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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, 2023
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
257,551,600
Outstanding at April 25, 2023


VERTEX PHARMACEUTICALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2023

TABLE OF CONTENTS
Page
Condensed Consolidated Statements of Income - Three Months Ended March 31, 2023 and 2022
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2023 and 2022
Condensed Consolidated Balance Sheets - March 31, 2023 and December 31, 2022
Condensed Consolidated Statements of Shareholders' Equity - Three Months Ended March 31, 2023 and 2022
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2023 and 2022
Item 1A.

“Vertex,” “we,” “us,” and “our” 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®,” “TRIKAFTA®” and “KAFTRIO®” 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.
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 development programs, we refer to our compounds by their scientific (or generic) name or VX developmental designation.



Part I. Financial Information

Item 1.  Financial Statements
VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Income
(in millions, except per share amounts)(unaudited)
Three Months Ended March 31,
20232022
Product revenues, net$2,374.8 $2,097.5 
Costs and expenses:
Cost of sales266.9 245.8 
Research and development expenses742.6 601.1 
Acquired in-process research and development expenses347.1 2.0 
Selling, general and administrative expenses241.1 215.2 
Change in fair value of contingent consideration(1.9)(7.5)
Total costs and expenses1,595.8 1,056.6 
Income from operations779.0 1,040.9 
Interest income122.6 1.6 
Interest expense(11.4)(14.9)
Other income (expense), net1.3 (72.8)
Income before provision for income taxes891.5 954.8 
Provision for income taxes191.7 192.7 
Net income$699.8 $762.1 
Net income per common share:
Basic$2.72 $2.99 
Diluted$2.69 $2.96 
Shares used in per share calculations:
Basic257.4 255.1 
Diluted260.3 257.9 
Please refer to Note A, “Basis of Presentation and Accounting Policies,” for an explanation of amounts reclassified from “Research and development expenses” to “Acquired in-process research and development expenses” for the three months ended March 31, 2022.
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Comprehensive Income
(in millions)(unaudited)
Three Months Ended March 31,
20232022
Net income$699.8 $762.1 
Other comprehensive income:
Unrealized holding gains (losses) on marketable securities, net of tax of $(0.8) and zero, respectively
2.9 (2.3)
Unrealized (losses) gains on foreign currency forward contracts, net of tax of $7.4 and $(2.2), respectively
(26.8)10.1 
Foreign currency translation adjustment10.0 (12.4)
Total other comprehensive loss
(13.9)(4.6)
Comprehensive income$685.9 $757.5 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Balance Sheets
(in millions, except share data)(unaudited)
March 31,December 31,
20232022
Assets
Current assets:
Cash and cash equivalents$9,289.9 $10,504.0 
Marketable securities1,124.2 274.5 
Accounts receivable, net1,547.8 1,442.2 
Inventories535.1 460.6 
Prepaid expenses and other current assets
468.7 553.5 
Total current assets
12,965.7 13,234.8 
Property and equipment, net1,111.7 1,108.4 
Goodwill1,088.0 1,088.0 
Intangible assets
603.6 603.6 
Deferred tax assets
1,359.9 1,246.9 
Operating lease assets
336.3 347.4 
Long-term marketable securities1,081.5 112.2 
Other assets
427.5 409.6 
Total assets
$18,974.2 $18,150.9 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$323.2 $303.9 
Accrued expenses2,326.0 2,126.7 
Other current liabilities
377.0 311.5 
Total current liabilities
3,026.2 2,742.1 
Long-term finance lease liabilities417.6 430.8 
Long-term operating lease liabilities371.6 379.5 
Other long-term liabilities
726.5 685.8 
Total liabilities
4,541.9 4,238.2 
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, 257,509,761 and 257,011,628 shares issued and outstanding, respectively
2.6 2.6 
Additional paid-in capital7,220.2 7,386.5 
Accumulated other comprehensive (loss) income(13.1)0.8 
Retained earnings
7,222.6 6,522.8 
Total shareholders’ equity
14,432.3 13,912.7 
Total liabilities and shareholders’ equity
$18,974.2 $18,150.9 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(in millions)(unaudited)
Three Months Ended
Common StockAdditional
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)Retained EarningsTotal
Shareholders’ Equity
SharesAmount
Balance at December 31, 2021254.5 $2.5 $6,880.8 $15.9 $3,200.8 $10,100.0 
Other comprehensive loss, net of tax— — — (4.6)— (4.6)
Net income
— — — — 762.1 762.1 
