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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 MARCH 31, 2021
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
258,865,671
Outstanding at April 22, 2021


Table of Contents
VERTEX PHARMACEUTICALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS
Page
Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Balance Sheets - March 31, 2021 and December 31, 2020
Condensed Consolidated Statements of Shareholders' Equity - Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2021 and 2020
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 March 31,
20212020
Revenues:
Product revenues, net
$1,723,305 $1,515,107 
Other revenues
1,000  
Total revenues
1,724,305 1,515,107 
Costs and expenses:
Cost of sales
192,329 162,497 
Research and development expenses
455,973 448,528 
Sales, general and administrative expenses
192,077 182,258 
Change in fair value of contingent consideration
(3,900)1,600 
Total costs and expenses
836,479 794,883 
Income from operations
887,826 720,224 
Interest income
1,465 12,576 
Interest expense
(15,678)(14,136)
Other expense, net
(52,653)(61,130)
Income before provision for income taxes
820,960 657,534 
Provision for income taxes
167,822 54,781 
Net income
$653,138 $602,753 
Net income per common share:
Basic
$2.52 $2.32 
Diluted
$2.49 $2.29 
Shares used in per share calculations:
Basic
259,369 259,815 
Diluted
261,916 263,515 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended March 31,
20212020
Net income
$653,138 $602,753 
Other comprehensive income:
Unrealized holding losses on marketable securities, net(218)(764)
Unrealized gains on foreign currency forward contracts, net of tax of $(9.3) million and $(5.0) million, respectively
33,966 18,782 
Foreign currency translation adjustment
1,430 (2,662)
Total other comprehensive income35,178 15,356 
Comprehensive income$688,316 $618,109 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
March 31,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents
$6,304,330 $5,988,187 
Marketable securities
619,638 670,710 
Accounts receivable, net
977,551 885,352 
Inventories
298,863 280,777 
Prepaid expenses and other current assets
338,925 308,353 
Total current assets
8,539,307 8,133,379 
Property and equipment, net
986,123 958,534 
Goodwill
1,002,158 1,002,158 
Intangible assets
400,000 400,000 
Deferred tax assets
815,890 882,779 
Operating lease assets
322,319 325,564 
Other assets
49,262 49,394 
Total assets
$12,115,059 $11,751,808 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$127,839 $155,139 
Accrued expenses
1,532,037 1,404,971 
Other current liabilities
284,174 317,423 
Total current liabilities
1,944,050 1,877,533 
Long-term finance lease liabilities
530,330 539,042 
Long-term operating lease liabilities368,467 350,463 
Long-term contingent consideration
185,700 189,600 
Other long-term liabilities
106,258 108,355 
Total liabilities
3,134,805 3,064,993 
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, 258,829 and 259,890 shares issued and outstanding, respectively
2,588 2,599 
Additional paid-in capital7,499,161 7,894,027 
Accumulated other comprehensive loss(33,302)(68,480)
Retained earnings
1,511,807 858,669 
Total shareholders’ equity
8,980,254 8,686,815 
Total liabilities and shareholders’ equity
$12,115,059 $11,751,808 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)
(in thousands)
Three Months Ended
Common Stock
Additional
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)
Total
Shareholders’ Equity
Shares
Amount
Balance at December 31, 2019258,993 $2,589 $7,937,606 $(1,973)$(1,852,978)$6,085,244 
Other comprehensive income, net of tax
— — — 15,356 — 15,356 
Net income
— — — — 602,753 602,753 
Repurchase of common stock(1,404)(14)(300,012)— — (300,026)
Common stock withheld for employee tax obligations
(575)(6)(136,161)— — (136,167)
Issuance of common stock under benefit plans2,065 22 77,572 — — 77,594 
Stock-based compensation expense
— — 116,900 — — 116,900 
Balance at March 31, 2020259,079 $2,591 $7,695,905 $13,383 $(1,250,225)$6,461,654 
Balance at December 31, 2020259,890 $2,599 $7,894,027 $(68,480)$858,669 $8,686,815 
Other comprehensive income, net of tax— — — 35,178 — 35,178 
Net income
— — — — 653,138 653,138 
Repurchase of common stock(1,989)(20)(424,932)— — (424,952)
Common stock withheld for employee tax obligations
(472)(5)(102,135)— — (102,140)
Issuance of common stock under benefit plans1,400 14 15,164 — — 15,178 
Stock-based compensation expense
— — 117,037 — — 117,037 
Balance at March 31, 2021258,829 $2,588 $7,499,161 $(33,302)$1,511,807 $8,980,254 
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)
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net income
$653,138 $602,753 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense
115,174 115,706 
Depreciation expense
28,834 26,821 
(Decrease) increase in fair value of contingent consideration(3,900)1,600 
Deferred income taxes
57,043 36,705 
Losses on equity securities52,295 44,870 
Other non-cash items, net
2,332 9,668 
Changes in operating assets and liabilities:
Accounts receivable, net
(98,373)(223,672)
Inventories
(22,785)(27,450)
Prepaid expenses and other assets
(13,319)2,790 
Accounts payable
(10,644)14,285 
Accrued expenses
152,983 153,814 
Other liabilities
8,277 57,808 
Net cash provided by operating activities
921,055 815,698 
Cash flows from investing activities:
Purchases of available-for-sale debt securities
(121,455)(75,265)
Maturities of available-for-sale debt securities
118,072 60,145 
Sale of equity securities
 72,036 
Purchases of property and equipment(70,926)(19,450)
Investment in equity securities
 (5,800)
Net cash (used in) provided by investing activities
(74,309)31,666 
Cash flows from financing activities:
Issuances of common stock under benefit plans
15,559 79,597 
Repurchases of common stock
(424,952)(300,026)
Payments in connection with common stock withheld for employee tax obligations
(102,140)(136,167)
Payments on finance leases
(12,233)(10,287)
Proceeds from finance leases
3,632 5,833 
Other financing activities1,480 

