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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM    TO   
Commission file number 000-19319
____________________________________________
Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of incorporation or organization)

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

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

02210
(Zip Code)

Registrant’s telephone number, including area code (617341-6100
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share
VRTX
The Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share
260,467,334
Outstanding at July 23, 2020


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

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



Table of Contents
Part I. Financial Information

Item 1.  Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues:
Product revenues, net
$1,524,485  $940,380  $3,039,592  $1,797,633  
Collaborative and royalty revenues
  913    2,095  
Total revenues
1,524,485  941,293  3,039,592  1,799,728  
Costs and expenses:
Cost of sales
184,520  135,740  347,017  230,832  
Research and development expenses
420,928  379,091  869,456  718,581  
Sales, general and administrative expenses
191,804  156,502  374,062  303,547  
Change in fair value of contingent consideration
9,200    10,800    
Total costs and expenses
806,452  671,333  1,601,335  1,252,960  
Income from operations
718,033  269,960  1,438,257  546,768  
Interest income
4,243  18,076  16,819  33,691  
Interest expense
(13,871) (14,837) (28,007) (29,705) 
Other income, net
116,365  53,939  55,235  96,549  
Income before (benefit from) provision for income taxes
824,770  327,138  1,482,304  647,303  
(Benefit from) provision for income taxes
(12,500) 59,711  42,281  111,245  
Net income
$837,270  $267,427  $1,440,023  $536,058  
Net income per common share:
Basic
$3.22  $1.04  $5.54  $2.09  
Diluted
$3.18  $1.03  $5.46  $2.06  
Shares used in per share calculations:
Basic
259,637  256,154  260,013  255,941  
Diluted
263,403  259,822  263,746  260,015  
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Table of Contents
VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net income
$837,270  $267,427  $1,440,023  $536,058  
Other comprehensive loss:
Unrealized holding gains on marketable securities, net
2,714  451  1,950  1,047  
Unrealized losses on foreign currency forward contracts, net of tax of $4.7 million, $1.8 million, $(0.3) million and $3.3 million, respectively
(19,680) (5,776) (898) (5,998) 
Foreign currency translation adjustment
(10,538) (3,876) (13,200) 1,091  
Total other comprehensive loss
(27,504) (9,201) (12,148) (3,860) 
Comprehensive income$809,766  $258,226  $1,427,875  $532,198  
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents
VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
June 30,December 31,
20202019
Assets
Current assets:
Cash and cash equivalents
$4,831,332  $3,109,322  
Marketable securities
619,437  698,972  
Accounts receivable, net
791,768  633,518  
Inventories
219,218  167,502  
Prepaid expenses and other current assets
232,565  213,515  
Total current assets
6,694,320  4,822,829  
Property and equipment, net
728,357  745,080  
Goodwill
1,002,158  1,002,158  
Intangible assets
400,000  400,000  
Deferred tax assets
1,214,968  1,190,815  
Other assets
176,564  157,583  
Total assets
$10,216,367  $8,318,465  
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$101,451  $87,610  
Accrued expenses
1,545,407  1,116,912  
Other current liabilities
151,782  130,305  
Total current liabilities
1,798,640  1,334,827  
Long-term finance lease liabilities
522,067  538,576  
Long-term contingent consideration
187,300  176,500  
Other long-term liabilities
189,118  183,318  
Total liabilities
2,697,125  2,233,221  
Commitments and contingencies
    
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000 shares authorized; none issued and outstanding
    