Common stock withheld for employee tax obligations(0.5)(0.0)(117.5)— — (117.5)
Issuance of common stock under benefit plans1.6 0.1 36.4 — — 36.5 
Stock-based compensation expense
— — 130.5 — — 130.5 
Balance at March 31, 2022255.6 $2.6 $6,930.2 $11.3 $3,962.9 $10,907.0 
Balance at December 31, 2022257.0 $2.6 $7,386.5 $0.8 $6,522.8 $13,912.7 
Other comprehensive loss, net of tax— — — (13.9)— (13.9)
Net income
— — — — 699.8 699.8 
Repurchase of common stock(0.5)(0.0)(135.6)— — (135.6)
Common stock withheld for employee tax obligations(0.6)(0.0)(166.6)— — (166.6)
Issuance of common stock under benefit plans1.6 0.0 13.1 — — 13.1 
Stock-based compensation expense
— — 122.8 — — 122.8 
Balance at March 31, 2023257.5 $2.6 $7,220.2 $(13.1)$7,222.6 $14,432.3 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(in millions)(unaudited)
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net income
$699.8 $762.1 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense122.4 130.3 
Depreciation expense38.8 35.9 
Deferred income taxes(113.4)(12.3)
(Gains) losses on equity securities(6.4)75.6 
Decrease in fair value of contingent consideration(1.9)(7.5)
Other non-cash items, net21.7 4.9 
Changes in operating assets and liabilities:
Accounts receivable, net(90.5)(165.2)
Inventories(82.6)2.0 
Prepaid expenses and other assets46.2 67.6 
Accounts payable35.7 (14.5)
Accrued expenses140.7 61.6 
Other liabilities89.4 15.7 
Net cash provided by operating activities
899.9 956.2 
Cash flows from investing activities:
Purchases of available-for-sale debt securities(1,816.6)(117.1)
Maturities of available-for-sale debt securities50.0 129.7 
Purchases of property and equipment(42.1)(63.6)
Investment in equity securities(24.9) 
Net cash used in investing activities
(1,833.6)(51.0)
Cash flows from financing activities:
Issuances of common stock under benefit plans14.2 33.7 
Repurchases of common stock
(132.8) 
Payments in connection with common stock withheld for employee tax obligations
(166.6)(117.5)
Payments on finance leases
(10.6)(12.9)
Other financing activities1.1 1.3 
Net cash used in financing activities
(294.7)(95.4)
Effect of changes in exchange rates on cash
12.0 (5.9)
Net (decrease) increase in cash, cash equivalents and restricted cash(1,216.4)803.9 
Cash, cash equivalents and restricted cash—beginning of period
10,512.0 6,800.1 
Cash, cash equivalents and restricted cash—end of period
$9,295.6 $7,604.0 
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$120.3 $85.0 
Cash paid for interest
$11.1 $13.7 
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,” “we,” “us” or “our”) 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 Vertex and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. We operate in one segment, pharmaceuticals.
Beginning with the second quarter of 2022, we are separately classifying upfront, contingent milestone, and other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses” in our condensed consolidated statements of income. To conform prior periods to current presentation, we reclassified $2.0 million from “Research and development expenses” to “Acquired in-process research and development expenses” for the three months ended March 31, 2022. Please refer to Note C, “Acquired In-Process Research and Development and Other Arrangements,” for further information on these transactions. We have reclassified certain items from the prior year’s condensed consolidated balance sheet to conform to the current year’s presentation.
Certain information and footnote disclosures normally included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 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 income for the interim periods ended March 31, 2023 and 2022.
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, 2022, which are contained in our 2022 Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires us 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 our condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. We base our estimates on historical experience and various other assumptions, including in certain circumstances future projections that we believe 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
For a discussion of recently adopted accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies,” in our 2022 Annual Report on Form 10-K. We do not expect any recently issued accounting standards to have a significant impact on our condensed consolidated financial statements.
Summary of Significant Accounting Policies
Our significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in our 2022 Annual Report on Form 10-K.