1,620 
Net cash used in financing activities
(518,654)(359,430)
Effect of changes in exchange rates on cash
(4,030)(6,651)
Net increase in cash, cash equivalents and restricted cash324,062 481,283 
Cash, cash equivalents and restricted cash—beginning of period
5,988,845 3,120,681 
Cash, cash equivalents and restricted cash—end of period
$6,312,907 $3,601,964 
Supplemental disclosure of cash flow information:
Cash paid for interest
$14,534 $13,771 
Cash paid for income taxes
$10,691 $5,845 
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 (“U.S. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 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 March 31, 2021 and 2020.
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, 2020, which are contained in the Company’s 2020 Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. 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. 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 and 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 became effective on January 1, 2021. The adoption of ASU 2019-12 did not have a significant impact on the Company’s 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 2020 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 2020 Annual Report on Form 10-K.


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
B.Revenue Recognition
Disaggregation of Revenue
Revenues by Product
Product revenues, net consisted of the following:
Three Months Ended March 31,
20212020
(in thousands)
TRIKAFTA/KAFTRIO$1,193,217 $895,233 
SYMDEKO/SYMKEVI125,049 173,159 
ORKAMBI218,697 234,138 
KALYDECO186,342 212,577 
Total product revenues, net$1,723,305 $1,515,107 
Product Revenues by Geographic Location
Total net product revenues by geographic region, based on the location of the customer, consisted of the following:
Three Months Ended March 31,
20212020
(in thousands)
United States
$1,253,433 $1,187,588 
Outside of the United States
Europe
404,969 257,391 
Other
64,903 70,128 
Total product revenues outside of the United States469,872 327,519 
Total product revenues, net
$1,723,305 $1,515,107 
Contract Liabilities
The Company had contract liabilities of $181.2 million and $191.5 million as of March 31, 2021 and December 31, 2020, 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 months ended March 31, 2021 and 2020, or were new or otherwise revised during the three months ended March 31,

