10-K – 2026-02-13 – vrtx-20251231.htm

We make significant estimates and judgments that materially affect our recognition of net product revenues. Our most
significant estimate relates to determining amounts due pursuant to the Medicaid Drug Rebate Program, including estimating
the level of expected utilization of the rebates based on the amount of product sold to eligible patients. We adjust our
estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates,
chargebacks and discounts for our products, as it becomes available. Claims by Third-party Payors for rebates, chargebacks
and discounts frequently are submitted to us significantly after the related sales, potentially resulting in adjustments in the
period in which the new information becomes known. Our credits to product revenue related to prior period sales have not
been significant and primarily related to rebates and discounts.
Our payment terms, which typically range from 30 to 150 days depending on the product and market, are consistent with
prevailing market practice. We do not adjust our net product revenues for the effects of a significant financing component for
transactions where we expect, at contract inception, the period between our customer obtaining control of our product and
when we receive payment to be one year or less.
We exclude taxes collected from customers relating to product sales and remitted to governmental authorities from
revenues.
Contract Liabilities
We had contract liabilities of $ 171.8 million and $ 206.8 million as of December 31, 2025 and 2024 , respectively,
primarily related to annual contracts with government-owned and supported customers in international markets that limit the
amount of annual reimbursement we can receive for our CF products. Upon exceeding the annual reimbursement amount
provided by the customer’s contract with us, our CF products are provided free of charge, which is a material right. These
contracts include upfront payments and fees. If we estimate that we will exceed the annual reimbursement amount under a
contract, we defer a portion of the consideration received for shipments made up to the annual reimbursement limit as a
portion of “ Other current liabilities .” Once the reimbursement limit has been reached, we recognize the deferred amount as
revenue when we deliver the free products. Our CF product revenue contracts include performance obligations that are one
year or less.
Our contract liabilities at the end of each fiscal year relate to contracts with CF annual reimbursement limits in
international markets in which the annual period associated with the contract is not the same as our fiscal year. In these
markets we recognize revenues related to performance obligations satisfied in previous years; however, these revenues do not
relate to any performance obligations that were satisfied more than 12 months prior to the beginning of the current year.
During the years ended December 31, 2025 , 2024 and 2023 , we recorded $ 206.8 million , $ 170.3 million and $ 159.6 million ,
respectively, of CF product revenues that were recorded as contract liabilities at the beginning of the year.
Other Revenues
We have not recognized significant revenues other than our product revenues during the three years ended December 31,
2025 . In 2025 , our “ Other revenues ” were primarily relate d to $ 20.6 million and $ 10.0 million associated with upfront
payments, for licenses that we concluded were distinct, received from our agreements with Ono Pharmaceuticals Co., Ltd.
(“Ono”) and Zai Lab Limited (“Zai”), respectively. Please refer to Note B, “Collaboration, License and Other
Arrangements,” for further information about these agreements. In future periods, we may recognize additional other
revenues generated through collaborative research, development and/or commercialization agreements related to one or more
of the following: nonrefundable upfront license fees; development and commercial milestones; funding of research and
development activities; and royalties on net sales of licensed products. Revenue is recognized upon satisfaction of a
performance obligation by transferring control of a good or service to our collaborator.
For each agreement that results in revenue, we identify all material performance obligations and determine the
transaction price by estimating the amount of variable consideration at the outset of the contract. We constrain (reduce) the
estimate of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not
occur throughout the life of the contract. We utilize the sales- and usage-based royalty exception in arrangements that
resulted from the license of intellectual property, recognizing revenues generated from royalties as the underlying sales occur.

F-11

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Once the estimated transaction price is established, amounts are allocated to each separate performance obligation that
has been identified on a relative standalone selling price basis. The consideration allocated to each distinct performance
obligation is recognized as revenue when control of the related goods or services is transferred.
Cost of Sales
Our cost of sales primarily includes royalty expenses, cost of product sales, intangible asset amortization expenses, and
other items related to our manufacturing processes, adjusted by CRISPR Therapeutics AG’s (“CRISPR”) share of the net
commercial profits or losses for CASGEVY. Please refer to Note B, “Collaboration, License and Other Arrangements,” for
further information on our royalties related to our CF products and our agreements with CRISPR related to the treatment of
net commercial profits or losses for CASGEVY.
Shipping and handling costs incurred for inventory purchases are capitalized and recorded upon sale in “ Cost of sales ” in
our consolidated statements of income (loss) . Shipping and handling costs incurred for product shipments are recorded as
incurred in “ Cost of sales ” in our consolidated statements of income (loss) .
Research and Development Expenses
Research and development expenses are comprised of costs we incur in performing research and development activities,
including salary and benefits; stock-based compensation expense; outsourced services and other direct expenses, including
clinical trial, pharmaceutical development and drug supply costs; and infrastructure costs, including facilities costs and
depreciation expense . We recognize research and development expenses as incurred. We capitalize nonrefundable advance
payments we make for research and development activities and expense the payments as the related goods are delivered or
the related services are performed.
Acquired In-process Research and Development Expenses
Our research and development activities include upfront, contingent milestone, and other payments pursuant to our
business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions. In-
process research and development that is acquired in a transaction that does not qualify as a business combination under U.S.
GAAP and that does not have an alternative future use is recorded to “ Acquired in-process research and development
expenses ” (“AIPR&D”) in our consolidated statements of income (loss) in the period in which it is acquired.
In transactions that do not qualify as a business combination, we present the cost to acquire AIPR&D within our "Cash
flows from operating activities" in our consolidated statements of cash flows.
Stock-based Compensation Expense
We expense the fair value of employee restricted stock units and other forms of stock-based employee compensation
over the associated employee service period on a straight-line basis. Stock-based compensation expense is determined based
on the fair value of the award at the grant date and is adjusted each period to reflect actual forfeitures and the outcomes of
certain performance conditions.
For awards with performance conditions in which the award does not vest unless the performance condition is met, we
recognize expense if, and to the extent that, we estimate that achievement of the performance condition is probable. If we
conclude that vesting is probable, we recognize expense from the date we reach this conclusion through the estimated vesting
date.
We provide to employees who have rendered a certain number of years of service to Vertex and meet certain age
requirements, partial or full acceleration of vesting of these equity awards, subject to certain conditions including a
notification period, upon a termination of employment other than for cause. A low percentage of our employees were eligible
for partial or full acceleration of any of their equity awards as of December 31, 2025 . We recognize stock-based
compensation expense related to these awards over a service period reflecting qualified employees’ eligibility for partial or
full acceleration of vesting.

F-12

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Please refer to Note N, “Stock-based Compensation Expense,” for tables displaying our stock-based compensation
expense by type of award and by line item within our consolidated statements of income (loss) .
Advertising Costs
Advertising co sts, including promotional expenses were $ 202.8 million , $ 85.7 million and $ 45.8 million in 2025 , 2024
and 2023 , respectively. Our advertising costs are expensed as incurred and recorded to “ Selling, general and administrative
expenses ,” in our consolidated statements of income (loss) .
Fair Value of Contingent Consideration
We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on
industry data and our knowledge of the programs and viability of the programs. Estimates included in the discounted cash
flow models pertaining to contingent payments also include: (i) estimates regarding the timing of the relevant development
and commercial milestones and royalties, and (ii) and appropriate discount rates. We record any increases or decreases in the
fair value of our contingent payments to “ Change in fair value of contingent consideration ” in our consolidated statements of
income (loss) . We record our contingent consideration liabilities at fair value on our consolidated balance sheets as “ Other
current liabilities ” or “ Other long-term liabilities ” depending on when we estimate we will pay them. Please refer to Note D,
“Fair Value Measurements,” for further information.
Income Taxes
Our provision for income taxes is accounted for under the asset and liability method and includes federal, state, local and
foreign taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences
between the financial statement carrying amounts and the income tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary
differences are expected to be recovered or settled. A valuation allowance is applied against any net deferred tax asset if,
based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a
periodic basis, we reassess the valuation allowance on our deferred income tax assets weighing positive and negative
evidence to assess the recoverability of our deferred tax assets. We include, among other things, our recent financial
performance and our future projections in this periodic assessment.
We record liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. We evaluate our uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to,
changes in tax law, the measurement of tax positions taken or expected to be taken in our tax returns, and changes in facts or
circumstances related to a tax position. We adjust our liabilities to reflect any subsequent changes in the relevant facts and
circumstances surrounding the uncertain positions. We accrue interest and penalties related to unrecognized tax benefits as a
component of our “ Provision for income taxes.”
As part of the U.S. Tax Cut and Jobs Act of 2017, we are subject to a territorial tax system, under which we must
establish an accounting policy to provide for tax on Net Controlled Foreign Corporation Tested Income (“NCTI”) (formerly
Global Intangible Low Taxed Income) earned by certain foreign subsidiaries. We have elected to treat the impact of NCTI as
a current tax expense in our “ Provision for income taxes.”
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is based upon the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per common share utilizing the treasury-stock method is based upon the
weighted-average number of common shares outstanding during the period plus additional weighted-average common
equivalent shares outstanding during the period when the effect is dilutive. Potentially dilutive shares result from the assumed
(i) vesting of restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”), and (ii) exercise of
outstanding stock options. The proceeds of such vestings or exercises are assumed to have been used to repurchase
outstanding stock using the treasury-stock method.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive (loss) income , which includes
foreign currency translation adjustments and unrealized gains and losses on foreign currency forward contracts and our
available-for-sale debt securities. For purposes of comprehensive income disclosures, we record provisions for or benefits
from income taxes related to the unrealized gains and losses on foreign currency forward contracts and our available-for-sale
debt securities. We record provisions for or benefits from income taxes related to our cumulative translation adjustment only
for those undistributed earnings in our foreign subsidiaries that we do not intend to permanently reinvest.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be
cash equivalents.
Marketable Securities
As of December 31, 2025 , our marketable securities consisted of investments in available-for-sale debt securities and
corporate equity securities with readily determinable fair values. We classify marketable securities with current maturities of
less than one year as current assets on our consolidated balance sheets. The remainder of our marketable securities are
classified as long-term assets within “ Long-term marketable securities ” on our consolidated balance sheets. The fair value of
these securities is based on quoted prices for identical or similar assets.
We record unrealized gains (losses) on available-for-sale debt securities as a component of “Accumulated other
comprehensive (loss) income ,” which is a separate component of shareholders’ equity on our consolidated balance sheets,
until such gains and losses are realized. Realized gains and losses, if any, are determined using the specific identification
method.
For available-for-sale debt securities in unrealized loss positions, we are required to assess whether to record an
allowance for credit losses using an expected loss model. A credit loss is limited to the amount by which the amortized cost
of an investment exceeds its fair value. A previously recognized credit loss may be decreased in subsequent periods if our
estimate of fair value for the investment increases. To determine whether to record a credit loss, we consider issuer specific
credit ratings and historical losses as well as current economic conditions and our expectations for future economic
conditions.
We record changes in the fair value of our investments in corporate equity securities to “Other expense , net” in our
consolidated statements of income (loss) . Realized gains and losses, which are also included in “Other expense , net,” are
determined on an original weighted-average cost basis.
Accounts Receivable
We deduct invoice discounts for prompt payment and fees for distribution services from our accounts receivable based
on our experience that our customers will earn these discounts and fees. Our estimates for our allowance for credit losses,
which has not been significant to date, is determined based on existing contractual payment terms, historical payment
patterns, current economic conditions and our expectation for future economic conditions.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist principally of cash equivalents and
marketable securities. We place these investments with highly rated financial institutions, and, by policy, limit the amount of
credit exposure to any one financial institution. We also maintain a foreign currency hedging program that includes foreign
currency forward contracts with several counterparties. We have not experienced any credit losses related to these financial
instruments and do not believe we are exposed to any significant credit risk related to these instruments.
We are also subject to credit risk from our accounts receivable related to our product sales and collaborators. We
evaluate the creditworthiness of each of our customers and have determined that all our material customers are creditworthy.
To date, we have not experienced significant losses with respect to the collection of our accounts receivable. We believe that

