Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)

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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 ý No o

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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The aggregate market value of the registrant's common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) based on the last reported sale price of the common stock on June 30, 2011 (the last trading day of the registrant's second fiscal quarter of 2011) was $10.7 billion. As of February 8, 2012, the registrant had 210,335,993 shares of common stock outstanding.

Portions of the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders to be held on May 16, 2012 are incorporated by reference into Part III of this Annual Report on Form 10-K.

"We," "us," "Vertex" and the "Company" as used in this Annual Report on Form 10-K refer to Vertex Pharmaceuticals Incorporated, a Massachusetts corporation, and its subsidiaries.

"Vertex," "INCIVEK" and "KALYDECO" are registered trademarks of Vertex. Other brands, names and trademarks contained in this Annual Report on Form 10-K, including "INCIVO" and "TELAVIC," are the property of their respective owners.

We are in the business of discovering, developing, manufacturing and commercializing small molecule drugs for the treatment of serious diseases. Our two products are INCIVEK™ (telaprevir), which is approved for the treatment of patients with genotype 1 hepatitis C virus, or HCV, infection, and KALYDECO™ (ivacaftor), which is approved in the United States for the treatment of patients six years of age and older with cystic fibrosis, or CF, who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator, or CFTR, gene. We have ongoing clinical programs involving drug candidates intended for the treatment of HCV infection, CF, rheumatoid arthritis, influenza and epilepsy. Our HCV clinical programs are focused on developing all-oral, interferon-free combinations of HCV drugs and drug candidates that have the potential to further improve treatment options available to patients with HCV infection. In our CF program, we are investigating the use of ivacaftor as a monotherapy in additional populations of patients with CF and combinations of ivacaftor and our other CF drug candidates, with the goal of expanding the group of patients with CF who can benefit from our medicines. We believe that our longer-term success will depend on our ability to continue to generate and develop innovative medicines for the treatment of serious diseases. As a result, we expect to continue investing in research programs directed toward the identification of new drug candidates and to develop and commercialize selected drug candidates that emerge from those programs, alone or with third-party collaborators.

INCIVEK (telaprevir) is an orally-administered HCV protease inhibitor for adults with genotype 1 HCV infection that is prescribed in combination with pegylated-interferon, or peg-IFN, and ribavirin, or RBV. INCIVEK was approved by the United States Food and Drug Administration, or FDA, in May 2011 and was approved by Health Canada in August 2011. In September 2011, our collaborators, Janssen Pharmaceutica, N.V., or Janssen, a Johnson & Johnson company, and Mitsubishi Tanabe Pharma Corporation, or Mitsubishi Tanabe, obtained marketing approval for telaprevir from the European Commission and the Japanese Ministry of Health, Labor and Welfare, respectively. Janssen markets telaprevir under the brand name INCIVO™ in Europe. Mitsubishi Tanabe markets telaprevir under the brand name TELAVIC™ in Japan.

KALYDECO (ivacaftor) is an orally-administered CFTR potentiator that is approved in the United States for the treatment of patients six years of age and older with CF who have at least one copy of the G551D mutation in the CFTR gene. KALYDECO, which was referred to during development as VX-770, was approved by the FDA in January 2012. In October 2011, we submitted a Marketing Authorization Application, or MAA, for ivacaftor (VX-770) to the European Medicines Agency, or EMA. Our MAA for ivacaftor has been validated by the EMA, and the EMA has granted our request for accelerated assessment, which applies to new medicines of major public health interest and shortens

the EMA's review time. We also plan to seek approval for ivacaftor in a number of other countries, including Canada and Australia. We expect to obtain approval to market ivacaftor in the European Union later in 2012.

Our goal is to operate as a global biopharmaceutical company with industry-leading capabilities in the research, development, manufacture and commercialization of innovative drugs that provide substantial benefits to patients with serious diseases. The key elements of our strategy are:

Commercialize our products and expand our international capabilities. INCIVEK (telaprevir) achieved initial commercial acceptance following its approval in May 2011, allowing us to begin operating as a cashflow positive company in the second half of 2011. We also started marketing KALYDECO in the United States in January 2012, which will provide us an additional source of revenues. In addition to the establishment of our North American commercial organization, we have expanded our international operations in order to support the potential commercialization of KALYDECO in Europe if it is approved by the European Commission. We believe that we will be able to leverage the experience we gained in the late-stage development and the commercialization of INCIVEK and KALYDECO and our expanded international operations in connection with the development and potential commercialization of our drug candidates.

Advance clinical development programs that have the potential to address significant unmet medical needs. We plan to evaluate a number of drug candidates in mid-stage clinical trials in 2012, including potential all-oral, interferon-free treatment regimens for HCV infection, ivacaftor monotherapy and combination regimens that potentially could benefit a broader group of patients with CF, and VX-509 for the treatment of patients with rheumatoid arthritis and other immune-mediated inflammatory diseases. We believe these, and our other clinical development programs, have the potential to provide additional revenues to us in the future.

Invest in research and early-stage drug candidates. We believe that our long-term success depends on our ability to continue to generate and develop innovative compounds. We intend to continue to invest significant resources in research programs and early-stage drug candidates in an effort to identify and advance additional compounds that have the potential to address significant unmet medical needs.

Complement our internal efforts with external assets, technologies and capabilities. Our business development activities have provided us with drug candidates and/or important financial and non-financial resources that have contributed to our products and a number of the drug candidates in our current development pipeline. We will continue to seek to license or acquire drugs, drug candidates and other technologies that have the potential to add to our pipeline or to provide us with new commercial opportunities. Furthermore, we may seek collaborators to support, develop and/or commercialize some of our drug candidates.

Exposure to HCV often leads to chronic infection, although patients frequently do not have symptoms and are unaware that they have become infected with HCV. Over time, liver inflammation develops in many patients. This inflammation can progress to scarring of the liver, called fibrosis, or more advanced scarring of the liver, called cirrhosis. Patients with cirrhosis may go on to develop liver failure or other complications, including liver cancer. The World Health Organization, or WHO, has reported that HCV infection is responsible for more than 50% of all liver cancer cases and two-thirds of all liver transplants in the developed world.

The WHO has estimated that about 170 million people are chronically infected with HCV worldwide and that an additional 3 million to 4 million people are newly infected each year. The Centers for Disease Control and Prevention, or CDC, have estimated that approximately 3.2 million people in the United States are chronically infected with HCV. The Institute of Medicine has estimated the infected population in the United States to be between 2.7 million and 3.9 million people. We believe that approximately 2.6 million patients in the United States have genotype 1 HCV infection.

Telaprevir (INCIVEK in the United States and Canada, INCIVO in the European Union and TELAVIC in Japan)

Telaprevir is an orally-administered HCV protease inhibitor that is indicated for the treatment of treatment-naïve and treatment-failure adults with genotype 1 HCV infection. We market telaprevir in the United States and Canada under the brand name INCIVEK, Janssen markets telaprevir under the brand name INCIVO in the United Kingdom, Germany, France, Sweden, Austria, Finland, Denmark, Switzerland and Norway, and Mitsubishi Tanabe markets telaprevir under the brand name TELAVIC in Japan. Telaprevir was discovered in our collaboration, now ended, with Eli Lilly and Company, and we pay Eli Lilly and Company royalties on net sales of telaprevir.

Patients who are prescribed a telaprevir-based treatment regimen receive telaprevir, peg-IFN and RBV for 12 weeks. After the first 12 weeks, patients stop receiving telaprevir and continue treatment with peg-IFN and RBV alone for an additional 12 weeks or 36 weeks of treatment. Peg-IFN is a medicine that is administered weekly by injection. Telaprevir is indicated for three-times-daily dosing and is being evaluated in a fully-enrolled Phase 3b clinical trial designed to support a supplemental New Drug Application, or sNDA, for twice-daily dosing, and comparable applications in the European Union.

We are conducting Phase 3b clinical trials to evaluate telaprevir-based combination regimens as treatments for genotype 1 HCV infection in patients who also have HIV infection and in patients who experience recurrent genotype 1 HCV infection following a liver transplant. In addition, we are evaluating a 12-week telaprevir-based combination regimen in a Phase 3 clinical trial in patients with genotype 1 HCV who have a specific variant in the patient's IL-28B gene, which is referred to as the CC variant, and which is associated with increased efficacy of interferon-based therapy. In this clinical trial, patients who meet certain response criteria will stop all treatment and be evaluated for efficacy

after receiving the initial 12 weeks of telaprevir in combination with peg-IFN and RBV. Approximately one-third of patients with genotype 1 HCV infection have the CC variant in the patient's IL-28B gene.

Our goal is to further improve treatment options available to patients with HCV infection by developing all-oral, interferon-free treatment regimens for HCV infection. Our HCV drug candidates, VX-222, ALS-2200 and ALS-2158, are designed to inhibit the replication of HCV by inhibiting the HCV NS5b polymerase enzyme. We are evaluating VX-222 in combination with telaprevir and RBV and plan to evaluate multiple combination regimens that incorporate our other HCV drug candidates.

Non-nucleoside HCV polymerase inhibitors, such as our investigational drug candidate VX-222, bind to the NS5b polymerase enzyme, changing its shape and inhibiting its enzymatic activity. HCV nucleotide analogues, such as our investigational drug candidates ALS-2200 and ALS-2158, also act on the HCV NS5b polymerase enzyme, but through mechanisms of action distinct from non-nucleoside HCV polymerase inhibitors. The separate mechanisms of action utilized by each of our HCV drug candidates and telaprevir support the possibility of developing all-oral treatment regimens for HCV infection involving multiple drugs and drug candidates, including dual nucleotide (adenosine and uracil analogue) treatment regimens.

VX-222 is being evaluated in a Phase 2 clinical trial referred to as ZENITH. ZENITH is designed to evaluate combination treatment regimens of telaprevir, VX-222 and RBV, with and without peg-IFN. The primary endpoint of this trial is safety and tolerability, and secondary endpoints are on-treatment antiviral activity and the proportion of people in each treatment arm who achieve a sustained viral response, which is defined in ZENITH as undetectable HCV RNA levels 12 weeks after completion of treatment, or SVR12. We have completed dosing in two, all-oral three-drug treatment arms of ZENITH in which treatment-naïve patients with genotype 1a HCV infection and genotype 1b HCV infection received VX-222 in combination with telaprevir and RBV. We expect to announce interim data, including the percentage of patients with undetectable HCV RNA levels 4 weeks after completion of treatment, from these two all-oral drug treatment arms in the first quarter of 2012.

In ZENITH, we also evaluated two dose levels of VX-222 in combination with telaprevir, RBV and peg-IFN in two treatment arms that enrolled a total of 59 patients with genotype 1 HCV infection. In these two treatment arms, 90% and 83%, respectively, of patients achieved a sustained viral response. At the higher dose level, 50% of patients completed all treatment after 12 weeks, while the other patients continued receiving peg-IFN and RBV for 12 weeks after receiving the four-drug combination for the initial 12-week period. The most frequent adverse events observed in these treatment arms were fatigue, nausea, diarrhea, anemia, pruritis, insomnia and rash. Three patients in each study arm discontinued treatment before week 12 and one patient in each arm discontinued treatment between weeks 12 and 24 while they were receiving peg-IFN and RBV alone.

In December 2011, our collaborator, Alios BioPharma, Inc., or Alios, and we initiated Phase 1 clinical trials to evaluate the safety and tolerability of single ascending doses of each of ALS-2200 and ALS-2158 taken alone in healthy volunteers, and of multiple ascending doses of each of ALS-2200 and ALS-2158 taken alone in patients with genotype 1 HCV. A secondary objective of these clinical trials is to evaluate the viral kinetics of ALS-2200 and ALS-2158 taken alone during seven days of dosing in patients with genotype 1 HCV infection. We expect to obtain the first data from these clinical trials in patients with genotype 1 HCV infection in the second quarter of 2012. Following these clinical trials, we plan to conduct Phase 2a clinical trials evaluating multiple all-oral combination HCV treatment regimens in the second half of 2012. These potential all-oral combinations include combinations of ALS-2200 or ALS-2158 with telaprevir or VX-222, potential dual regimens of ALS-2200 and ALS-2158 together, and other all-oral, interferon-free combinations that include RBV.

The underlying cause of CF is a genetically inherited deficiency in the production or activity of the CFTR protein, which is involved in controlling the movement of chloride ions into and/or out of cells in the lungs, sweat glands, pancreas and other organs. While CF is a systemic disease, progressive loss of lung function is the primary cause of increased mortality in patients with CF. Abnormally thick mucus in the lungs of patients with CF leads to chronic lung infections, lung inflammation and progressive decline in lung function.

CF occurs when neither of the two copies of the CFTR gene, referred to as alleles, produce sufficient functional CFTR protein. There are a variety of mutations in the CFTR gene that result in CF, including two of the most prevalent mutations in the CFTR gene, the G551D mutation and the F508del mutation. The G551D mutation results in a defect known as a gating defect, in which the CFTR protein reaches the cell surface but does not efficiently transport chloride ions across the cell membrane. The F508del mutation results in a defect known as a trafficking defect, in which the CFTR protein does not reach the cell surface in sufficient quantities. There are many additional mutations in the CFTR gene that result in CF, including other mutations that result in gating or trafficking defects.

KALYDECO and our CF drug candidates were selected because of their potential to improve the function of defective CFTR proteins in patients with CF. We discovered KALYDECO, VX-809 and VX-661 in our research collaboration with the Cystic Fibrosis Foundation Therapeutics Incorporated, or CFFT. We hold worldwide development and commercialization rights to KALYDECO, VX-809 and VX-661. We pay royalties to CFFT on net sales of KALYDECO and will pay royalties to CFFT on any net sales of VX-809 or VX-661, if they are approved.

It is estimated that CF affects about 30,000 people in the United States and 40,000 people in Europe. According to the 2010 Cystic Fibrosis Foundation Patient Registry Annual Data Report in the United States, approximately 4% of patients with CF have the G551D mutation on at least one allele, approximately 48% of patients with CF have the F508del mutation on both alleles and an additional approximately 40% of patients with CF have the F508del mutation on one allele. In Europe, we believe approximately 2.5% of patients with CF have the G551D mutation on at least one allele and approximately 40% of patients with CF have the F508del mutation on both alleles.

KALYDECO (ivacaftor) is an orally-administered CFTR potentiator approved in January 2012 in the United States for the treatment of patients six years of age and older with CF who have the G551D mutation on at least one allele. In October 2011, we submitted an MAA for ivacaftor (VX-770) with the EMA. We are seeking approval from the European Commission to market ivacaftor for the treatment of patients with CF six years of age and older with the G551D mutation in the CFTR gene and with certain other mutations in the CFTR gene that result in gating defects. Our MAA for ivacaftor has been validated by the EMA. The EMA also has granted our request for accelerated assessment, which applies to new medicines of major public health interest and shortens the EMA's review time. We also plan to seek approval for ivacaftor in a number of other countries, including Canada and Australia. We believe that the European Commission could approve ivacaftor in the third quarter of 2012.

In mid-2012, we plan to initiate additional clinical trials to evaluate KALYDECO as a monotherapy for younger patients with CF who have gating mutations, including the G551D mutation on at least one allele, and in patients that have other mutations in the CFTR gene where there is the potential for KALYDECO to be administered as a monotherapy. In the first of these trials, KALYDECO will be evaluated in children ages two through five years with gating mutations in the

CFTR gene, including the G551D mutation. In this clinical trial, we expect to evaluate the safety, tolerability and effect on sweat chloride levels as well as other measures of clinical activity using a pediatric formulation of KALYDECO. In the second of these clinical trials, KALYDECO will be evaluated in patients six years of age or older with CF with gating mutations other than the G551D mutation. These remaining gating mutations account for approximately 1% of patients with CF in the United States. In the third of these clinical trials, KALYDECO will be evaluated in patients six years of age or older with CF with the R117H mutation in the CFTR gene on at least one allele. The RH117 mutation is a mutation that causes abnormal function of the CFTR protein on the cell surface and is present in approximately 3% of patients with CF in the United States.

KALYDECO (ivacaftor) was granted orphan drug status in the United States and the European Union. We are entitled to orphan drug exclusivity for KALYDECO in the United States, which means that the FDA may not approve other applications to market ivacaftor for the same indication for seven years except in very limited circumstances. We have a U.S. patent that covers the composition-of-matter of KALYDECO that expires in 2027 and that we expect will provide intellectual property protection in the United States through its expiration date. As a result of the seven-year orphan drug marketing exclusivity period, even if a competitor successfully challenges the KALYDECO patent it would not obtain approval from the FDA to market ivacaftor in the United States for at least seven years from the date of approval of KALYDECO. For more information regarding orphan drugs, see "Orphan Drug Designation" below.

We are investigating treatment regimens combining KALYDECO with our investigational correctors VX-809 and VX-661. We believe these regimens potentially could be used to treat patients with CF with mutations in the CFTR gene other than the G551D mutation, including patients with the F508del mutation, who represent the majority of patients with CF. VX-809 and VX-661 are oral CFTR corrector compounds that were selected because of their potential to increase the concentration of CFTR proteins on cell surfaces in patients with the F508del mutation in the CFTR gene. In vitro, studies of CFTR corrector and potentiator compounds have suggested that these compounds can partially restore function of defective F508del CFTR protein, with increased trafficking of F508del CFTR protein to the cell surface.

We are evaluating VX-809 in combination with ivacaftor in patients with CF who have the F508del mutation in the CFTR gene. In the second quarter of 2011, we obtained interim data from Part 1 of a Phase 2 clinical trial designed to evaluate multiple combination regimens of ivacaftor and VX-809, which enrolled 62 patients with CF with the F508del mutation on both alleles. Part 1 of the clinical trial evaluated a 200 mg dose of VX-809, or placebo, alone for 14 days and then in combination with two doses of ivacaftor, or placebo, for 7 days. The interim safety and efficacy data from Part 1 of this clinical trial supported the initiation of Part 2, in which we are evaluating multiple dose levels of VX-809, including doses higher than those evaluated in Part 1 of this clinical trial, in approximately 100 patients with CF who have the F508del mutation on one or both of their alleles. In Part 2, we are evaluating VX-809 alone for 28 days followed by VX-809 in combination with KALYDECO for 28 days compared to placebo. The primary goals of this clinical trial are to evaluate the safety and tolerability of the combination therapy and its effect on CFTR function as measured by sweat chloride levels. Lung function will be measured as a secondary endpoint.

We initiated a Phase 2 clinical trial of VX-661 in the first quarter of 2012. In this clinical trial, we are evaluating VX-661 as both a monotherapy and in combination with ivacaftor in patients with CF who have two copies of the F508del mutation in the CFTR gene.

Immune-mediated inflammatory diseases, including rheumatoid arthritis, are characterized by inflammation that is believed to be the result of an incorrectly regulated immune response. Rheumatoid arthritis is a chronic disease that affects 0.5% to 1.0% of the world's population and, according to the CDC, approximately 1.5 million adults in the United States. Rheumatoid arthritis causes destruction of joint cartilage and erosion of adjacent bone, resulting in deformity, loss of function and substantial disability. Many patients with rheumatoid arthritis also eventually require joint replacements. While approved drugs, including oral and injectable disease-modifying antirheumatic drugs, or DMARDs, are effective in a portion of patients with rheumatoid arthritis, a significant portion of patients do not respond adequately to DMARDs or experience a decrease in the effectiveness of DMARDs over time. We are seeking to develop an oral therapy for the treatment of rheumatoid arthritis that could be used alone or in combination with existing DMARDs.

VX-509 is an investigational oral drug candidate intended to inhibit Janus kinase 3, or JAK3, which is involved in the modulation of a type of white blood cell, referred to as a lymphocyte, that is central to auto-immune disease pathology. Because of JAK3's role in lymphocyte biology, we believe it is a promising target for the design of immunosuppressant drugs for treatment of a variety of immune-mediated inflammatory diseases, including rheumatoid arthritis. Based on in vitro data, VX-509 appears to be a potent and selective inhibitor of JAK3. Pfizer is seeking approval to market its JAK inhibitor, tofacitinib, as treatment for rheumatoid arthritis based on a Phase 3 clinical program it completed in 2011.

In 2011, we completed a Phase 2a clinical trial that evaluated VX-509 in patients with rheumatoid arthritis. This double-blind, randomized, placebo-controlled clinical trial enrolled 204 people with active moderate-to-severe rheumatoid arthritis. We evaluated four dose levels of VX-509, which was given twice daily for 12 weeks. Patients in this clinical trial did not receive methotrexate. We achieved the two primary endpoints in this Phase 2a clinical trial, defined as a statistically significant improvement in the proportion of patients who achieved at least a 20 percent improvement in the signs and symptoms of rheumatoid arthritis, also known as ACR20, and a statistically significant improvement from baseline in Disease Activity Score 28, or DAS28.

The most frequently reported class of adverse event in the VX-509 and placebo arms of this Phase 2a clinical trial was infection. The most common individual adverse events observed in this Phase 2a clinical trial, each of which occurred in approximately 5% or less of patients in the clinical trial, were nausea, headache and increased alanine transaminase, regardless of treatment arm. Five percent of patients discontinued treatment due to adverse events in the placebo group, compared to eight percent of patients in the VX-509 treatment arms.

Based on the safety and efficacy data from this Phase 2a clinical trial, we plan to evaluate VX-509 as part of a six-month Phase 2b clinical trial in patients with rheumatoid arthritis. In this Phase 2b clinical trial, we expect to evaluate once-daily and twice-daily doses of VX-509 in combination with methotrexate. We expect to initiate this clinical trial in the first quarter of 2012 and to enroll approximately 350 patients with active moderate-to-severe rheumatoid arthritis. In addition, we plan to evaluate VX-509 in patients with other immune-mediated inflammatory diseases.

Epilepsy is a chronic neurological disorder that is defined by recurrent seizures resulting from overactive neurons in the brain. Recent studies suggest that inflammation and overproduction of the cytokine IL-1b may be associated with the initiation and maintenance of epileptic seizures. While there are a number of approved anticonvulsant medications used to treat patients with epilepsy, a substantial portion of patients are considered to be treatment-resistant because they continue to have seizures while taking approved anti-epileptic drugs.

VX-765 is an interleukin-1 converting enzyme, or ICE, inhibitor. VX-765 is designed to inhibit an enzyme that controls the generation of two cytokines, IL-1b and IL-18, believed to mediate a wide range of immune and inflammatory responses in many cell types. In 2011, we completed a Phase 2a clinical trial of VX-765 that randomized approximately 60 patients with treatment-resistant epilepsy. This clinical trial was designed to evaluate the safety, tolerability and clinical activity of VX-765. The primary endpoints of the trial were safety and tolerability, and the clinical trial showed a similar safety profile for VX-765 as compared to placebo. The efficacy data from this clinical trial supported the initiation of a Phase 2b clinical trial in patients with treatment-resistant epilepsy. We have initiated a Phase 2b clinical trial of VX-765 to evaluate longer dosing of VX-765 in patients with treatment-resistant epilepsy.

The CDC has estimated that in the United States more than 200,000 patients with influenza infection are hospitalized annually with respiratory and cardiac-related complications. While the number of influenza related deaths varies significantly depending on the severity of the influenza season, the CDC has estimated the number of influenza related deaths in the United States averages approximately 25,000 per year. In addition to vaccinations designed to prevent the spread of infection, we believe that there is a significant market for antiviral agents that could potentially be used to treat influenza. Currently, neuraminidase inhibitors, oseltamivir (Tamiflu) and zanamivir (Relenza), are the antiviral agents that are used to treat influenza infection, but these drugs must be administered within 24 to 48 hours of initial infection in order to be effective and do not produce responses in a significant portion of patients.

VX-787 is an investigational drug candidate intended for the treatment of influenza A, which is typically the predominate strain of influenza and includes H1 (pandemic) and H5 (avian) influenza strains. VX-787 aims to treat influenza A in a way that is distinct from neuraminidase inhibitors. We have begun Phase 1 clinical development of VX-787 and, if the clinical trials in healthy volunteers are successful, we could begin a Phase 2a clinical trial to evaluate VX-787 in healthy volunteers infected with the influenza A virus in the first half of 2012.

We have established a commercial organization to support sales of INCIVEK (telaprevir) and KALYDECO (ivacaftor) in North America. Our sales force and managed markets organizations are responsible for promoting our products to health care providers and payors.

Our U.S. sales force includes approximately 150 employees, most of whom are focused on marketing INCIVEK and have experience in marketing drugs for the treatment of infectious diseases. Our HCV sales force focuses its efforts on those physicians in private practice and at major medical centers who write the majority of prescriptions for HCV therapies, as well as the health care professionals who support their practices. We also have a small sales force dedicated to marketing INCIVEK in Canada.

