Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

G. Income Taxes

        For the nine months ended September 30, 2011, the Company has recorded a net benefit from income taxes of $3.4 million, which consists of a benefit attributable to Vertex of $32.7 million and a provision of $29.3 million attributable to noncontrolling interest (Alios).

        In the third quarter of 2011, the Company determined that the value of VX-759 was zero, which resulted in an impairment charge of $105.8 million. As such, the associated deferred tax liability of $32.7 million was written off as a benefit in the condensed consolidated statements of operations. Please refer to Note L, "Acquisition of ViroChem Pharma Inc." for further information regarding the impairment charge. For the three and nine months ended September 30, 2011, respectively, in connection with the Alios financial statement consolidation, the Company recorded a provision for income taxes (Alios) of $4.9 million and $29.3 million, which consists of the estimated income tax effect on Alios from Vertex's $60.0 million up-front payment made to Alios in the second quarter of 2011, the achievement of $10.0 million of certain nonclinical development milestones under the Alios Collaboration that are expected to be paid in the fourth quarter of 2011, research and development payments to Alios, and Alios' other operating activities. Vertex has no liability for taxes payable by Alios and the income tax provision and related liability have been allocated to noncontrolling interest (Alios). As of September 30, 2011, Alios has an income tax payable of $9.8 million and a deferred tax liability of $103.6 million reflected in the condensed consolidated balance sheets.

        As of September 30, 2011 and December 31, 2010, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. 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 September 30, 2011 and December 31, 2010.

        The Company files United States federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States before 2007 and any other major taxing jurisdiction for years before 2005, except where the Company has net operating losses or tax credit carryforwards that originate before 2005. The Company is currently under examination by Revenue Quebec for the year ended March 11, 2009 and the year ended December 31, 2007. No adjustments have been reported. The Company is not under examination by any other jurisdictions for any tax year.