F-14

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

our allowances, which are not significant to our consolidated financial statements, are adequate at December 31, 2025 . Please
refer to Note Q, “Segment Information,” for further information.
Inventories
We value our inventories at the lower-of-cost or net realizable value. We determine the cost of our inventories, which
include amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We perform an assessment of
the recoverability of our capitalized inventory during each reporting period and write down any excess and obsolete
inventories to their net realizable value in the period in which the impairment is first identified.
We capitalize inventories prior to regulatory approval when we consider the related product candidate to have a high
likelihood of regulatory approval and expect to recover the related costs. In making this determination, we evaluate, among
other factors, the status of regulatory submissions and communications with regulatory authorities, information regarding the
product candidate’s safety and efficacy, and the outlook for commercial sales, including the existence of any competition.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation expense is recorded using
the straight-line method over the estimated useful life of the related asset generally as follows:

Description

Estimated Useful Life

Buildings and improvements

15 to 40 years

Laboratory equipment, other equipment and furniture

7 to 10 years

Leasehold improvements; assets under finance leases

The shorter of the useful life of the assets or the estimated
remaining term of the associated lease

Computers and software

3 to 5 years

Maintenance and repairs to an asset that do not improve or extend its life are expensed as incurred. When assets are
retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in our consolidated statements of income (loss) . We perform an assessment of the fair value
of the assets if indicators of impairment are identified during a reporting period and record the assets at the lower of the net
book value or the fair value of the assets.
We capitalize costs incurred to develop software for internal use during the application development stage, which are
depreciated over the useful life of the related asset.
Goodwill
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business
combination is allocated to goodwill. Goodwill is evaluated for impairment by reporting unit on an annual basis as of
October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. As
noted in Basis of Presentation above, we have one operating segment , pharmaceuticals, which is our only reporting unit.
In-process Research and Development Assets
We record the fair value of in-process research and development assets as of the transaction date of a business
combination on our consolidated balance sheets as “ Other intangible assets, net .” These assets are used in research and
development activities but have not yet reached technological feasibility, which occurs when we complete the research and
development efforts by obtaining regulatory approval to market an underlying product candidate. We characterize in-process
research and development assets on our consolidated balance sheets as indefinite-lived intangible assets until either they
achieve regulatory approval and become finite-lived intangible assets, or the assets are impaired. Upon completion of the
associated research and development efforts, we will determine the remaining estimated life of the marketed product and
begin amortizing the carrying value of the assets over this period. If the assets become impaired or are abandoned, the
carrying value is written down to fair value, and we record an impairment charge in the period in which the impairment

F-15

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

occurs. We test in-process research and development assets for impairment on an annual basis as of October 1, and more
frequently if indicators are present or changes in circumstances suggest that impairment may exist.
The fair value of our in-process research and development assets is determined using either the multi-period excess
earnings or the relief from royalty methods of the income approach. Each method requires us to make: (i) assumptions
regarding the probability of obtaining marketing approval for a product candidate; (ii) estimates of future cash flows from
potential product sales with respect to a product candidate; and (iii) appropriate discount and tax rates. The multi-period
excess earnings method also requires us to estimate the timing of and the expected costs to develop and commercialize a
product candidate. The relief from royalty method also requires us to estimate the after-tax royalty savings expected from
ownership of a product candidate that we acquired.
Finite-lived Intangible Assets
We record finite-lived intangible assets at cost, net of accumulated amortization, on our consolidated balance sheets as
“ Other intangible assets, net .” Most of these assets relate to our marketed products and may include, among other things,
completed research and development projects that were previously reflected on our consolidated balance sheets as in-process
research and development assets, or rights to developed technology associated with in-licenses, regulatory approval
milestones due to our collaborators, or other payments. We amortize our finite-lived intangible assets related to our marketed
products using the straight-line method within “ Cost of sales ” over the remaining estimated life of the assets beginning in the
period in which regulatory approval is achieved or the assets are acquired and continuing through the period that we no
longer have either exclusive rights to market the products associated with the assets or in-license rights to the intellectual
property underlying the assets.
We test our finite-lived intangible assets for impairment if indicators are present or changes in circumstances suggest that
the carrying value of the assets may not be recoverable. If we determine that the carrying value of a finite-lived intangible
asset may not be recoverable, we compare the carrying value of the asset’s group to the undiscounted cash flows that we
expect the asset group to generate. When we determine that a finite-lived intangible asset has become impaired, we write
down the carrying value of the asset to its fair value and record an impairment charge in the period in which the impairment
occurs.
Leases
We determine whether an arrangement contains a lease at inception. If a lease is identified in an arrangement, we
recognize a right-of-use asset and liability on our consolidated balance sheet and determine whether the lease should be
classified as a finance or operating lease. We do not recognize assets or liabilities for leases with lease terms of less than 12
months.
A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a
transfer of ownership of the leased asset to Vertex by the end of the lease term, (ii) we hold an option to purchase the leased
asset that we are reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the
leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the
leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no
alternative use at the end of the lease term. All other leases are recorded as operating leases.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present
value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily
determinable, we utilize our incremental borrowing rate at the lease commencement date. Operating lease assets are further
adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an
operating expense over the lease term. Finance lease assets are amortized to depreciation expense using the straight-line
method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a
portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the
lease.
For our real estate leases, we account for lease and fixed non-lease components together as a single lease component. For
our embedded leases with contract manufacturing organizations, we account for the lease component separately from the

F-16

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

non-lease components. Variable lease payments are expensed as incurred. If a lease includes an option to extend or terminate
the lease, we reflect the option in the lease term if it is reasonably certain we will exercise the option.
Finance leases are recorded in “ Property and equipment, net ,” “ Other current liabilities ” and “ Other long-term
liabilities ,” and operating leases are recorded in “ Operating lease assets ,” “ Other current liabilities ” and “ Long-term operating
lease liabilities ” on our consolidated balance sheets.
Cloud Computing Service Contracts
We classify costs incurred to implement cloud computing service contracts as “ Other assets ” on our consolidated balance
sheets. Amortization is recorded over the noncancellable term of the cloud computing service contract, plus any optional
renewal periods that are reasonably certain to be exercised.
Hedging Activities
We recognize the fair value of our foreign currency forward contracts that are designated and qualify as hedging
instruments pursuant to U.S. GAAP as either assets or liabilities on our consolidated balance sheets. Changes in the fair value
of these instruments are recorded each period in “Accumulated other comprehensive (loss) income ” as unrealized gains and
losses until the forecasted underlying transaction occurs. Unrealized gains and losses on these foreign currency forward
contracts are included in “ Prepaid expenses and other current assets ” or “ Other assets ,” and “ Other current liabilities ” or
“ Other long-term liabilities ,” respectively, on our consolidated balance sheets depending on the remaining period until their
contractual maturity. Realized gains and losses for the effective portion of such contracts are recognized in “ Product
revenues, net ” in our consolidated statement of income in the same period that we recognize the product revenues that were
impacted by the hedged foreign exchange rate changes. We classify the cash flows from hedging instruments in the same
category as the cash flows from the hedged items.
Certain of our hedging instruments are subject to master netting arrangements to reduce the risk arising from such
transactions with our counterparties. We present unrealized gains and losses on our foreign currency forward contracts on a
gross basis within our consolidated balance sheets.
We also enter into for eign currency forward contracts designed to mitigate the effect of changes in foreign exchange
rates on monetary assets and liabilities. Realized gains and losses for these contracts are recognized in “Other expense , net”
in our consolidated statements of income (loss) each period because they are not designated as hedge instruments pursuant to
U.S. GAAP.
Lega l Matters
We are and may become subject to claims and legal proceedings in the ordinary course of our business activities. If we
determine that it is probable that future expenditures will be made for a particular matter and such expenditures can be
reasonably estimated, we accrue a loss contingency based on our best estimate of the probable range of loss. We accrue the
minimum amount within the probable range of loss if no amount within the range is more likely than another. If we determine
that future expenditures are not probable, or probable but not reasonably estimated, we do not accrue a loss contingency. If
we determine that a material loss is reasonably possible and the range of loss can be estimated, we disclose the possible range
of loss.
Foreign Currency Translation and Transactions
The majority of our operations occur in entities that have the U.S. dollar denominated as their functional currency. The
assets and liabilities of our entities with functional currencies other than the U.S. dollar are translated into U.S. dollars at
exchange rates in effect at the end of the year. Revenue and expense amounts for these entities are translated using the
average exchange rates for the period. Changes resulting from foreign currency translation are included in “Accumulated
other comprehensive (loss) income .” Net foreign currency exchange transaction losses , which are included in “Other expense ,
net” on our consolidated statements of income (loss) , were $ 13.7 million , $ 27.3 million and $ 24.6 million for 2025 , 2024 and
2023 , respectively. These net foreign currency exchange losses are presented net of the impact of the foreign currency
forward contracts designed to mitigate their effect on our consolidated statements of income (loss) .