Our United States field-based CF commercial team includes 14 therapeutic specialists who each have prior experience with CF, as well as case managers and a marketing and managed markets organization. We are focusing our CF marketing efforts on a relatively small number of physicians and health care professionals, less than 1,000, who write approximately 80% of the CF prescriptions in the United States. Many of these physicians and health care professionals are located at one of the approximately 110 accredited centers in the United States focused on the treatment of CF. In addition, we are establishing a small commercial organization in Europe to support the potential sale of ivacaftor in Europe if it is approved by the European Commission.

We market our products and educate physicians by calling on individual physicians, advertising, sending direct mail, public relations efforts and other activities. In addition, our government affairs and public policy group advocates for policies that promote life sciences innovation and increase awareness of the diseases on which we are focusing with state and federal legislatures, government agencies and public health officials and other policy-makers.

We also have established programs in the United States that provide our products to qualified uninsured or underinsured patients at no charge or at a reduced charge, based on specific eligibility criteria.

We believe that our integrated drug design approach has significantly enhanced our ability to discover and develop small molecule drug candidates directed at biologically complex targets associated with serious diseases. Our platform integrates biology, pharmacology, drug metabolism and pharmacokinetics, toxicology, material sciences, biophysics, medicinal chemistry and process chemistry, automation and information technologies in a coordinated fashion throughout the discovery process. We believe that our approach has been validated through our success in moving novel drug candidates into clinical trials and obtaining marketing approvals for INCIVEK and KALYDECO. Currently, the therapeutic areas of highest priority to us from a research perspective are: infectious diseases, including viral infections, such as influenza and bacterial infections; immune-mediated inflammatory diseases and other inflammatory diseases; cancer; neurological diseases and disorders, including pain; and CF. Within each therapeutic area, we focus initially on specific medical or disease indications. Driven by the complexity of the therapeutic areas selected, we are attempting to identify multiple approaches within each indication that, either as a stand-alone therapy or combination therapy, could provide treatment options that are transformational in nature. The objective of this approach is to enable us eventually to provide multiple drugs in each of these therapeutic areas. We select therapeutic areas by mapping our research strengths, including expertise in kinases, proteases and membrane proteins, onto therapeutic areas with high unmet medical need, with an emphasis on indications where based on scientific insights we believe we, independently or in collaboration with other third parties, will be able to discover, develop and commercialize important medicines for serious diseases.

Our past drug discovery efforts have produced a variety of drug candidates that have been commercialized or are in preclinical or clinical development. We believe our ongoing research programs will continue to create value for us by generating new drug candidates in areas of significant unmet medical need. We are engaged in nonclinical activities involving a number of investigational compounds, one or more of which may enter clinical development in 2012.

To augment our internal research programs, we seek to collaborate with leading academic research institutions, government laboratories, foundations and other organizations in order to advance research in our areas of therapeutic interest as well as in areas of basic technological enablement. We have established relationships with organizations and consortia of organizations from around the world with expertise in areas of interest to us, and intend to leverage that experience to further our research efforts.

We have entered into corporate collaborations with pharmaceutical and other companies and organizations that provide us financial and other resources, including capabilities in research, development, manufacturing, and sales and marketing, and licenses to intellectual property.

In June 2006, we entered into a license, development, manufacturing and commercialization agreement with Janssen. Under the collaboration agreement, we collaborate with Janssen on the development and commercialization of telaprevir. Under the terms of the collaboration agreement, we have exclusive commercial rights to telaprevir in North America and lead the development program for INCIVEK (telaprevir) in North America and the Janssen territories. Janssen has exclusive rights to commercialize INCIVO (telaprevir) outside of North America and the Far East.

Janssen pays us a tiered royalty, averaging in the mid-20% range, subject to adjustment for generic competition, as a percentage of net sales of INCIVO in the Janssen territories. Janssen is responsible for certain third-party royalties in its territories. Pursuant to the collaboration agreement, we received an up-front payment of $165.0 million and milestone payments of $350.0 million related to the development and commercialization of INCIVO. We do not expect to receive any further milestone payments pursuant to this collaboration. Janssen was responsible for 50% of drug development costs under the development program for North America and the Janssen territories through approval, and continues to be responsible for 50% of drug development costs related to certain post-approval activities. Janssen is required to use diligent efforts to maximize net sales of telaprevir in its territories through its commercial marketing, pricing and contracting strategies. Each of the parties to the collaboration agreement is responsible for drug supply in their respective territories.

Janssen may terminate the agreement upon the later of (i) one year's advance notice and (ii) such period as may be required to assign and transfer to us specified filings and approvals. The agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the expiration of Janssen's royalty obligations, which expire on a country-by-country basis on the later of (a) the last-to-expire patent covering INCIVO and (b) ten years after the first commercial sale in the country. In the European Union, we have a patent covering the composition-of-matter of INCIVO that expires in 2021, and we expect to obtain extensions to the term of this patent through 2026.

We have a collaboration agreement with Mitsubishi Tanabe pursuant to which Mitsubishi Tanabe has a fully-paid license to manufacture and commercialize TELAVIC (telaprevir) to treat HCV infection in Japan and other specified countries in the Far East. This agreement was entered into in 2004 and amended in 2009. Pursuant to this agreement, Mitsubishi Tanabe provided financial and other support for the development and commercialization of telaprevir, made a $105.0 million payment to us in connection with the 2009 amendment of the collaboration agreement and made a $65.0 million payment to us in the fourth quarter of 2011 related to the commercialization of TELAVIC in Japan. There are no further milestone payments due to us under this collaboration agreement. Mitsubishi Tanabe is responsible for its own development and manufacturing costs in its territory. Mitsubishi Tanabe may terminate the agreement at any time without cause upon 60 days' prior written notice to us. The agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the expiration of the last-to-expire patent covering TELAVIC. In Japan, we have a patent covering the composition-of-matter of TELAVIC that expires in 2021.

We began working with CFFT in 1998. We entered into the current collaboration agreement with CFFT in 2004 and amended it several times to support research and development activities related to potentiator compounds and corrector compounds, including KALYDECO (ivacaftor), VX-809 and VX-661. Pursuant to an April 2011 amendment to the collaboration agreement, CFFT agreed to

provide financial support for development activities for VX-661, a corrector compound discovered under the collaboration, and additional research and development activities directed at discovering new corrector compounds. We retain worldwide rights to develop and commercialize KALYDECO, VX-809, VX-661 and any other compounds discovered during the course of the research collaboration with CFFT and will pay to CFFT tiered royalties ranging from single digits to sub-teens, calculated as a percentage of net sales, on KALYDECO, as well as VX-809 and VX-661 and any other compounds discovered during the original research term or the research term that began in 2011. We also are obligated to make two one-time commercial milestone payments upon achievement of certain sales levels for a potentiator compound, including KALYDECO, and two one-time commercial milestone payments upon achievement of certain sales levels for corrector compounds, including VX-809 or VX-661.

For each compound commercialized under this collaboration, we will have royalty obligations to CFFT until the expiration of patents covering that compound. We have patents in the United States and European Union covering the composition-of-matter of KALYDECO that expire in 2027 and 2025, respectively, subject to potential patent life extensions. CFFT may terminate its funding obligations under the collaboration, as amended, in certain circumstances, in which case there will be a proportional reduction in the royalty rates and commercial milestone payments for certain corrector compounds. The collaboration also may be terminated by either party for a material breach by the other, subject to notice and cure provisions.

In June 2011, we entered into a license and collaboration agreement with Alios, a privately-held biotechnology company. Pursuant to the agreement, we will collaborate on the research, development and commercialization of two HCV nucleotide analogues discovered by Alios, ALS-2200 and ALS-2158. We are responsible for all costs related to development and commercialization of the compounds, and are providing funding for a research program directed to the discovery of additional HCV nucleotide analogues that act on the HCV polymerase.

Under the terms of the agreement, we received exclusive worldwide development and commercialization rights to ALS-2200 and ALS-2158, and have the option to select additional compounds discovered in the research program. We paid Alios a $60.0 million up-front payment, and Alios is eligible to receive research and development milestone payments of up to $715.0 million if two compounds resulting from the collaboration are approved and commercialized. As of December 31, 2011, Alios had earned $35.0 million of these contingent research and development milestones. Alios also is eligible to receive commercial milestone payments of up to $750.0 million, as well as tiered royalties on net sales of approved drugs.

We may terminate our agreement with Alios (i) upon 30 days' notice to Alios if we cease development after both ALS-2200 and ALS-2158 have experienced a technical failure and/or (ii) upon 60 days' notice to Alios at any time after we complete specified Phase 2a clinical trials. The agreement also may be terminated by either party for a material breach by the other, and by Alios for our inactivity or if we challenge certain Alios patents, in each case subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the expiration of our royalty obligations, which expire on a country-by-country basis on the later of (a) the date the last-to-expire patent covering a licensed product expires or (b) ten years after the first commercial sale in the country.

We actively seek protection for our products and proprietary information by means of United States and foreign patents, trademarks and copyrights, as appropriate. In addition, we rely upon trade

secret protection and contractual arrangements to protect certain of our proprietary information and products. We have patents and pending patent applications that relate to potential drug targets, compounds we are developing to modulate those targets, methods of making or using those compounds and proprietary elements of our drug discovery platform.

Much of our technology and many of our processes depend upon the knowledge, experience and skills of key scientific and technical personnel. To protect our rights to our proprietary know-how and technology, we require all employees, as well as our consultants and advisors when feasible, to enter into confidentiality agreements that require disclosure and assignment to us of ideas, developments, discoveries and inventions made by these employees, consultants and advisors in the course of their service to us.

While we have numerous issued patents and pending patent applications in our patent portfolio, we believe that the patents and patent applications in the United States and the European Union that are the most important to our business are those that claim the composition-of-matter of our drugs and drug candidates that have progressed at least into Phase 2 clinical trials. The following table sets forth the status of the primary patents and patent applications in the United States and the European Union covering the composition-of-matter of these drugs and drug candidates:

Drug/Drug Candidate

INCIVEK/INCIVO (telaprevir)	Granted (2025)	Granted (2021)
KALYDECO (ivacaftor)	Granted (2027)	Application Pending (2025)
VX-222	Granted (2027)	Application Pending (2027)
VX-809	Application Pending (2026)	Application Pending (2026)
VX-661	Granted (2027)	Application Pending (2027)
VX-509	Granted (2026)	Application Pending (2025)
VX-765	Granted (2021)	Application Pending (2021)

The United States patent covering the composition-of-matter for INCIVEK (telaprevir) was granted in 2010 with a term that expires in 2025. We do not expect material extensions to the term of the patent covering the composition-of-matter of INCIVEK (telaprevir) in the United States. In the European Union, we expect to obtain extensions to the term of the patent covering the composition-of-matter of INCIVO (telaprevir) and that as a result of these extensions the patent will expire in 2026. We will need to apply separately for the extensions in the European Union on a country-by-country basis.

We hold issued patents and pending patent applications in the United States, and in foreign countries we deem appropriate, claiming intellectual property developed as part of each of our research and development programs. In addition to the composition-of-matter patents and patent applications listed above, our intellectual property holdings include:

We cannot be certain, however, that issued patents will be enforceable or provide adequate protection or that pending patent applications will result in issued patents.

From time to time we enter into non-exclusive license agreements for proprietary third-party technology used in connection with our research activities. These license agreements typically provide for the payment by us of a license fee, but may also include terms providing for milestone payments or royalties for the development and/or commercialization of our drug products arising from the related research.

As we market and sell our approved products and advance our drug candidates through clinical development toward commercialization, we continue to build and maintain our supply chain and quality assurance resources. We rely on an international network of third parties, including sole source suppliers of certain components of our products and drug candidates, to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our drug candidates for clinical trials. We expect that we will continue for the foreseeable future to rely on third parties to meet our commercial and clinical supply needs.

Our supply chain for sourcing raw materials and manufacturing drug product ready for distribution is a multi-step international endeavor. Third-party contract manufacturers, including some in China, supply us with raw materials, and contract manufacturers in the European Union and the United States convert these raw materials into drug substance, and convert the drug substance into final dosage form. Establishing and managing this global supply chain for each of our drugs and drug candidates requires a significant financial commitment and the creation and maintenance of numerous third-party contractual relationships.

We have developed systems and processes to track, monitor and oversee our third-party manufacturers' activities, including a quality assurance program intended to ensure that our third-party manufacturers comply with current Good Manufacturing Practices, or cGMP. We regularly evaluate the performance of our third-party manufacturers with the objective of confirming their continuing capabilities to meet our needs efficiently and economically. Manufacturing facilities, both foreign and domestic, are subject to inspections by or under the authority of the FDA and other U.S. and foreign government authorities. A failure by any of our third-party manufacturers to pass an inspection could adversely affect our ability to distribute INCIVEK (telaprevir) or KALYDECO (ivacaftor) in a timely manner.

We require a supply of INCIVEK for our commercial sales in North America and our clinical trials. We provide a secondary commercial supply source for Janssen through our third-party manufacturers. We also are providing Mitsubishi Tanabe, until April 2012, specified supplies of telaprevir drug substance and drug product intermediate through these third-party manufacturers. We

believe our efforts to establish and maintain relationships with third-party manufacturers and oversee their activities are important to support consistent supply of INCIVEK.

Janssen manufactures INCIVO (telaprevir) for sale in Janssen's territories and serves as a secondary supply source of drug substance and drug product intermediate for us. We believe there are multiple third parties capable of providing most of the materials and services we need in order to manufacture and distribute INCIVEK. It is also possible that supply of materials needed to manufacture INCIVEK that cannot be second-sourced can be managed with inventory planning. If we underestimate demand, our manufacturing capacity through third-party manufacturers may not be sufficient. Also, while we believe we can effectively forecast demand for INCIVEK, we have limited flexibility to adjust our supply in response to changes in demand, due to the significant lead times required to manufacture INCIVEK.

We require a supply of KALYDECO for commercial sale in the United States and for our clinical trials. We also will require a supply of ivacaftor for international sales, if ivacaftor is approved for marketing in countries outside the United States. We obtain KALYDECO to meet our commercial and clinical supply needs through a third-party manufacturing network. Our supply chain for KALYDECO includes several sole source suppliers, and we are in the process of establishing secondary sources for our KALYDECO supply needs.

The pharmaceutical industry is characterized by extensive research efforts, rapid technological progress and intense competition. There are many public and private companies, including pharmaceutical companies and biotechnology companies, engaged in developing products for the indications our drugs are approved to treat and the therapeutic areas we are targeting with our research and development activities. Many of our competitors have substantially greater financial, technical and human resources than we do. We face competition based on the safety and efficacy of our products, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent protection and other factors. Our competitors may develop or commercialize more effective, safer or more affordable products than we are able to develop or commercialize or obtain more effective patent protection. As a result, our competitors may commercialize products more rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our drug candidates, if approved, would achieve and maintain market acceptance and our ability to generate meaningful revenues from our products. Future competitive products may render our products, or future products, obsolete or noncompetitive. With respect to all of our drugs and drug candidates, we are aware of existing treatments and numerous drug candidates in development by our competitors.

In 2011, our collaborators and we obtained approval to market our HCV protease inhibitor telaprevir for the treatment of treatment-naïve and treatment-experienced adults with genotype 1 HCV infection in the United States, European Union and other international markets. In the United States, we believe over 25,000 patients were treated with INCIVEK in 2011. Merck & Co., Inc.'s HCV protease inhibitor boceprevir, which it markets under the brand name VICTRELIS™, also was approved in the United States, European Union and other international markets in 2011. Prior to the introduction of telaprevir and boceprevir, genotype 1 HCV infection was treated using a 48-week course of peg-IFN, which requires weekly injections, in combination with RBV, which is an oral drug. A

majority of patients with genotype 1 HCV infection did not achieve a sustained viral response with peg-IFN and RBV alone. We believe that prior to the approval of telaprevir, sales of peg-IFN and RBV declined as physicians and patients became aware of promising clinical data regarding potential treatment regimens that include HCV protease inhibitors.

We are aware of a number of clinical trials investigating compounds and all-oral, interferon-free treatment regimens involving multiple drug candidates that target HCV infection through various different mechanisms of action, and we believe that there are many additional potential HCV treatments in research or early development. There are a number of HCV protease inhibitors, HCV nucleotide analogues, non-nucleoside HCV polymerase inhibitors and HCV NS5A inhibitors, each of which is a direct-acting antiviral compound, in mid- and late-stage clinical development. If any of these drug candidates or combinations of drug candidates is approved as a treatment for HCV infection, we expect that it would compete with the INCIVEK (telaprevir)-based regimens containing peg-IFN and RBV, and any of our HCV drug candidates that are approved, on the basis of the factors described above.

We do not expect that additional competitive products for the treatment of HCV infection will enter the market until late 2013 at the soonest. We believe that the most advanced potentially competitive product for the treatment of HCV infection is TMC-435, an HCV protease inhibitor being developed by Tibotec, an affiliate of our collaborator Janssen, and Medivir AB, which entered Phase 3 clinical trials in the first quarter of 2011. Even prior to the introduction of competitive products, however, we believe that information regarding future potential treatments from clinical trials of HCV drug candidates could influence some physicians or patients to defer treatment until these drug candidates or other treatment options become available.

We believe that the most significant future competition in the HCV treatment market will result from all-oral, interferon-free treatment regimens. We are conducting a Phase 2a clinical trial in which we are evaluating an all-oral combination of VX-222, our non-nucleoside HCV polymerase inhibitor, with telaprevir and RBV, and we are evaluating ALS-2158 and ALS-2200, our HCV nucleotide analogues, in Phase 1 clinical trials. We are aware that many competitors, including Abbott Laboratories, Achillion Pharmaceuticals, Inc., Boehringer Ingelheim, Bristol-Myers Squibb Company, Gilead Sciences, Inc., Hoffman-La Roche, Idenix Pharmaceuticals, Inc. and Janssen also are seeking to develop all-oral, interferon-free treatment regimens to treat HCV infection. In particular, Gilead may initiate in 2012 a Phase 3 clinical trial to evaluate GS-7977, an HCV nucleotide analogue, in combination with RBV as a treatment for patients with genotype 1 HCV infection, depending on the data generated in its ongoing Phase 2b clinical trial in this genotype. While it is difficult to predict drug development and regulatory timelines, we believe that one or more all-oral treatment regimens could enter the market as early as 2014 or 2015.

The following table provides information regarding selected drug candidates that are being evaluated for the treatment of HCV infection:

Drug Candidate

HCV Protease Inhibitors
TMC-435	Janssen/Medivir AB	Phase 3
BI 201335	Boehringer Ingelheim	Phase 3
MK-5172	Merck	Phase 2
GS-9451	Gilead	Phase 2
BMS-650032	Bristol-Myers Squibb	Phase 2
ACH-1625	Achillion	Phase 2
ABT-450	Abbott	Phase 2
Danoprevir / RG7227	Roche	Phase 2
ACH-2684	Achillion	Phase 1
HCV Nucleotide Analogues
GS-7977	Gilead	Phase 3
INX-189	Bristol-Myers Squibb	Phase 2
IDX184	Idenix	Phase 2
Mercitabine (R7128)	Gilead/Roche	Phase 2
ALS-2200	Vertex/Alios	Phase 1
ALS-2158	Vertex/Alios	Phase 1
Non-nucleoside HCV Polymerase Inhibitors
VX-222	Vertex	Phase 2
tegobuvir (GS-9190)	Gilead	Phase 2
ABT-333	Abbott	Phase 2
ABT-072	Abbott	Phase 2
Setrobuvir	Roche	Phase 2
BI 207127	Boehringer Ingelheim	Phase 2
HCV NS5a Inhibitors
GS-5885	Gilead	Phase 2
daclatasvir (BMS-790052)	Bristol-Myers Squibb	Phase 2
ABT-267	Abbott	Phase 2
ACH-2928	Achillion	Phase 1

Several companies are engaged in researching and/or developing treatments for CF. PTC Therapeutics, Inc., in collaboration with Genzyme Corporation, a Sanofi company, is evaluating ataluren in a Phase 3 clinical trial in patients with CF. Ataluren is a drug candidate designed to improve the production of CFTR proteins in patients with nonsense mutations in the CFTR gene that halt the production of CFTR proteins before the protein is fully formed. We do not believe that there is significant overlap between patients with the G551D mutation in the CFTR gene and patients with nonsense mutations in the CFTR gene. In addition, several companies, including Genzyme, have research programs directed at identifying CFTR corrector compounds.

The research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record keeping, promotion, advertising, distribution and marketing of our products and drug candidates are subject to extensive regulation by United States and foreign governmental authorities.

In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or the FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statues and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the drug development process, approval process or after approval, may subject us to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

Once a drug candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal pharmacology and toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Preclinical or nonclinical testing typically continues even after the IND is submitted. In addition to including the results of the preclinical studies, the IND also will include a protocol detailing, among other things, the objectives of the initial clinical trial and the parameters to be used in monitoring safety. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. If an IND is placed on clinical hold, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific clinical trials or all clinical trials conducted under the IND.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol and any amendments must be submitted to the FDA as part of the IND, and progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently in other situations, including the occurrence of serious adverse events. An institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the protocol and any amendments before a clinical trial commences or continues at that institution, approve the information regarding the clinical trial and the consent form that must be provided to each trial subject or his or her legal representative, and monitor the clinical trial until completed and otherwise comply with IRB regulations.

Clinical trials typically are conducted in three sequential phases that may overlap or be combined:

Phase 1, Phase 2, and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the healthy volunteers or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug candidate has been associated with unexpected serious harm to healthy volunteers or patients.

We estimate that it generally takes 10 to 15 years, or possibly longer, to discover, develop and bring to market a new pharmaceutical product in the United States, as outlined below:


Phase		Estimated Duration
Discovery		2 to 4 years
Preclinical		1 to 2 years
Phase 1		1 to 2 years
Phase 2		2 to 4 years
Phase 3		2 to 4 years
FDA approval		6 months to 2 years

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support approval of the drug candidate.

Concurrently with clinical trials, companies usually complete additional animal safety studies and also must develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate, and the manufacturer must develop methods for testing the quality, purity and potency of the final products. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf-life.

The results of drug development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the drug candidate. The FDA reviews each NDA submitted to ensure that it is sufficiently complete for substantive review before it accepts it for filing. It may request additional information rather than accept an NDA for filing.

Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA may not approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a drug candidate is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the drug candidate's identity, strength, quality and purity. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the NDA should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where the drug candidate is manufactured and tested.

The FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials, restrictions on direct-to-consumer advertising or commitments to conduct additional research post-approval. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

The FDA has various programs, including Fast Track, priority review, and accelerated approval, that are intended to expedite or simplify the process for reviewing drug candidates, and/or provide for approval on the basis of surrogate endpoints. Even if a drug candidate qualifies for one or more of these programs, the FDA may later decide that the drug candidate no longer meets the conditions for qualification or that the time period for FDA review or approval will not be shortened. Generally, drug candidates that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review of drug candidates to treat serious diseases and fill an unmet medical need. Priority review is designed to give drug candidates that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review within six months as compared to a standard review time of ten months. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug candidate and expedite review of the application for a drug candidate designated for priority review. Accelerated approval provides an earlier approval of drugs to treat

serious diseases, and that fill an unmet medical need based on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a product receiving accelerated approval perform post-marketing clinical trials.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or complete withdrawal of the product from the market. In addition, under the FDCA the sponsor of an approved drug in the United States may not promote that drug for unapproved, or off-label, uses, although a physician may prescribe a drug for an off-label use in accordance with the practice of medicine. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

Drug manufacturers and other entities involved in the manufacture and distribution of approved products are required to register with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP and other laws.

We rely, and expect to continue to rely, on third parties for the production of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt manufacture or distribution of our products, or require substantial resources to correct.

From time to time, new legislation is enacted that changes the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance often are revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed.

Depending upon the timing, duration and specifics of FDA approval of the use of our drugs, some of our United States patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments.

The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product's approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved product is eligible for the extension and the extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. For a new chemical entity that qualifies for Orphan Drug designation, the FDCA provides such marketing exclusivity for a period of seven years. A product is a new chemical entity if the FDA has not previously approved any other new product containing the same active moiety, which is the molecule responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such product where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.

Section 505A of the FDCA, as amended by the FDA Amendments Act of 2007, permits certain drugs to obtain an additional six months of exclusivity, if the sponsor submits information requested in writing by the FDA, or a written request, relating to the use of the drug in children. The FDA may not issue a written request for clinical trials on unapproved or approved indications or where it determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.