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
2021, are described below. Additional in-license and out-license agreements were described in Note B, “Collaborative Arrangements,” of the Company’s 2020 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.
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 - CRISPR-Cas9 Gene-editing Therapies
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 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 joint development and commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement (the “Original CTX001 JDCA”), under which the Company and CRISPR are co-developing and preparing to co-commercialize CTX001 for the treatment of hemoglobinopathies, including treatments for sickle cell disease and beta thalassemia. The Company concluded that the Original CTX001 JDCA 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 months ended March 31, 2021 and 2020, the net expense related to the Original CTX001 JDCA was $20.0 million and $9.3 million, respectively.
In April 2021, the Company and CRISPR amended and restated the Original CTX001 JDCA (the “A&R JDCA”), pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder; (b) adjust the allocation of net profits and net losses between the parties; and (c) exclusively license (subject to CRISPR’s reserved rights to conduct certain activities) certain intellectual property rights to the Company relating to the products that may be researched, developed, manufactured and commercialized under such agreement. The closing of the transaction contemplated under the A&R JDCA is subject to certain conditions, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and any other required antitrust clearance.
After the effective date of the closing of the transaction (the “Effective Date”), the Company will lead global development, manufacturing and commercialization of CTX001, with support from CRISPR. Subject to the terms and conditions of the A&R JDCA, the Company will have the right to conduct all research, development, manufacturing and commercialization activities relating to the product candidates and products under the A&R JDCA (including CTX001) throughout the world subject to CRISPR’s reserved right to conduct certain activities.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
In connection with the closing of the transaction contemplated by the A&R JDCA, the Company will pay a $900.0 million upfront payment to CRISPR and an additional one-time $200.0 million milestone payment upon receipt of the first marketing approval of CTX001 from the U.S. Food or Drug Administration or the European Commission. The Company and CRISPR will continue to share equally all net profits and net losses incurred under the A&R JDCA through June 30, 2021, subject to adjustment based on the timing of antitrust clearance. Beginning July 1, 2021 (or the first day of the calendar quarter in which antitrust clearance occurs), with respect to CTX001, the net profits and net losses incurred pursuant to the A&R JDCA will be allocated 60% to the Company and 40% to CRISPR, while all other product candidate and products will continue to have net profits and net losses shared equally. The Company expects to record the $900.0 million upfront payment to “Research and development expenses” upon closing of the transaction contemplated by the A&R JDCA.
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 months ended March 31, 2021 and 2020.
Cystic Fibrosis Foundation
The Company has a research, development and commercialization agreement that was originally entered into in 2004 with the Cystic Fibrosis Foundation, 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/KAFTRIO (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 during the period. Diluted net income per common share utilizing the treasury-stock 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.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table sets forth the computation of basic and diluted net income per common share for the periods ended:
Three Months Ended March 31,
20212020
(in thousands, except per share amounts)
Net income
$653,138 $602,753 
Basic weighted-average common shares outstanding
259,369 259,815 
Effect of potentially dilutive securities:
 Stock options1,263 1,868 
 Restricted stock units (including PSUs)
1,276 1,801 
 Employee stock purchase program
8 31 
Diluted weighted-average common shares outstanding
261,916 263,515 
Basic net income per common share
$2.52 $2.32 
Diluted net income per common share
$2.49 $2.29 
The Company did not include the securities in the following table in the computation of the net income per common share because the effect would have been anti-dilutive during each period:
Three Months Ended March 31,
20212020
(in thousands)
Stock options356 879 
Unvested restricted stock units (including PSUs)712 430 

E.Fair Value Measurements
The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used in order to determine the fair value of the Company’s financial 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. The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities as described in Note F, “Marketable Securities and Equity Investments.” 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.
During the three months ended March 31, 2021 and 2020, the Company did not record any other-than-temporary impairment charges related to its financial assets.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables set forth the Company’s financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $2.4 billion and $2.8 billion of cash as of March 31, 2021 and December 31, 2020, respectively):
As of March 31, 2021As of December 31, 2020
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
(in thousands)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds
$3,890,303 $3,890,303 $ $ $3,141,053 $3,141,053 $ $ 
Marketable securities:
Corporate equity securities143,486 143,486   195,781 15,650 180,131  
Government-sponsored enterprise securities
62,362 62,362   80,063 80,063   
Corporate debt securities
155,716  155,716  231,598  231,598  
Commercial paper
258,074  258,074  163,268  163,268  
Prepaid expenses and other current assets:
Foreign currency forward contracts7,039  7,039      
Other assets:
Foreign currency forward contracts1,944  1,944      
Total financial assets
$4,518,924 $4,096,151 $422,773 $ $3,811,763 $3,236,766 $574,997 $ 
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts
$(28,743)$ $(28,743)$ $(59,184)$ $(59,184)$ 
Long-term contingent consideration
(185,700)  (185,700)(189,600)  (189,600)
Other long-term liabilities:
Foreign currency forward contracts
(433) (433) (4,283) (4,283) 
Total financial liabilities
$(214,876)$ $(29,176)$(185,700)$(253,067)$ $(63,467)$(189,600)
Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.
Fair Value of Corporate Equity Securities
The Company classifies its investments in publicly traded corporate equity securities as “Marketable securities” on its condensed consolidated balance sheets. Generally, the Company’s investments in the common stock of these publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of the Company’s investments in publicly traded companies have been or continue to be valued based on Level 2 inputs due to transfer restrictions associated with these investments. Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.
Fair Value of Contingent Consideration
In 2019, the Company acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. The Company’s Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to Exonics’ former equity holders. The Company bases its estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to rare diseases. The discount rates used in the valuation model for contingent payments, which were between 0.6% and 2.4% as of March 31, 2021, 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. Due to the uncertainties associated with development and commercialization of drug candidates in the pharmaceutical industry and the effects of