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Share Repurchase Programs
Repurchases of our common stock are recorded as reductions to “Common Stock” and “ Additional paid-in capital ”
pursuant to our established accounting policy. Repurchases in excess of the par value will be recorded as reductions to
“ Retained earnings ” in the event that “ Additional paid-in capital ” is reduced to zero.
Recently Adopted Accounting Standards
Segment Reporting
In 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public
entities to disclose significant segment expenses and other segment items. ASU 2023-07 also requires public entities to
provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required
annually. ASU 2023-07 became effective for the annual period starting on January 1, 2024, and for the interim periods
starting on January 1, 2025. We have disclosed significant segment expenses, other segment items, and our measure of
segment profit or loss in Note Q, “Segment Information.”
Income Tax Disclosures
In 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU
2023-09”), which requires public entities to disclose in their rate reconciliation table additional categories of information
about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if
items meet a quantitative threshold. ASU 2023-09 became effective for the annual period starting on January 1, 2025. The
adoption of ASU 2023-09, on a prospective basis, resulted in expansion of our income tax footnote disclosures in Note O,
“Income Taxes,” including a more detailed effective tax rate reconciliation.
Recently Issued Accounting Standards
Disaggregation of Income Statement Expenses
In 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which
requires public entities, among other items, to disclose in a tabular format, on an annual and interim basis, purchases of
inventory, employee compensation, depreciation, intangible asset amortization and depletion for each income statement line
item that contains those expenses. ASU 2024-03 becomes effective for the annual period starting on January 1, 2027 and
interim periods starting on January 1, 2028. We are in the process of analyzing the impact that the adoption of ASU 2024-03
will have on our disclosures.
Internal-Use Software
In 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which eliminates consideration of the
software project development stages and replaces them with modernized recognition and measurement guidance designed to
reflect current internal-use software development practices. ASU 2025-06 becomes effective for the annual and interim
periods starting on January 1, 2028. We are in the process of analyzing the impact that the adoption of ASU 2025-06 will
have on our consolidated financial statements and related disclosures.

B. Collaboration, License and Other Arrangements
Acquired In-Process Research and Development
We have entered into numerous business development agreements with third parties to collaborate on research,
development and commercialization programs, license technologies, or acquire assets. Our AIPR&D included $ 133.0 million ,
$ 4.6 billion and $ 527.1 million in 2025 , 2024 and 2023 , respectively, related to upfront, contingent milestone, or other

F-18

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

payments pursuant to our business development transactions. In 2024, our AIPR&D included $ 4.4  billion associated with our
acquisition of Alpine Immune Sciences, Inc. (“Alpine”) as discussed below.
Asset Acquisitions
Alpine Immune Sciences, Inc. - povetacicept
On May 20, 2024, we acquired all of the issued and outstanding shares of common stock of Alpine, a publicly traded
biotechnology company focused on discovering and developing innovative, protein-based immunotherapies for
approximately $ 5.0  billion . We funded the Alpine acquisition with our cash and cash equivalents.
Alpine’s lead molecule, povetacicept, is a dual inhibitor of B cell activating factor (“BAFF”) and a proliferation-inducing
ligand (“APRIL”) pathways. As of the acquisition date, povetacicept was in Phase 2 development and had shown potential
best-in-class efficacy in IgAN, a serious progressive, life-threatening kidney disease that often progresses to end-stage-renal
disease. Due to its mechanism of action as a dual BAFF/APRIL inhibitor, povetacicept also holds the potential to benefit
patients with multiple diseases, such as pMN and generalized myasthenia gravis. We accounted for the Alpine transaction as
an asset acquisition because povetacicept represented substantially all of the fair value of the gross assets that we acquired.
As a result, $ 4.4  billion of fair value attributed to povetacicept was expensed to AIPR&D in 2024.
We paid total cash of $ 5.0  billion at the acquisition date, which included $ 4.8  billion to acquire Alpine and
$ 197.6  million for cash-settled unvested Alpine equity awards. The $ 197.6  million represented post-acquisition expense,
which was recorded as $ 165.0  million of “ Research and development expenses ” and $ 32.6  million of “ Selling, general and
administrative expenses .”
The total cash paid to acquire Alpine, allocation of consideration to the assets acquired and liabilities assumed and
AIPR&D was as follows:

(in millions)

Cash consideration to acquire Alpine’s outstanding common stock

$ 4,536.9

Cash consideration for Alpine’s vested and unvested equity awards

420.6

Total cash consideration paid to Alpine

4,957.5

Less: Expense related to unvested equity awards

( 197.6 )

Transaction costs

40.7

Total consideration allocated

$ 4,800.6

Cash and cash equivalents

$ 31.9

Current marketable securities

209.5

Long-term marketable securities

48.5

Deferred tax asset

105.5

Total other assets

19.5

Total liabilities

( 37.5 )

Total identifiable assets acquired, net

377.4

Acquired in-process research and development expense

4,423.2

Total consideration allocated

$ 4,800.6

In-license Agreements
We have entered into several in-license agreements to advance and obtain access to technologies and services related to
our research and early-development activities. We are generally required to make an upfront payment upon execution of our
license agreements; development, regulatory and commercialization milestones payments upon the achievement of certain

F-19

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

product research, development and commercialization objectives; and royalty payments on future sales, if any, of commercial
products resulting from our collaborations.
Pursuant to the terms of our in-license agreements, our collaborators typically lead the discovery efforts and we lead all
preclinical, development and commercialization activities associated with the advancement of any product candidates and
fund all expenses.
We typically can terminate our in-license agreements by providing advance notice to our collaborators. Our license
agreements may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless
earlier terminated, these license agreements generally remain in effect until the date on which the royalty term and all
payment obligations with respect to all products in all countries have expired.
CRISPR Therapeutics AG
CRISPR-Cas9 Gene-editing Therapies Agreements
In 2015, we entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with
CRISPR and its affiliates to collaborate on the discovery and development of potential new treatments aimed at the
underlying genetic causes of human diseases using CRISPR-Cas9 gene-editing technology. We had the exclusive right to
license certain targets. In 2019, we elected to exclusively license three targets, including CF, pursuant to the CRISPR
Agreement. For each of the three targets that we elected to license, CRISPR has the potential to receive up to an additional
$ 410.0 million in development, regulatory and commercial milestones as well as royalties on resulting net product sales.
In 2017, we entered into a joint development and commercialization agreement with CRISPR (the “CRISPR JDCA”),
which we amended and restated in 2021, pursuant to the terms of the CRISPR Agreement. Under the CRISPR JDCA, we and
CRISPR were co-developing and preparing to co-commercialize CASGEVY for the treatment of hemoglobinopathies,
including treatments for SCD and TDT.
Pursuant to the CRISPR JDCA, we lead global development, manufacturing and commercialization of CASGEVY, with
support from CRISPR. We also conduct all research, development, manufacturing and commercialization activities relating
to other product candidates and products under the CRISPR JDCA throughout the world subject to CRISPR’s reserved right
to conduct certain activities.
CASGEVY was approved by the FDA in December 2023 for the treatment of SCD. In connection with this approval, we
made a $ 200.0  million milestone payment to CRISPR in January 2024. Please refer to Note J, “Goodwill and Other
Intangible Assets,” for further information. Subsequent to receiving marketing approval for CASGEVY, we continue to lead
the research and development activities under the CRISPR JDCA, subject to CRISPR’s reserved right to conduct certain
activities. We are reimbursed by CRISPR for its 40 % share of these research and development activities, subject to certain
adjustments, and we record this reimbursement from CRISPR as a credit within “ Research and development expenses .” We
also share with CRISPR 40 % of the net commercial profits or losses incurred with respect to CASGEVY, subject to certain
adjustments, which is recorded to “ Cost of sales .” The net commercial profits or losses equal the sum of the product
revenues, cost of sales and selling, general and administrative expenses that we have recognized related to the CRISPR
JDCA. In 2025 and 2024 , we recognized net reimbursements from CRISPR pursuant to the CRISPR JDCA as credits to
“ Cost of sales ” of $ 146.8  million and $ 73.5 million , respectively, related to CRISPR’s share of the CRISPR JDCA’s net
commercial loss, and to “ Research and development expenses ” of $ 62.2  million and $ 31.6 million , respectively, related to
CRISPR’s share of the CRISPR JDCA’s research and development activities.
During 2025, we received $ 12.5  million from CRISPR, pursuant to the CRISPR JDCA, for its share of our upfront
payment paid to Orna Therapeutics in December 2024, which we recorded as a credit to AIPR&D in 2025.
Prior to receiving marketing approval from the FDA for CASGEVY in December 2023, we accounted for the CRISPR
JDCA as a cost-sharing arrangement, with costs incurred related to CASGEVY allocated 60 % to us and 40 % to CRISPR,
subject to certain adjustments. In 2023, we recognized net reimbursements from CRISPR as credits to “ Research and
development expenses ” of $ 61.9 million to “ Selling, general and administrative expenses ” of $ 32.0 million , related to
CRISPR’s share of the CRISPR JDCA’s operating expenses.