In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a drug candidate, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we can commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is

compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes and optional for those medicines that are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for approval by one or more "concerned" member states based on an assessment of an application performed by one member state, known as the "reference" member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state's assessment report, each concerned member state must decide whether or not to approve the assessment report and related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drug candidates intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 people in the United States, or more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. KALYDECO and VX-809 have been granted designation as orphan drugs by the FDA.

If a drug candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, also could block the approval of our drug candidates for seven years if a competitor obtains approval of the same product as defined by the FDA or if our drug candidate is determined to be contained within the competitor's product for the same indication or disease.

As in the United States, we may apply for designation of a drug candidate as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.

The FDA and foreign regulators expect holders of exclusivity for orphan drugs, such as KALYDECO, to assure the availability of sufficient quantities of their orphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing exclusivity for the orphan drug.

Sales of our products depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations. These third-party payors increasingly are reducing reimbursements for medical products and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing

cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit our revenues. Decreases in third-party reimbursement for a product or a decision by a third-party payor to not cover a product could reduce physician usage of the product.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities, which will provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, or HHS, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of our products. It is possible that comparative effectiveness research demonstrating benefits of a competitor's product could adversely affect the sales of our products. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, which is referred to as the ACA, enacted in March 2010, is expected to have a significant effect on the U.S. health care industry. The ACA is designed to expand coverage for the uninsured while at the same time containing overall health care costs. With regard to pharmaceutical products, among other things, the ACA is designed to expand and increase industry rebates for drugs covered under Medicaid programs, impose an annual fee on branded pharmaceutical manufacturers and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the effect of the ACA on pharmaceutical companies as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred. In addition, the current legal challenges to the ACA, as well as congressional efforts to repeal the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.

In some foreign countries, the proposed pricing for a drug must be approved before it may be marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of drugs for which their national health insurance systems provide reimbursement and to control the prices of drugs for human use. A member state may approve a specific price for the drug or it may instead adopt a system

of direct or indirect controls on the profitability of the company placing the drug on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and the prices of these products generally tend to be lower.

Pharmaceutical companies also are subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws, and the reporting of payments to physicians and teaching hospitals.

U.S. federal laws prohibit fraud and abuse involving state and federal health care programs, such as Medicare and Medicaid. These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including the Centers for Medicare & Medicaid Services, or CMS, the Department of Justice, the Office of Inspector General for the Department of Health and Human Services and various state agencies. These anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program. Remuneration is broadly defined to include anything of value, such as, cash payments, gifts or gift certificates, discounts, or the furnishing of services, supplies or equipment. The anti-kickback laws are broad and prohibit many arrangements and practices that are lawful in businesses outside of the health care industry.

The penalties for violating the anti-kickback laws can be severe. The sanctions include criminal and civil penalties, and possible exclusion from the federal health care programs. Many states have adopted laws similar to the federal anti-kickback laws, and some apply to items and services reimbursable by any payor, including third-party payors.

The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government. Under the False Claims Act, a person acts knowingly if he has actual knowledge of the information or acts in deliberate ignorance or in reckless disregard of the truth or falsity of the information. Specific intent to defraud is not required. Provisions of the False Claims Act allow a private individual to bring an action on behalf of the federal government and to share in any amounts paid by the defendant to the government in connection with the action. The number of filings under these provisions has increased significantly in recent years. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each false claim. Conduct that violates the False Claims Act may also lead to exclusion from the federal health care programs. Given the number of claims likely to be at issue, potential damages under the False Claims Act for even a single inappropriate arrangement could be significant. In addition, various states have enacted similar laws modeled after the False Claims Act that apply to items and services reimbursed under Medicaid and other state health care programs, and, in several states, such laws apply to claims submitted to all payors.

Federal Prohibitions on Health Care Fraud and False Statements Related to Health Care Matters

Under the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and state laws there are numerous regulations for protecting the privacy and security of protected health information. Additional administrative simplification provisions created the following new federal crimes: health care fraud, false statements relating to health care matters, theft or embezzlement in connection with a health benefit program and obstruction of criminal investigation of health care offenses. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including a private insurer. The false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for health care benefits, items, or services. The theft or embezzlement statute prohibits knowingly and willfully embezzling, stealing or otherwise converting or misapplying the money or property of a health care benefit program. The obstruction of criminal investigations of health care offenses statute prohibits willfully preventing, obstructing, misleading or delaying the communication of information and records relating to a violation of a federal health care offense to a criminal investigator. A violation of any of these laws is a felony and may result in fines, or exclusion from the federal health care programs.

The Physician Payment Sunshine Act, which was enacted as part of the ACA, requires pharmaceutical manufacturers to report annually to the Secretary of HHS payments or other transfers of value made by that entity to physicians and teaching hospitals during the course of the preceding calendar year. Because CMS was late in publishing the related proposed regulation, the start date for the collection of the data was postponed from January 1, 2012 to sometime after the publication of the final regulation later in 2012. Failure to comply with the reporting requirements would result in significant civil monetary penalties. We will be required to collect and report such payments.

In addition to the statutes and regulations described above, we also are subject to regulation in the United States under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state, local and foreign statutes and regulations, now or hereafter in effect.

As of December 31, 2011, we had approximately 2,000 employees. The number of our employees increased by approximately 18% during 2011, from approximately 1,700 on December 31, 2010. We are likely to further increase our headcount in 2012. Of these employees, approximately 1,800 were based in the United States, 125 were based in Europe and 60 were based in Canada. Our scientific staff members have diversified experience and expertise in molecular and cell biology, biochemistry, synthetic organic chemistry, protein X-ray crystallography, protein nuclear magnetic resonance spectroscopy, microbiology, computational chemistry, biophysical chemistry, medicinal chemistry, clinical pharmacology and clinical medicine. Our clinical development personnel have extensive expertise in designing and executing clinical trials. Employees in our commercial organization have extensive experience in selling and marketing pharmaceutical products as well as seeking reimbursement from government and third-party payors for pharmaceutical products. Our employees are not covered by a collective bargaining agreement, except for a small number of employees in France. Science magazine named Vertex number one on its 2011 list of top employers in the life sciences. We consider our relations with our employees to be good.

Financial information about our net product revenues and other revenues generated in the principal geographic regions in which we operate is set forth in Note W, "Geographic Information," to our consolidated financial statements included in this Annual Report on Form 10-K. A discussion of the risks attendant to our international operations is set forth in the "Risk Factors" section of this Annual Report on Form 10-K.

Our internet address is www.vrtx.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the "Finances/Investor Info-SEC Filings" section of our website as soon as reasonably practicable after those materials have been electronically filed with, or furnished to, the Securities and Exchange Commission.

Vertex was incorporated in Massachusetts in 1989, and our principal executive offices are located at 130 Waverly Street, Cambridge, Massachusetts 02139. We have research sites located in San Diego, California; Coralville, Iowa; Montreal, Canada and Milton Park, U.K. We also have an office in Washington, D.C. We have established our European headquarters in Switzerland and are building out our European commercial organization in France, Germany, Ireland and the United Kingdom.

The names, ages and positions held by our executive officers and directors are as follows:

Name		Position

Matthew W. Emmens	60	Executive Chairman and Chairman of the Board
Jeffrey M. Leiden, M.D., Ph.D.	56	Chief Executive Officer, President and Director
Peter Mueller, Ph.D.	55	Executive Vice President, Global Research and Development, and Chief Scientific Officer
Ian F. Smith	46	Executive Vice President and Chief Financial Officer
Nancy J. Wysenski, M.B.A	54	Executive Vice President and Chief Commercial Officer
David T. Howton, J.D.	40	Senior Vice President and Chief Legal Officer
Lisa Kelly-Croswell	45	Senior Vice President, Human Resources
Amit K. Sachdev, J.D.	44	Senior Vice President, Corporate Affairs and Public Policy, and Commercial Business Lead, Canada
Christiana Stamoulis, M.B.A.	41	Senior Vice President, Corporate Strategy and Business Development
Paul M. Silva	46	Senior Vice President and Corporate Controller
Joshua S. Boger, Ph.D.	60	Director
Terrence C. Kearney	57	Director
Margaret G. McGlynn	52	Director
Wayne J. Riley, M.D., M.B.A.	52	Director
Bruce I. Sachs	52	Director
Elaine S. Ullian	64	Director
Dennis L. Winger	64	Director

Mr. Emmens is our Executive Chairman, a position he was appointed to on February 1, 2012. Mr. Emmens plans to retire in May 2012. Mr. Emmens was our Chief Executive Officer from May 2009 through January 2012 and our President from February 2009 through January 2012. He has been a member of our Board of Directors since 2004 and became our Chairman in May 2009. Mr. Emmens is the Chairman of the Board of Directors of Shire plc, and has been a member of Shire's board since March 2003. From March 2003 to June 2008, Mr. Emmens was also the Chief Executive Officer of Shire plc. Before joining Shire in 2003, Mr. Emmens served as President of Merck KGaA's global prescription pharmaceuticals business in Darmstadt, Germany. In 1999, he joined Merck KGaA and established EMD Pharmaceuticals, Inc., its United States prescription pharmaceutical business. Mr. Emmens held the position of President and Chief Executive Officer at EMD Pharmaceuticals from 1999 to 2001. Prior to this, Mr. Emmens held various positions, including Chief Executive Officer, at Astra Merck, Inc. as well as several positions at Merck & Co., Inc. Mr. Emmens was a member of the Board of Directors of Incyte Corporation, a drug development company, from 2006 through February 2009. Mr. Emmens received a B.S. degree in business management from Farleigh Dickinson University.

Dr. Leiden is our Chief Executive Officer and President, a position he was appointed to on February 1, 2012 after joining us as CEO Designee on December 14, 2011. He has been a member of our Board of Directors since July 2009 and served as our lead independent director from October 2010 through December 2011. Dr. Leiden was a Managing Director at Clarus Ventures, a life sciences venture capital firm, from 2006 through January 2012. Dr. Leiden was President and Chief Operating Officer of Abbott Laboratories, Pharmaceuticals Products Group, and a member of the Board of

Directors of Abbott Laboratories from 2001 to 2006. From 1987 to 2000, Dr. Leiden held several academic appointments, including the Rawson Professor of Medicine and Pathology and Chief of Cardiology and Director of the Cardiovascular Research Institute at the University of Chicago, the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health, and Professor of Medicine at Harvard Medical School. He is an elected member of both the American Academy of Arts and Sciences, and the Institute of Medicine of the National Academy of Sciences. Dr. Leiden is a senior advisor to Clarus Ventures. Dr. Leiden was a director and the non-executive Vice Chairman of the board of Shire plc, a specialty biopharmaceutical company, from 2006 to January 2012, and was also a member of the Board of Directors of Millennium Pharmaceuticals, Inc. from October 2007 until it was acquired in June 2008. Dr. Leiden received his M.D., Ph.D. and B.A. degrees from the University of Chicago.

Dr. Mueller is our Executive Vice President, Global Research and Development, a position he has held since May 2009, and has been our Chief Scientific Officer since July 2003. Dr. Mueller was our Executive Vice President, Drug Innovation and Realization, from February 2006 to May 2009, and our Senior Vice President, Drug Discovery and Innovation, from July 2003 to February 2006. Prior to joining us, Dr. Mueller was the Senior Vice President, Research and Development, of Boehringer Ingelheim Pharmaceuticals, Inc., with responsibility for the development of all drug candidates in the company's portfolio in North America. He led research programs in the areas of immunology, inflammatory cardiovascular disease and gene therapy on a global basis. During his time with Boehringer Ingelheim, Dr. Mueller oversaw the discovery of numerous development candidates and held several positions in basic research, medicinal chemistry and management. Dr. Mueller received both an undergraduate degree and a Ph.D. in chemistry at the Albert Einstein University of Ulm, Germany, where he also holds a Professorship in Theoretic Organic Chemistry. He completed fellowships in quantum pharmacology at Oxford University and in biophysics at Rochester University.

Mr. Smith is our Executive Vice President and Chief Financial Officer, a position he has held since February 2006. From November 2003 to February 2006, he was our Senior Vice President and Chief Financial Officer, and from October 2001 to November 2003, he served as our Vice President and Chief Financial Officer. Prior to joining us, Mr. Smith served as a partner in the Life Science and Technology Practice Group of Ernst & Young LLP, an accounting firm, from 1999 to 2001. Mr. Smith initially joined Ernst & Young's U.K. firm in 1987, and then joined its Boston office in 1995. Mr. Smith currently is a member of the Boards of Directors of Acorda Therapeutics, Inc., a drug development company, and Infinity Pharmaceuticals, Inc., a drug development company. Mr. Smith holds a B.A. in accounting and finance from Manchester Metropolitan University, U.K., is a member of the American Institute of Certified Public Accountants and is a Chartered Accountant of England and Wales.

Ms. Wysenski is our Executive Vice President and Chief Commercial Officer, a position she has held since December 2009. Prior to joining us, Ms. Wysenski held the position of Chief Operating Officer of Endo Pharmaceuticals, a 1,200-person specialty pharmaceutical company, where she led sales, marketing, commercial operations, supply chain management, human resources and various business development initiatives. Prior to her role at Endo, Ms. Wysenski participated in the establishment of EMD Pharmaceuticals, Inc., where she held various leadership positions, including the role of President and Chief Executive Officer from 2001 to 2006 and Vice President of Commercial from 1999 to 2001. From 1984 to 1998, Ms. Wysenski held several sales-focused roles at major pharmaceutical companies, including Vice President of Field Sales for Astra Merck, Inc. Ms. Wysenski serves on the North Carolina Central University Board of Trustees and as a director for Reata Pharmaceuticals, Inc., a privately held company. She is a founder of the Research Triangle Park chapter of the Healthcare Business Women's Association. Ms. Wysenski holds a B.S. from Kent State University and an Executive M.B.A. from Baldwin Wallace College.

Mr. Howton is our Senior Vice President and Chief Legal Officer, a position he has held since September 2011. Mr. Howton was our Chief Compliance Officer from September 2009 through

September 2011. Mr. Howton worked at Genentech, Inc. in a number of legal roles from 2003 through 2009 and served as Genentech's Healthcare Compliance Officer from May 2006 through August 2009. Prior to Genentech, Mr. Howton practiced law in the Healthcare Group at the law firm of Sidley Austin. Mr. Howton holds a B.A. in Political Science from Yale University and a J.D. from Northwestern University School of Law.

Ms. Kelly-Croswell is our Senior Vice President, Human Resources, a position she has held since July 2007. Ms. Kelly-Croswell served as our Vice President, Human Resources from July 2006 through June 2007. From November 2005 through June 2006, Ms. Kelly-Croswell served as Vice President of Human Resources of NitroMed, Inc., a pharmaceutical company. From February 2004 to November 2005, Ms. Kelly-Croswell served as Senior Vice President, Human Resources, for the Health Care Division and Service Operations, of CIGNA, an employee benefits company. From September 2001 to February 2004, Ms. Kelly-Croswell served as Vice President of Human Resources for Global Research and Development for the Monsanto Company, an agricultural products and solutions company that she joined in 1998. Ms. Kelly-Croswell holds a B.S. in Finance and an M.A. in Labor and Industrial Relations from the University of Illinois at Urbana-Champaign.

Mr. Sachdev is our Senior Vice President, Corporate Affairs and Public Policy, and Commercial Business Lead, Canada. As a Senior Vice President, he has led our government affairs, public policy and patient advocacy functions since he joined us in July 2007. In October 2010, he took on the added role of building and managing our Canadian business operations. Mr. Sachdev served as Executive Vice President, Health of the Biotechnology Industry Organization (BIO) from April 2005 through June 2007. At BIO, he was the senior executive responsible for managing BIO's Health Section and its Governing Board, and for directing all health care policy and execution. Mr. Sachdev was the Deputy Commissioner for Policy at the FDA from April 2004 through April 2005, and held several other senior positions within the FDA from September 2002 through April 2004. From 1998 to 2002, Mr. Sachdev served as Majority Counsel to the Committee on Energy and Commerce in the United States House of Representatives, where he was responsible for bioterrorism, food safety and environmental issues. From 1993 to 1997, Mr. Sachdev practiced law, first at the Chemical Manufacturers Association, and then with the law firm of Ropes & Gray. Mr. Sachdev holds a B.S from Carnegie Mellon University, and a J.D. from Emory University School of Law.

Ms. Stamoulis is our Senior Vice President, Corporate Strategy and Business Development, a position she has held since October 2009. Prior to joining us, she was a Managing Director in Citigroup's Healthcare Banking Group from April 2006 to February 2009. From 2000 to April 2006, Ms. Stamoulis was an investment banker in the Healthcare Investment Banking Group of Goldman, Sachs & Co., where she was a Vice President from January 2002 through April 2006. Ms. Stamoulis started her career as a strategy consultant at The Boston Consulting Group. Ms. Stamoulis is a member of the Board of Directors of Hologic, Inc., a company focused on diagnostics, medical imaging systems and surgical products for women. Ms. Stamoulis holds a B.S. in Economics and a B.S. in Architecture from the Massachusetts Institute of Technology and an M.B.A. from the MIT Sloan School of Management.

Mr. Silva is our Senior Vice President and Corporate Controller, a position he has held since April 2011. Mr. Silva joined us in August 2007 as Senior Director, Accounting Operations and was our Vice President and Corporate Controller from September 2008 through April 2011. Prior to joining us, he was the Vice President, Internal Reporting at Iron Mountain Incorporated from July 2006 until August 2007 and a consultant to Iron Mountain's financing department from April 2005 until July 2006. He was the Finance Director of the Bioscience Technologies Division of Thermo Electron Corporation from 2002 to April 2005. Mr. Silva holds a B.S. in accounting from Assumption College.

Dr. Boger is the founder of Vertex and has been a director since our inception in 1989. He was our Chief Executive Officer from 1992 through May 2009. He was our Chairman of the Board from

1997 until May 2006 and our President from our inception until December 2000, and from 2005 through February 2009. He was our Chief Scientific Officer from 1989 until May 1992. Prior to founding Vertex in 1989, Dr. Boger held the position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research Laboratories in Rahway, New Jersey, where he headed both the Department of Medicinal Chemistry of Immunology & Inflammation and the Department of Biophysical Chemistry. Dr. Boger holds a B.A. in chemistry and philosophy from Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard University.

Mr. Kearney has been a member of our Board of Directors since May 2011. Mr. Kearney served as the Chief Operating Officer of Hospira, Inc., a specialty pharmaceutical and medication delivery company, from April 2006 to January 2011. From April 2004 to April 2006, he served as Hospira's Senior Vice President, Finance, and Chief Financial Officer, and he served as Acting Chief Financial Officer through August 2006. Mr. Kearney served as Vice President and Treasurer of Abbott Laboratories from 2001 to April 2004. From 1996 to 2001, Mr. Kearney was Divisional Vice President and Controller for Abbott's International Division. He received his B.S. in biology from the University of Illinois and his M.B.A. from the University of Denver.

Ms. McGlynn has been a member of our Board of Directors since May 2011. Ms. McGlynn has served as the President and Chief Executive Officer of the International AIDS Vaccine Initiative, a global not-for-profit organization whose mission is to ensure the development of safe, effective and accessible HIV vaccines for use throughout the world, since July 2011. Ms. McGlynn served as President, Vaccines and Infectious Diseases of Merck & Co., Inc. from 2005 until 2009. Ms. McGlynn joined Merck in 1983 and served in a variety of marketing, sales and managed care roles. Currently, Ms. McGlynn serves as a member of the Board of Directors for Air Products and Chemicals, Inc., a company specializing in gases and chemicals for industrial uses, and Amicus Therapeutics, Inc., a biopharmaceutical company. She is also a member of the National Industrial Advisory Committee at the University at Buffalo School of Pharmacy and Pharmaceutical Sciences. Ms. McGlynn holds a B.S. in Pharmacy and an M.B.A. in Marketing from the State University of New York at Buffalo.

Dr. Riley has been a member of our Board of Directors since July 2010. Dr. Riley is President and Chief Executive Officer of Meharry Medical College, a position he has held since January 2007. In addition, he holds the academic rank of Professor of Internal Medicine at both Meharry and Vanderbilt University Schools of Medicine. From May 2004 to December 2006, Dr. Riley served as a corporate officer and member of the executive management team as Vice President and Vice Dean for Health Affairs and Governmental Relations and Associate Professor of Medicine at Baylor College of Medicine, and Assistant Chief of Medicine at Ben Taub General Hospital, Baylor's primary adult public hospital teaching affiliate. He served as Assistant Dean for Education at Baylor College of Medicine from 2000 to 2004. Dr. Riley is a member of the Board of Directors of Pinnacle Financial Partners, Inc., a financial services holding firm, and HCA Holdings, Inc., a leading operator of hospitals and health facilities. Dr. Riley earned a B.A. from Yale University, an M.P.H. in health systems management from the Tulane University School of Public Health and Tropical Medicine, an M.D. from the Morehouse School of Medicine and an M.B.A. from the Jones Graduate School of Business, Rice University.

Mr. Sachs has been a member of our Board of Directors since 1998. He is a General Partner at Charles River Ventures, a venture capital firm he joined in 1999. From 1998 to 1999, he served as Executive Vice President and General Manager of Ascend Communications, Inc. From 1997 until 1998, Mr. Sachs served as President and Chief Executive Officer of Stratus Computer, Inc. From 1995 to 1997, he served as Executive Vice President and General Manager of the Internet Telecom Business Group at Bay Networks, Inc. From 1993 to 1995, he served as President and Chief Executive Officer at Xylogics, Inc. Mr. Sachs was a director of BigBand Networks, Inc., a network-based platform company, from 2005 through June 2009. Mr. Sachs holds a B.S.E.E. in electrical engineering from Bucknell

University, an M.E.E. in electrical engineering from Cornell University, and an M.B.A. from Northeastern University.

Ms. Ullian has been a member of our Board of Directors since 1997. From 1996 through January 2010, she served as President and Chief Executive Officer of Boston Medical Center, a private, not-for-profit, 626-bed, academic medical center with a community-based focus. From 1994 to 1996, she served as President and Chief Executive Officer of Boston University Medical Center Hospital. From 1987 to 1994, Ms. Ullian served as President and Chief Executive Officer of Faulkner Hospital. She also serves as a director of Thermo Fisher Scientific Inc. and Hologic, Inc. In addition, Ms. Ullian was a member of the Board of Directors of Valeant Pharmaceuticals, Inc. from 2005 through 2007. Ms. Ullian holds a B.A. in political science from Tufts University and an M.P.H. from the University of Michigan.

Mr. Winger has been a member of our Board of Directors since July 2009. Mr. Winger has over 30 years of experience as a financial executive, the majority of which has focused on the life sciences industry. He retired in 2008 from Applera Corporation, a life sciences company, where he had been Senior Vice President and Chief Financial Officer since 1997. He was previously Senior Vice President of Finance and Administration, and Chief Financial Officer at Chiron Corporation. Before joining Chiron, Mr. Winger held various financial executive positions, including Chief Financial Officer of The Cooper Companies, Inc. Mr. Winger is currently a director of Accuray Incorporated and Nektar Therapeutics. In addition, Mr. Winger was a member of the Board of Directors of Cell Genesys, Inc. until its merger with BioSante Pharmaceuticals in October 2009 and a member of the Board of Cephalon Inc. until its acquisition by Teva Pharmaceutical Industries Ltd. in October 2011. He holds an M.B.A. from Columbia University Graduate School of Business and he earned his undergraduate degree from Siena College.

Investing in our common stock involves a high degree of risk, and you should carefully consider the risks and uncertainties described below in addition to the other information included or incorporated by reference in this Annual Report on Form 10-K. If any of the following risks or uncertainties actually occurs, our business, financial condition or results of operations would likely suffer, possibly materially. In that case, the trading price of our common stock could decline.

We depend heavily on our revenues from sales of INCIVEK (telaprevir) in the United States, and our future revenues from INCIVEK are uncertain.

We obtained approval to sell INCIVEK (telaprevir) in the United States in May 2011. Prior to the launch of INCIVEK we had not sold or marketed a therapeutic product. As a result, a majority of our total revenues in 2011 were attributable to sales of INCIVEK in the United States. INCIVEK competes with VICTRELIS (boceprevir), a protease inhibitor that also was approved in 2011 and is being marketed by Merck & Co., Inc. We expect that, starting in late 2013, one or more additional competitive products currently in late-stage development for the treatment of HCV infection may become available. Our future revenues from sales of INCIVEK depend on numerous factors, including:

While INCIVEK has established a competitive commercial profile, we cannot accurately predict the amount of revenues INCIVEK will generate in future periods. If our revenues, market share and/or other indicators of market acceptance of INCIVEK do not meet the expectations of investors or public market analysts, the market price of our common stock would likely decline. In addition, if one or more of the factors above negatively affects INCIVEK sales, our business and financial condition could be materially harmed.