7

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,
20232022
(in millions)
TRIKAFTA/KAFTRIO$2,096.7 $1,761.6 
KALYDECO125.0 139.0 
ORKAMBI122.5 132.1 
SYMDEKO/SYMKEVI30.6 64.8 
Total product revenues, net$2,374.8 $2,097.5 
Product Revenues by Geographic Location
“Product revenues, net” by geographic region, based on the location of the customer, consisted of the following:
Three Months Ended March 31,
20232022
(in millions)
United States$1,403.8 $1,368.2 
Outside of the United States
Europe807.2 632.3 
Other
163.8 97.0 
Total product revenues outside of the United States971.0 729.3 
Total product revenues, net
$2,374.8 $2,097.5 
Contract Liabilities
We had contract liabilities of $236.4 million and $159.6 million as of March 31, 2023 and December 31, 2022, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we 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. We defer 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. Our product revenue contracts include performance obligations that are one year or less.
Our 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 our fiscal year. In these markets, we recognize 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.


8

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
C.Acquired In-Process Research and Development and Other Arrangements
We have entered into numerous agreements with third parties to collaborate on research, development and commercialization programs, license technologies, or acquire assets. Our “Acquired in-process research and development expenses” included $347.1 million for the three months ended March 31, 2023, and $2.0 million, for the three months ended March 31, 2022, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions that qualify as in-process research and development.
Our collaboration, licensing and asset acquisition agreements that had a significant impact on our financial statements for the three months ended March 31, 2023 and 2022, or were new or materially revised during the three months ended March 31, 2023, are described below. Additional agreements were described in Note B, “Acquired In-Process Research and Development and Other Arrangements,” of our 2022 Annual Report on Form 10-K.
In-license Agreements
We have entered into several in-license agreements to advance and obtain access to technologies and services related to our research and early-development activities. We are generally required to make an upfront payment upon execution of our license agreements; 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 our collaborations.
Pursuant to the terms of our in-license agreements, our collaborators typically lead the discovery efforts and we lead all preclinical, development and commercialization activities associated with the advancement of any product candidates and fund all expenses.
We typically can terminate our in-license agreements by providing advance notice to our collaborators. Our 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, we 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. We had the exclusive right to license certain targets. In 2019, we elected to exclusively license three targets, including cystic fibrosis, pursuant to the CRISPR Agreement. For each of the three targets that we 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 resulting net product sales.
In 2017, we entered into a joint development and commercialization agreement with CRISPR (the “CRISPR JDCA”), which we amended and restated in 2021, pursuant to the terms of the CRISPR Agreement. Under the CRISPR JDCA, we and CRISPR are co-developing and preparing to co-commercialize exagamglogene autotemcel (“exa-cel”), for the treatment of hemoglobinopathies, including treatments for sickle cell disease and transfusion-dependent beta thalassemia. Pursuant to the CRISPR JDCA, we lead global development, manufacturing, and commercialization of exa-cel, with support from CRISPR. We also conduct all research, development, manufacturing, and commercialization activities relating to other product candidates and products under the CRISPR JDCA throughout the world subject to CRISPR’s reserved right to conduct certain activities.
In connection with the CRISPR JDCA, CRISPR has the potential to receive a one-time $200.0 million milestone payment upon receipt of the first marketing approval of exa-cel from the U.S. Food and Drug Administration or the European Commission.
We account for the CRISPR JDCA as a cost-sharing arrangement, with costs incurred related to exa-cel allocated 60% to us and 40% to CRISPR, subject to certain adjustments. During the three months ended March 31, 2023 and 2022, we recognized the net impact of the CRISPR JDCA as “Research and development expenses” of $60.5 million and $36.2