F-20

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

CRISPR-Cas9 Gene-editing Hypoimmune Cell Therapies Agreement
In 2023, we entered into a non-exclusive license agreement (the “CRISPR T1D Agreement”) for the use of CRISPR’s
CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for T1D. Pursuant to
the CRISPR T1D Agreement, we made a $ 100.0  million upfront payment to CRISPR, and we determined that substantially
all the fair value of our upfront payment was attributable to in-process research and development, for which there is no
alternative future use, and that no substantive processes were acquired that would constitute a business. In the second quarter
of 2023, we achieved a research milestone that resulted in a $ 70.0  million payment to CRISPR. We recorded the upfront
payment and the research milestone, totaling $ 170.0  million , to AIPR&D in 2023. In 2024, we achieved additional research
milestones totaling $ 35.0  million , which were recorded to AIPR&D. CRISPR is eligible to receive up to an additional
$ 125.0  million in research, development, regulatory and commercial milestones, as well as royalties on resulting net product
sales.
Entrada Therapeutics, Inc.
In 2023, we entered into a strategic collaboration and license agreement (the “Entrada Agreement”) with Entrada
Therapeutics, Inc. (“Entrada”) focused on discovering and developing intracellular therapeutics for DM1. Upon closing, we
made an upfront payment of $ 225.1  million to Entrada, and purchased $ 24.9  million of Entrada’s common stock in
connection with the Entrada Agreement. We determined that substantially all the fair value of our upfront payment was
attributable to in-process research and development, for which there was no alternative future use, and that no substantive
processes were acquired that would constitute a business. In 2024 and 2023, Entrada also earned milestones of $ 75.0  million
and $ 17.5  million , respectively. As a result, we recorded $ 75.0  million and $ 242.6  million in total to AIPR&D in 2024 and
2023, respectively. We recorded the investment in Entrada’s common stock at fair value on our consolidated balance sheet
within “ Marketable securities .” Entrada is eligible to receive up to an additional $ 335.0  million in development, regulatory
and commercial milestones for any products that may result from the Entrada Agreement, as well as royalties on resulting net
product sales.
Moderna, Inc.
In 2016, we entered into a strategic collaboration and licensing agreement with Moderna, Inc. (“Moderna”), pursuant to
which the parties are seeking to identify and develop messenger ribonucleic acid (“mRNA”) therapeutics encoding cystic
fibrosis transmembrane conductance regulator for the treatment of CF. Moderna is eligible to receive up to $ 270.0  million in
development and regulatory milestones as well as royalties on net product sales related to this agreement.
Additional In-License Agreements and Other Arrangements
In addition to the agreements described above, we recorded upfront, option and milestone payments totaling $ 145.5
million in 2025 , $ 95.2 million in 2024 and $ 114.5 million in 2023 to AIPR&D related to additional in-license agreements and
other business development transactions that we do not consider to be individually significant to our consolidated financial
statements. For each of these transactions, we determined that substantially all the fair value of the consideration for each
individual agreement was attributable to in-process research and development, for which we did not have any alternative
future use, and no substantive processes were acquired that would constitute a business.
Please refer to Note D, “Fair Value Measurements,” and Note E, “Marketable Securities and Equity Investments,” for
further information regarding our investments in our collaborators.
Out-license Agreements
We have entered into licensing agreements pursuant to which we have out-licensed rights to certain product candidates to
third-party collaborators. Pursuant to these out-license agreements, our collaborators may become responsible for all costs
related to the continued development of such product candidates and obtain development and commercialization rights to
these product candidates, either globally or within certain geographic regions. Depending on the terms of the agreements, our
collaborators may be required to make upfront payments, milestone payments upon the achievement of certain product
research, development and regulatory objectives and may also be required to pay royalties on future sales, if any, of

F-21

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

commercial products resulting from the collaboration. The termination provisions associated with these collaborations are
generally the same as those described above related to our in-license agreements.
Zai Lab Limited
In January 2025, we entered into an agreement with Zai for the development and commercialization of povetacicept for
mainland China, Hong Kong SAR, Macau SAR, Taiwan region, and Singapore. Under the agreement, Zai will help advance
the povetacicept c linical trials and will be responsible for obtaining marketing authorizations in the licensed territories. Zai
will also be responsible for commercialization activities in the licensed territories, if povetacicept becomes an approved
product. Under the terms of the agreement, we received a $ 10.0  million upfront payment in the first quarter of 2025, which
was recorded as “ Other revenues .” We are eligible to receive from Zai certain milestone payments and tiered royalties on
future net sales of povetacicept in the region of focus.
Ono Pharmaceuticals Co., Ltd.
In June 2025, we entered into an agreement with Ono for the development and commercialization of povetacicept for
Japan and South Korea. Under the agreement, Ono will help advance the povetacicept c linical trials an d will be responsible
for obtaining marketing authorizations in Japan and South Korea. Ono will also be responsible for commercialization
activities in Japan and South Korea, if povetacicept becomes an approved product. Under the terms of the agreement, we
received a $ 20.6  million upfront payment in the second quarter of 2025, which was recorded as “ Other revenues .” We are
eligible to receive from Ono certain milestone payments and tiered royalties on future net sales of povetacicept in Japan and
South Korea.
Cystic Fibrosis Foundation
In 2004, we entered into an agreement (the “CFF Agreement”) with the Cystic Fibrosis Foundation (the “CFF”), as
successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc., to support research and development activities.
Pursuant to the CFF Agreement, as amended, we have agreed to pay tiered royalties ranging from single digits to sub-teens
on covered compounds first synthesized and/or tested during a research term on or before February 28, 2014, including
ivacaftor, lumacaftor and tezacaftor, and royalties ranging from low-single digits to mid-single digits on net sales of certain
compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including elexacaftor. We do not
have any royalty obligations on compounds first synthesized and tested on or after September 1, 2016. For combination
products, such as ORKAMBI, SYMDEKO/SYMKEVI, TRIKAFTA/KAFTRIO, and ALYFTREK, sales are allocated
equally to each of the active pharmaceutical ingredients in the combination product, and royalties are then paid for any
royalty-bearing components included in the combination. We record expenses related to these royalty obligations to “ Cost of
sales .”

F-22

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

C. Earnings Per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods
ended:

Year ended December 31,

2025

2024

2023

(in millions, except per share amounts)

Net income (loss)

$ 3,953.2

$ ( 535.6 )

$ 3,619.6

Basic weighted-average common shares outstanding

255.7

257.9

257.7

Effect of potentially dilutive securities:

Restricted stock units (including PSUs)

1.4

—

1.6

Stock options

0.9

—

1.2

Diluted weighted-average common shares outstanding

258.0

257.9

260.5

Basic net income (loss) per common share

$ 15.46

$ ( 2.08 )

$ 14.05

Diluted net income (loss) per common share

$ 15.32

$ ( 2.08 )

$ 13.89

During the three years ended December 31, 2025 , the number of anti-dilutive securities that were excluded from the
computation of our diluted net income (loss) per common share were as follows:

Year ended December 31,

2025

2024

2023

(in millions)

Unvested restricted stock units (including PSUs)

0.2

0.8

0.1

Stock options

—

0.4

—

D. Fair Value Measurements
The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable
inputs used to determine the fair value of our financial assets and liabilities:

Level 1:

Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a
market in which transactions for the asset or liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.

Level 2:

Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active
markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are
not active.

Level 3:

Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing
the asset or liability.

F-23

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The following table sets forth our financial assets and liabilities subject to fair value measurements by level within the
fair value hierarchy:

As of December 31, 2025

As of December 31, 2024

Fair Value Hierarchy

Fair Value Hierarchy

Total

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

(in millions)

Financial instruments carried at fair value (asset positions):

Cash equivalents

$ 2,779.1

$ 1,770.7

$ 1,008.4

$ —

$ 1,687.1

$ 613.3

$ 1,073.8

$ —

Marketable securities:

Corporate equity securities

16.6

16.6

—

—

36.6

36.6

—

—

U.S. Treasury securities

1,864.9

1,864.9

—

—

1,602.0

1,566.8

35.2

—

U.S. government agency securities

262.4

—

262.4

—

240.5

—

240.5

—

Asset-backed securities

1,357.0

—

1,357.0

—

1,244.2

—

1,244.2

—

Certificates of deposit

26.2

—

26.2

—

—

—

—

—

Corporate debt securities

3,693.9

—

3,693.9

—

3,525.9

—

3,525.9

—

Commercial paper

14.6

—

14.6

—

5.0

—

5.0

—

Prepaid expenses and other current assets:

Foreign currency forward contracts

6.2

—

6.2

—

130.1

—

130.1

—

Other assets:

Foreign currency forward contracts

12.7

—

12.7

—

12.4

—

12.4

—

Total financial assets

$ 10,033.6

$ 3,652.2

$ 6,381.4

$ —

$ 8,483.8

$ 2,216.7

$ 6,267.1

$ —

Financial instruments carried at fair value (liability positions):

Other current liabilities:

Foreign currency forward contracts

$ ( 79.4 )

$ —

$ ( 79.4 )

$ —

$ —

$ —

$ —

$ —

Other long-term liabilities:

Foreign currency forward contracts

( 51.0 )

—

( 51.0 )

—

—

—

—

—

Contingent consideration

( 79.0 )

—

—

( 79.0 )

( 76.9 )

—

—

( 76.9 )

Total financial liabilities

$ ( 209.4 )

$ —

$ ( 130.4 )

$ ( 79.0 )

$ ( 76.9 )

$ —

$ —

$ ( 76.9 )

Please refer to Note E, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized
gains (losses) by type of investment. Our cash equivalents primarily include money market funds and time deposits.
Fair Value of Corporate Equity Securities
We classify our investments in publicly traded corporate equity securities as “ Marketable securities ” on our consolidated
balance sheets. Generally, our investments in the common stock of publicly traded companies are valued based on Level 1
inputs because they have readily determinable fair values.
Please refer to Note E, “Marketable Securities and Equity Investments,” for further information on these investments.
Fair Value of Contingent Consideration
Our Level 3 contingent consideration liabilities are related to $ 678.3 million of development and regulatory milestones
potentially payable to former equity holders of Exonics Therapeutics, Inc., a privately-held company we acquired in 2019.
We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on
industry data attributable to gene therapies and our knowledge of the progress and viability of the associated Duchenne
muscular dystrophy programs. The discount rates used in the valuation model for contingent payments, which were between
4.1 % and 4.5 % as of December 31, 2025 , represent a measure of credit risk and market risk associated with settling the
liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.