Janssen began marketing INCIVO (telaprevir) at the end of the third quarter of 2011, and we cannot predict the royalty revenues we will receive based on INCIVO sales by Janssen in its territories.

Janssen obtained approval to market INCIVO (telaprevir) from the European Commission in September 2011, and we earned $16.5 million in royalty revenues on net sales of INCIVO by Janssen in the fourth quarter of 2011. In addition to the factors that contribute to the uncertainty of sales of INCIVEK (telaprevir) by us in the United States discussed above, which apply equally to Janssen's sales in its territory, sales in Janssen's territory are dependent upon Janssen's sales and marketing efforts, which we do not control and may not be able to effectively influence, and the actions and decisions of foreign regulatory authorities. While we expect our royalty revenues on net sales of INCIVO to increase in future periods as compared to the fourth quarter of 2011, we cannot predict the royalty revenues that we will recognize in future periods from sales of INCIVO by Janssen or the timing of such revenues.

We cannot accurately predict future revenues from KALYDECO (ivacaftor), which will be dependent on, among other factors, our ability to obtain adequate reimbursement and whether or not we are able obtain additional regulatory approvals for KALYDECO.

We have obtained approval to market KALYDECO (ivacaftor) in the United States for the treatment of patients with CF six years of age and older with the G551D mutation in the CFTR gene, but have not yet obtained approval for KALYDECO in any other population or jurisdiction. We believe that the total number of patients with CF who have this mutation in the United States is approximately 1,200. KALYDECO was approved for marketing in January 2012, and we do not yet know how many patients with CF will receive treatment with KALYDECO or the adequacy of the extent of coverage, pricing and level of reimbursement from governmental agencies and third-party payors that will be available for KALYDECO.

Over the next several years our revenues from KALYDECO also will depend on our ability to obtain regulatory approval in Europe, Canada and Australia. We are seeking approval from the European Commission to market KALYDECO for the treatment of patients with CF six years of age and older with the G551D mutation in the CFTR gene and with certain other mutations in the CFTR gene that result in gating defects. There can be no assurance that ivacaftor will be approved by the European Commission or that the European Commission will not limit any such approval to patients with CF who have the G551D mutation in the CFTR gene.

We are planning to conduct several additional clinical trials to evaluate KALYDECO as a monotherapy in additional patient populations, including patients younger than six years of age with gating mutations and patients with other mutations in the CFTR gene, which may result in additional revenues if successful. These clinical trials are subject to many of the same risks and uncertainties as the clinical trials for our drug candidates. Even if these clinical trials are successful, we do not expect that we would obtain approval for the use of KALYDECO in additional populations until 2013 or later.

If our competitors bring drugs with superior product profiles to market, our drugs may not be competitive and our revenues could decline.

INCIVEK, KALYDECO and any drugs we develop in the future may not be able to compete effectively with drugs that are currently on the market or new drugs that may be developed by others. There are many other companies developing drugs for the same indications that we are pursuing. In order to compete successfully in these areas, we must demonstrate improved safety, efficacy and/or tolerability, and ease of manufacturing, and gain and maintain market acceptance over competing drugs that may receive regulatory approval before or after our products and drug candidates, and over those that currently are marketed. Many of our competitors, including major pharmaceutical companies such as Merck, Bristol-Myers Squibb, Gilead, Johnson & Johnson, Novartis, Pfizer, Abbott, Sanofi and Roche, possess substantially greater financial, technical and human resources than we possess.

In addition to the initial competition from Merck's VICTRELIS, we are aware of a number of companies that are developing new treatments for HCV infection including HCV protease inhibitors, HCV nucleotide analogues, non-nucleoside HCV polymerase inhibitors, HCV NS5A inhibitors and advanced interferons. Although drug development is a lengthy process and involves a high degree of risk, we expect that over the next several years one or more of these competitive HCV drug candidates may be approved for marketing in the United States and elsewhere in the world. As a result, the longer-term commercial prospects for INCIVEK and VX-222, ALS-2200 and ALS-2158, if approved, will depend on, among other factors:

It is possible that one or more competing therapies for the treatment of HCV infection could be developed with a better efficacy, safety and/or tolerability profile than our telaprevir-based treatment regimens, which would negatively affect INCIVEK and INCIVO sales and could negatively affect our business and financial condition.

If we discover safety issues with our products that were not known at the time of approval or if we fail to comply with continuing United States and applicable foreign regulations, commercialization efforts for our products could be negatively affected, approved products could lose their approval or sales could be suspended, and our business could be materially harmed.

Our products are subject to continuing regulatory oversight, including the review of additional safety information. Drugs are more widely used by patients once approval has been obtained and therefore side-effects and other problems may be observed after approval that were not seen or anticipated, or were not as prevalent or severe, during pre-approval clinical trials or nonclinical studies. The subsequent discovery of previously unknown problems with a product could negatively affect commercial sales of the product, result in restrictions on the product or lead to the withdrawal of the product from the market. The reporting of adverse safety events involving our products or public speculation about such events could cause our stock price to decline or experience periods of volatility.

If we or our collaborators fail to comply with applicable continuing regulatory requirements, we or our collaborators may be subject to fines, suspension or withdrawal of regulatory approvals for specific drugs, product recalls and seizures, operating restrictions and/or criminal prosecutions. In addition, the

manufacturers we engage to make our products and the manufacturing facilities in which our products are made are subject to periodic review and inspection by the FDA and foreign regulatory authorities. If problems are identified during the review or inspection of these manufacturers or manufacturing facilities, it could result in our inability to use the facility to make our product or a determination that inventories are not safe for commercial sale.

If physicians, patients and third-party payors do not accept our drugs, we may be unable to generate significant revenues in future periods.

Our drugs may not gain or maintain market acceptance among physicians and patients. Effectively marketing INCIVEK and KALYDECO, and any of our other drug candidates, if approved, requires substantial efforts, both prior to launch and after approval. Physicians may elect not to prescribe our drugs, and patients may elect not to request or take them, for a variety of reasons including:

If our drugs fail to achieve and maintain market acceptance, we will not be able to generate significant revenues in future periods.

Government and other third-party payors seek to contain costs of health care through legislative and other means. If they fail to provide coverage and adequate reimbursement rates for our products, our revenues will be harmed.

In both domestic and foreign markets, our sales of products depends in part upon the availability of reimbursement from third-party payors. Third-party payors include government health programs such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. Governments and other third-party payors seek to contain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control. The recently enacted ACA will require discounts under the Medicare drug benefit program and increases the rebates paid by pharmaceutical companies on drugs covered by Medicaid. In addition, the ACA imposes an annual fee, which will increase annually, on sales by branded pharmaceutical manufacturers. The financial impact of these discounts, increased rebates and fees and the other provisions of the ACA on our business is unclear, and there can be no assurance that our business will not be materially harmed by future implementation of the ACA.

In addition, third-party payors are increasingly attempting to contain health care costs by demanding price discounts or rebates and limiting both the types and variety of drugs that they will cover and the amounts that they will pay for drugs. As a result, they may not cover or provide adequate payment for our products. We might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our drugs or any other future drugs to such payors' satisfaction.

Such studies might require us to commit a significant amount of management's time and financial and other resources. Our products might not ultimately be considered cost-effective. Adequate third-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that already are reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare or Medicaid data used to calculate these rates. Net prices for products are reduced by mandatory discounts or rebates required by government health care programs and privately-negotiated discounts. While we have implemented policies in an effort to comply with mandated reimbursement rates, the United States federal government, state governments and private payors frequently pursue actions against pharmaceutical and biotechnology companies alleging that the companies have overstated prices in order to inflate reimbursement rates. Any such action could adversely affect the pricing of and the commercial success of our products.

Any legislation or regulatory changes or relaxation of laws that restrict imports of drugs from other countries also could reduce the net price we receive for our products.

If we market any of our products in a manner that violates federal or state health care laws, including fraud and abuse laws, laws prohibiting off-label promotion, disclosure laws or other similar laws, we may be subject to civil or criminal penalties.

We are subject to health care "fraud and abuse" laws, such as the federal False Claims Act and the anti-kickback provisions of the federal Social Security Act, laws prohibiting off-label product promotion and other similar state and federal laws and regulations. While we have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance, if we are found not to be in full compliance with these laws our business could be materially harmed.

The federal anti-kickback law prohibits knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the ordering, furnishing, arranging for or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program, such as Medicare or Medicaid. The federal statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, patients, purchasers and formulary managers on the other hand, and therefore constrains our marketing practices and our various service arrangements with physicians, including physicians who make clinical decisions to use our products. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing, or recommending may be subject to scrutiny or penalty if they do not qualify for an exemption or safe harbor.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in promotion for uses that the FDA has not approved, known as "off-label" uses, that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated "best price" information to the Medicaid Rebate Program.

Although physicians are permitted to, based on their medical judgment, prescribe products for indications other than those cleared or approved by the FDA, manufacturers are prohibited from promoting their products for such off-label uses. We market INCIVEK for adults with genotype 1 HCV infection and KALYDECO for patients six years of age or older with CF who have the G551D mutation in the CFTR gene, and provide promotional materials and training programs to physicians regarding the use of INCIVEK and KALYDECO in these patient populations. If the FDA determines that our promotional materials, training or other activities constitute off-label promotion, it could request that we modify our training or promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It also is possible that other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to the submission and payment of claims for an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we were not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our actions and have to divert significant management resources from other matters.

Also applicable to some of our practices is HIPAA and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information.

The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. In addition, certain states have laws governing the privacy of certain health information, which may differ from each other in significant ways and often are not preempted by HIPAA, complicating compliance efforts. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a pharmaceutical manufacturer's products from reimbursement under government programs and criminal fines. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business.

In recent years, several states and localities, including California, the District of Columbia, Maine, Minnesota, Nevada, New Mexico, Vermont and West Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, HCP payments and other activities. Similar legislation is being considered in other states. Additionally, as part of the ACA, the federal government has enacted the Physician Payment Sunshine provisions. The Physician Payment Sunshine provisions will require pharmaceutical manufacturers to publicly report gifts and payments made to physicians and teaching hospitals. On December 14, 2011, CMS published a proposed rule and postponed the statute's January 1, 2012 start date for pharmaceutical manufacturers to collect data to be used in fulfilling their reporting requirements. When the final rules are issued, many of these requirements will be new and uncertain, and the penalties for failure to comply with these requirements will be significant. If we are found not to be in full compliance with these laws, we could face enforcement action, fines and other penalties, and could receive adverse publicity.

The ACA also includes various provisions designed to strengthen significantly fraud and abuse enforcement, such as increased funding for enforcement efforts and the lowering of the intent requirement of the federal anti-kickback statute and criminal health care fraud statute such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.

If our past or present operations are found to be in violation of any such laws or any other governmental regulations that may apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal health care programs and/or the curtailment or restructuring of our operations. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business.

The sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government agencies, and we believe that this trend will continue. We have in place policies to govern how we may retain health care professionals as consultants that reflect the current climate on this issue and are providing training on these policies. Any action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business.

Future health care reform measures could hinder or prevent commercial success of our drugs and drug candidates.

The United States federal government and other governments have shown significant interest in pursuing health care reform. Any government-adopted reform measures could adversely affect the pricing of health care products, including our approved products and/or any future drug candidates approved for sale. The continuing efforts of governments, insurance companies, managed care organizations and other payors for health care products to contain or reduce health care costs may adversely affect our ability to set prices we believe are fair for our products or any drugs we may develop and commercialize.

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, relating to health care availability, methods of delivery or payment for drugs, or sales, marketing or pricing, may limit our potential revenues, and we may need to revise our research and development or commercialization programs. The pricing and reimbursement environment may change in the future and become more challenging for any of several reasons, including policies advanced by the U.S. government, new health care legislation or fiscal challenges faced by government health administration authorities. Specifically, in the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that could affect our ability to sell products. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our current or future products, which would adversely affect our business, operations and financial results. As discussed above, the recently enacted ACA may have far reaching consequences for biopharmaceutical companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for health care in the United States, including changes made in order to extend medical benefits to those who currently lack health insurance coverage. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursement. If reimbursement for our products is substantially less than we expect in the future, or rebate obligations associated with them are substantially increased, our business could be materially and adversely affected.

Further federal and state proposals and health care reforms in and outside of the United States could limit the prices that can be charged for our products and may further limit our commercial opportunity. Our results of operations could be materially adversely affected by the ACA, by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts that private insurers will pay and by other health care reforms that may be enacted or adopted in the future.

Risks Related to Development, Clinical Testing and Regulation of our Products and
Drug Candidates

Our drug candidates remain subject to clinical testing and regulatory approval. If we are unable to successfully develop and test our drug candidates, we will not be successful.

In addition to the successful commercialization of INCIVEK and KALYDECO, our business depends upon the successful development and commercialization of additional drug candidates. Our drug candidates are in various stages of development and must satisfy rigorous standards of safety and efficacy before they can be approved by the FDA or comparable foreign regulatory authorities for sale. To satisfy these standards, we must allocate resources among our various development programs and must engage in expensive and lengthy testing of our drug candidates. Discovery and development efforts for new pharmaceutical products, including new combination therapies, are resource-intensive and may take 10 to 15 years or longer for each drug candidate. Despite our efforts, our drug candidates may not:

We have ongoing or planned Phase 2 clinical trials for a number of our drug candidates. The strength of our company's pipeline of drug candidates, including drug candidates that could potentially be complementary to INCIVEK (telaprevir) and/or KALYDECO (ivacaftor), will depend in large part upon the outcomes of these Phase 2 clinical trials. Findings, including toxicology findings, in nonclinical studies conducted concurrently with clinical trials as well as results of our clinical trials could lead to abrupt changes in our development activities, including the possible cessation of development activities associated with a particular drug candidate or program. Furthermore, results from our clinical trials may not meet the level of statistical significance required by the FDA or other regulatory authorities for approval of a drug candidate.

We and many other companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials even after achieving promising results in earlier-stage clinical trials. Accordingly, the results from the completed preclinical studies and clinical trials may not be replicated in later clinical trials, and ongoing clinical trials for our drug candidates may not be predictive of the results we may obtain in later-stage clinical trials or of the likelihood of approval of a drug candidate for commercial sale. In addition, from time to time we and our competitors report interim data from our clinical trials, including, with respect to our HCV drug candidates, data regarding patients' HCV RNA levels during treatment or at the completion of treatment. Interim data from a clinical trial, and in particular interim on-treatment data, may not be predictive of final results from the clinical trial.

If we are unable to obtain regulatory approval, we will be unable to commercialize our drug candidates.

Our drug candidates are subject to extensive governmental regulations relating to their development, clinical evaluation, manufacturing and commercialization. Rigorous nonclinical testing and clinical trials and an extensive regulatory approval process are required in the United States and in most other countries prior to the commercial sale of drug candidates. Satisfaction of these and other regulatory requirements is costly, time-consuming, uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we are developing will be approved for marketing.

The time required to complete clinical trials and to satisfy the FDA and other countries' regulatory review processes is uncertain and typically takes many years. Our analysis of data obtained from nonclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We also may encounter unanticipated delays or increased costs due to government regulation from future legislation or administrative action or changes in governmental policy during the period of drug development, clinical trials and governmental regulatory review.

Any failure to obtain regulatory approvals for a drug candidate would prevent us from commercializing that drug candidate. Any delay in obtaining required regulatory approvals could materially adversely affect our ability to successfully commercialize a drug candidate. Furthermore, any regulatory approval to market a drug may be subject to limitations that we do not expect on the indicated uses for which we may market the drug. Any such limitations could reduce the size of the market for the drug.

We also are subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval process described above, as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval by regulatory authorities outside the United States and approval by a foreign regulatory authority does not ensure approval by the FDA. In addition, the FDA may not favorably consider data from clinical trials conducted in foreign jurisdictions. Foreign jurisdictions have different approval procedures than those required by the FDA and may impose additional testing requirements for our drug candidates.

If clinical trials for a drug candidate are prolonged or delayed, our development timelines for the affected drug candidate could be extended, our costs to develop the drug candidate could increase and the competitive position of the drug candidate could be adversely affected.

We cannot predict whether or not we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from our completed or ongoing clinical trials. Any of the following could delay the clinical development of our drug candidates:

Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis is subject to a number of factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, the number of other clinical trials ongoing and competing for patients in the same indication and the eligibility criteria for the clinical trial. In addition, patients may drop out of our clinical trials or may be lost to follow-up medical evaluation after treatment ends, and this could impair the validity or statistical significance of the trials. Delays in patient enrollment or unforeseen drop-out rates may result in increased costs and longer development times.

We, our collaborators, the FDA or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time if we or they believe the healthy volunteers or patients participating in such clinical trials are being exposed to unacceptable health risks or for other reasons. Any such suspension could materially adversely affect the development of a particular drug candidate and our business.

We may not successfully develop VX-222 and/or either of the HCV nucleotide analogues we license from Alios and, as a result, we could be subject to significant impairment charges in future periods.

In March 2009, we acquired ViroChem Pharma Inc., or ViroChem, for $100.0 million in cash and 10.7 million shares of our common stock. We acquired ViroChem primarily in order to secure rights to two non-nucleoside HCV polymerase inhibitors, VX-222 and VX-759, as part of our strategy to pursue drug candidates that could potentially be developed in combination with INCIVEK and/or our earlier-stage drug candidates. At the time of acquisition, we allocated $525.9 million to intangible assets related to the in-process research and development associated with the ViroChem drug candidates. In the third quarter of 2011, we determined that the fair value of VX-759 was zero dollars, which resulted in a $105.8 million impairment charge in the third quarter of 2011. In 2011, we licensed two HCV nucleotide analogues, ALS-2200 and ALS-2158, from Alios and recorded $250.6 million as an intangible asset on our consolidated balance sheet. As of December 31, 2011, our consolidated balance sheet included intangible assets of $412.9 million related to VX-222 and $250.6 million related to ALS-2200 and ALS-2158.

While we believe the data from the clinical trials and nonclinical studies to date support the continued development of VX-222, ALS-2200 and ALS-2158 for the treatment of HCV infection, there are numerous reasons why we may not be able to successfully develop a combination therapy for the treatment of HCV infection that includes VX-222, ALS-2200, ALS-2158 or a combination of any of them, including:

There can be no assurance that we will be able to successfully develop VX-222, ALS-2200 or ALS-2158 alone or in combination, and if we do not successfully develop these drug candidates we will incur additional impairment charges in future periods related to VX-222 or the HCV nucleotide

analogues licensed from Alios. If we incur a significant impairment charge, the value of our common stock could decrease.

If our processes and systems are not compliant with regulatory requirements, we could be subject to restrictions on marketing our drugs or could be delayed in submitting regulatory filings seeking approvals for our drug candidates.

We have a number of regulated processes and systems that are required to obtain and maintain regulatory approval for our drugs and drug candidates. These processes and systems are subject to continual review and periodic inspection by the FDA and other regulatory bodies. If compliance issues are identified at any point in the development and approval process, we may experience delays in filing for regulatory approval for our drug candidates, or delays in obtaining regulatory approval after filing. Any later discovery of previously unknown problems or safety issues with approved drugs or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such drugs or manufacturing processes, withdrawal of drugs from the market, the imposition of civil or criminal penalties or a refusal by the FDA and/or other regulatory bodies to approve pending applications for marketing approval of new drugs or supplements to approved applications, any of which could have a material adverse effect on our business. In addition, we are a party to agreements that transfer responsibility for complying with specified regulatory requirements, such as filing and maintenance of marketing authorizations and safety reporting or compliance with manufacturing requirements, to our collaborators and third-party manufacturers. If our collaborators or third-party manufacturers do not fulfill these regulatory obligations, any drugs for which we or they obtain approval may be subject to later restrictions on manufacturing or sale, which could have a material adverse effect on our business.

We depend on our collaborators to work with us to develop, manufacture and commercialize our products and some of our drug candidates.

We have granted development and commercialization rights for telaprevir to Janssen (worldwide other than North America and Far East) and to Mitsubishi Tanabe (Far East). We are entitled to royalties from any sales of INCIVO (telaprevir) in Janssen's territories. The success of the commercialization of INCIVO in Janssen's territories is dependent upon Janssen's sales and marketing efforts, which we do not control and may not be able to effectively influence. If Janssen does not effectively commercialize INCIVO, our anticipated cash flows from royalties on net sales of INCIVO would be materially harmed. We also in-license ALS-2200 and ALS-2158 from Alios and any loss of this license could materially harm our efforts to develop an all-oral, interferon-free treatment regimen for HCV infection.

The risks that we face in connection with these existing and any future collaborations include the following:

We depend on third-party manufacturers, including sole source suppliers, to manufacture our products and the materials we require for our clinical trials. We may not be able to maintain these relationships and could experience supply disruptions outside of our control.

We rely on a worldwide network of third-party manufacturers to manufacture and distribute INCIVEK (telaprevir) and KALYDECO (ivacaftor) for commercial sale and post-approval clinical trials, and our drug candidates for clinical trials. As a result of our reliance on these third-party manufacturers and suppliers, including sole source suppliers of certain components of our products and drug candidates, we could be subject to significant supply disruptions outside of our control. Our supply chain for sourcing raw materials and manufacturing drug product ready for distribution is a multi-step international endeavor. Third-party contract manufacturers, including some in China, supply us with raw materials, and contract manufacturers in the European Union and the United States convert these raw materials into drug substance and convert the drug substance into final dosage form. Establishing and managing this global supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party contractual relationships. Although we attempt to effectively manage the business relationships with companies in our supply chain, we do not have control over their operations.

We require a supply of INCIVEK for sale in North America. We believe there are multiple third parties capable of providing most of the materials and services we need in order to manufacture and distribute INCIVEK. It is also possible that supply of materials that can not be second-sourced can be managed with inventory planning. If we underestimate demand, our manufacturing capacity through third-party manufacturers may not be sufficient. Also, while we believe we can effectively forecast demand for INCIVEK, we have limited flexibility to adjust our supply in response to changes in demand, due to the significant lead times required to manufacture INCIVEK.

We require a supply of KALYDECO in the United States, and we will require a supply of ivacaftor for sale in international markets if we obtain marketing approvals outside of the United States. We are in the process of establishing secondary sources for our KALYDECO supply needs. Holders of market exclusivity for orphan drugs such as KALYDECO are expected to assure the availability of sufficient quantities of their orphan drugs to meet the needs of patients.

Supply disruptions may result from a number of factors, including shortages in product raw materials, labor or technical difficulties, regulatory inspections or restrictions, shipping or customs delays or any other performance failure by any third-party manufacturer on which we rely. Any supply disruptions could disrupt sales of our products and/or the timing of our clinical trials. Furthermore, we may be required to modify our production methods to permit us to economically manufacture our drugs for sale and our drug candidates for clinical trials. These modifications may require us to re-evaluate our resources and the resources of our third-party manufacturers, which could result in abrupt changes in our production methods and supplies.

In the course of providing its services, a contract manufacturer may develop process technology related to the manufacture of our products or drug candidates that the manufacturer owns, either independently or jointly with us. This would increase our reliance on that manufacturer or require us to

obtain a license from that manufacturer in order to have our products or drug candidates manufactured by other suppliers utilizing the same process.

We may not be able to attract collaborators for the development and commercialization of our drug candidates.

As part of our ongoing strategy, we may seek additional collaborative arrangements. We have a number of research programs and early-stage and mid-stage clinical development programs. At any time, we may determine that in order to continue development of a drug candidate or program or successfully commercialize a drug we need to identify a collaborator. Potentially, and depending on the circumstances, we may desire that a collaborator either agree to fund portions of a drug development program led by us, or agree to provide all the funding and directly lead the development and commercialization of a program. No assurance can be given that any efforts we make to seek additional collaborative arrangements will be successfully completed on a timely basis or at all. If we are unable to enter into acceptable collaborative relationships, one or more of our development programs could be delayed or terminated and the possibility of our receiving a return on our investment in the program could be impaired.

We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such trials or regulatory requirements.

We rely on third parties such as contract research organizations to help manage our clinical trial process and on medical institutions and clinical investigators to enroll qualified patients and conduct our clinical trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. Accordingly, these third-party contractors may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial. If clinical trials are not conducted in accordance with our contractual expectations or regulatory requirements, action by regulatory authorities might significantly and adversely affect the conduct or progress of these trials or in specific circumstances might result in a requirement that a trial be redone. Accordingly, our efforts to obtain regulatory approvals for and commercialize our drug candidates could be delayed.

If our patents do not protect our drugs, or our drugs infringe third-party patents, we could be subject to litigation and substantial liabilities.

