Shares repurchased, accrued liabilities | $	$ 4,000

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Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Schedule of Collaborative Arrangement Agreements [Line Items]
Provision for (benefit from) income taxes	$ 10,341,000	$ 4,337,000	$ (2,318,000)	$ 8,322,000
Excess tax benefits related to stock-based compensation	(5,000,000)		16,800,000
State And Local, Foreign Income Tax, Amount	5,700,000		8,500,000
Tax provision attributable to noncontrolling interest	(400,000)		6,000,000
Unrecognized tax benefits	5,900,000		5,900,000		$ 3,800,000
Income taxes, interest and penalties accrued	0		0
Increase in unrecognized tax benefits is reasonably possible	0		0
Income taxes, material interest or penalties related to uncertain tax positions			0		0
Deferred tax asset subject to valuation allowance					$ 1,600,000,000
Deferred tax assets, valuation allowance	204,700,000		204,700,000
Variable Interest Entity, Primary Beneficiary
Schedule of Collaborative Arrangement Agreements [Line Items]
Provision for (benefit from) income taxes	(416,000)	$ 8,132,000	5,989,000	$ 8,523,000
Income tax liability associated with variable interest entity	$ 0		$ 0

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Restructuring Liabilities - Narrative (Details)	1 Months Ended
	Feb. 28, 2017 position
Research and Development Restructuring
Restructuring Cost and Reserve [Line Items]
Restructuring and related cost, number of positions eliminated	70

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Commitments and Contingencies (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]
Indemnification claims	$ 0
Contingent liabilities	$ 0	$ 0