F-24

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The following table represents a rollforward of the fair value of our contingent consideration liabilities:

Year Ended
December 31, 2025

(in millions)

Balance at December 31, 2024

$ 76.9

Increase in fair value of contingent payments

2.1

Balance at December 31, 2025

$ 79.0

E. Marketable Securities and Equity Investments
A summary of our cash equivalents and marketable debt and equity securities, which are recorded at fair value, is shown
below:

As of December 31, 2025

As of December 31, 2024

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

(in millions)

Cash equivalents

$ 2,779.1

$ —

$ —

$ 2,779.1

$ 1,687.1

$ —

$ —

$ 1,687.1

Marketable securities:

U.S. Treasury securities

$ 1,852.9

$ 12.1

$ ( 0.1 )

$ 1,864.9

$ 1,603.9

$ 3.6

$ ( 5.5 )

$ 1,602.0

U.S. government agency securities

261.2

1.2

—

262.4

240.5

0.5

( 0.5 )

240.5

Asset-backed securities

1,351.1

6.0

( 0.1 )

1,357.0

1,239.6

5.1

( 0.5 )

1,244.2

Certificates of deposit

26.2

—

—

26.2

—

—

—

—

Corporate debt securities

3,669.3

25.0

( 0.4 )

3,693.9

3,519.4

10.6

( 4.1 )

3,525.9

Commercial paper

14.6

—

—

14.6

5.0

—

—

5.0

Total marketable available-for-
sale debt securities

7,175.3

44.3

( 0.6 )

7,219.0

6,608.4

19.8

( 10.6 )

6,617.6

Corporate equity securities

25.0

—

( 8.4 )

16.6

72.1

3.0

( 38.5 )

36.6

Total marketable securities

7,200.3

44.3

( 9.0 )

7,235.6

6,680.5

22.8

( 49.1 )

6,654.2

Total cash equivalents and
marketable securities

$ 9,979.4

$ 44.3

$ ( 9.0 )

$ 10,014.7

$ 8,367.6

$ 22.8

$ ( 49.1 )

$ 8,341.3

Amounts in the table above at fair value were classified on our consolidated balance sheets as follows:

December 31,

2025

2024

(in millions)

Cash and cash equivalents

$ 2,779.1

$ 1,687.1

Marketable securities

1,523.3

1,546.3

Long-term marketable securities

5,712.3

5,107.9

Total

$ 10,014.7

$ 8,341.3

F-25

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Marketable available-for-sale debt securities by contractual maturity were as follows:

December 31,

2025

2024

(in millions)

Matures within one year

$ 1,506.7

$ 1,509.7

Matures after one year through five years

5,595.8

5,034.4

Matures after five years

116.5

73.5

Total

$ 7,219.0

$ 6,617.6

We did not record any allowances for credit losses to adjust the fair value of our marketable available-for-sale debt
securities in 2025 , 2024 or 2023 . Additionally, we did not record any realized gains or losses that were material to our
consolidated statements of income (loss) in 2025 , 2024 or 2023 . As of December 31, 2025 , we held marketable available-for-
sale debt securities with a total fair value of $ 631.9 million that were in unrealized loss positions totaling $ 0.6  million .
Included in this amount were marketable available-for sale debt securities with a total fair value of $ 9.7 million and total
unrealized loss of $ 0.1 million that had been in unrealized loss positions for greater than twelve months. We intend to hold
these investments until maturity and do not expect to incur realized losses on these investments when they mature.
We record changes in the fair value of our investments in corporate equity securities to “Other expense , net” in our
consolidated statements of income (loss) . During the three years ended December 31, 2025 , our net unrealized losses on
corporate equity securities with readily determinable fair values held at the conclusion of each period were as follows:

Year ended December 31,

2025

2024

2023

(in millions)

Net unrealized losses

$ ( 11.3 )

$ ( 9.5 )

$ ( 7.5 )

In 2023, we received proceeds of $ 95.1 million related to the sale of the common stock of a publicly traded company,
which had a total original cost basis of $ 57.3 million .
As of December 31, 2025 and 2024 , the carrying value of our equity investments without readily determinable fair
values, which were recorded in “ Other assets ” on our consolidated balance sheets, were $ 81.5 million and $ 64.8 million ,
respectively. During 2024, we reduced the carrying value of our equity investments without readily determinable fair values
by $ 48.2  million based on observable changes in price.

F-26

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

F. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) (“AOCI”) by
component:

Unrealized Holding Gains
(Losses), Net of Tax

Foreign
Currency
Translation
Adjustment

On Available-
For-Sale Debt
Securities

On Foreign
Currency
Forward
Contracts

Total

(in millions)

Balance at December 31, 2022

$ ( 25.0 )

$ ( 0.1 )

$ 25.9

$ 0.8

Other comprehensive income (loss) before
reclassifications

26.1

9.7

( 27.2 )

8.6

Amounts reclassified from accumulated other
comprehensive income (loss)

( 23.7 )

( 23.7 )

Net current period other comprehensive income (loss)

26.1

9.7

( 50.9 )

( 15.1 )

Balance at December 31, 2023

$ 1.1

$ 9.6

$ ( 25.0 )

$ ( 14.3 )

Other comprehensive income (loss) before
reclassifications

8.6

( 4.4 )

163.8

168.0

Amounts reclassified from accumulated other
comprehensive income (loss)

1.9

( 27.8 )

( 25.9 )

Net current period other comprehensive income (loss)

8.6

( 2.5 )

136.0

142.1

Balance at December 31, 2024

$ 9.7

$ 7.1

$ 111.0

$ 127.8

Other comprehensive income (loss) before
reclassifications

27.5

34.5

( 255.3 )

( 193.3 )

Amounts reclassified from accumulated other
comprehensive income (loss)

—

( 7.6 )

57.2

49.6

Net current period other comprehensive income (loss)

27.5

26.9

( 198.1 )

( 143.7 )

Balance at December 31, 2025

$ 37.2

$ 34.0

$ ( 87.1 )

$ ( 15.9 )

G. Hedging
Foreign currency forward contracts - Designated as hedging instruments
We maintain a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of our
forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward
contracts that are designated as cash flow hedges under U.S. GAAP having contractual durations from one to 36 months . We
recognize realized gains and losses for the effective portion of such contracts in “ Product revenues, net ” in our consolidated
statements of income (loss) in the same period that we recognize the product revenues that were impacted by the hedged
foreign exchange rate changes.
We formally document the relationship between foreign currency forward contracts (hedging instruments) and forecasted
product revenues (hedged items), as well as our risk management objective and strategy for undertaking various hedging
activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to
forecasted transactions. Using regression analysis, we assess, both at the hedge’s inception and on an ongoing basis, whether
the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a
prospective and retrospective basis. As of December 31, 2025 , all hedges were determined to be highly effective.

F-27

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

We consider the impact of our counterparties’ credit risk on the fair value of the foreign currency forward contracts. As
of December 31, 2025  and December 31, 2024 , credit risk did not change the fair value of our foreign currency forward
contracts.
The following table summarizes the notional amount in U.S. dollars of our outstanding foreign currency forward
contracts designated as cash flow hedges under U.S. GAAP:

As of December 31,

2025

2024

Foreign Currency

(in millions)

Euro

$ 4,677.9

$ 1,977.4

Canadian dollar

516.1

322.0

British pound sterling

492.6

301.7

Australian dollar

267.5

179.2

Swiss franc

126.0

79.7

Total foreign currency forward contracts

$ 6,080.1

$ 2,860.0

Foreign currency forward contracts - Not designated as hedging instruments
We enter into foreign currency forward contracts, typically with contractual maturities of approximately one month ,
which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including
intercompany balances. These contracts are not designated as hedging instruments under U.S. GAAP. We recognize realized
gains and losses for such contracts in “Other expense , net” in our consolidated statements of income (loss) each period. As of
December 31, 2025 and 2024 , the notional amount of our outstanding foreign currency forward contracts where hedge
accounting under U.S. GAAP was not applied was $ 612.6  million and $ 367.0 million , respectively.
During the three years ended December 31, 2025 , we recognized the following related to foreign currency forward
contracts in our consolidated statements of income (loss) :

Year ended December 31,

2025

2024

2023

(in millions)

Designated as hedging instruments - Reclassified from AOCI

Product revenues, net

$ ( 73.3 )

$ 35.7

$ 30.2

Not designated as hedging instruments

Other expense , net

$ ( 34.7 )

$ 11.7

$ 4.4

Total reported in the Consolidated Statements of Income (Loss)

Product revenues, net

$ 11,970.6

$ 11,020.1

$ 9,869.2

Other expense , net

$ ( 7.7 )

$ ( 86.1 )

$ ( 22.8 )

F-28

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The following table summarizes the fair value of our outstanding foreign currency forward contracts designated as cash
flow hedges under U.S. GAAP included on our consolidated balance sheets:

As of December 31, 2025

Assets

Liabilities

Classification

Fair Value

Classification

Fair Value

(in millions)

Prepaid expenses and other current assets

$ 6.2

Other current liabilities

$ ( 79.4 )

Other assets

12.7

Other long-term liabilities

( 51.0 )

Total assets

$ 18.9

Total liabilities

$ ( 130.4 )

As of December 31, 2024

Assets

Liabilities

Classification

Fair Value

Classification

Fair Value

(in millions)

Prepaid expenses and other current assets

$ 130.1

Other current liabilities

$ —

Other assets

12.4

Other long-term liabilities

—

Total assets

$ 142.5

Total liabilities

$ —

As of December 31, 2025 , we expect the amounts that are related to foreign currency forward contracts designated as
cash flow hedges under U.S. GAAP recorded in “ Prepaid expenses and other current assets ” and “ Other current liabilities ” to
be reclassified to earnings within twelve months.
As discussed in “ Note A, “Nature of Business and Accounting Policies,” we present the fair value of our foreign
currency forward contracts on a gross basis within our consolidated balance sheets. The following table summarizes the
potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under U.S. GAAP on
our consolidated balance sheets:

As of December 31, 2025

Gross
Amounts
Recognized

Gross
Amounts
Offset

Gross
Amounts
Presented

Gross
Amounts
Not Offset

Legal Offset

Foreign currency forward contracts

(in millions)

Total assets

$ 18.9

$ —

$ 18.9

$ ( 18.9 )

$ —

Total liabilities

( 130.4 )

—

( 130.4 )

18.9

( 111.5 )

As of December 31, 2024

Gross
Amounts
Recognized

Gross
Amounts
Offset

Gross
Amounts
Presented

Gross
Amounts
Not Offset

Legal Offset

Foreign currency forward contracts

(in millions)

Total assets

$ 142.5

$ —

$ 142.5

$ —

$ 142.5

Total liabilities

—

—

—

—

—

F-29

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

H. Inventorie s
“ Inventories ” consisted of the following:

As of December 31,

2025

2024

(in millions)

Raw materials

$ 259.8

$ 252.0

Work-in-process

1,196.9

768.8

Finished goods

230.1

184.6

Total

$ 1,686.8

$ 1,205.4

I. Property and Equipment
“ Property and equipment, net ” consisted of the following:

As of December 31,

2025

2024

(in millions)

Buildings and improvements

$ 483.8

$ 461.2

Laboratory equipment, other equipment and furniture

788.1

684.5

Leasehold improvements

1,009.3

737.6

Computers and software

410.1

376.2

Land

33.1

33.1

Total property and equipment, gross

2,724.4

2,292.6

Less: accumulated depreciation

( 1,204.1 )

( 1,064.8 )

Total property and equipment, net

$ 1,520.3

$ 1,227.8

We recorded depreciation expense of $ 155.8 million , $ 160.4 million and $ 167.8 million in 2025 , 2024 and 2023 ,
respectively, which includes our finance lease amortization.