We have numerous issued patents and patent applications pending in the United States, as well as counterparts in other countries. Our success will depend, in significant part, on our ability to obtain and maintain United States and foreign patent protection for our drugs, their uses and our processes, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. In particular, we believe that composition-of-matter claims are the most significant patent claims for companies in our segment of the pharmaceutical industry that focus on small molecule drug candidates that are new chemical compounds. While we have patents or patent applications with composition-of-matter claims for each of our products and clinical drug candidates, only a portion of these patents have been granted. We cannot be certain that any patents will issue from our patent applications or, even if patents issue or have issued, that the issued claims will provide us with any significant protection against competitive products or otherwise be valuable commercially.

Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to

maintain, obtain and enforce patents is uncertain and involves complex legal and factual questions. U.S. and foreign patent applications typically are maintained in confidence for a period of time after they initially are filed with the applicable patent office. Similarly, publication of discoveries in the scientific literature often lag behind actual discoveries. Consequently, we cannot be certain that we or our licensors were the first to invent, or the first to file patent applications on, our products or drug candidates or their use. If a third party also has filed a U.S. patent application relating to our products or drug candidates or a similar invention, we may have to participate in interference proceedings to determine priority of invention and could lose our patent position. Furthermore, we may not have identified all U.S. and foreign patents or published applications that affect our business by blocking our ability to commercialize our drugs or drug candidates.

Our patents may be challenged by third parties, resulting in the patent being deemed invalid, unenforceable or narrowed in scope, or the third party may circumvent any such issued patents. Also, our pending patent applications may not issue, and we may not receive any additional patents. Our patents might not contain claims that are sufficiently broad to prevent others from utilizing our technologies. For instance, the issued patents relating to our products or drug candidates may be limited to a particular molecule or molecules and may not cover similar molecules that have similar clinical properties. Consequently, our competitors may independently develop competing products that do not infringe our patents or other intellectual property.

The laws of many foreign jurisdictions do not protect intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business could be substantially harmed.

Because of the extensive time required for development, testing and regulatory review of a drug candidate, it is possible that, before any of our drug candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization of our drug candidates, thereby reducing any advantages of the patent. To the extent our drug candidates are not commercialized significantly ahead of the expiration date of any applicable patent, or to the extent we have no other patent protection on such drug candidates, those drug candidates would not be protected by patents, and we would then rely solely on other forms of exclusivity, such as regulatory exclusivity provided by the FDCA.

Our business has a substantial risk of product liability claims. If we are unable to obtain appropriate levels of insurance, product liability claims could adversely affect our business.

Our business exposes us to significant potential product liability risks that are inherent in the development, clinical testing, manufacturing and sales and marketing of human therapeutic products. We have product liability insurance and clinical trial insurance in amounts that we believe are adequate to cover this risk. However, our insurance may not provide adequate coverage against potential liabilities. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as pay uncovered damages awards resulting from a claim brought successfully against us and these damages could be significant and have a material adverse effect on our financial condition. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct significant financial and managerial resources to such defense, and adverse publicity is likely to result.

Risks associated with operating in foreign countries could materially adversely affect our business.

We have expanded our operations in Canada in order to market INCIVEK (telaprevir) and ivacaftor, if approved, in that country, and in Europe in order to market ivacaftor internationally, if approved. A significant portion of our commercial supply chain, including sourcing of raw materials and manufacturing, is located in China, Japan and the European Union. Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in foreign countries include:

These and other risks associated with our international operations could materially adversely affect our business.

In addition, our international operations are subject to regulation under United States law. For example, the Foreign Corrupt Practices Act prohibits United States companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official for purposes of the Foreign Corrupt Practices Act. We also are subject to import/export control laws. Failure to comply with domestic or foreign laws could result in various adverse consequences, including the possible delay in approval or refusal to approve a product, recalls, seizures, withdrawal of an approved product from the market, the imposition of civil or criminal sanctions, the prosecution of executives overseeing our international operations and corresponding bad publicity and negative perception of our company in foreign countries.

If we acquire or license technologies, resources or drug candidates, we will incur a variety of costs and may never realize benefits from the transaction.

If appropriate opportunities become available, we might license or acquire technologies, resources, drugs or drug candidates. We might never realize the anticipated benefits of such a transaction or we may later incur impairment charges related to assets acquired in any such transaction. In particular, due to the risks inherent in drug development, we may not successfully develop or obtain marketing approval for the drug candidates we acquire. For example, we incurred a $105.8 million impairment charge in the third quarter of 2011 in connection with VX-759, which we obtained through our 2009 acquisition of ViroChem. Future licenses or acquisitions could result in potentially dilutive issuances of

equity securities, the incurrence of debt, the creation of contingent liabilities, impairment expenses related to goodwill, and impairment or amortization expenses related to other intangible assets, which could harm our financial condition.

The number of our employees increased by approximately 18% in each of 2011 and 2010, and we expect to experience additional growth in 2012. Because our drug discovery and development activities are highly technical in nature, we require the services of highly qualified and trained scientists who have the skills necessary to conduct these activities. In addition, we need to attract and retain employees with experience in marketing and commercialization of medicines. We are planning to move from Cambridge, Massachusetts to Boston, Massachusetts, and this move must be managed successfully to avoid disruption to our business. While we do not expect the move to result in significant turnover, we cannot be sure that we will be able to retain all our key scientific, commercial and management employees. We face intense competition for our personnel from our competitors and other companies throughout our industry. Moreover, the growth of local biotechnology companies and the expansion of major pharmaceutical companies into the Boston area have increased competition for the available pool of skilled employees, especially in technical fields, and the high cost of living in the Boston and San Diego areas makes it difficult to attract employees from other parts of the country to these areas. Our ability to commercialize our products, and achieve our research and development objectives, depends on our ability to respond effectively to these demands and expand our internal organization to accommodate anticipated growth. If we are unable to hire qualified personnel or manage our growth effectively, there could be a material adverse effect on our business.

The loss of the services of key employees or the failure to effectively integrate key employees could negatively affect our business and future growth.

Our future success will depend in large part on our ability to retain the services of our key scientific and management personnel and to integrate new scientific and management personnel into our business. A loss of key personnel or a failure to properly integrate new personnel could be disruptive. We have entered into employment agreements with some executives and provide compensation-related benefits to all of our key employees that vest over time and therefore induce them to remain with us. However, the employment agreements can be terminated by the executive on relatively short notice. The value to employees of stock-related benefits that vest over time—such as options and restricted stock—is significantly affected by movements in our stock price, and may at any point in time be insufficient to counteract more lucrative offers from other companies. A failure to retain, as well as hire, train and effectively integrate into our organization a sufficient number of qualified scientists, professionals, sales personnel and senior management would negatively affect our business and our ability to grow our business.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development efforts involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state, federal and foreign regulations, the risk of accidental contamination or injury from these materials can not be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We also are subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Although we maintain workers' compensation insurance to cover us for costs we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We maintain insurance to cover

pollution conditions or other extraordinary or unanticipated events relating to our use and disposal of hazardous materials that we believe is appropriate based on the small amount of hazardous materials we generate. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Risks Related to Holding Our Common Stock and Potential Financing Activities

Market prices for securities of companies such as ours are highly volatile. From January 1, 2010 to December 31, 2011, our common stock traded between $26.50 and $58.87 per share. The market for our stock, like that of other companies in the pharmaceuticals industry, has from time to time experienced significant price and volume fluctuations. The future market price of our securities could be significantly and adversely affected by factors such as:

Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Factors that have caused quarterly fluctuations in the past include variable amounts of product revenues and collaboration revenues, impairment charges and changes in the fair value of derivative instruments. We cannot accurately predict our future revenues from our products and our revenues from our products could vary on a quarterly basis. Our revenues from our products, and in particular INCIVEK (telaprevir), may be affected by, among other factors, seasonality and the timing of orders from our significant distributors. Our quarterly results also could be significantly affected by any future impairment charges we take with respect to intangible assets and changes in the fair value of contingent milestone and royalty payments pursuant to our collaboration agreement with Alios. Most of our operating expenses relate to our research and development activities, do not vary directly with the amount of revenues and are difficult to adjust in the short term. As a result, if revenues in a particular quarter are below expectations, we are unlikely to proportionately reduce operating expenses for that quarter.

These examples are only illustrative and other risks, including those discussed in these "Risk Factors," could also cause fluctuations in our reported financial results. Our operating results during any one period do not necessarily suggest the results of future periods.

We expect that results from our clinical development activities and the clinical development activities of our competitors will continue to be released periodically, and may result in significant volatility in the price of our common stock.

Any new information regarding our products and drug candidates or competitive products or potentially competitive drug candidates, and in particular any new information regarding INCIVEK and competitive HCV products or potentially competitive HCV drug candidates, can substantially affect investors' perceptions regarding our future prospects. We, our collaborators and our competitors periodically provide updates regarding drug development programs, typically through press releases, conference calls and presentations at medical conferences. These periodic updates often include interim or final results from clinical trials conducted by us or our competitors and/or information about our or our competitors' expectations regarding regulatory filings and submissions as well as future clinical development of our products or drug candidates, competitive products or potentially competitive drug candidates. The timing of the release of information by us regarding our drug development programs is often beyond our control and is influenced by the timing of receipt of data from our clinical trials and by the general preference among pharmaceutical companies to disclose clinical data during medical conferences. In addition, the information that we and our competitors disclose about these trials may be based on interim rather than final data that may involve interpretation difficulties and may in any event not accurately predict final results.

Although we do not have any plans to do so in the near term, we may in the future need to raise additional capital. Any potential public offering or private placement may or may not be similar to the transactions that we have completed in the past. Any debt financing may be on terms that, among other things, include conversion features that could result in dilution to our then-existing security holders and restrict our ability to pay interest and dividends—although we do not intend to pay dividends for the foreseeable future. Any equity financings would result in dilution to our then-existing security holders. If adequate funds are not available on acceptable terms, or at all, we may be required to curtail significantly or discontinue one or more of our research, drug discovery or development programs, including clinical trials, incur significant cash exit costs, or attempt to obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, drugs or drug candidates. Based on many factors, including general economic conditions, additional financing may not be available on acceptable terms, if at all.

Outstanding indebtedness may make it more difficult to obtain additional financing or reduce our flexibility to act in our best interests.

We are obligated to repay an aggregate of $400.0 million for our convertible senior subordinated notes due 2015, or 2015 Notes, no later than October 1, 2015. We also are obligated to make semi-annual interest payments on the outstanding principal amount of the 2015 Notes. We may issue additional convertible debt or incur other types of indebtedness in the future. The level of our indebtedness could affect us by:

Issuances of additional shares of our common stock could cause the price of our common stock to decline.

As of December 31, 2011, we had 209.3 million shares of common stock issued and outstanding. As of December 31, 2011, we also had outstanding options to purchase 20.9 million shares of common stock with a weighted-average exercise price of $34.23 per share and 8.2 million shares of common stock issuable upon conversion of our 2015 Notes, at a conversion price of approximately $48.83 per share. Outstanding vested options are likely to be exercised if the market price of our common stock exceeds the applicable exercise price, and, in the future, we expect to issue additional options and restricted stock to employees. In addition, we may issue additional common stock or restricted securities in the future as part of financing activities or business development activities and any such issuances may have a dilutive effect on existing shareholders. Sales of substantial amounts of our common stock in the open market, or the availability of such shares for sale, could adversely affect the price of our common stock. In addition, the issuance of restricted common stock or common stock upon exercise of any outstanding options would be dilutive, and may cause the market price for a share of our common stock to decline.

We have adopted anti-takeover provisions and are subject to Massachusetts corporate laws that may frustrate any attempt to remove or replace our current management or effectuate a business combination involving Vertex.

Our corporate charter and by-law provisions and Massachusetts state laws may discourage certain types of transactions involving an actual or potential change of control of Vertex that might be beneficial to us or our security holders. Our charter provides for staggered terms for the members of the Board of Directors. Our by-laws grant the directors a right to adjourn annual meetings of shareholders, and certain provisions of our by-laws may be amended only with an 80% shareholder vote. We may issue shares of any class or series of preferred stock in the future without shareholder approval and upon such terms as our Board of Directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any class or series of preferred stock that may be issued in the future. Massachusetts state law prohibits us from engaging in specified business combinations, unless the combination is approved or consummated in a prescribed manner, and prohibits voting by any shareholder who acquires 20% or more of our voting stock without shareholder approval. As a result, shareholders or other parties may find it more difficult to remove or replace our current management.

This Annual Report on Form 10-K and, in particular, the description of our Business set forth in Item 1, the Risk Factors set forth in this Item 1A and our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding:

Any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many factors mentioned in this Annual Report on Form 10-K will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results. We also provide a cautionary discussion of risks and uncertainties under "Risk Factors" above in this Item 1A. These are factors and uncertainties that we think could cause our actual results to differ materially from expected results. Other factors and uncertainties besides those listed there could also adversely affect us.

Without limiting the foregoing, the words "believes," "anticipates," "plans," "intends," "expects" and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors and uncertainties set forth under "Risk Factors" above in this Item 1A. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

We did not receive any written comments from the Securities and Exchange Commission prior to the date 180 days before the end of the fiscal year ended December 31, 2011 regarding our filings under the Securities Exchange Act of 1934, as amended, that have not been resolved.

We lease an aggregate of approximately 1.1 million square feet of laboratory and office space in facilities located in Massachusetts, California, Washington, DC, Iowa, Canada, Switzerland and the United Kingdom. We believe our facilities are adequate for our current needs.

We lease an aggregate of 870,000 square feet of space in eleven facilities situated in close proximity to our corporate headquarters located at 130 Waverly Street in Cambridge, Massachusetts. We lease approximately 100,000 square feet of laboratory and office space for our 130 Waverly Street corporate headquarters and approximately 192,000 square feet of laboratory and office space at 200 Sidney Street, located adjacent to our corporate headquarters. The 130 Waverly Street and 200 Sidney Street leases expire on December 31, 2015, with two options to extend for additional consecutive five-year terms, and an option to terminate the lease in December 2013, subject to certain advance notice provisions. We sublease approximately 145,000 square feet at 88 Sidney Street, Cambridge, Massachusetts, as subtenant to Alkermes, Inc. who is the prime tenant in the building; this lease expires in June 2012. Vertex has entered into a master lease with the landlord for 88 Sidney Street that commences in June 2012 and expires in June 2014. We also lease approximately 56,000 square feet of office space at One Marina Park Drive, Boston, Massachusetts. This is a five year lease with one option to extend for either five or ten years.

The lease for our Kendall Square, Cambridge, Massachusetts facility will expire in 2018. We have the option to extend this lease for two consecutive ten-year terms. We have subleased approximately 145,000 square feet of the Kendall Square facility, and are using the remaining square feet of space we lease in the facility for our research operations. The subleases are for terms ending in 2015, with one sublease having an extension option to 2018.

We are planning to consolidate our headquarters operations in Massachusetts into one campus in Boston, Massachusetts. In May 2011, we entered into two leases pursuant to which we agreed to lease approximately 1.1 million square feet of office and laboratory space in two buildings being built in Boston, Massachusetts. We expect that the leases will commence upon completion of the buildings, scheduled for late 2013, and will extend for 15 years from the commencement date. We have an option to extend the term of the leases for an additional ten years.

We lease approximately 81,000 square feet of laboratory and office space in San Diego, California. The lease for this space will expire in September 2013.

We lease approximately 63,000 square feet of laboratory and office space in Montreal, Canada. The lease for this space will expire in April 2016.

We lease approximately 22,000 square feet of laboratory and office space in Milton Park, Abingdon, England, for our United Kingdom business and research and development activities, under a lease expiring in 2013. We lease an additional 41,000 square feet of laboratory and office space in Milton Park under a lease with a term that expires in 2024. This lease has certain termination provisions in 2014 and 2019.

We are not a party to any material legal proceedings. We are not a party to any litigation in any court with any governmental authority, and management is not aware of any contemplated proceeding by any governmental authority against us.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Select Market under the symbol "VRTX." The following table sets forth for the periods indicated the high and low sale prices per share of our common stock as reported by NASDAQ Stock Market LLC:

CUMULATIVE TOTAL RETURN
Based on Initial Investment of $100 on December 31, 2006
with dividends reinvested (fiscal years ended December 31)

We have never declared or paid any cash dividends on our common stock, and we currently expect that any future earnings will be retained for use in our business. Additionally, the credit agreement we entered into in January 2011 restricts our ability to declare or pay dividends in certain circumstances.

The table set forth below shows all repurchases of securities by us during the three months ended December 31, 2011:

The repurchases were made under the terms of our Amended and Restated 2006 Stock and Option Plan. Under this plan, we award shares of restricted stock to our employees that typically are subject to a lapsing right of repurchase by us. We may exercise this right of repurchase if a restricted stock recipient's service to us is terminated. If we exercise this right, we are required to repay the purchase price paid by or on behalf of the recipient for the repurchased restricted shares, which typically is the par value per share of $0.01. Repurchased shares returned to the Amended and Restated 2006 Stock and Option Plan are available for future awards under the terms of that plan.

The following unaudited selected consolidated financial data are derived from our audited consolidated financial statements. These data should be read in conjunction with our audited consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 below.

	Year Ended December 31,

	2011			2010			2009			2008			2007
	(in thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenues:
Product revenues, net	$	950,889		$	—		$	—		$	—		$	—
Royalty revenues		50,015			30,244			28,320			37,483			47,973
Collaborative revenues		409,722			113,126			73,569			138,021			151,039

Total revenues		1,410,626			143,370			101,889			175,504			199,012

Costs and expenses:
Cost of product revenues		63,625			—			—			—			—
Royalty expenses		16,880			12,730			14,202			15,686			13,904
Research and development expenses		707,706			637,416			550,274			516,912			519,227
Sales, general and administrative expenses		400,721			187,800			130,192			101,290			78,554
Restructuring expense		2,074			1,501			6,240			4,324			7,119
Intangible asset impairment charge(1)		105,800			—			7,200			—			—
Acquisition-related expenses(1)		—			—			7,793			—			—

Total costs and expenses		1,296,806			839,447			715,901			638,212			618,804

Income (loss) from operations		113,820			(696,077	)		(614,012	)		(462,708	)		(419,792	)
Interest income (expense), net		(36,574	)		(17,320	)		(8,182	)		2,857			28,513
Change in fair value of derivative instruments(2)		(16,801	)		(41,229	)		(1,847	)		—			—
Loss on exchanges of convertible senior subordinated notes (due 2013)		—			—			(18,137	)		—			—

Income (loss) before provision for income taxes		60,445			(754,626	)		(642,178	)		(459,851	)		(391,279	)
Provision for income taxes		19,266			—			—			—			—

Net income (loss)		41,179			(754,626	)		(642,178	)		(459,851	)		(391,279	)
Net income attributable to noncontrolling interest (Alios)(3)		11,605			—			—			—			—

Net income (loss) attributable to Vertex	$	29,574		$	(754,626	)	$	(642,178	)	$	(459,851	)	$	(391,279	)

Net income (loss) per share attributable to Vertex common shareholders:
Basic	$	0.14		$	(3.77	)	$	(3.71	)	$	(3.27	)	$	(3.03	)

Diluted	$	0.14		$	(3.77	)	$	(3.71	)	$	(3.27	)	$	(3.03	)

Shares used in per share calculations:
Basic		204,891			200,402			173,259			140,556			128,986

Diluted		208,807			200,402			173,259			140,556			128,986

	As of December 31,

	2011		2010		2009		2008		2007
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	968,922	$	1,031,411	$	1,284,913	$	832,101	$	467,796
Accounts receivable, net		183,135		12,529		9,601		23,489		31,320
Inventories		112,430		—		—		—		—
Intangible assets(1)(3)		663,500		518,700		518,700		—		—
Goodwill(1)(3)		30,992		26,102		26,102		—		—
Total assets	$	2,204,280	$	1,725,446	$	1,955,488	$	980,479	$	601,477

Total current liabilities	$	392,348	$	474,783	$	284,883	$	216,564	$	199,279
Convertible senior subordinated notes (due 2013), net of current portion		—		—		—		287,500		—
Convertible senior subordinated notes (due 2015)		400,000		400,000		—		—		—
Secured notes (due 2012) and liability related to sale of milestone payments, net of current portion(2)		—		—		159,972		—		—
Deferred tax liability(1)(3)		243,707		160,278		160,278		—		—
Other liabilities, net of current portion		202,713		186,412		254,009		237,541		130,903
Noncontrolling interest (Alios)(3)		178,669		—		—		—		—
Vertex shareholders' equity		786,843		503,973		1,096,346		238,874		271,295
Total liabilities and shareholders' equity	$	2,204,280	$	1,725,446	$	1,955,488	$	980,479	$	601,477

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We generated earnings as a cashflow positive company in the second half of 2011 after experiencing significant losses in 2009, 2010 and the first half of 2011. In the second half of 2011, we had net income attributable to us of $379.7 million and our cash, cash equivalents and marketable securities increased by $375.4 million. We recognized net product revenues on sales of INCIVEK of $419.6 million and $456.8 million, respectively, in the third and fourth quarters of 2011. We began recognizing royalty revenues from commercial sales of INCIVO by Janssen in September 2011, and we will begin to recognize revenues from sales of KALYDECO in the first quarter of 2012. In order to maintain profitability and continue our strategic investment in research and development activities, we will need to continue to generate significant revenues in future periods.

We have ongoing clinical programs involving drug candidates intended for the treatment of HCV infection, CF, rheumatoid arthritis, epilepsy and influenza. Our HCV clinical programs are focused on developing all-oral, interferon-free combinations of HCV drugs and drug candidates that have the potential to further improve treatment options available to patients with HCV infection. In our CF program, we are investigating the use of ivacaftor as a monotherapy in additional populations of patients with CF and combinations of ivacaftor and our other CF drug candidates, with the goal of expanding the group of patients with CF who can benefit from our medicines. We believe that our longer-term success will depend on our ability to continue to generate and develop innovative compounds for the treatment of serious diseases. As a result, we expect to continue investing in research programs directed toward the identification of new drug candidates and to develop and commercialize selected drug candidates that emerge from those programs, alone or with third-party collaborators.

We believe that by focusing on serious diseases and innovative drugs that have the potential to provide significant advantages over existing therapies, we can increase the likelihood that our drug candidates, if approved, will be commercially successful. Our marketing efforts for INCIVEK in the United States have focused on establishing an effective sales force and managed markets organization to promote INCIVEK to health care providers and payors; implementing appropriate marketing, distribution and pricing strategies; and maintaining appropriate and sustained levels of INCIVEK inventory.

We believe that initial sales of INCIVEK have confirmed its commercially competitive profile, and to date a significant group of patients with genotype 1 HCV infection have sought treatment with an INCIVEK-based treatment regimen. We and Janssen are competing with Merck & Co., Inc.'s VICTRELIS™ (boceprevir), another HCV protease inhibitor that was approved for sale in the United

States and Europe in 2011. In the United States, we believe over 25,000 patients were treated with INCIVEK in 2011. We believe that sales of INCIVEK will be subject to some seasonal fluctuations as, for example, historically fewer patients have started treatment for HCV infection during late November and December than during other periods of the year. However, the sales of drugs that obtain initial market acceptance may decline for a variety of reasons, including increased competition from currently approved competitive drugs, the introduction of new competitive drugs, adverse information regarding the safety characteristics or efficacy of the drug or significant new information regarding potential future treatment regimens that are being evaluated in clinical trials.

We, along with a number of competitors, are pursuing development programs involving all-oral combinations of HCV drugs and drug candidates with the goal of developing improved treatment regimens for HCV infection that could render the current treatments, which include the administration of pegylated-interferon, or peg-IFN, by injection, noncompetive. In particular, each of Bristol-Myers Squibb Company and Gilead Sciences, Inc. is actively pursuing all-oral treatment regimens for HCV infection that would include an HCV nucleotide analogue and Bristol-Myers Squibb and Medivir AB are evaluating a combination of an HCV protease inhibitor and an HCV NS5A inhibitor. To date, potential all-oral treatment regimens have been evaluated in Phase 2 clinical trials involving relatively small numbers of patients. However, we expect that one or more companies may begin registration programs evaluating potential all-oral combination regimens for the treatment of genotype 1 HCV infection in 2012. While the development and regulatory timelines for these drug candidates are highly subjective and subject to change, we believe that substantial additional clinical data regarding these drug candidates and potential all-oral treatment regimens will become available in 2012 and 2013 and that one or more all-oral treatment regimens could enter the market as early as 2014 or 2015.