Common stock, $0.01 par value; 500,000 shares authorized, 260,124 and 258,993 shares issued and outstanding, respectively
2,601  2,589  
Additional paid-in capital
7,943,717  7,937,606  
Accumulated other comprehensive loss
(14,121) (1,973) 
Accumulated deficit
(412,955) (1,852,978) 
Total shareholders’ equity
7,519,242  6,085,244  
Total liabilities and shareholders’ equity
$10,216,367  $8,318,465  
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents
VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)
(in thousands)
Three Months Ended
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balance at March 31, 2019256,351  $2,561  $7,475,909  $6,000  $(2,761,157) $4,723,313  
Other comprehensive loss, net of tax—  —  —  (9,201) —  (9,201) 
Net income—  —  —  —  267,427  267,427  
Repurchase of common stock(296) (3) (52,007) —  —  (52,010) 
Issuance of common stock under benefit plans616  7  50,494  —  —  50,501  
Stock-based compensation expense—  —  89,935  —  —  89,935  
Balance at June 30, 2019256,671  $2,565  $7,564,331  $(3,201) $(2,493,730) $5,069,965  
Balance at March 31, 2020259,079  $2,591  $7,695,905  $13,383  $(1,250,225) $6,461,654  
Other comprehensive loss, net of tax
—  —  —  (27,504) —  (27,504) 
Net income—  —  —  —  837,270  837,270  
Common stock withheld for employee tax obligations
(11) —  (3,080) —  —  (3,080) 
Issuance of common stock under benefit plans1,056  10  132,771  —  —  132,781  
Stock-based compensation expense—  —  118,121  —  —  118,121  
Balance at June 30, 2020260,124  $2,601  $7,943,717  $(14,121) $(412,955) $7,519,242  
Six Months Ended
Common Stock
Additional 
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Total 
Shareholders’ Equity
Shares
Amount
Balance at December 31, 2018255,172  $2,546  $7,421,476  $659  $(2,989,478) $4,435,203  
Cumulative effect adjustment for adoption of new accounting guidance
—  —  —  —  (40,310) (40,310) 
Other comprehensive loss, net of tax
—  —  —  (3,860) —  (3,860) 
Net income
—  —  —  —  536,058  536,058  
Repurchase of common stock(833) (9) (150,008) —  —  (150,017) 
Common stock withheld for employee tax obligations
(27) —  (5,832) —  —  (5,832) 
Issuance of common stock under benefit plans2,359  28  114,517  —  —  114,545  
Stock-based compensation expense
—  —  184,178  —  —  184,178  
Balance at June 30, 2019256,671  $2,565  $7,564,331  $(3,201) $(2,493,730) $5,069,965  
Balance at December 31, 2019258,993  $2,589  $7,937,606  $(1,973) $(1,852,978) $6,085,244  
Other comprehensive loss, net of tax—  —  —  (12,148) —  (12,148) 
Net income
—  —  —  —  1,440,023  1,440,023  
Repurchase of common stock(1,404) (14) (300,012) —  —  (300,026) 
Common stock withheld for employee tax obligations
(586) (6) (139,241) (139,247) 
Issuance of common stock under benefit plans3,121  32  210,343  —  —  210,375  
Stock-based compensation expense
—  —  235,021  —  —  235,021  
Balance at June 30, 2020260,124  $2,601  $7,943,717  $(14,121) $(412,955) $7,519,242  
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net income
$1,440,023  $536,058  
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense
232,895  183,478  
Depreciation expense
53,518  54,838  
Increase in fair value of contingent consideration
10,800    
Deferred income taxes
8,963  87,358  
Gains on equity securities
(65,116) (100,078) 
Other non-cash items, net
16,307  6,006  
Changes in operating assets and liabilities:
Accounts receivable, net
(164,139) (55,870) 
Inventories
(64,386) (25,174) 
Prepaid expenses and other assets
(28,923) (17,580) 
Accounts payable
14,697  (28,074) 
Accrued expenses
369,851  113,968  
Other liabilities
29,735  33,603  
Net cash provided by operating activities
1,854,225  788,533  
Cash flows from investing activities:
Purchases of available-for-sale debt securities
(126,577) (263,636) 
Maturities of available-for-sale debt securities
145,395  228,707  
Sale of equity securities
127,874    
Expenditures for property and equipment
(37,314) (34,399) 
Investment in equity securities
(5,800) (20,000) 
Net cash provided by (used in) investing activities
103,578  (89,328) 
Cash flows from financing activities:
Issuances of common stock under benefit plans
213,058  114,092  
Repurchases of common stock
(300,026) (150,017) 
Payments in connection with common stock withheld for employee tax obligations
(139,247) (5,832) 
Payments on finance leases
(20,730) (18,926) 
Proceeds related to finance leases
5,833  1,002  
Advance from collaborator
3,500  7,500  
Repayments of advanced funding
(1,793) (2,823) 
Net cash used in financing activities
(239,405) (55,004) 
Effect of changes in exchange rates on cash
(3,379) (808) 
Net increase in cash and cash equivalents
1,715,019  643,393  
Cash, cash equivalents and restricted cash—beginning of period
3,120,681  2,658,253  
Cash, cash equivalents and restricted cash—end of period
$4,835,700  $3,301,646  
Supplemental disclosure of cash flow information:
Cash paid for interest
$27,347  $27,109  
Cash paid for income taxes
$36,813  $10,902  
Issuances of common stock from employee benefit plans receivable
$137  $539  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)