F-30

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

J. Goodwill and Other Intangible Assets
Intangible Assets
“ Other intangible assets, net ” consisted of the following:

As of December 31, 2025

As of December 31, 2024

Estimated
Useful lives

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

(in millions, except useful lives)

In-process research and
development

Indefinite

$ 224.6

$ —

$ 224.6

$ 603.6

$ —

$ 603.6

Finite-lived intangible assets -
marketed products

10 to 12 years

238.0

( 42.1 )

195.9

238.0

( 21.9 )

216.1

Finite-lived intangible assets -
assembled workforce

3 years

7.7

( 4.0 )

3.7

7.7

( 1.5 )

$ 6.2

Total other intangible assets,
net

$ 470.3

$ ( 46.1 )

$ 424.2

$ 849.3

$ ( 23.4 )

$ 825.9

In March 2025, based on results from a Phase 1/2 clinical trial evaluating our VX-264 clinical program in patients with
T1D, we concluded that VX-264 will not be advancing further in clinical development. Based on this event, we performed an
interim impairment test on the fair value of our VX-264 indefinite-lived in-process research and development asset that we
acquired from Semma Therapeutics, Inc. in 2019. As a result, using the multi period earnings method of the income
approach, we recorded a full intangible asset impairment charge of $ 379.0 million in the first quarter of 2025. As of
December 31, 2025 , our remaining indefinite-lived in-process research and development assets were associated with our T1D
program.
In 2023, we recorded a total of $ 238.0 million of finite-lived intangible assets following the regulatory approval of
CASGEVY in several markets, which we are amortizing on a straight-line basis over the longer of the last underlying patents
to expire or the period that we have exclusive rights to market CASGEVY. We recorded intangible asset amortization
expense of $ 20.2 million , $ 20.2 million and $ 1.7 million to “ Cost of sales ” related to these assets in in 2025 , 2024 and 2023 ,
respectively.
As of December 31, 2025 , the estimated future amortization of our finite-lived intangible assets was as follows:

Year

Estimated Amortization Expense

(in millions)

2026

$ 22.7

2027

$ 21.3

2028

$ 20.2

2029

$ 20.2

2030

$ 20.2

Goodwill
As of December 31, 2025 and 2024 , we had goodwill of $ 1.1 billion on our consolidated balance sheets.

F-31

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

K. Additional Balance Sheet & Cash Flow Information
Cash, Cash Equivalents and Restricted Cash Presented in Consolidated Statements of Cash Flows
The cash, cash equivalents and restricted cash balances at the beginning and ending of each period presented in our
consolidated statements of cash flows consisted of the following:

As of December 31,

2025

2024

2023

2022

(in millions)

Cash and cash equivalents

$ 5,084.8

$ 4,569.6

$ 10,369.1

$ 10,504.0

Prepaid expenses and other current assets

3.0

2.6

3.2

8.0

Cash, cash equivalents and restricted cash per
consolidated statements of cash flows

$ 5,087.8

$ 4,572.2

$ 10,372.3

$ 10,512.0

Our restricted cash, if any, is included in “ Prepaid expenses and other current assets ” and “ Other assets ” on our
consolidated balance sheets.
Additional Balance Sheet Information
“ Prepaid expenses and other current assets ” consisted of the following:

As of December 31,

2025

2024

(in millions)

Tax-related prepaid and receivables

$ 634.5

$ 357.0

Prepaid expenses

101.7

102.2

Fair value of cash flow hedges

6.2

130.1

Other

110.9

76.4

Total

$ 853.3

$ 665.7

As of December 31, 2025 and 2024 , “ Other assets ” included $ 66.6  million and $ 62.6 million , respectively, related to
costs incurred to implement cloud computing service contracts. We recorded amortization associated with cloud computing
service contracts of $ 31.2 million , $ 25.2 million and $ 11.8 million in 2025 , 2024 and 2023 , respectively.
“ Accrued expenses ” consisted of the following :

As of December 31,

2025

2024

(in millions)

Product revenue accruals

$ 1,814.1

$ 1,618.9

Payroll and benefits

397.7

352.1

Research, development and commercial contract costs

246.9

272.7

Royalty payable

276.7

271.0

Tax related accruals

103.1

161.1

Capital related accruals

86.0

43.5

Other

46.7

69.3

Total

$ 2,971.2

$ 2,788.6

F-32

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

“ Other current liabilities ” consisted of the following:

As of December 31,

2025

2024

(in millions)

Contract liabilities

$ 171.8

$ 206.8

Operating lease liabilities

77.3

87.1

Foreign currency forward contracts

79.4

—

Upfront and milestones payable

51.5

32.5

Other

48.3

36.6

Total

$ 428.3

$ 363.0

“ Other long-term liabilities ” consisted of the following:

As of December 31,

2025

2024

(in millions)

Tax-related liabilities

$ 895.4

$ 698.6

Finance lease liabilities

106.7

112.8

Contingent consideration

79.0

76.9

Other

188.4

126.3

Total

$ 1,269.5

$ 1,014.6

L. Leases
A summary of our most significant leases, including real estate and embedded leases with contract manufacturing
organizations, is as follows:
Corporate Headquarters
In 2011, we entered into two lease agreements, pursuant to which we lease approximately 1.1 million square feet of
office and laboratory space in two buildings in Boston, Massachusetts for a term of 15 years (our “Corporate Headquarters”).
In August 2024, we amended the existing lease agreements to, among other terms, extend the lease termination dates from
December 2028 to June 2044 (the “Amendments”). We have the option to extend the amended leases for up to two additional
ten -year periods.
The Amendments did not grant us any additional rights of use not contemplated in the existing lease agreements. As a
result, we accounted for the Amendments as modifications that extended the terms of the existing leases and reassessed the
classification of the leases as of their effective dates. We remeasured the lease liabilities using our incremental borrowing rate
as of the effective date of the Amendments and classified the leases associated with our Corporate Headquarters as operating
leases. As a result, we obtained right-of-use operating lease assets of $ 847.9  million in exchange for operating lease
obligations of $ 1.0  billion and reduced our finance lease liabilities and property and equipment by $ 275.3  million and
$ 107.5  million , respectively.
Jeffrey Leiden Center for Biologics, Cell and Genetic Therapies Campus (“Leiden Campus”)
In 2019, we entered into an agreement to lease approximately 269,000 square feet of office and laboratory space at our
Leiden Campus near our corporate headquarters in Boston, Massachusetts for a term of 16 years (“Leiden I”), which is
classified as an operating lease. Base rent payments commenced in 2021 and will continue through November 2036 . We
utilize the initial period as our lease term. We have an option to extend the lease term for up to two additional ten -year
periods.

F-33

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

In 2024, we entered into a lease agreement for a second building (“Leiden II”) at our Leiden Campus. The Leiden II
lease, which commenced in 2025, includes approximately 348,000 square feet of office and laboratory space for a term of
approximately 16 years . Upon lease commencement, we recorded a right-of-use asset and corresponding lease liability, net of
tenant allowances, of $ 296.7 million within each of “ Operating lease assets ” and “ Long-term operating lease liabilities ” on
our consolidated balance sheet. We anticipate that base rent payments will commence in the first quarter of 2027 and expect
them to continue through the first quarter of 2042. We have an option to extend the Leiden II term for up to two additional
ten -year periods. We utilize the initial period as our lease term.
Lonza Portsmouth - T1D Facility
In 2023, we entered into a strategic agreement with Lonza to support the manufacture of T1D cell therapy product
candidates, pursuant to which we have partnered with Lonza to build a 130,000 square foot dedicated new facility operated
by Lonza in New Hampshire. The lease commencement for the facility occurred in the first quarter of 2026. Lease payments
will continue through the tenth anniversary of the facility’s regulatory approval for commercial production. We will complete
the lease accounting analysis for this facility in the first quarter of 2026.
Please refer to our accounting policy, Leases , in Note A, “Nature of Business and Accounting Policies,” for further
information on the accounting treatment for our leases.
Aggregate Lease Information
The components of lease cost recorded in our consolidated statements of income (loss) were as follows:

Year ended December 31,

2025

2024

2023

(in millions)

Operating lease cost

$ 194.7

$ 103.9

$ 47.8

Finance lease cost

Amortization of leased assets

7.2

30.9

42.7

Interest on lease liabilities

5.7

25.2

38.8

Variable lease cost

50.1

43.6

44.6

Sublease income

( 0.2 )

( 1.6 )

( 2.7 )

Net lease cost

$ 257.5

$ 202.0

$ 171.2

Our variable lease cost during 2025 , 2024 and 2023 primarily related to operating expenses, taxes and insurance
associated with our real estate leases.