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
changes in other assumptions including discount rates, the Company expects its estimates regarding the fair value of contingent consideration to change in the future, resulting in adjustments to the fair value of the Company’s contingent consideration liabilities, and the effect of any such adjustments could be material.
The following table represents a rollforward of the fair value of the Company’s contingent consideration liabilities:
Three Months Ended March 31, 2021
(in thousands)
Balance at December 31, 2020$189,600 
Decrease in fair value of contingent payments
(3,900)
Balance at March 31, 2021$185,700 
F.Marketable Securities and Equity Investments
A summary of the Company’s cash equivalents and marketable securities, which are recorded at fair value (and do not include $2.4 billion and $2.8 billion of cash as of March 31, 2021 and December 31, 2020, respectively), is shown below:
As of March 31, 2021As of December 31, 2020
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in thousands)
Cash equivalents:
Money market funds
$3,890,303 $ $ $3,890,303 $3,141,053 $ $ $3,141,053 
Total cash equivalents
$3,890,303 $ $ $3,890,303 $3,141,053 $ $ $3,141,053 
Marketable securities:
Government-sponsored enterprise securities
$62,332 $30 $ $62,362 $80,046 $17 $ $80,063 
Corporate debt securities
155,636 126 (46)155,716 231,263 377 (42)231,598 
Commercial paper
258,068 27 (21)258,074 163,286 19 (37)163,268 
Total marketable debt securities
476,036 183 (67)476,152 474,595 413 (79)474,929 
Corporate equity securities
51,427 92,059  143,486 51,427 144,354  195,781 
Total marketable securities
$527,463 $92,242 $(67)$619,638 $526,022 $144,767 $(79)$670,710 
Available-for-sale debt securities were classified on the Company's condensed consolidated balance sheets at fair value as follows:
As of March 31, 2021As of December 31, 2020
(in thousands)
Cash and cash equivalents
$3,890,303 $3,141,053 
Marketable securities
476,152 474,929 
Total
$4,366,455 $3,615,982 
Available-for-sale debt securities by contractual maturity were as follows:
As of March 31, 2021As of December 31, 2020
(in thousands)
Matures within one year$4,358,433 $3,526,185 
Matures after one year through five years
8,022 89,797 
Total
$4,366,455 $3,615,982 
The Company has a limited number of available-for-sale debt securities in insignificant loss positions as of March 31, 2021, which it does not intend to sell and has concluded it will not be required to sell before recovery of the amortized costs

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
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 months ended March 31, 2021 and 2020.
The Company records changes in the fair value of its investments in corporate equity securities to “Other expense, net” on its condensed consolidated statements of operations. During the three months ended March 31, 2021 and 2020, the Company’s net unrealized losses on corporate equity securities held at the conclusion of each period were as follows:
Three Months Ended March 31,
20212020
(in thousands)
Net unrealized losses$(52,295)$(39,440)
During the three months ended March 31, 2020, the Company received proceeds of $72.0 million related to the sale of the common stock of publicly traded companies, which had a total original weighted-average cost basis of $26.7 million. There were no sales of the common stock of publicly traded companies during the three months ended March 31, 2021.
As of March 31, 2021, the carrying value of the Company’s equity investments without readily determinable fair values, which are recorded in “Other assets” on its condensed consolidated balance sheets, was $20.8 million.