A.Basis of Presentation and Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex” or the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. The Company has reclassified certain items from the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.
Certain information and footnote disclosures normally included in the Company’s 2019 Annual Report on Form 10-K 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, 2020 and 2019.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019, which are contained in the Company’s 2019 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 (i) determining the transaction price of revenues and (ii) accounting for intangible assets and contingent consideration. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
Recently Adopted Accounting Standards
Leases
On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) using the modified-retrospective method, which amended a number of aspects of lease accounting and required the Company to recognize right-of-use assets and liabilities on the balance sheet. As of January 1, 2019, the Company recorded a cumulative effect adjustment to increase its “Accumulated deficit” by $40.3 million, which related to its leases that were accounted for as build-to-suit leases under the previous accounting guidance.
Internal-Use Software
In 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements.  ASU 2018-15 became effective on January 1, 2020. The adoption of ASU 2018-15 resulted in an insignificant amount of additional assets recorded on the Company’s condensed consolidated balance sheet.

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

B.Revenue Recognition
Disaggregation of Revenue
Revenues by Product
Product revenues, net consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
TRIKAFTA$917,715  $  $1,812,948  $  
SYMDEKO/SYMKEVI171,729  361,832  344,888  682,107  
ORKAMBI231,981  316,441  466,119  609,448  
KALYDECO203,060  262,107  415,637  506,078  
Total product revenues, net*
$1,524,485  $940,380  $3,039,592  $1,797,633  
* The preceding table does not include collaborative and royalty revenues.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
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,
2020201920202019
(in thousands)
United States
$1,210,314  $700,618  $2,397,902  $1,341,721  
Outside of the United States
Europe
257,681  180,196  515,072  347,947  
Other
56,490  60,479  126,618  110,060  
Total revenues outside of the United States
314,171  240,675  641,690  458,007  
Total revenues
$1,524,485  $941,293  $3,039,592  $1,799,728  
Contract Liabilities
The Company recorded contract liabilities of $70.7 million and $62.3 million as of June 30, 2020 and December 31, 2019, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement the Company can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right. These contracts include upfront payments and fees.  The Company defers a portion of the consideration received for shipments made up to the annual reimbursement limit as a portion of “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. The Company’s product revenue contracts include performance obligations that are one year or less.
The Company’s contract liabilities at the end of each fiscal year relate to contracts with annual reimbursement limits in international markets in which the annual period associated with the contract is not the same as the Company’s fiscal year. In these markets, the Company recognizes revenues related to performance obligations satisfied in previous years; however, these revenues do not relate to any performance obligations that were satisfied more than 12 months prior to the beginning of the current year.