F-34

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Our leases are included on our consolidated balance sheets as follows:

As of December 31,

2025

2024

(in millions)

Operating leases

Operating lease assets

$ 1,562.7

$ 1,356.8

Total operating lease assets

$ 1,562.7

$ 1,356.8

Other current liabilities

$ 77.3

$ 87.1

Long-term operating lease liabilities

1,846.5

1,544.4

Total operating lease liabilities

$ 1,923.8

$ 1,631.5

Finance leases

Property and equipment, net

$ 81.5

$ 57.9

Total finance lease assets

$ 81.5

$ 57.9

Other current liabilities

$ 5.5

$ 5.2

Other long-term liabilities

106.7

112.8

Total finance lease liabilities

$ 112.2

$ 118.0

Maturities of our finance and operating lease liabilities as of December 31, 2025 were as follows:

Year

Operating Leases

Finance Leases

Total

(in millions)

2026

$ 155.2

$ 10.5

$ 165.7

2027

196.9

11.8

208.7

2028

193.3

12.2

205.5

2029

139.9

12.5

152.4

2030

197.8

12.8

210.6

Thereafter

2,316.4

118.3

2,434.7

Total lease payments

3,199.5

178.1

3,377.6

Less: tenant allowance

( 220.8 )

—

( 220.8 )

Less: amount representing interest

( 1,054.9 )

( 65.9 )

( 1,120.8 )

Present value of lease liabilities

$ 1,923.8

$ 112.2

$ 2,036.0

F-35

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The weighted-average remaining lease terms and discount rates related to our leases were as follows:

As of December 31,

2025

2024

Weighted-average remaining lease term (in years)

Operating leases

15.17

15.58

Finance leases

21.94

22.17

Weighted-average discount rate

Operating leases

4.75 %

4.61 %

Finance leases

4.51 %

4.58 %

Supplemental cash flow information related to our leases was as follows:

Year ended December 31,

2025

2024

2023

(in millions)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

$ 183.2

$ 113.5

$ 62.8

Operating cash flows from finance leases

$ 5.6

$ 25.7

$ 38.4

Financing cash flows from finance leases

$ 5.4

$ 33.6

$ 44.9

Right-of-use assets obtained in exchange for lease obligations

Operating leases

$ 311.0

$ 1,120.9

$ 2.4

The majority of right-of-use assets obtained in exchange for lease obligations in 2025 and 2024 are described above.

M. Common Stock, Preferred Stock and Equity Plans
Common Stock and Preferred Stock
We are authorized to issue 500.0 million shares of common stock. Holders of common stock are entitled to one vote per
share. Holders of common stock are entitled to receive dividends, if and when declared by our Board of Directors, and to
share ratably in our assets legally available for distribution to our shareholders in the event of liquidation. Holders of common
stock have no preemptive, subscription, redemption or conversion rights. The holders of common stock do not have
cumulative voting rights.
We are authorized to issue 1.0 million shares of preferred stock in one or more series and to fix the powers, designations,
preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting
rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or
action by our shareholders. As of December 31, 2025 and 2024 , we had no shares of preferred stock issued or outstanding.
Share Repurchase Programs
In February 2023, our Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”),
pursuant to which we were authorized to repurchase up to $ 3.0 billion of our common stock. As of December 31, 2025, we
had repurchased the full amount authorized under the 2023 Share Repurchase Program. In May 2025, our Board of Directors
approved an additional share repurchase program (the “2025 Share Repurchase Program”), pursuant to which we are
authorized to repurchase up to $ 4.0 billion of our common stock.

F-36

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

In 2025 , 2024 and 2023 , we repurchased 4.8 million , 2.7 million and 1.3 million shares of our common stock,
respectively, under these programs for an aggregate of  $ 2.0 billion , $ 1.2 billion and $ 427.6 million , respectively. As of
December 31, 2025 , we had $ 3.4 billion remaining authorization under the 2025 Share Repurchase Program, which does not
have an expiration date and can be discontinued at any time.
Stock and Option Plans
The purpose of each of our stock and option plans is to attract, retain and motivate our employees, consultants and
directors. Awards granted under these plans can be nonstatutory stock options (“NSOs”), incentive stock options (“ISOs”),
RSUs including PSUs, restricted stock (“RSs”), or other equity-based awards, as specified in the individual plans.
Shares issued under all of our plans are funded through the issuance of new shares. T he following table contains
information about our equity plans:

Title of Plan

Group Eligible

Type of Award Granted

2013 Stock and Option Plan

Employees, Non-employee Directors and Consultants

NSO, RS, RSU and PSU

2006 Stock and Option Plan

Employees, Non-employee Directors and Consultants

NSO, RS and RSU

As of De cember 31, 2025 , we are authorized to grant 10.9 million additional awards under our 2013 Stock and Option
Plan and have 4.4 million awards outstanding. We are no longer authorized to grant additional awards under our 2006 Stock
and Option Plan.
Restricted Stock Units (excluding PSUs)
The following table summarizes our restricted stock unit activity during the year ended December 31, 2025 :

Restricted Stock Units (excluding PSUs)

Number of Shares

Weighted-average Grant-
date Fair Value

(in thousands)

(per share)

Unvested at December 31, 2024

2,688

$ 372.54

Granted

1,469

$ 456.01

Vested

( 1,393 )

$ 345.20

Cancelled

( 218 )

$ 425.63

Unvested at December 31, 2025

2,546

$ 431.34

The total fair value of restricted stock units that vested during 2025 , 2024 and 2023 (measured based on the market price
of our common stock on the date of vesting) was $ 654.6 million , $ 666.0 million and $ 433.4 million , respectively.
Performance-based RSUs (PSUs)
Certain members of senior management receive approximately 50 % of their annual equity compensation in the form of
PSUs. 50 % of the number of PSUs are eligible to vest based on the achievement of one -year financial goals and the
remaining PSUs are eligible to vest based on the achievement of non-financial goals, such as clinical development, regulatory
and/or manufacturing-related milestones. The financial PSUs, if earned, vest in annual installments over a three -year period
measured from the date of grant, and the non-financial PSUs, if earned, cliff vest at the conclusion of the performance period.
The potential shares earned pursuant to these PSU awards range from 0 % to 200 % of the target number of shares, with the
number of shares issued determined by the achievement of the financial and non-financial performance goals.

F-37

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The following table summarizes our PSU activity during the year ended December 31, 2025 :

Performance-Based RSU

Number of Units

Weighted-average Grant-
date Fair Value

(in thousands)

(per share)

Unvested at December 31, 2024 (1)

862

$ 346.01

Granted (2)

481

$ 450.83

Vested

( 584 )

$ 288.14

Cancelled

( 31 )

$ 392.20

Unvested at December 31, 2025

728

$ 412.52

(1) “Unvested” represents our PSUs at target to the extent performance has not been certified plus the actual number of shares that continue to be
subject to service conditions for which the performance has been achieved and certified.

(2) “Granted” represents (i) the target number of shares issuable for grants during 2025 and (ii) any change in the number of shares issuable
pursuant to outstanding PSUs based on performance certification during 2025 .

The total fair value of PSUs that vested during 2025 , 2024 and 2023 (measured on the date of vesting) was $ 276.6
million , $ 347.1 million and $ 160.4 million , respectively.
Stock Options
All options have been granted with an exercise price equal to the fair value of the underlying common stock on the date
of grant. All options awarded under our stock and option plans, cannot have an exercise price less than fair market value on
the date of grant and cannot expire more than 10 years from the grant date. In each of the three years ended December 31,
2025 , we only granted stock options to certain of our non-employee directors.
The following table summarizes information related to the outstanding and exercisable options during the year ended
December 31, 2025 :

Stock Options

Weighted-
average
Exercise Price

Weighted-
average
Remaining
Contractual Life

Aggregate
Intrinsic Value

(in thousands)

(per share)

(in years)

(in millions)

Outstanding at December 31, 2024

1,594

$ 156.36

Granted

7

$ 502.97

Exercised

( 447 )

$ 125.30

Outstanding at December 31, 2025

1,154

$ 170.54

2.63

$ 326.7

Exercisable at December 31, 2025

1,154

$ 170.54

2.63

$ 326.7

The aggregate intrinsic value in the table above represents the total pre-tax amount, net of exercise price, that would have
been received by option holders if all option holders had exercised all options with an exercise price lower than the market
price on the last business day of 2025 , which was $ 453.36 based on the closing price of our common stock on that date.
The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options
exercised during 2025 , 2024 and 2023 was $ 147.8 million , $ 112.8 million and $ 128.4 million , respectively. The total cash we
received as a result of stock option exercises during 2025 , 2024 and 2023 was $ 55.6 million , $ 50.0 million and $ 80.8 million ,
respectively.

F-38

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

The following table summarizes information about stock options outstanding as of December 31, 2025 , which were all
exercisable:

Options Outstanding and Exercisable

Range of Exercise Prices

Number Outstanding

Weighted-average
Remaining Contractual
Life

Weighted-average
Exercise Price

(in thousands)

(in years)

(per share)

$ 86.52 – $ 100.00

177

0.74

$ 88.39

$ 100.01 – $ 150.00

27

1.42

$ 125.59

$ 150.01 – $ 200.00

848

2.60

$ 172.79

$ 200.01 – $ 502.97

102

6.37

$ 305.38

Total

1,154

2.63

$ 170.54

Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”). The ESPP permits eligible employees to enroll in a twelve -
month offering period comprising two six -month purchase periods. Participants may purchase shares of our common stock,
through payroll deductions, at a price equal to 85 % of the fair market value of the common stock on the first day of the
applicable twelve -month offering period, or the last day of the applicable six -month purchase period, whichever is lower.
Purchase dates under the ESPP occur on or about May 14 and November 14 of each year. As of December 31, 2025 , there
were 0.9 million shares of common stock authorized for issuance pursuant to the ESPP.
In 2025 , the following shares were issued to employees under the ESPP:

Year Ended December 31, 2025

Number of shares (in thousands)

199

Average price paid per share

$ 362.43

Employee Benefits
We have a 401(k) retirement plan (the “Vertex 401(k) Plan”) in which substantially all of our permanent U.S. employees
are eligible to participate. Participants may contribute up to 60 % of their annual compensation to the Vertex 401(k) Plan,
subject to statutory limitations. We may declare discretionary matching contributions to the Vertex 401(k) Plan. We pay
matching contributions in the form of cash. In ex-U.S. markets, we have similar benefit plans. In 2025 , 2024 and 2023 , we
recorded approximately $ 63.1 million , $ 52.3 million and $ 43.6 million of expense related to these plans, respectively.

N. Stock-based Compensation Expense
We recognize share-based payments to employees as compensation expense using the fair value method. The fair value
of restricted stock units, including PSUs, is based on the intrinsic value on the date of grant. The fair value of shares
purchased pursuant to the ESPP and stock options is calculated using the Black-Scholes option pricing model. Stock-based
compensation expense, measured at the grant date based on the fair value of the award, is typically recognized ratably over
the requisite service period.