9

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
million, respectively, and “Selling, general and administrative expenses” of $16.5 million and $9.8 million, respectively, within our condensed consolidated statements of income.
In March 2023, we entered into a non-exclusive license agreement (“the CRISPR T1D Agreement”) for the use of CRISPR’s CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for type 1 diabetes. Pursuant to the CRISPR T1D Agreement, we made a $100.0 million upfront payment to CRISPR. CRISPR is also eligible to receive up to an additional $230.0 million in research, development, regulatory and commercial milestones for any products that may result from the agreement, as well as royalties on resulting net product sales. We determined that substantially all the fair value of the collaboration agreement was attributable to in-process research and development and no substantive processes were acquired that would constitute a business. We concluded that there is no alternative future use for the acquired in-process research and development and recorded the upfront payment to “Acquired in-process research and development expenses.”
Entrada Therapeutics, Inc.
In February 2023, we closed a strategic collaboration and license agreement (the “Entrada Agreement”) with Entrada Therapeutics, Inc. (“Entrada”) focused on discovering and developing intracellular Endosomal Escape Vehicle (EEV) therapeutics for myotonic dystrophy type 1 (“DM1”). Upon closing, we made an upfront payment of $225.1 million to Entrada, and purchased $24.9 million of Entrada’s common stock in connection with the Entrada Agreement. Entrada is eligible to receive up to an additional $485.0 million in research, development, regulatory and commercial milestones for any products that may result from the Entrada Agreement, as well as royalties on resulting net product sales. We determined that substantially all the fair value of the collaboration agreement was attributable to in-process research and development and no substantive processes were acquired that would constitute a business. We concluded that there is no alternative future use for the acquired in-process research and development and recorded the upfront payment to “Acquired in-process research and development expenses.” We recorded the investment in Entrada’s common stock at fair value within our condensed consolidated balance sheet within “Marketable securities.”
Cystic Fibrosis Foundation
In 2004, we entered into a collaboration agreement with the Cystic Fibrosis Foundation, as successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc., to support research and development activities. Pursuant to the collaboration agreement, as amended, we have agreed to pay 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 ivacaftor, lumacaftor and tezacaftor and royalties ranging from low-single digits to mid-single digits on potential net sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including elexacaftor. We do not have any royalty obligations on compounds first synthesized and tested on or after September 1, 2016. For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and TRIKAFTA/KAFTRIO, sales are allocated equally to each of the active pharmaceutical ingredients in the combination product. We record our royalties payable to the Cystic Fibrosis Foundation to “Cost of sales.”


10

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
D.Earnings Per Share
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,
20232022
(in millions, except per share amounts)
Net income$699.8 $762.1 
Basic weighted-average common shares outstanding257.4 255.1 
Effect of potentially dilutive securities:
Stock options1.3 1.3 
Restricted stock units (including PSUs)
1.6 1.4 
Employee stock purchase program
0.0 0.1 
Diluted weighted-average common shares outstanding260.3 257.9 
Basic net income per common share$2.72 $2.99 
Diluted net income per common share$2.69 $2.96 
We did not include the securities in the following table in the computation of the diluted net income per common share because the effect would have been anti-dilutive during each period:
Three Months Ended March 31,
20232022
(in millions)
Stock options0.0 0.0 
Unvested restricted stock units (including PSUs)0.6 0.6 

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 our 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 our assessment of the assumptions that market participants would use in pricing the asset or liability.
Our investment strategy is focused on capital preservation. We invest in instruments that meet the credit quality standards outlined in our investment policy, which also limits the amount of credit exposure to any one issue or type of instrument. We maintain strategic equity investments separately from the investment policy that governs our other cash, cash equivalents and marketable securities as described in Note F, “Marketable Securities and Equity Investments.” Additionally, we utilize foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on our condensed consolidated statement of income.