KALYDECO (ivacaftor) is a treatment for patients with CF six years of age or older who have a specific genetic mutation that is referred to as the G551D mutation. As with other marketed therapies for orphan diseases such as CF, we believe that we will be able to obtain adequate reimbursement for KALYDECO in the United States. In addition, we are focused on obtaining approval and adequate reimbursement for ivacaftor in Europe and plan to seek approval for ivacaftor in a number of other countries, including Canada and Australia. We believe that the number of patients with CF who have the G551D mutation in the CFTR gene is approximately 1,200 in the United States and 1,000 in Europe. We are planning to conduct three additional clinical trials to evaluate KALYDECO as a monotherapy in additional patient populations, including patients younger than six years of age and patients with other mutations in the CFTR gene. These clinical trials are subject to many of the same risks and uncertainties as the clinical trials for our drug candidates. Even if these clinical trials are successful, we do not expect we would obtain approval for the use of KALYDECO in additional populations until 2013 or later.

In addition to the factors described above, approved drugs continue to be subject to, among other things, numerous regulatory risks, post-approval safety monitoring and risks related to supply chain disruptions. As a result, it is difficult to predict future revenues that will be generated from sales by us of INCIVEK and KALYDECO and by Janssen of INCIVO.

Discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluations, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side-effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated as potential drug candidates never progress into development, and most drug candidates that do advance into development never receive marketing approval. Because our investments in drug candidates are subject to considerable

risks, we closely monitor the results of our discovery research, clinical trials and nonclinical studies, and frequently evaluate our drug development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in relatively abrupt changes in focus and priority as new information becomes available and we gain additional understanding of our ongoing programs and potential new programs as well as those of our competitors.

If we believe the data from a completed registration program support approval of a drug candidate, we submit a New Drug Application to the United States Food and Drug Administration, or FDA, requesting approval to market the drug candidate in the United States. We also may seek analogous approvals from comparable regulatory authorities in foreign jurisdictions, such as a Marketing Authorization Application in the European Union. To obtain approval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture of the drug candidate are adequate. The FDA and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for the drug candidate involved will be harmed.

We require a supply of INCIVEK and KALYDECO for sale in North America and will require a supply of ivacaftor for international sales if we are successful in obtaining marketing approval outside the United States. We rely on an international network of third parties to manufacture and distribute our products and for supplies of compounds for clinical trials, and we expect that we will continue to rely on third parties to provide these manufacturing services for the foreseeable future. Third-party contract manufacturers, including some in China, supply us with raw materials, and contract manufacturers in the European Union and the United States convert these raw materials into drug substance and convert the drug substance into final dosage form. Establishing and managing this global supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party relationships. Although we believe we effectively manage the business relationships with companies in our supply chain, we do not have complete control over their activities. Also, while we believe we can effectively forecast demand for INCIVEK, we have limited flexibility to adjust our supply in response to changes in demand, due to the significant lead times required to manufacture INCIVEK.

Our marketing of pharmaceutical products, which began in May 2011, is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various federal and state laws pertaining to health care fraud and abuse, including anti-kickback and false claims statutes, and laws prohibiting the promotion of drugs for unapproved, or off-label, uses. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally.

In 2011, we had net income attributable to Vertex of $29.6 million. Our increased revenues in 2011 as compared to 2010 were the result of $950.9 million of INCIVEK net product revenues and $318.5 million in collaborative milestone revenues for which there were no comparable revenues in 2010. Our increased revenues were partially offset by increased operating costs and expenses in 2011 as compared to 2010. The $457.4 million increase in operating costs and expenses in 2011 as compared to 2010 was principally attributable to a $212.9 million increase in sales, general and administrative expenses, a $63.6 million increase in cost of product revenues and a $105.8 million impairment charge that we incurred in the third quarter of 2011 for VX-759, a back-up non-nucleoside HCV polymerase inhibitor.

The increased net loss in 2010 as compared to 2009 was the result of significant increases in our costs and expenses, partially offset by an increase in our revenues. The increase in our operating costs and expenses during 2010 as compared to 2009 was primarily due to increased expenses for our commercial organization and increased investment in commercial supplies of telaprevir.

Our operating costs and expenses in 2011, 2010 and 2009 included $118.2 million, $91.1 million and $86.7 million, respectively, of stock-based compensation expense.

Our net income attributable to Vertex was $0.14 per diluted share in 2011 as compared to a net loss attributable to Vertex of ($3.77) per diluted share in 2010 and ($3.71) per diluted share in 2009.

We began recognizing net product revenues from sales of INCIVEK in the United States in the second quarter of 2011 and will begin recognizing net product revenues from sales of KALYDECO in the United States in the first quarter of 2012. We expect that our net product revenues will increase in 2012 in comparison to 2011 as we recognize INCIVEK net product revenues for a full fiscal year and begin to recognize KALYDECO net product revenues.

Our royalty revenues increased by $19.8 million in 2011 as compared to 2010 due to $20.3 million of revenues recognized in 2011 from sales of INCIVO by Janssen for which there were no comparable revenues in 2010. We expect that our royalty revenues related to INCIVO will increase in 2012 as compared to 2011.

We recognized royalty revenues related to sales by GlaxoSmithKline of an HIV protease inhibitor that was discovered and developed pursuant to our collaboration with GlaxoSmithKline of $29.7 million, $30.2 million and $28.3 million in 2011, 2010 and 2009, respectively. We sold our rights to these HIV royalties in 2008 for a one-time cash payment of $160.0 million.

Our collaborative revenues have fluctuated significantly on an annual basis. This variability has been due to, among other things: the achievement of significant milestone revenues in 2011; the 2009 amendment of our collaboration agreement with Mitsubishi Tanabe, which provided for an up-front payment that is being recognized over the expected period of performance under that contract; the 2011 amendment to our collaboration agreement with the Cystic Fibrosis Foundation Therapeutics Incorporated, or CFFT, which began providing us additional research and development support in 2011; and variable revenues we have received from services we provided to Janssen and Mitsubishi Tanabe through our third-party manufacturing network.

The table presented below is a summary of revenues from collaborative arrangements for 2011, 2010 and 2009:

The significant increase in our collaborative revenues from Janssen in 2011 as compared to 2010 was related to $250.0 million in milestone payments that we recognized in 2011 for which there were no comparable revenues in 2010. The increase in revenues from Mitsubishi Tanabe in 2011 compared to 2010 was due to a $65.0 million commercial milestone payment we recognized in 2011 partially offset by a decrease in revenues related to manufacturing services provided to Mitsubishi Tanabe through our third-party manufacturing network. Our collaborative revenues increased in 2010 as compared to 2009 because of an increase in our revenues from Mitsubishi Tanabe partially offset by a decrease in our revenues from Janssen. We expect that our collaborative revenues will decrease significantly in 2012 as compared to 2011 because there are no future milestone payments that we expect to earn pursuant to our collaboration agreements with Janssen or Mitsubishi Tanabe.

							2011/2010 Comparison					2010/2009 Comparison

	2011		2010		2009		Increase/ (Decrease)		Increase/ (Decrease)			Increase/ (Decrease)			Increase/ (Decrease)
	(in thousands)						(in thousands, except percentages)
Cost of product revenues	$	63,625	$	—	$	—	$	63,625		n/a		$	—			n/a
Royalty expenses		16,880		12,730		14,202		4,150		33	%		(1,472	)		(10	)%
Research and development expenses		707,706		637,416		550,274		70,290		11	%		87,142			16	%
Sales, general and administrative expenses		400,721		187,800		130,192		212,921		113	%		57,608			44	%
Restructuring expense		2,074		1,501		6,240		573		38	%		(4,739	)		(76	)%
Intangible asset impairment charge		105,800		—		7,200		105,800		n/a			(7,200	)		(100	)%
Acquisition-related expenses		—		—		7,793		—		n/a			(7,793	)		(100	)%

Total costs and expenses	$	1,296,806	$	839,447	$	715,901	$	457,359		54	%	$	123,546			17	%

Our cost of product revenues consists of the costs of producing inventories that correspond to product revenues for the reporting period, plus the third-party royalties payable on our net sales. We expensed most of the manufacturing costs of INCIVEK sold in 2011 as research and development expenses in periods prior to January 1, 2011. We expect our cost of INCIVEK product revenues to increase as a percentage of net sales of INCIVEK in future periods.

Royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators and royalty expenses related to a subroyalty payable to a third party on net sales of an HIV protease inhibitor sold by GlaxoSmithKline. Royalty expenses in 2011 increased compared to 2010 because of the third-party royalties payable on net sales of INCIVO by Janssen. We expect our royalty expenses to increase in 2012 as compared to 2011 as our collaborators continue to market telaprevir in their territories.

Royalty expenses in 2010 and 2009 primarily related to a subroyalty payable to a third party on net sales of an HIV protease inhibitor sold by GlaxoSmithKline. The subroyalty expense offsets a corresponding amount of HIV royalty revenues. We expect to continue to recognize this subroyalty as an expense in future periods.

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

research organizations and other outsourced research, which we do allocate by individual program. All research and development costs for our drugs and drug candidates are expensed as incurred.

To date, we have incurred in excess of $4.7 billion in research and development expenses associated with drug discovery and development. The successful development of our drug candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may vary substantially according to the type, complexity and novelty of the drug candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available.

Over the three year period ended December 31, 2011, costs related to telaprevir have represented the largest portion of our development costs. We expect to continue to incur development costs related to the conduct of additional clinical trials to support potential supplemental applications for telaprevir and ivacaftor. Our drug candidates are still in early and mid-stage clinical development and, as a result, any estimates regarding development and regulatory timelines for these drug candidates are highly subjective and subject to change. We cannot make a meaningful estimate when, if ever, these drug candidates, including VX-222 and those we in-licensed from Alios BioPharma, Inc., or Alios, will generate revenues and cash flows.

							2011/2010 Comparison					2010/2009 Comparison

	2011		2010		2009		Increase/ (Decrease)		Increase/ (Decrease)			Increase/ (Decrease)			Increase/ (Decrease)
	(in thousands)						(in thousands, except percentages)
Research Expenses:
Salary and benefits	$	76,355	$	67,508	$	63,422	$	8,847		13	%	$	4,086			6	%
Stock-based compensation expense		25,305		23,496		23,802		1,809		8	%		(306	)		(1	)%
Laboratory supplies and other direct expenses		35,641		29,145		28,136		6,496		22	%		1,009			4	%
Contractual services		13,213		9,881		5,406		3,332		34	%		4,475			83	%
Infrastructure costs		66,389		59,243		53,501		7,146		12	%		5,742			11	%

Total research expenses	$	216,903	$	189,273	$	174,267	$	27,630		15	%	$	15,006			9	%

Over the past three years we have maintained a substantial investment in research activities resulting in a 15% increase in research expenses in 2011 as compared to 2010 and a 9% increase in research expenses in 2010 as compared to 2009. We expect to continue to invest in our research programs in an effort to identify additional drug candidates.

							2011/2010 Comparison						2010/2009 Comparison

	2011		2010		2009		Increase/ (Decrease)			Increase/ (Decrease)			Increase/ (Decrease)		Increase/ (Decrease)
	(in thousands)						(in thousands, except percentages)
Development Expenses:
Salary and benefits	$	126,441	$	108,617	$	98,830	$	17,824			16	%	$	9,787		10	%
Stock-based compensation expense		50,269		41,702		40,326		8,567			21	%		1,376		3	%
Laboratory supplies and other direct expenses		33,588		33,231		27,682		357			1	%		5,549		20	%
Contractual services		149,033		113,031		111,579		36,002			32	%		1,452		1	%
Drug supply costs		34,133		65,902		21,591		(31,769	)		(48	)%		44,311		205	%
Infrastructure costs		97,339		85,660		75,999		11,679			14	%		9,661		13	%

Total development expenses	$	490,803	$	448,143	$	376,007	$	42,660			10	%	$	72,136		19	%

Our total development expenses have been affected by the variable level of drug supply costs, which include costs of raw materials and work in process that are incurred before we begin capitalizing inventories for a drug candidate and costs of manufacturing services that we provided our collaborators through our third-party manufacturing network. With the approval of INCIVEK and KALYDECO, we expect drug supply costs to decrease significantly in 2012 because we began capitalizing telaprevir drug supply costs in 2011 and expect to capitalize ivacaftor drug supply costs in 2012.

Our development expenses, excluding our drug supply costs, increased by $74.4 million, or 19%, in, 2011 as compared to 2010 and by $27.8 million, or 8%, in 2010 compared to 2009, principally due to increases in headcount and the expansion of our development efforts as we completed the registration program for telaprevir and ivacaftor, prepared the regulatory filings needed to obtain approval for these products and continued the development of our other drug candidates. We expect our development expenses to increase in 2012 as compared to 2011 because of additional clinical trials we expect to conduct to evaluate all-oral treatment regimens for HCV infection, KALYDECO, both as monotherapy and in combination with VX-809 and VX-661, VX-509, VX-765 and VX-787, and post-marketing commitment clinical trials of INCIVEK.

Sales, general and administrative expenses increased substantially in each of 2011 and 2010 as compared to the preceding year as a result of increases in workforce expenses as we prepared for and commercially launched INCIVEK in 2011. Advertising expenses incurred to support the launch of INCIVEK totaled $30.8 million in 2011, for which there were no comparable expenses in 2010 or 2009. We expect that our sales, general and administrative expenses in 2012 will be consistent with our sales, general and administrative expenses for 2011.

As of December 31, 2011, our lease restructuring liability was $26.3 million. In 2011, 2010 and 2009, we recorded restructuring expense of $2.1 million, $1.5 million and $6.2 million, respectively. In 2011, 2010 and 2009, we made cash payments of $14.9 million, $14.8 million and $14.9 million, respectively, against the accrued expense and received $9.5 million, $8.8 million and $8.6 million,

respectively, in sublease rental payments. During 2012, we expect to make additional cash payments of $14.9 million against the accrued expense and to receive $10.0 million in sublease rental payments.

In 2011, we recorded a $105.8 million impairment charge related to VX-759, a non-nucleoside HCV polymerase inhibitor that we acquired through our acquisition of ViroChem Pharma Inc., or ViroChem, in 2009. VX-759 was a back-up drug candidate for our non-nucleoside HCV polymerase inhibitor VX-222. Based on, among other factors, the advancement of VX-222 in 2011 and our consideration of potentially competitive drug candidates, we determined that the fair value of VX-759 had become impaired. In connection with this impairment charge, we recorded a credit of $32.7 million in our provision for income taxes resulting in a net effect on our income related to this impairment charge of $73.1 million in 2011. In 2009, we recorded a $7.2 million impairment charge related to another drug candidate we acquired through our acquisition of ViroChem.

We incurred $7.8 million of expenses in 2009 in connection with our acquisition of ViroChem, including $5.7 million in transaction expenses and $2.1 million related to a restructuring of ViroChem's operations. We did not incur corresponding acquisition-related expenses in 2011 or 2010.

Interest income decreased by $0.1 million, or 4%, to $1.9 million in 2011 from $2.0 million in 2010. Interest income decreased by $3.1 million, or 61%, to $2.0 million in 2010 from $5.0 million in 2009. Our cash, cash equivalents and marketable securities yielded less than 1% on an annual basis in 2011.

Interest expense increased by $19.2 million, or 99%, to $38.5 million in 2011 from $19.3 million in 2010. Interest expense increased by $6.1 million, or 46%, to $19.3 million in 2010 from $13.2 million in 2009. These increases were primarily the result of the 3.35% convertible senior subordinated notes due 2015, or 2015 Notes, we issued in September 2010. In 2012, we expect to incur approximately $13.4 million in interest expense related to the 2015 Notes.

In 2011, 2010 and 2009, we recorded losses of $16.8 million, $41.2 million and $1.8 million, respectively, in connection with the embedded and free-standing derivatives associated with two financial transactions that we entered into in September 2009 related to $250.0 million in contingent milestone payments that were earned by us from Janssen in 2011. The losses were principally due to adjustments we made in estimates regarding the timing and probability of achieving the milestones pursuant to our collaboration agreement with Janssen. In 2011, the contingent milestone payments that were the subject of the 2009 financial transactions were earned in full, and we will not incur any further charges related to the September 2009 financial transactions in future periods.

In 2009, we incurred non-cash charges of $18.1 million in connection with the exchanges of $255.4 million in aggregate principal amount of our 4.75% convertible senior subordinated notes due 2013, or 2013 Notes, for 11.6 million newly-issued shares of our common stock. The charges were based

on the value of the additional 542,937 shares of common stock that we issued in excess of the number of shares of common stock into which such 2013 Notes were convertible prior to the exchanges. There were no corresponding expenses in 2011 or 2010.

In 2011, we recorded a provision for income taxes of $19.3 million. This provision for income taxes was due to a provision of $48.8 million for income taxes payable by Alios and a provision of $3.7 million for state taxes, partially offset by a benefit from income taxes of $32.7 million due to a tax benefit resulting from the impairment of VX-759. The provision of $48.8 million for income taxes payable by Alios reduces net income attributable to noncontrolling interest (Alios) by a corresponding amount and as a result has no effect on the net income attributable to Vertex.

The net income attributable to noncontrolling interest (Alios) recorded on our consolidated statements of operations reflects Alios' net income for the reporting period, excluding revenues related to the up-front payment and milestone payments earned by Alios and adjusted for any changes during the reporting period in the fair value of the contingent milestone and royalty payments payable by us to Alios.

A summary of net income attributable to noncontrolling interest (Alios) in 2011 is as follows:

The $70.0 million change in fair value of contingent milestone and royalty payments in 2011 results in a corresponding reduction in net income attributable to Vertex for 2011. The provision for income taxes of $48.8 million in 2011 attributable to noncontrolling interest (Alios) corresponds to a provision for income taxes payable by Alios on revenues from us included as part of the provision for income taxes on our consolidated statements of operations and has no net effect on net income attributable to Vertex.

If we are able to successfully advance one or more of the HCV nucleotide analogues we licensed from Alios into mid-stage and late-stage clinical development, we believe the fair value of the contingent milestone and royalty payments will continue to increase, which will reduce net income attributable to Vertex.

We began operating as a cashflow positive company in the second half of 2011. As of December 31, 2011, we had cash, cash equivalents and marketable securities, excluding Alios' cash and cash equivalents, of $968.9 million, which was an increase of $375.4 million from $593.5 million as of June 30, 2011. This increase was primarily due to cash receipts from INCIVEK sales partially offset by cash expenditures we made in the second half of 2011 related to, among other things, research and development expenses and sales, general and administrative expenses. In order to continue to operate as a cashflow positive company and to continue our strategic investment in research and development activities, we will need to continue to generate significant revenues in future periods.

Our cash, cash equivalents and marketable securities, excluding Alios' cash and cash equivalents, decreased by $62.5 million during 2011, because of net cash expenditures in the first half of 2011 partially offset by net cash receipts in the second half of 2011. Our cash expenditures in 2011 were due to, among other things, research and development expenses, sales, general and administrative expenses, the $60.0 million up-front payment we made to Alios and capital expenditures for property and equipment of $34.6 million. In 2011, we received $124.9 million in cash from issuances of common stock pursuant to employee benefit plans.

Prior to 2011, we financed our operations principally through public and private offerings of our equity and debt securities, strategic collaborative agreements that included research and/or development funding, development milestones and royalties on the sales of products, strategic sales of assets or businesses, financial transactions, investment income and proceeds from the issuance of common stock under our employee benefit plans. In future periods, we intend to rely on cash flows from product sales as our primary source of liquidity and cash flows from royalties as a secondary source of liquidity.

We may seek to borrow funds to finance our working capital needs if such financing is available to us. Our existing $100.0 million credit facility, which terminates on July 6, 2012, is initially unsecured, but is subject to a number of affirmative and negative covenants, including a liquidity covenant that requires us to maintain cash, cash equivalents and marketable securities of more than $400.0 million in domestic accounts. If we breach any of these covenants and it results in an event of default, upon the event of default the lender would obtain a security interest in cash, cash equivalents and marketable securities having a margined value of $100.0 million, which would be transferred to an account controlled by the lender. To date, we have not utilized any funds available to us pursuant to this credit facility.

We are incurring substantial expenses to commercialize INCIVEK and KALYDECO, while at the same time continuing diversified research and development efforts for our drug candidates. In addition to funding our operating expenses, we have outstanding $400.0 million in aggregate principal amount of 2015 Notes. The 2015 Notes bear interest at the rate of 3.35% per annum, and we are required to make semi-annual interest payments on the outstanding principal balance of the 2015 Notes on April 1 and October 1 of each year. The 2015 Notes will mature on October 1, 2015. The 2015 Notes are convertible, at the option of the holder, into our common stock at a price equal to approximately $48.83 per share, subject to adjustment. In addition, we have substantial lease obligations that will continue through 2028.

In the second half of 2011, our cash flows from sales of INCIVEK exceeded our operating expenses, and we expect our cash flows from INCIVEK/INCIVO and KALYDECO together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by INCIVEK/INCIVO and KALYDECO, and the number, breadth, cost and prospects of our discovery and development programs.

Although we do not have any plans to do so in the near term, we may raise additional capital through public offerings or private placements of our securities, securing new collaborative agreements or other methods of financing. As part of our strategy for managing our capital structure, we have from time to time adjusted the amount and maturity of our debt obligations through new issues, privately negotiated transactions and market purchases, depending on market conditions and our perceived

needs at the time. We expect to continue pursuing a general financial strategy that may lead us to undertake one or more additional transactions with respect to our outstanding debt obligations, and the amounts involved in any such transactions, individually or in the aggregate, may be material. We will continue to manage our capital structure and to consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. Any capital transaction related to our outstanding debt obligations may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

The first part of the following table sets forth commitments and obligations that were recorded on our consolidated balance sheet at December 31, 2011. Certain other obligations and commitments, while not required to be included on the consolidated balance sheet, may have a material effect on our liquidity. We have presented these items, in the remaining rows of the table below in order to present a more complete picture of our financial position and liquidity.

	2012		2013-2014		2015-2016		2017 and later		Total

	(in thousands)
*Commitments and Obligations Recorded on the Consolidated Balance Sheet at December 31, 2011:*
Convertible senior subordinated notes (due October 2015) principal payment	$	—	$	—	$	400,000	$	—	$	400,000
Convertible senior subordinated notes (due October 2015) interest payment		3,350		—		—		—		3,350
Construction financing obligation		—		55,950		—		—		55,950
*Additional Commitments and Obligations at December 31, 2011:*
Convertible senior subordinated notes (due October 2015)—interest payments		10,050		26,800		13,400		—		50,250
Facility operating leases, excluding Fan Pier Leases		54,715		103,487		63,809		34,364		256,375
Fan Pier Leases		—		11,256		134,412		887,211		1,032,879
Research, development and drug supply costs		12,985		1,575		—		—		14,560
Alios milestones payable		25,000		—		—		—		25,000
Other		3,683		2,141		—		—		5,824

Total contractual commitments and obligations	$	109,783	$	201,209	$	611,621	$	921,575	$	1,844,188

Commitments and Obligations Recorded on the Consolidated Balance Sheet at December 31, 2011

In September 2010, we issued $400.0 million in aggregate principal amount of 2015 Notes. The principal and interest accrued as of December 31, 2011 under these notes is included on our consolidated balance sheet as of December 31, 2011. The interest that is due for periods after December 31, 2011 is not required under GAAP to be reflected on our consolidated balance sheet and is set forth separately on the table above.

Our construction financing obligation relates to two buildings under construction on Fan Pier in Boston, Massachusetts, which are scheduled to be completed in late 2013. Although we will lease the space in these buildings, we are deemed for accounting purposes to be the owner of these buildings during the construction period and have recorded a long-term liability under the caption "Construction financing obligation" on our consolidated balance sheet.

Additional Commitments and Obligations Not Required to be Recorded on Consolidated Balance Sheet at December 31, 2011

Our future minimum commitments and contractual obligations include facility operating leases, our leases for the Fan Pier buildings, and contractual commitments related to our research, development

and drug supply, and interest that will accrue on the 2015 Notes after December 31, 2011. These items are not required to be recorded on our consolidated balance sheet.

Our future minimum commitments under our Kendall Square lease for the period commencing on January 1, 2012 are $18.3 million for 2012, $36.5 million for 2013 and 2014, $36.5 million for 2015 and 2016, and $24.3 million from 2017 through the expiration of the lease in 2018. These amounts are included in the table above as part of our facility operating leases. Rent payments for our Kendall Square lease will be subject to increase in May 2013, based on changes in an inflation factor. We are using approximately 40% of the Kendall Square facility for our operations. We have entered into two subleases for the remaining rentable square footage at the Kendall Square facility to offset our on-going contractual lease obligations. The future minimum committed income from the subleases is $7.9 million for 2012, $16.8 million for 2013 and 2014 and $3.9 million for 2015. These amounts are not offset against our obligations set forth in the table above. See Note R, "Restructuring Expense," to our consolidated financial statements included in this Annual Report on Form 10-K.