C.Collaborative Arrangements
The Company has entered into numerous agreements pursuant to which it collaborates with third parties on research, development and commercialization programs, including in-license and out-license agreements.
The Company’s in-license and out-license agreements that had a significant impact on its financial statements for the three and six months ended June 30, 2020 and 2019, or were new during the three and six months ended June 30, 2020, are described below. Additional in-license and out-license agreements were described in Note B, “Collaborative Arrangements,” of the Company’s 2019 Annual Report on Form 10-K.
In-license Agreements
The Company has entered into a number of license agreements in order to advance and obtain access to technologies and services related to its research and early-development activities. The Company is generally required to make an upfront payment upon execution of the license agreement; development, regulatory and commercialization milestones payments upon the achievement of certain product research, development and commercialization objectives; and royalty payments on future sales, if any, of commercial products resulting from the collaboration.
Pursuant to the terms of its in-license agreements, the Company’s collaborators typically lead the discovery efforts and the Company leads all preclinical, development and commercialization activities associated with the advancement of any drug candidates and funds all expenses.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company typically can terminate its in-license agreements by providing advance notice to its collaborators; the required length of notice is dependent on whether any product developed under the license agreement has received marketing approval. The Company’s license agreements may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, these license agreements generally remain in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.
CRISPR Therapeutics AG
In 2015, the Company entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AG and its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene-editing technology. The Company had the exclusive right to license certain targets. In the fourth quarter of 2019, the Company elected to exclusively license three targets, including cystic fibrosis, pursuant to the CRISPR Agreement. For each of the three targets that the Company elected to license, CRISPR has the potential to receive up to an additional $410.0 million in development, regulatory and commercial milestones as well as royalties on net product sales.
In 2017, the Company entered into a co-development and co-commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement, under which the Company and CRISPR are co-developing and will co-commercialize CTX001 (the “CTX001 Co-Co Agreement”) for the treatment of hemoglobinopathies, including treatments for sickle cell disease and beta thalassemia. As part of the collaboration, the Company and CRISPR share equally all development costs and potential worldwide revenues related to potential hemoglobinopathy treatments. The Company concluded that the CTX001 Co-Co Agreement is a cost-sharing arrangement, which results in the net impact of the arrangement being recorded in “Research and development expenses” in its condensed consolidated statements of operations. During the three and six months ended June 30, 2020, the net expense related to the CTX001 Co-Co Agreement was $9.8 million and $19.0 million, respectively. During the three and six months ended June 30, 2019, the net expense related to the CTX001 Co-Co Agreement was $7.5 million and $14.6 million, respectively.
In July 2019, the Company entered into a separate strategic collaboration and license agreement (the “CRISPR DMD/DM1 Agreement”) with CRISPR. Pursuant to this agreement, the Company received an exclusive worldwide license to CRISPR’s existing and future intellectual property for Duchenne muscular dystrophy (“DMD”) and myotonic dystrophy type 1 (“DM1”). In the first quarter of 2020, the Company recorded $25.0 million to “Research and development expenses” related to a pre-clinical milestone earned by CRISPR under the CRISPR DMD/DM1 Agreement. CRISPR has the potential to receive up to an additional $800.0 million in research, development, regulatory and commercial milestones for the DMD and DM1 programs as well as royalties on net product sales. CRISPR has the option to co-develop and co-commercialize all DM1 products globally and forego the milestones and royalties associated with the DM1 program. The Company funds all expenses associated with the collaboration except for research costs for specified guide RNA research conducted by CRISPR, which the Company and CRISPR share equally.
Please refer to Note F, “Marketable Securities and Equity Investments,” for further information regarding the Company’s investment in CRISPR’s common stock.
Out-license Agreements
The Company has entered into licensing agreements pursuant to which it has out-licensed rights to certain drug candidates to third-party collaborators. Pursuant to these out-license agreements, the Company’s collaborators become responsible for all costs related to the continued development of such drug candidates and obtain development and commercialization rights to these drug candidates. Depending on the terms of the agreements, the Company’s collaborators may be required to make upfront payments, milestone payments upon the achievement of certain product research and development objectives and may also be required to pay royalties on future sales, if any, of commercial products resulting from the collaboration. The termination provisions associated with these collaborations are generally the same as those described above related to the Company’s in-license agreements. None of the Company’s out-license agreements had a significant impact on the Company’s condensed consolidated statement of operations during the three and six months ended June 30, 2020 and 2019.

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

D.Earnings Per Share
Basic net income per common share is based upon the weighted-average number of common shares outstanding. Diluted net income per common share utilizing the treasury method is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.
The following table sets forth the computation of basic and diluted net income per common share for the periods ended:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands, except per share amounts)
Net income
$837,270  $267,427  $1,440,023  $536,058  
Basic weighted-average common shares outstanding
259,637  256,154  260,013  255,941  
Effect of potentially dilutive securities:
 Stock options2,054  2,225  1,961  2,405  
 Restricted stock and restricted stock units (including PSUs)
1,704  1,440  1,752  1,655  
 Employee stock purchase program
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