11

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables set forth our financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $2.1 billion and $3.1 billion of cash as of March 31, 2023 and December 31, 2022, respectively):
As of March 31, 2023As of December 31, 2022
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
(in millions)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds$4,954.1 $4,954.1 $ $ $5,162.6 $5,162.6 $ $ 
Time deposits1,600.0  1,600.0  2,000.0  2,000.0  
U.S. Treasury securities86.4 86.4       
Government-sponsored enterprise securities129.3 129.3       
Corporate debt securities1.7  1.7  5.8  5.8  
Commercial paper408.0  408.0  204.5  204.5  
Marketable securities:
Corporate equity securities148.1 127.2 20.9  116.8 88.8 28.0  
U.S. Treasury securities276.6 276.6       
Government-sponsored enterprise securities532.4 532.4   127.1 127.1   
Asset-backed securities117.9  117.9      
Certificates of deposit44.9  44.9      
Corporate debt securities771.5  771.5  87.0  87.0  
Commercial paper314.3  314.3  55.8  55.8  
Prepaid expenses and other current assets:
Foreign currency forward contracts19.5  19.5  47.5  47.5  
Other assets:
Foreign currency forward contracts0.3  0.3  0.8  0.8  
Total financial assets
$9,405.0 $6,106.0 $3,299.0 $ $7,807.9 $5,378.5 $2,429.4 $ 
:::::::
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts
$(20.5)$ $(20.5)$ $(14.3)$ $(14.3)$ 
Contingent consideration(14.8)  (14.8)(14.6)  (14.6)
Other long-term liabilities:
Foreign currency forward contracts(0.5) (0.5) (0.9) (0.9) 
Contingent consideration(112.3)  (112.3)(114.4)  (114.4)
Total financial liabilities
$(148.1)$ $(21.0)$(127.1)$(144.2)$ $(15.2)$(129.0)
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
We classify our investments in publicly traded corporate equity securities as “Marketable securities” on our condensed consolidated balance sheets. Generally, our investments in the common stock of publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of our 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.
As of March 31, 2023, several of our investments in publicly traded corporate equity securities were subject to contractual sales restrictions expiring in 2023, 2024 and 2025 with a total fair value of $42.8 million. We purchased these investments directly from these publicly traded companies in 2022 and the first quarter of 2023, and do not anticipate any circumstances that would cause these restrictions to lapse prior to the periods listed above.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.
Fair Value of Contingent Consideration
In 2019, we acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause Duchenne muscular dystrophy and other severe neuromuscular diseases, including DM1. Our Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to former Exonics equity holders. We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments, which could include milestone, royalty and option payments, on industry data attributable to rare diseases and our knowledge of the progress and viability of the programs. The discount rates used in the valuation model for contingent payments, which were between 4.7% and 5.8% as of March 31, 2023, 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 product candidates in the pharmaceutical industry and the effects of changes in other assumptions including discount rates, we expect our estimates regarding the fair value of contingent consideration to change in the future, resulting in adjustments to the fair value of our contingent consideration liabilities, and the effect of any such adjustments could be material.
The following table represents a rollforward of the fair value of our contingent consideration liabilities:
Three Months Ended March 31, 2023
(in millions)
Balance at December 31, 2022$129.0 
Decrease in fair value of contingent payments
(1.9)
Balance at March 31, 2023$127.1 