"Fan Pier Leases" sets forth the future minimum rental payments that we are obligated to pay after taking occupancy of approximately 1.1 million square feet of office and laboratory space in two buildings under construction in Boston, Massachusetts less the amounts reflected on the consolidated balance sheet under the caption "Construction financing obligation." We expect to commence these rental payments upon completion of these buildings, scheduled for late 2013. The rental payments will extend for 15 years from the commencement date.

Commitments under research, development and drug supply investment represent contractual commitments entered into for materials and services in the normal course of business.

Pursuant to our collaboration with Alios, Alios is eligible to receive research and development milestone payments from us of up to $715.0 million if ALS-2200 and ALS-2158 are approved and commercialized. As of December 31, 2011, Alios had earned $35.0 million of these milestone payments, of which $10.0 million had been paid as of December 31, 2011. Alios also is eligible to receive commercial milestone payments from us of up to $750.0 million, as well as tiered royalties on net sales of approved drugs. In addition, we are obligated to make two one-time commercial milestone payments to CFFT upon achievement of certain sales levels for a potentiator compound such as KALYDECO. Contingent payments under these agreements become due and payable only upon achievement of certain milestones and are not included in the contractual obligations table above.

We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2011, we have approximately $4.4 million of liabilities associated with uncertain tax positions. Approximately $2.5 million are directly attributable to Alios and Vertex has no legal obligation associated with Alios' potential tax liabilities. As of December 31, 2011, we cannot reasonably estimate the amount we expect to pay within the next twelve months in connection with such settlements.

Our table detailing contractual commitments and obligations does not include severance payment obligations to certain of our executive officers in the event of a not-for-cause employment termination under existing employment contracts.

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reported periods. We monitor and analyze changes in facts and circumstances that might have a material effect on our estimates and assumptions.

Changes in estimates are reflected in reported results for the period in which they become known. 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 may differ from our estimates.

We believe that our application of the following accounting policies, each of which requires significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results:

Our accounting polices, including the ones discussed below, are more fully described in the Notes to our consolidated financial statements, including Note A "Nature of Business and Accounting Policies," included in this Annual Report on Form 10-K.

In 2011, we began generating revenues in the United States from sales of INCIVEK. We sell INCIVEK principally to a limited number of major wholesalers, as well as selected regional wholesalers and specialty pharmacy providers, collectively our distributors, who subsequently resell INCIVEK to patients and health care providers. Separately, we have arrangements with numerous third-party payors that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts.

We recognize net product revenues from sales of INCIVEK upon delivery to our distributors as long as:

We have written contracts with our distributors and delivery occurs when a distributor receives INCIVEK. We evaluate the creditworthiness of each of our distributors and have determined that all of our material distributors are creditworthy. In order to conclude that the price is fixed or determinable, we must be able to calculate our gross product revenues from our distributors and reasonably estimate our net product revenues. Our gross product revenues are based on the fixed wholesale acquisition cost for INCIVEK that we charge our distributors. We estimate our net product revenues by deducting from our gross product revenues (i) trade allowances, such as invoice discounts for prompt payment and distributor fees, (ii) estimated government and private payor rebates, chargebacks and discounts, such as Medicaid reimbursements, (iii) reserves for expected product returns and (iv) estimated costs of incentives offered to certain indirect customers including patients. These estimates, and in particular the estimates for rebates, chargebacks and discounts and expected product returns, require us to make significant judgments that materially affect our recognition of net product revenues on sales of INCIVEK.

The value of the rebates, chargebacks and discounts provided to third-party payors per course of treatment vary significantly and are based on government-mandated discounts and our arrangements with other third-party payors. Typically, government-mandated discounts are significantly larger than discounts provided to other third-party payors. In order to estimate our total rebates, chargebacks and discounts, we estimate the percentage of prescriptions that will be covered by each third-party payor, which is referred to as the payor mix. We track available information regarding changes, if any, to the payor mix for INCIVEK, to our contractual terms with third-party payors and to applicable governmental programs and regulations and levels of INCIVEK in the distribution channel. If necessary, we will adjust our estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates, chargebacks and discounts for INCIVEK, as it becomes available. If we increased our estimate of the percentage of patients receiving INCIVEK covered by third-party payors entitled to government-mandated discounts by two percentage points, our net product revenues would decrease by less than 1% for the three months ended December 31, 2011.

Our distributors have the right to return unopened INCIVEK that has not been prescribed beginning six months prior to the labeled expiration date and ending twelve months after the labeled expiration date. The expiration date for INCIVEK is two years after it has been converted into tablet form, which is the last step in the manufacturing process for INCIVEK and generally occurs within a few months before INCIVEK is delivered to distributors. As of December 31, 2011, we have not received any material product returns. Based on our specialty distribution model with sales to a limited number of distributors, data provided to us by our distributors, including weekly reporting of distributor sales and inventory levels, and by other third parties, historical industry information regarding return rates for similar specialty pharmaceutical products, the estimated remaining shelf life of INCIVEK previously shipped and currently being shipped, and contractual agreements with our distributors, which include provisions designed to limit the amount of inventory they maintain, we have estimated that product returns for INCIVEK sold to distributors in 2011 will be less than 1% of net sales. We track actual returns by individual production lots and will continue to monitor inventory levels in the distribution channel. If necessary, we will adjust our estimated product returns based on new information as it becomes available.

We recognize revenues from nonrefundable, up-front license fees related to collaboration agreements, including the $165.0 million we received from Janssen in 2006 and the $105.0 million we received from Mitsubishi Tanabe in 2009, on a straight-line basis over the contracted or estimated period of performance. The period of performance over which the revenues are recognized is typically the period over which the research and/or development is expected to occur or manufacturing services are expected to be provided. When the period of performance is based on the period over which research and/or development is expected to occur, we are required to make estimates regarding drug development and commercialization timelines. Because of the many risks and uncertainties associated with the development of drug candidates, these estimates regarding the period of performance have changed in the past and may change in the future. Our estimates regarding the period of performance under the Janssen collaboration agreement were adjusted in 2007, 2009 and 2010, as a result of changes in the global development plan for telaprevir. These adjustments were made on a prospective basis beginning in the periods in which the changes were identified and resulted in decreases in the amount of revenues we recognized on a quarterly basis from the Janssen collaboration.

At the inception of each agreement that includes contingent milestone payments payable to us, we evaluate whether the contingencies underlying each milestone event are substantive, specifically reviewing factors such as the scientific and other risks that must be overcome to achieve the milestone event, as well as the level of successful effort and investment required. If we do not consider a

milestone event to be substantive, the revenues from the related milestone payment will be recognized over the period of performance. Where a substantive milestone event is achieved in a collaboration arrangement and the corresponding payment is reasonably assured, we recognize the payment as earned. Because achievement of a substantive milestone event under a collaboration agreement typically requires the completion of a number of activities conducted over a significant period of time, the expenses related to achieving the milestone event often are incurred prior to the period in which the milestone payment is recognized. The milestone events that we achieved under our Janssen collaboration agreement in 2011 that resulted in $250.0 million in revenues were considered substantive and the revenues related to each milestone event were recognized in the quarter in which the corresponding payment became reasonably assured.

Royalty revenues for INCIVO are recognized based on net sales of INCIVO as reported to us by Janssen and are recognized in the period the sales occur. Because net sales as reported by Janssen could include certain estimates, we could experience future adjustments to royalty revenues and the adjustments could be significant.

In March 2009, we acquired ViroChem for $100.0 million in cash and common stock with a fair market value of $290.6 million. We assigned the value of the consideration transferred to acquire the business to the tangible assets and identifiable intangible assets acquired and liabilities assumed, on the basis of their fair values at the date of acquisition. The difference between the purchase price and the fair value of assets acquired and liabilities assumed was allocated to goodwill. This goodwill related to the potential synergies from the possible development of combination therapies involving telaprevir and the acquired drug candidates.

The allocations recorded on our consolidated balance sheet as of the acquisition date included $525.9 million of intangible assets related to in-process research and development and a $162.5 million deferred tax liability. The intangible assets acquired were in-process research and development assets relating to two drug candidates being developed by ViroChem, VX-222 and VX-759. VX-222 and VX-759 had estimated fair values on the acquisition date of $412.9 million and $105.8 million, respectively.

We have tested the fair value of VX-222 on an annual basis since the acquisition date and no impairment has been identified. In connection with preparing our quarterly report for the period ended September 30, 2011, we identified certain factors that were considered impairment indicators related to VX-759. We determined that the fair value of VX-759 was zero dollars, based on the advancement of VX-222 in the third quarter of 2011, our consideration of potentially competitive drug candidates and the other factors described in Note C, "Acquisition of Viro Chem Pharma, Inc.," in the accompanying notes to the consolidated financial statements. This determination resulted in a $105.8 million impairment charge in the third quarter of 2011. In connection with this impairment charge, we also recorded an adjustment of $32.7 million to our deferred tax liability. As of December 31, 2011, our consolidated balance sheet included the following related to the ViroChem acquisition: $412.9 million of intangible assets related to VX-222 and a $127.6 million deferred tax liability.

We assess the fair value of assets, including intangible assets such as in-process research and development, using a variety of methods, including present-value models that are based upon multiple probability-weighted scenarios involving the development and potential commercialization of the acquired drug candidates. The present-value models require us to make significant assumptions regarding the estimates that market participants would make in evaluating a drug candidate, including

the probability of successfully completing clinical trials and obtaining regulatory approval to market the drug candidate, the timing of and the expected costs to complete in-process research and development projects, future cash flows from potential drug sales, which are based on estimates of the sales price of the drug, the number of patients that will be diagnosed and treated and our competitive position in the marketplace, and appropriate discount rates. The estimated fair value ascribed to VX-222 and VX-759 on the acquisition date was based on the estimated fair value that would be ascribed to each of these drug candidates by a market participant that acquired both drug candidates in a single transaction. The assumed probability of advancing VX-222 and VX-759 through various phases of development reflected the understanding among market participants that most drug candidates that enter Phase 2 clinical trials are not ultimately approved for commercial sale. While, on the date of acquisition, VX-222 and VX-759 were each at a similar stage of development, we attributed a significantly higher value to VX-222 than to VX-759 because the clinical and nonclinical data from the VX-222 program was significantly more promising than the clinical and nonclinical data from the VX-759 program. In addition, the fair value estimate incorporated our determination that a market participant would not be likely to continue development of VX-759 unless future data from clinical trials or nonclinical studies of VX-222 resulted in a delay or discontinuation of the VX-222 development program. Projections of the duration and cost of nonclinical studies and clinical trials vary significantly over the life of a project depending on developments in the program over time, but in order to estimate the fair market value on the acquisition date we made the following assumptions from the perspective of market participants regarding the potential timing and costs to develop VX-222 and/or VX-759. We assumed if a drug candidate were successfully developed in the United States it would take approximately five to nine years from the date of the acquisition in order to obtain marketing approval. In addition, for the valuation, we assumed an estimate of cost from acquisition to launch to develop a drug candidate that was within a range of $400 million to $700 million. Future cash flows, if any, would not be generated until a drug candidate completed all required phases of clinical trials and obtained regulatory approval. The risk-adjusted discount rate for each of these projects was approximately 28%.

ViroChem's in-process research and development assets were recorded at fair value and accounted for as indefinite-lived intangible assets. We maintain these assets on our consolidated balance sheet until either the research and development project underlying it is completed or the asset becomes impaired. If we complete a project, we will amortize the carrying value of the related intangible asset as part of cost of product revenues over the remaining estimated life of the asset. If we determine that an asset has become impaired or we abandon a project, we write down the carrying value of the related intangible asset to its fair value and take an impairment charge in the period in which the impairment occurs. In order to complete an acquired research and development project, the related drug candidate must be evaluated in later-stage clinical trials, which are subject to all of the risks and uncertainties associated with the development of pharmaceutical products. In 2012, we expect to obtain data from an ongoing clinical trial evaluating telaprevir/VX-222-based combination therapy. In addition, while the development and regulatory timelines for VX-222 and drug candidates being developed by our competitors are highly subjective and subject to change, we believe that substantial additional clinical data regarding these drug candidates and potential all-oral treatment regimens will become available in 2012 and 2013 and that one or more all-oral treatment regimens could enter the market as early as 2014 or 2015. If the fair value of VX-222 becomes impaired as the result of unfavorable safety or efficacy data from any ongoing or future clinical trial or because of any other information regarding the prospects of successfully developing or commercializing VX-222, we could incur significant charges in the period in which the impairment occurs.

We test the ViroChem intangible assets for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstance suggest that impairment may exist. Events that could indicate impairment and trigger an interim impairment assessment include the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information

regarding potential sales prices for the drug. In connection with each annual impairment assessment and any interim impairment assessment, we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on our consolidated balance sheet. The fair value of the ViroChem intangible assets were estimated using the probability-weighted present-value models described above, utilizing updated assumptions and estimates regarding the status of the development programs for the drug candidates, the potential future cash flows from sales of drugs, and appropriate discount rates.

In June 2011, we entered into an agreement with Alios pursuant to which we agreed to collaborate on the research, development and commercialization of ALS-2200 and ALS-2158, two HCV nucleotide analogues discovered by Alios. We are responsible for all expenses related to the development and commercialization of the compounds and provide research funding to Alios. We paid Alios a $60.0 million up-front payment, and Alios is eligible to receive research and development milestone payments, commercial milestone payments and tiered royalties on net sales of any approved drugs licensed by us under the collaboration agreement. Our interests in Alios are limited to those accorded to us pursuant to our collaboration agreement with Alios, and we have no equity interest, or right to acquire any equity interest, in Alios. In addition to Alios' activities related to HCV nucleotide analogues, Alios is engaged in separate programs directed at developing novel drugs.

Our collaboration with Alios requires us to apply accounting policies that involve significant judgments and that have a material effect on our consolidated financial statements. Under applicable accounting guidance, as a result of the relationship established through the collaboration agreement, Alios is deemed to be a variable interest entity, or VIE. Because we acquired an exclusive license to certain intellectual property belonging to the VIE, and based on the significance of the two licensed compounds to Alios taken as a whole, the collaboration is treated for accounting purposes as if we have acquired an interest in the entire VIE. In the Alios collaboration, where (a) through the joint steering committee, we have the power to direct the development and commercialization of the two licensed compounds, which are the activities that most significantly affect the economic performance of Alios, (b) we are required to fund research and development activities related to the licensed assets and (c) we are entitled to receive a majority of the potential revenues from sales of drugs developed pursuant to the collaboration, we are deemed under accounting guidance to be the primary beneficiary of a VIE that is a business. As a result, we are required to consolidate Alios' financial statements into our financial statements.

We believe that the following effects of the consolidation on our consolidated financial statements are the most significant:

All research and development expenses, including amounts funded through research and development collaborations, are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salary and benefits; stock-based compensation expense; laboratory supplies and other direct expenses; contractual services, including clinical trial and pharmaceutical development costs; expenses associated with drug supplies that are not being capitalized; and infrastructure costs, including facilities costs and depreciation.

When third-party service providers' billing terms do not coincide with our period-end, we are required to make estimates of our obligations to those third parties, including clinical trial and pharmaceutical development costs, contractual services costs and costs for drug supply, incurred in a

given accounting period and record accruals at the end of the period. We base our estimates on our knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third-party service contract, where applicable.

We capitalize inventories produced in preparation for potentially initiating sales of a drug candidate when the drug candidate is considered to have a high probability of regulatory approval and the costs to manufacture the drug candidate are expected to be recoverable through sales of the drug. In determining whether or not to capitalize such inventories, we evaluate, among other factors, information regarding the drug candidate's safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales, including the existence of current or anticipated competitive drugs and the availability of reimbursement. In addition, we evaluate risks associated with manufacturing the drug candidate and the remaining shelf life of the inventories. After we begin capitalizing inventories, we continue to monitor these factors and, if there are significant negative developments regarding the drug candidate, we could be required to impair previously capitalized costs.

We began capitalizing the costs of our INCIVEK inventories on January 1, 2011. Because we expensed most of the manufacturing costs related to initial quantities of INCIVEK as research and development expenses in prior periods, our initial cost of product revenues for INCIVEK was low and will increase in future periods.

Derivative Instruments and Embedded Derivatives—September 2009 Financial Transactions

Expenses related to two financial transactions that we entered into in September 2009 resulted in $16.8 million, $41.2 million and $1.8 million, respectively, in expenses in 2011, 2010 and 2009. The two financial transactions related to $250.0 million of milestone payments that were earned by us from Janssen in 2011 in connection with the regulatory filing, approval and launch of INCIVO in the European Union. In the first financial transaction, we issued secured notes due 2012, or 2012 Notes, which had a face value of $155.0 million and did not carry an explicit interest rate, for $122.2 million in cash. The 2012 Notes were payable in October 2012, subject to earlier redemption and were secured by $155.0 million of contingent milestone payments. The 2012 Notes were redeemed in full in 2011 upon the receipt of the corresponding Janssen milestone payments. In the second transaction, we sold $95.0 million in contingent milestone payments for a cash payment of $32.8 million.

The 2012 Notes contained an embedded derivative related to their potential early repayment or redemption. The separate sale of the $95.0 million in contingent milestone payments was accounted for as a free-standing derivative instrument. In order to account for the 2012 Notes and the sale of the rights to the $95.0 million in milestone payments, we estimated the fair value of the derivative embedded in the 2012 Notes and of the free-standing derivative. The models we used to estimate these fair values required, among other things, estimates regarding the timing and probability of achieving the milestone events and the appropriate discount rates. As these milestones were achieved and we and Janssen obtained additional data from the telaprevir registration program, we updated these assumptions to reflect the increasing probability of achieving these milestone events and the expected timing of such events and recorded corresponding expenses or gains in each quarterly period. While the total amount of the expenses related to these two financial transactions was fixed at $95.0 million, plus the initial transaction expenses, provided that the milestones were achieved prior to October 2012, the timing of these expenses in 2011, 2010 and 2009 was dependent on the estimates and assumptions incorporated in the models used to estimate the fair values of the embedded and free-standing derivatives at the end of each fiscal quarter.

We measure the compensation cost of stock-based compensation at the grant date, based on the fair value of the award, including estimated forfeitures, and we recognize that cost as an expense ratably over the associated employee service period, which generally is the vesting period of the equity award, or the derived service period for awards with market conditions. For our awards with performance conditions, we make estimates regarding the likelihood of satisfaction of the performance condition that affect the period over which the expense is recognized. We calculate the fair value of stock options and shares purchased pursuant to our employee stock purchase plan using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires us to make certain assumptions and estimates concerning our stock price volatility, the rate of return of risk-free investments, the expected term of the awards, and our anticipated dividends. In determining the amount of expense to be recorded, we also are required to exercise judgment to estimate forfeiture rates for awards, based on the probability that employees will complete the required service period. If actual forfeitures differ significantly from our estimates, if any of our estimates or assumptions prove incorrect, or if the likelihood of achievement of a performance condition changes, our results could be materially affected.

Despite beginning to operate as a profitable and cashflow positive company in the second half of 2011, we continue to maintain a valuation allowance on our net operating losses and other deferred tax assets because we have an extended history of annual losses. Our U.S. federal net operating loss carryforwards totaled approximately $2.7 billion as of December 31, 2011.

On a quarterly basis, we reassess the valuation allowance for deferred income tax assets. We would consider reversing a significant portion of the valuation reserve upon assessment of certain factors, including: (i) a demonstration of sustained profitability; and (ii) the support of internal financial forecasts demonstrating the utilization of the net operating loss carryforwards prior to their expiration. If we determine that the reversal of all or a portion of the valuation reserves is appropriate, a significant benefit could be recognized against our income tax provision in the period of the reversal.

Refer to Note A, "Nature of Business and Accounting Policies," in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.

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

We invest our cash in a variety of financial instruments, principally securities issued by the United States government and its agencies, investment grade corporate bonds and commercial paper, and money market funds. These investments are denominated in United States dollars. All of our interest-bearing securities are subject to interest rate risk, and could decline in value if interest rates fluctuate. Substantially all of our investment portfolio consists of marketable securities with active secondary or resale markets to help ensure portfolio liquidity, and we have implemented guidelines limiting the term-to-maturity of our investment instruments. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk.

As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, Swiss Franc, British Pound and Canadian Dollar against the U.S. dollar. The current exposures arise primarily from cash, accounts receivable, intercompany receivables and payables, and calculations of royalties receivable from net sales denominated in foreign currencies. Both positive and negative impacts to our international product sales from movements in foreign currency exchange rates are partially mitigated by the natural, opposite impact that foreign currency exchange rates have on our international operating expenses.

We are considering a foreign currency management program with the objective of reducing the volatility of exchange rate fluctuations on our operating results and to increase the visibility of the foreign exchange impact on forecasted revenues.

The information required by this Item 8 is contained on pages F-1 through F-54 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

(1) Evaluation of Disclosure Controls and Procedures. The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, the Company's disclosure controls and procedures were effective. In designing and evaluating the disclosure controls and procedures, the Company's management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company's management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(2) Management's Annual Report on Internal Control Over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making this assessment, it used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, the Company's management has concluded that, as of December 31, 2011, the Company's internal control over financial reporting is effective based on those criteria.

The Company's independent registered public accounting firm, Ernst & Young LLP, issued an attestation report on the Company's internal control over financial reporting. See Section 4 below.

(3) Changes in Internal Controls. During the quarter ended December 31, 2011, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have audited Vertex Pharmaceuticals Incorporated's internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Vertex Pharmaceuticals Incorporated's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

In our opinion, Vertex Pharmaceuticals Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Vertex Pharmaceuticals Incorporated as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders' equity, comprehensive income (loss) and noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2011 of Vertex Pharmaceuticals Incorporated and our report dated February 22, 2012 expressed an unqualified opinion thereon.

Portions of our definitive Proxy Statement for the 2012 Annual Meeting of Shareholders, or 2012 Proxy Statement, during which, we expect to, among other things, (i) elect our Class II Directors, (ii) conduct the non-binding advisory vote on our executive compensation program and (iii) ratify the appointment of our independent registered accounting firm, are incorporated by reference into this Part III of our Annual Report on Form 10-K. After taking into consideration the results of the "say-on-pay-frequency vote" at the 2011 Annual Meeting of Shareholders held in May 2011, our Board of Directors adopted the recommendation of our shareholders to conduct the vote on our executive compensation program on an annual basis until the next "say-on-pay-frequency vote" by shareholders.

The information regarding directors required by this Item 10 will be included in our 2012 Proxy Statement under "Proposal 1—Election of Directors," "Information Regarding Our Board," "Shareholder Proposals for the 2012 Annual Meeting and Nominations for Director" and is incorporated herein by reference. Other information required by this Item 10 will be included in the 2012 Proxy Statement under "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Conduct and Ethics" and is incorporated herein by reference. The information regarding executive officers required by this Item 10 as well as certain information regarding our directors is included in Part I of this Annual Report on Form 10-K.

The information required by this Item 11 will be included in the 2012 Proxy Statement under "Compensation Committee Interlocks and Insider Participation," "Executive Compensation" and/or "Information Regarding Our Board" and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 will be included in the 2012 Proxy Statement under "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 will be included in the 2012 Proxy Statement under "Proposal 1—Election of Directors" and "Approval of Related Person Transactions and Transactions with Related Persons" and is incorporated herein by reference.

The information required by this Item 14 will be included in the 2012 Proxy Statement under "Independent Registered Public Accounting Firm" and is incorporated herein by reference.

(a)(1) The Financial Statements required to be filed by Items 8 and 15(c) of Form 10-K, and filed herewith, are as follows:

(a)(2) Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial statements or notes thereto listed in (a)(1) above.