G.Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component:
Foreign Currency Translation AdjustmentUnrealized Holding Gains (Losses), Net of TaxTotal
On Available-For-Sale Debt SecuritiesOn Foreign Currency Forward Contracts
(in thousands)
Balance at December 31, 2020$(15,678)$334 $(53,136)$(68,480)
Other comprehensive income (loss) before reclassifications1,430 (218)21,019 22,231 
Amounts reclassified from accumulated other comprehensive income (loss)  12,947 12,947 
Net current period other comprehensive income (loss)1,430 (218)33,966 35,178 
Balance at March 31, 2021$(14,248)$116 $(19,170)$(33,302)
Balance at December 31, 2019$(895)$503 $(1,581)$(1,973)
Other comprehensive (loss) income before reclassifications(2,662)(764)25,772 22,346 
Amounts reclassified from accumulated other comprehensive income (loss)  (6,990)(6,990)
Net current period other comprehensive (loss) income(2,662)(764)18,782 15,356 
Balance at March 31, 2020$(3,557)$(261)$17,201 $13,383 

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 U.S. 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 hedged foreign exchange rate changes.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
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 March 31, 2021, all hedges were determined to be highly effective.
The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of March 31, 2021 and December 31, 2020, credit risk did not change the fair value of the Company’s foreign currency forward contracts.
The following table summarizes the notional amount in U.S. dollars of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP:
As of March 31, 2021As of December 31, 2020
Foreign Currency
(in thousands)
Euro
$892,995 $745,099 
British pound sterling
250,528 160,427 
Australian dollar
100,733 99,922 
Canadian dollar
80,122 86,468 
Total foreign currency forward contracts
$1,324,378 $1,091,916 
Foreign currency forward contracts - Not designated as hedging instruments
The Company also enters into foreign currency forward contracts with contractual maturities of less than one month, which are 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 U.S. GAAP. The Company recognizes realized gains and losses for such contracts in “Other expense, net” in its condensed consolidated statements of operations each period. As of March 31, 2021, the notional amount of the Company’s outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP is not applied was $386.7 million.
During the three months ended March 31, 2021 and 2020, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:
Three Months Ended March 31,
20212020
(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net
$(16,518)$8,922 
Not designated as hedging instruments
Other expense, net
$(7,997)$(16,229)
Total reported in the Condensed Consolidated Statement of Operations
Product revenues, net
$1,723,305 $1,515,107 
Other expense, net
$(52,653)$(61,130)

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP included on its condensed consolidated balance sheets:
As of March 31, 2021
AssetsLiabilities
ClassificationFair ValueClassificationFair Value
(in thousands)
Prepaid expenses and other current assets
$7,039 
Other current liabilities
$(28,743)
Other assets
1,944 
Other long-term liabilities
(433)
Total assets
$8,983 
Total liabilities
$(29,176)
As of December 31, 2020
AssetsLiabilities
ClassificationFair ValueClassificationFair Value
(in thousands)
Prepaid expenses and other current assets
$ 
Other current liabilities
$(59,184)
Other assets
 
Other long-term liabilities
(4,283)
Total assets
$ 
Total liabilities
$(63,467)
As of March 31, 2021, the Company expects the amounts that are related to foreign exchange forward contracts designated as cash flow hedges under U.S. GAAP recorded in “Prepaid expenses and other current assets” and “Other current liabilities” 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 U.S. GAAP on the Company’s condensed consolidated balance sheets:
As of March 31, 2021
Gross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal Offset
Foreign currency forward contracts(in thousands)
Total assets$8,983 $ $8,983 $(8,983)$ 
Total liabilities
(29,176) (29,176)8,983 (20,193)
As of December 31, 2020
Gross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal Offset
Foreign currency forward contracts(in thousands)
Total assets$ $ $ $ $ 
Total liabilities(63,467) (63,467) (63,467)

I.Inventories
Inventories consisted of the following:
As of March 31, 2021As of December 31, 2020
(in thousands)
Raw materials
$44,921 $46,232 
Work-in-process
170,721 161,324 
Finished goods
83,221 73,221 
Total
$298,863 $