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
F.Marketable Securities and Equity Investments
A summary of our cash equivalents and marketable securities, which are recorded at fair value (and do not include $2.1 billion and $3.1 billion of cash as of March 31, 2023 and December 31, 2022, respectively), is shown below:
As of March 31, 2023As of December 31, 2022
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
Cash equivalents:
Money market funds$4,954.1 $— $— $4,954.1 $5,162.6 $— $— $5,162.6 
Time deposits1,600.0 — — 1,600.0 2,000.0 — — 2,000.0 
U.S. Treasury securities86.3 0.1 — 86.4  — —  
Government-sponsored enterprise securities
129.2 0.1 — 129.3  — —  
Corporate debt securities1.7 — — 1.7 5.8 — — 5.8 
Commercial paper408.0 — — 408.0 204.5 — — 204.5 
Total cash equivalents
$7,179.3 $0.2 $— $7,179.5 $7,372.9 $— $— $7,372.9 
Marketable securities:
U.S. Treasury securities$274.8 $1.8 $ $276.6 $ $ $ $ 
Government-sponsored enterprise securities
532.0 0.5 (0.1)532.4 127.0 0.2 (0.1)127.1 
Asset-backed securities118.1  (0.2)117.9     
Certificates of deposit44.9   44.9     
Corporate debt securities
770.0 2.9 (1.4)771.5 87.2  (0.2)87.0 
Commercial paper
314.4  (0.1)314.3 55.8   55.8 
Total marketable debt securities
2,054.2 5.2 (1.8)2,057.6 270.0 0.2 (0.3)269.9 
Corporate equity securities
129.4 47.4 (28.7)148.1 104.4 30.9 (18.5)116.8 
Total marketable securities
$2,183.6 $52.6 $(30.5)$2,205.7 $374.4 $31.1 $(18.8)$386.7 
Available-for-sale debt securities were classified on our condensed consolidated balance sheets at fair value as follows:
As of March 31, 2023As of December 31, 2022
(in millions)
Cash and cash equivalents$5,579.5 $5,372.9 
Marketable securities
976.1 157.7 
Long-term marketable securities1,081.5 112.2 
Total
$7,637.1 $5,642.8 
Available-for-sale debt securities by contractual maturity were as follows:
As of March 31, 2023As of December 31, 2022
(in millions)
Matures within one year$6,555.6 $5,530.6 
Matures after one year through five years
1,081.5 112.2 
Total
$7,637.1 $5,642.8 
We did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities or gross realized gains or losses in the three months ended March 31, 2023 and 2022. As of March 31, 2023, we held available-for-sale debt securities with a total fair value of $702.7 million that were in unrealized loss positions; however, none of these investments had been in an unrealized loss position for greater than twelve months.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
We record changes in the fair value of our investments in corporate equity securities to “Other income (expense), net” in our condensed consolidated statements of income. During the three months ended March 31, 2023 and 2022, our net unrealized gains (losses) on corporate equity securities held at the conclusion of each period were as follows:
Three Months Ended March 31,
20232022
(in millions)
Net unrealized gains (losses)
$6.4 $(75.6)
        
As of March 31, 2023, the carrying value of our equity investments without readily determinable fair values, which are recorded in “Other assets” on our condensed consolidated balance sheets, was $98.6 million.

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 AdjustmentOn Available-For-Sale Debt SecuritiesOn Foreign Currency Forward ContractsTotal
(in millions)
Balance at December 31, 2022$(25.0)$(0.1)$25.9 $0.8 
Other comprehensive income (loss) before reclassifications10.0 2.9 (9.6)3.3 
Amounts reclassified from accumulated other comprehensive income (loss)  (17.2)(17.2)
Net current period other comprehensive income (loss)10.0 2.9 (26.8)(13.9)
Balance at March 31, 2023$(15.0)$2.8 $(0.9)$(13.1)
Balance at December 31, 2021$(13.6)$(0.5)$30.0 $15.9 
Other comprehensive (loss) income before reclassifications