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

	Exhibit Description	Filed with this report	Incorporated by Reference herein from—Form or Schedule	Filing Date/ Period Covered

3.1	Restated Articles of Organization of Vertex Pharmaceuticals Incorporated, as amended.		10-Q (Exhibit 3.1)	August 11, 2008	000-19319
3.2	By-laws of Vertex Pharmaceuticals Incorporated, as amended and restated as of May 11, 2005.		10-Q (Exhibit 3.1)	August 9, 2005	000-19319
4.1	Specimen stock certificate.		S-1 (Exhibit 4.1)	July 18, 1991	33-40966
4.2	Subordinated Indenture, dated as of September 28, 2010, by and between Vertex Pharmaceuticals Incorporated and U.S. Bank National Association, as trustee.		8-K (Exhibit 4.1)	September 29, 2010	000-19319
4.3	First Supplemental Indenture, dated as of September 28, 2010, by and between Vertex Pharmaceuticals Incorporated and U.S. Bank National Association, as trustee.		8-K (Exhibit 4.2)	September 29, 2010	000-19319
4.4	Form of 3.35% Convertible Senior Subordinated Note due 2015.		8-K (Exhibit 4.3)	September 29, 2010	000-19319
Collaboration Agreements
10.1	License, Development, Manufacturing and Commercialization Agreement, dated June 30, 2006, by and between Vertex Pharmaceuticals Incorporated and Janssen Pharmaceutica, N.V.†	X
10.2	License, Development and Commercialization Agreement, dated as of June 11, 2004, between Vertex Pharmaceuticals Incorporated and Mitsubishi Pharma Corporation.†		10-Q (Exhibit 10.1)	November 9, 2009	000-19319

	Exhibit Description	Incorporated by Reference herein from—Form or Schedule	Filing Date/ Period Covered

10.3	Second Amendment to License, Development and Commercialization Agreement, dated July 30, 2009, between Mitsubishi Tanabe Pharma Corporation and Vertex Pharmaceuticals Incorporated.†	10-Q (Exhibit 10.2)	November 9, 2009	000-19319
10.4	Research Agreement and License Agreement, both dated December 16, 1993, between Vertex and Burroughs Wellcome Co.†	10-K (Exhibit 10.16)	Year Ended December 31, 1993	000-19319
10.5	Research, Development and Commercialization Agreement, dated as of May 24, 2004, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†	10-Q/A (Exhibit 10.2)	August 19, 2011	000-19319
10.6	Amendment No. 1 to Research, Development and Commercialization Agreement, dated as of January 6, 2006, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†	10-K (Exhibit 10.9)	March 16, 2006	000-19319
10.7	Amendment No. 2 to Research, Development and Commercialization Agreement, dated as of March 17, 2006, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.	10-Q/A (Exhibit 10.6)	August 19, 2011	000-19319
10.8	Amendment No. 5 to Research, Development and Commercialization Agreement, effective as of April 1, 2011, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†	10-Q (Exhibit 10.3)	August 9, 2011	000-19319
10.9	Research and Development Agreement between the Company and Eli Lilly and Company effective June 11, 1997*†	10-Q (Exhibit 10.1)	August 14, 1997	000-19319
10.10	License and Collaboration Agreement, dated June 13, 2011, by and between Alios BioPharma, Inc. and Vertex Pharmaceuticals Incorporated and Vertex Pharmaceuticals (Switzerland) LLC.†	10-Q (Exhibit 10.1)	August 9, 2011	000-19319
Financial Transactions
10.11	Credit Agreement, dated January 7, 2011 among Vertex Pharmaceuticals Incorporated, the Lenders and Bank of America, N.A.	10-Q (Exhibit 10.1)	May 6, 2011	000-19319
10.12	Purchase Agreement, dated May 30, 2008, by and between Vertex Pharmaceuticals Incorporated and Fosamprenavir Royalty, L.P.	10-Q (Exhibit 10.2)	August 11, 2008	000-19319
Leases
10.13	Lease, dated May 5, 2011, between Fifty Northern Avenue LLC and Vertex Pharmaceuticals Incorporated.†	10-Q (Exhibit 10.4)	August 9, 2011	000-19319
10.14	Lease, dated May 5, 2011, between Eleven Fan Pier Boulevard LLC and Vertex Pharmaceuticals Incorporated.†	10-Q (Exhibit 10.5)	August 9, 2011	000-19319
10.15	Lease, dated as of March 3, 1995, between Fort Washington Realty Trust and Vertex.	10-K (Exhibit 10.15)	Year Ended December 31, 1994	000-19319

	Exhibit Description	Incorporated by Reference herein from—Form or Schedule	Filing Date/ Period Covered

10.16	First Amendment to Lease, dated as of December 29, 1995, between Fort Washington Realty Trust and Vertex Pharmaceuticals Incorporated.	10-K (Exhibit 10.15)	Year Ended December 31, 1995	000-19319
10.17	Second Amendment to Lease, dated as of June 13, 1997, between Fort Washington Realty Trust and Vertex Pharmaceuticals Incorporated.	10-K (Exhibit 10.20)	March 26, 1998	000-19319
10.18	Third, Fourth and Fifth Amendments to Lease between Fort Washington Realty Trust and Vertex Pharmaceuticals Incorporated.†	10-K (Exhibit 10.14)	March 26, 2001	000-19319
10.19	Lease, dated as of September 17, 1999, between Trustees of Fort Washington Realty Trust and Vertex Pharmaceuticals Incorporated.†	10-Q (Exhibit 10.27)	November 15, 1999	000-19319
10.21	Amendment to Lease, dated January 12, 2009, by and between BMR-200 Sidney Street LLC and Vertex Pharmaceuticals Incorporated.	10-Q (Exhibit 10.4)	May 11, 2009	000-19319
10.20	Lease, dated as of January 18, 2001, between Kendall Square, LLC and Vertex Pharmaceuticals Incorporated.†	10-K (Exhibit 10.16)	March 26, 2001	000-19319
10.22	Agreement for Lease, dated as of November 4, 1998, between Milton Park Limited, Vertex Pharmaceuticals Incorporated and Vertex Pharmaceuticals (Europe) Limited.	10-K (Exhibit 10.21)	March 30, 1999	000-19319
10.23	Lease between MEPC Milton Park No.1 Limited and MEPC Milton Park No. 2 Limited, Vertex Pharmaceuticals (Europe) Limited and Vertex Pharmaceuticals Incorporated, dated June 10, 2009.	10-Q (Exhibit 10.1)	August 10, 2009	000-19319
Equity Plans
10.24	1996 Stock and Option Plan, as amended and restated as of March 14, 2005.*	10-K (Exhibit 10.3)	March 16, 2005	000-19319
10.25	Form of Stock Option Grant under 1996 Stock and Option Plan.*	8-K (Exhibit 10.1)	February 9, 2005	000-19319
10.26	Form of Restricted Stock Award under 1996 Stock and Option Plan—Annual Vesting.*	8-K (Exhibit 10.2)	February 9, 2005	000-19319
10.27	Form of Restricted Stock Agreement (Performance Accelerated Restricted Stock) under 1996 Stock and Option Plan.*	8-K (Exhibit 10.3)	February 9, 2005	000-19319
10.28	Amended and Restated 2006 Stock and Option Plan.*	10-Q (Exhibit 10.1)	August 3, 2010	000-19319
10.29	Form of Stock Option Grant under 2006 Stock and Option Plan.*	8-K (Exhibit 10.2)	May 15, 2006	000-19319
10.30	Form of Restricted Stock Award under Stock and Option Plan.*	8-K (Exhibit 10.3)	May 15, 2006	000-19319
10.31	Form of Restricted Stock Award (Performance Accelerated Restricted Stock) under 2006 Stock and Option Plan.*	8-K (Exhibit 10.4)	May 15, 2006	000-19319
10.32	Form of Stock Option Grant-Performance Accelerated 2009 Stock-Options.*	10-K (Exhibit 10.33)	February 19, 2010	000-19319
10.33	Vertex Pharmaceuticals Incorporated Employee Stock Purchase Plan, as amended and restated.*	10-Q (Exhibit 10.8)	August 11, 2008	000-19319

	Exhibit Description	Filed with this report	Incorporated by Reference herein from—Form or Schedule	Filing Date/ Period Covered

Agreements with Executive Officers and Directors
10.34	Agreement between Jeffrey M. Leiden and Vertex, dated December 14, 2011.*	X
10.35	Employee Non-disclosure, Non-competition and Inventions Agreement between Jeffrey M. Leiden and Vertex, dated December 14, 2011.*	X
10.36	Agreement between Matthew W. Emmens and Vertex, dated February 5, 2009.*		8-K (Exhibit 10.1)	February 10, 2009	000-19319
10.38	Transition Agreement between Matthew W. Emmens and Vertex, dated December 14, 2011.*	X
10.39	Employee Non-disclosure, Non-competition and Inventions Agreement between Matthew W. Emmens and Vertex, dated February 5, 2009.*		8-K (Exhibit 10.2)	February 10, 2009	000-19319
10.40	Amended and Restated Employment Agreement, dated February 5, 2010, between Peter Mueller and Vertex.*		10-Q (Exhibit 10.1)	May 3, 2010	000-19319
10.41	Amended and Restated Change of Control Agreement, dated February 5, 2010, between Vertex and Peter Mueller.*		10-Q (Exhibit 10.2)	May 3, 2010	000-19319
10.42	Amended and Restated Employment Agreement, dated as of November 8, 2004, between Vertex and Ian F. Smith.*		10-Q (Exhibit 10.13)	November 9, 2004	000-19319
10.43	Amendment No. 1 to Amended and Restated Employment Agreement between Ian F. Smith and Vertex, dated December 29, 2008.*		10-K (Exhibit 10.66)	February 17, 2009	000-19319
10.44	Employment Agreement, dated as of December 9, 2009 between Vertex and Nancy Wysenski.*		10-K (Exhibit 10.42)	February 19, 2010	000-19319
10.45	Change of Control Agreement, dated as of December 9, 2009 between Vertex and Nancy Wysenski.*		10-K (Exhibit 10.43)	February 19, 2010	000-19319
10.46	Amended and Restated Employment Agreement, dated February 5, 2010, between Lisa Kelly-Croswell and Vertex.*		10-Q (Exhibit 10.5)	May 3, 2010	000-19319
10.47	Amended and Restated Change of Control Agreement, dated February 5, 2010, between Vertex and Lisa Kelly-Croswell.*		10-Q (Exhibit 10.6)	May 3, 2010	000-19319
10.48	Amended and Restated Employment Agreement, dated February 5, 2010, between Amit Sachdev and Vertex.*		10-Q (Exhibit 10.3)	May 3, 2010	000-19319
10.49	Amended and Restated Change of Control Agreement, dated February 5, 2010, between Amit Sachdev and Vertex.*		10-Q (Exhibit 10.4)	May 3, 2010	000-19319
10.50	Employment Agreement, dated as of January 26, 2012 between Vertex and David T. Howton.*	X
10.51	Change of Control Agreement, dated as of January 26, 2012 between Vertex and David T. Howton.*	X
10.52	Employment Agreement, dated as of January 31, 2012 between Vertex and Christiana Stamoulis.*	X
10.53	Change of Control Agreement, dated as of January 31, 2012 between Vertex and Christiana Stamoulis.*	X

	Exhibit Description	Filed with this report	Incorporated by Reference herein from—Form or Schedule	Filing Date/ Period Covered

10.54	Form of Employee Non-Disclosure and Inventions Agreement.*		S-1 (Exhibit 10.4)	May 30, 1991	33-40966
10.55	Vertex Pharmaceuticals Incorporated Executive Compensation Program.*		10-Q (Exhibit 10.6)	May 12, 2008	000-19319
10.56	Vertex Employee Compensation Plan.*	X
10.57	Vertex Pharmaceuticals Non-Employee Board Compensation.*	X
21.1	Subsidiaries of Vertex Pharmaceuticals Incorporated.	X
23.1	Consent of Independent Registered Public Accounting Firm Ernst & Young LLP.	X
31.1	Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.	X
31.2	Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.	X
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer under Section 906 of the Sarbanes- Oxley Act of 2002.	X
101.INS	XBRL Instance**
101.SCH	XBRL Taxonomy Extension Schema**
101.CAL	XBRL Taxonomy Extension Calculation**
101.LAB	XBRL Taxonomy Extension Labels**
101.PRE	XBRL Taxonomy Extension Presentation**
101.DEF	XBRL Taxonomy Extension Definition**

*: Management contract, compensatory plan or agreement.
**: Pursuant to applicable securities laws and regulations, we will be deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and will not be subject to liability under any anti-fraud provisions of the federal securities laws with respect to such interactive data files as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed and otherwise are not subject to liability, except as provided by applicable securities laws and regulations.
†: Confidential portions of this document have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date


/s/ MATTHEW W. EMMENS Matthew W. Emmens	Executive Chairman and Chairman of the Board	February 22, 2012
/s/ JEFFREY M. LEIDEN Jeffrey M. Leiden	Chief Executive Officer, President and Director (Principal Executive Officer)	February 22, 2012
/s/ IAN F. SMITH Ian F. Smith	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February 22, 2012
/s/ PAUL M. SILVA Paul M. Silva	Senior Vice President and Corporate Controller (Principal Accounting Officer)	February 22, 2012
/s/ JOSHUA S. BOGER Joshua S. Boger	Director	February 22, 2012
/s/ TERRENCE C. KEARNEY Terrence C. Kearney	Director	February 22, 2012
/s/ MARGARET G. MCGLYNN Margaret G. McGlynn	Director	February 22, 2012
/s/ WAYNE J. RILEY Wayne J. Riley	Director	February 22, 2012
/s/ BRUCE I. SACHS Bruce I. Sachs	Director	February 22, 2012
/s/ ELAINE S. ULLIAN Elaine S. Ullian	Director	February 22, 2012
/s/ DENNIS L. WINGER Dennis L. Winger	Director	February 22, 2012

We have audited the accompanying consolidated balance sheets of Vertex Pharmaceuticals Incorporated as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders' equity, comprehensive income (loss) and noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vertex Pharmaceuticals Incorporated at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Vertex Pharmaceuticals Incorporated's internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commissions and our report dated February 22, 2012 expressed an unqualified opinion thereon.

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Statements of Operations

(in thousands, except per share amounts)

	Year Ended December 31,

	2011			2010			2009
Revenues:
Product revenues, net	$	950,889		$	—		$	—
Royalty revenues		50,015			30,244			28,320
Collaborative revenues		409,722			113,126			73,569

Total revenues		1,410,626			143,370			101,889
Costs and expenses:
Cost of product revenues		63,625			—			—
Royalty expenses		16,880			12,730			14,202
Research and development expenses		707,706			637,416			550,274
Sales, general and administrative expenses		400,721			187,800			130,192
Restructuring expense		2,074			1,501			6,240
Intangible asset impairment charge		105,800			—			7,200
Acquisition-related expenses		—			—			7,793

Total costs and expenses		1,296,806			839,447			715,901

Income (loss) from operations		113,820			(696,077	)		(614,012	)
Interest income		1,878			1,955			5,010
Interest expense		(38,452	)		(19,275	)		(13,192	)
Change in fair value of derivative instruments		(16,801	)		(41,229	)		(1,847	)
Loss on exchanges of convertible senior subordinated notes (due 2013)		—			—			(18,137	)

Income (loss) before provision for income taxes		60,445			(754,626	)		(642,178	)
Provision for income taxes		19,266			—			—

Net income (loss)		41,179			(754,626	)		(642,178	)
Net income attributable to noncontrolling interest (Alios)		11,605			—			—

Net income (loss) attributable to Vertex	$	29,574		$	(754,626	)	$	(642,178	)

Net income (loss) per share attributable to Vertex common shareholders:
Basic	$	0.14		$	(3.77	)	$	(3.71	)

Diluted	$	0.14		$	(3.77	)	$	(3.71	)

Shares used in per share calculations:
Basic		204,891			200,402			173,259

Diluted		208,807			200,402			173,259

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

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	December 31,

	2011⁽¹⁾			2010
Assets
Current assets:
Cash and cash equivalents	$	475,320		$	243,197
Marketable securities, available for sale		493,602			788,214
Restricted cash and cash equivalents (Alios)		51,878			—
Accounts receivable, net		183,135			12,529
Inventories		112,430			—
Prepaid expenses and other current assets		14,889			13,099

Total current assets		1,331,254			1,057,039

Restricted cash		34,090			34,090
Property and equipment, net		133,176			72,333
Intangible assets		663,500			518,700
Goodwill		30,992			26,102
Other assets		11,268			17,182

Total assets	$	2,204,280		$	1,725,446

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	74,642		$	35,851
Accrued expenses and other current liabilities		252,299			134,414
Accrued interest		3,363			3,462
Deferred revenues, current portion		45,037			74,619
Accrued restructuring expense, current portion		4,932			5,497
Secured notes (due 2012)		—			136,991
Liability related to sale of milestone payments		—			77,799
Income taxes payable (Alios)		12,075			—
Other obligations		—			6,150

Total current liabilities		392,348			474,783

Deferred revenues, excluding current portion		118,095			160,049
Accrued restructuring expense, excluding current portion		21,381			24,098
Convertible senior subordinated notes (due 2015)		400,000			400,000
Deferred tax liability		243,707			160,278
Construction financing obligation		55,950			—
Other liabilities		7,287			2,265

Total liabilities		1,238,768			1,221,473

Commitments and contingencies (Note T and Note U)
Redeemable noncontrolling interest (Alios)		37,036			—

Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding at December 31, 2011 and 2010		—			—
Common stock, $0.01 par value; 300,000,000 shares authorized at December 31, 2011 and 2010; 209,303,995 and 203,522,976 shares issued and outstanding at December 31, 2011 and 2010, respectively		2,072			2,016
Additional paid-in capital		4,200,659			3,947,433
Accumulated other comprehensive loss		(1,053	)		(1,067	)
Accumulated deficit		(3,414,835	)		(3,444,409	)

Total Vertex shareholders' equity		786,843			503,973
Noncontrolling interest (Alios)		141,633			—

Total shareholders' equity		928,476			503,973

Total liabilities and shareholders' equity	$	2,204,280		$	1,725,446

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

Vertex Pharmaceuticals Incorporated

Consolidated Statements of Shareholders' Equity, Comprehensive Income (Loss) and Noncontrolling Interest

(in thousands)

	Common Stock						Accumulated Other Comprehensive Income (Loss)

	Common Stock				Additional Paid-in Capital					Accumulated Deficit			Total Vertex Shareholders' Equity			Noncontrolling Interest (Alios)			Total Shareholders' Equity			Redeemable Noncontrolling Interest (Alios)
	Shares		Amount		Additional Paid-in Capital					Accumulated Deficit			Total Vertex Shareholders' Equity			Noncontrolling Interest (Alios)			Total Shareholders' Equity			Redeemable Noncontrolling Interest (Alios)
Balance, December 31, 2008		151,245	$	1,494	$	2,281,817	$	3,168		$	(2,047,605	)	$	238,874		$	—		$	238,874		$	—

Unrealized holding losses on marketable securities								(3,178	)					(3,178	)					(3,178	)
Foreign currency translation adjustment								(630	)					(630	)					(630	)
Net loss											(642,178	)		(642,178	)					(642,178	)

Comprehensive loss														(645,986	)					(645,986	)
Issuances of common stock:
Convertible senior subordinated notes (due 2013) exchanges		11,582		116		270,776								270,892						270,892
Acquisition of ViroChem		10,734		107		290,450								290,557						290,557
Equity offerings		23,000		230		801,155								801,385						801,385
Benefit plans		3,394		35		53,867								53,902						53,902
Stock-based compensation expense						86,722								86,722						86,722

Balance, December 31, 2009		199,955	$	1,982	$	3,784,787	$	(640	)	$	(2,689,783	)	$	1,096,346		$	—		$	1,096,346		$	—

Unrealized holding gains on marketable securities								46						46						46
Foreign currency translation adjustment								(473	)					(473	)					(473	)
Net loss											(754,626	)		(754,626	)					(754,626	)

Comprehensive loss														(755,053	)					(755,053	)
Issuances of common stock:
Convertible senior subordinated notes (due 2013) conversion		1,386		14		31,551								31,565						31,565
Benefit plans		2,182		20		39,971								39,991						39,991
Stock-based compensation expense						91,124								91,124						91,124

Balance, December 31, 2010		203,523	$	2,016	$	3,947,433	$	(1,067	)	$	(3,444,409	)	$	503,973		$	—		$	503,973		$	—

Unrealized holding losses on marketable securities								(119	)					(119	)					(119	)
Foreign currency translation adjustment								133						133						133
Net income											29,574			29,574			11,605			41,179

Comprehensive income														29,588			11,605			41,193
Issuances of common stock:
Benefit plans		5,781		56		133,362								133,418			(25	)		133,393
Stock-based compensation expense						118,964								118,964			304			119,268
Tax benefit from equity compensation						900								900			—			900
Alios noncontrolling interest upon consolidation																	130,486			130,486			36,299
Dividends on redeemable noncontrolling interest


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2011
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Massachusetts		04-3039129
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
130 Waverly Street, Cambridge, Massachusetts		02139-4242
(Address of principal executive offices)		(Zip Code)

Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.01 Par Value Per Share		The NASDAQ Global Select Market


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o



PART I
Item 1.	Business	1
	Executive Officers and Directors	27
Item 1A.	Risk Factors	32
Item 1B.	Unresolved Staff Comments	52
Item 2.	Properties	52
Item 3.	Legal Proceedings	53
Item 4.	Mine Safety Disclosures	53
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	54
Item 6.	Selected Financial Data	56
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	58
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 8.	Financial Statements and Supplementary Data	79
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79
Item 9A.	Controls and Procedures	79
Item 9B.	Other Information	82
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	83
Item 11.	Executive Compensation	83
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83
Item 13.	Certain Relationships and Related Transactions, and Director Independence	83
Item 14.	Principal Accountant Fees and Services	83
PART IV
Item 15.	Exhibits and Financial Statement Schedules	84
	Signatures	89

Product	Indication	Mechanism	Marketed	Marketing Rights

INCIVEK (telaprevir)	Genotype 1 HCV Infection	HCV Protease Inhibitor	United States and Canada	Vertex
KALYDECO (ivacaftor)	CF (G551D mutation)	CFTR Potentiator	United States	Vertex
INCIVO (telaprevir)	Genotype 1 HCV Infection	HCV Protease Inhibitor	United Kingdom, Germany, France, Sweden, Austria, Finland, Denmark, Switzerland and Norway	Janssen
TELAVIC (telaprevir)	Genotype 1 HCV Infection	HCV Protease Inhibitor	Japan	Mitsubishi Tanabe

Drug Candidate	Indication	Mechanism	Development Stage	Marketing Rights

*HCV Infection*
VX-222	HCV Infection	Non-nucleoside HCV Polymerase Inhibitor	Phase 2	Vertex
ALS-2158	HCV Infection	HCV Nucleotide Analogue	Phase 1	Vertex
ALS-2200	HCV Infection	HCV Nucleotide Analogue	Phase 1	Vertex
*Cystic Fibrosis*
VX-809	Cystic Fibrosis	CFTR Corrector	Phase 2	Vertex
VX-661	Cystic Fibrosis	CFTR Corrector	Phase 2	Vertex
*Immune-mediated Inflammatory Diseases*
VX-509	Rheumatoid Arthritis	JAK3 Inhibitor	Phase 2	Vertex
*Epilepsy*
VX-765	Epilepsy	ICE Inhibitor	Phase 2	Vertex
*Influenza*
VX-787	Influenza A Infection	Influenza Virus Inhibitor	Phase 1	Vertex

Year Ended December 31, 2011:	High		Low

First quarter	$	52.13	$	35.19
Second quarter		58.87		44.57
Third quarter		54.38		39.06
Fourth quarter		45.26		26.50

Year Ended December 31, 2010:

First quarter	$	44.24	$	36.15
Second quarter		41.62		32.41
Third quarter		37.95		31.25
Fourth quarter		38.70		32.08

Period		Average Price Paid per Share

Oct. 1, 2011 to Oct. 31, 2011	26,543	$	0.01	—	—
Nov. 1, 2011 to Nov. 30, 2011	39,476	$	0.01	—	—
Dec. 1, 2011 to Dec. 31, 2011	11,337	$	0.01	—	—

	2011		2010		2009

	(in thousands)
Collaborative revenues:
Janssen	$	274,393	$	30,750	$	54,640
Mitsubishi Tanabe		121,675		81,868		18,711
Other		13,654		508		218

Total collaborative revenues	$	409,722	$	113,126	$	73,569

	2011

	(in thousands)
Loss before provision for income taxes	$	(9,536	)
Provision for income taxes		(48,809	)
Change in fair value of contingent milestone and royalty payments		69,950

Net income attributable to noncontrolling interest (Alios)	$	11,605

		Page Number in this Form 10-K

Report of Independent Registered Public Accounting Firm			F-1
Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009			F-2
Consolidated Balance Sheets as of December 31, 2011 and 2010			F-3
Consolidated Statements of Shareholders' Equity, Comprehensive Income (Loss) and Noncontrolling Interest for the years ended December 31, 2011, 2010 and 2009			F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009			F-5
Notes to Consolidated Financial Statements			F-6


	VERTEX PHARMACEUTICALS INCORPORATED
February 22, 2012	By:	/s/ JEFFREY M. LEIDEN Jeffrey M. Leiden Chief Executive Officer