F-39

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

During the three years ended December 31, 2025 , we recognized the following stock-based compensation expense:

Year ended December 31,

2025

2024

2023

(in millions)

Stock-based compensation expense by type of award:

Restricted stock units (including PSUs)

$ 672.1

$ 689.1

$ 563.7

ESPP share issuances

27.0

18.2

15.8

Stock options

1.2

1.8

4.0

Stock-based compensation expense related to inventories

( 14.4 )

( 10.6 )

( 2.3 )

Total stock-based compensation expense included in “ Total costs and
expenses ”

$ 685.9

$ 698.5

$ 581.2

Stock-based compensation expense by line item:

Cost of sales

$ 11.1

$ 7.5

$ 7.5

Research and development expenses

415.4

425.8

354.9

Selling, general and administrative expenses

259.4

265.2

218.8

Total stock-based compensation expense included in “ Total costs and
expenses ”

685.9

698.5

581.2

Income tax effect

( 128.6 )

( 251.6 )

( 167.5 )

Total stock-based compensation expense, net of tax

$ 557.3

$ 446.9

$ 413.7

We capitalize a portion of our stock-based compensation expense to inventories, all of which is attributable to employees
who support the manufacturing of our products.
The following table sets forth our unrecognized stock-based compensation expense as of December 31, 2025 , by type of
award and the weighted-average period we expect to recognize the expense:

As of December 31, 2025

Unrecognized
Expense

Weighted-average
Recognition Period

(in millions)

(in years)

Type of award:

Restricted stock units (including PSUs)

$ 737.1

1.89

ESPP share issuances

5.2

0.46

Total unrecognized stock-based compensation expense

$ 742.3

Restricted Stock Units and Performance-based Restricted Stock Units
We award restricted stock units with service conditions, which are generally the vesting periods of the awards.
Our PSUs granted to certain members of senior management are described in Note M, “Common Stock, Preferred Stock
and Equity Plans.” The financial-based PSUs, with a one -year performance period, are expensed ratably over their three -year
vesting period. During the performance period, they are expensed based upon an assessment of the likely level of
achievement. The non-financial based PSUs cliff vest at the end of their performance period, which is approximately three
years . They are expensed on a straight-line basis over the same period based upon an assessment of the likely level of
achievement.

F-40

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Employee Stock Purchase Plan
The weighted-average fair value of each purchase right granted during 2025 , 2024 and 2023 was $ 113.26 , $ 117.89 and
$ 90.91 , respectively. The following table reflects the weighted-average assumptions used in our Black-Scholes option pricing
model:

Year ended December 31,

2025

2024

2023

Expected stock price volatility

31.81 %

29.37 %

28.52 %

Risk-free interest rate

4.02 %

4.63 %

5.13 %

Expected term (in years)

0.74

0.73

0.71

Expected annual dividends

—

—

—

Stock Options
We issued stock options to our non-employee directors with total grant date fair values of $ 2.0 million or less in each of
the three years ended December 31, 2025 .

O. In com e Taxes
We are subject to U.S. federal, state, and foreign income taxes. The components of income before provision for income
taxes consisted of the following:

Year ended December 31,

2025

2024

2023

(in millions)

United States

$ 2,821.2

$ ( 1,369.7 )

$ 3,089.1

Foreign

1,822.0

1,618.2

1,290.7

Income before provision for income taxes

$ 4,643.2

$ 248.5

$ 4,379.8

The components of our provision for income taxes consisted of the following:

Year ended December 31,

2025

2024

2023

(in millions)

Current taxes:

Federal

$ 679.1

$ 704.9

$ 900.4

State

35.9

118.2

46.2

Foreign

485.8

309.8

350.1

Total current taxes

1,200.8

1,132.9

1,296.7

Deferred taxes:

Federal

( 527.0 )

( 438.7 )

( 569.9 )

State

( 22.1 )

( 48.7 )

( 21.9 )

Foreign

38.3

138.6

55.3

Total deferred taxes

( 510.8 )

( 348.8 )

( 536.5 )

Provision for income taxes

$ 690.0

$ 784.1

$ 760.2

F-41

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Unremitted Earnings
As of December 31, 2025 , we do not consider a portion of the earnings of our foreign subsidiaries to be indefinitely
reinvested. Upon repatriation of the non-indefinitely invested earnings in the form of distributions or otherwise, we could be
subject to immaterial U.S. federal withholding taxes payable to various foreign countries and income taxes in certain states.
There are no material deferred taxes recorded on the excess of financial statement reporting over the tax basis of our
investments in our foreign subsidiaries. Any permanently reinvested basis differences could reverse if we sell our foreign
subsidiaries or various other events occur, none of which were considered probable as of December 31, 2025 . The tax
liabilities described above would not be material to our consolidated financial statements.
Effective Tax Rate Reconciliation
A reconciliation of our provision for income taxes and our effective tax rate as compared to t he U.S. federal statutory
rate of 21% for the year ended December 31, 2025 was as follows:

Year ended December 31, 2025

Amount

Percentage

(in millions, except percentages)

Income before provision for income taxes

$ 4,643.2

Federal statutory tax rate

975.1

21.0 %

State and local income taxes, net of federal income tax effect (1)

( 1.9 )

— %

Foreign tax effects

United Kingdom (“U.K.”)

Statutory tax rate difference between U.K. and U.S.

64.7

1.4 %

Other

8.3

0.2 %

Other foreign jurisdictions

10.5

0.2 %

Effect of cross-border tax laws

Deferred charges related to intra-entity transfers

( 61.5 )

( 1.3 ) %

Foreign-derived deduction eligible income

( 58.5 )

( 1.3 ) %

Subpart F income, net of credits

( 97.4 )

( 2.1 ) %

Other

0.8

— %

Tax credits

Research and development tax credits

( 154.4 )

( 3.3 ) %

Nontaxable or nondeductible items

Stock compensation (benefit), shortfalls and cancellations

( 61.9 )

( 1.3 ) %

Other

25.4

0.5 %

Changes in unrecognized tax benefits

64.3

1.4 %

Other adjustments

( 23.5 )

( 0.5 ) %

Provision for income taxes and effective tax rate

$ 690.0

14.9 %

(1) The state that contributes to the majority of the state and local tax effect is New Jersey.

F-42

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

A reconciliation of our provision for income taxes and our effective tax rate as compared to the U.S. federal statutory
rate of 21% for the years ended December 31, 2024 and 2023 was as follows:

Year ended December 31,

2024

2023

Federal statutory tax rate

21.0 %

21.0 %

State taxes, net of federal benefit

29.5 %

0.3 %

Foreign income tax rate differential

21.3 %

( 0.6 ) %

U.S. tax on foreign earnings, net of credits

( 12.6 ) %

0.7 %

Foreign derived intangible income deduction

( 28.3 ) %

( 1.7 ) %

Tax credits

( 102.9 ) %

( 6.0 ) %

Stock compensation (benefit), shortfalls and cancellations

( 25.5 ) %

( 0.8 ) %

Uncertain tax positions

11.3 %

3.4 %

Non-deductible AIPR&D

373.8 %

— %

Other

27.9 %

1.1 %

Effective tax rate

315.5 %

17.4 %

Our 14.9 % effective tax rate for 2025 was lower than the U.S. statutory rate primarily due to research and development
tax credits, increased utilization of foreign tax credits, and excess tax benefits related to stock-based compensation .
Our 315.5 % effective tax rate for 2024 was materially different than the U.S. statutory rate primarily due to the
$ 4.4  billion of non-deductible AIPR&D resulting from our acquisition of Alpine, which significantly lowered our pre-tax
income. The non-deductible AIPR&D was partially offset by a benefit from a research and development tax credit study that
was completed in 2024 and excess tax benefits related to stock-based compensation .
Our 17.4 % effective tax rate for 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research
and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation,
partially offset by changes in uncertain tax positions .

F-43

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using
enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes
were as follows:

As of December 31,

2025

2024

(in millions)

Deferred tax assets:

Tax credit carryforwards

$ 355.8

$ 298.3

Intangible assets

651.6

769.3

Stock-based compensation

171.8

164.2

Operating lease assets

390.7

333.5

R&D capitalization

1,920.5

1,404.1

Other

233.5

192.0

Gross deferred tax assets

3,723.9

3,161.4

Valuation allowance

( 326.2 )

( 272.9 )

Total deferred tax assets

3,397.7

2,888.5

Deferred tax liabilities:

Operating lease liabilities

( 312.7 )

( 271.9 )

Other

( 187.1 )

( 285.5 )

Total deferred tax liabilities

( 499.8 )

( 557.4 )

Net deferred tax assets

$ 2,897.9

$ 2,331.1

On a periodic basis, we reassess the valuation allowance on our deferred income tax assets, weighing positive and
negative evidence to assess the recoverability of our deferred tax assets. As of December 31, 2025 , we maintained a valuation
allowance of $ 326.2 million related to U.S. state tax attributes.
In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of
inventory. As of December 31, 2025 and 2024 , the total deferred charges were $ 318.4 million and $ 279.3 million ,
respectively.

F-44

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Tax Attributes
As of December 31, 2025 , we had the following net operating losses (“NOLs”), capital losses, and tax credit
carryforwards, which if not utilized, will begin to expire in the year listed below:

As of December 31, 2025

Amount

Year

(in millions)

Federal net operating loss carryforwards

$ 57.3

2028

Federal capital loss carryforwards

$ 27.6

2027

Federal research and development tax credit carryforwards

$ 3.6

2034

State net operating loss carryforwards

$ 450.2

2027

State research and development tax credit carryforwards

$ 471.7

2026

Foreign net operating loss carryforwards

$ 30.3

2041

Foreign tax credit carryforwards

$ 15.9

2026

Included in the amounts above are $ 84.9 million of NOLs, and $ 64.6 million of credits that have unlimited carryforward
periods.
Our NOLs and credits could be subject to annual limitations due to ownership change limitations provided by U.S.
Internal Revenue Service (“IRS”) Code Section 382 and similar state provisions. An annual limitation could result in the
expiration of NOLs and tax credit carryforward before utilization. There are limitations on the tax attributes of acquired
entities however, we do not believe the limitations will have a material impact on the utilization of the NOLs or tax credits.
Cash Paid for Income Taxes
Cash paid for income taxes was as follows :

Year ended December 31, 2025

(in millions)

Federal

$ 968.9

State

74.2

Foreign

United Kingdom

473.2

Other

50.4

Total cash paid for income taxes

$ 1,566.7

F-45

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Unrecognized Tax Benefits
Unrecognized tax benefits were as follows:

Year ended December 31,

2025

2024

2023

(in millions)

Balance at beginning of the period

$ 706.2

$ 615.9

$ 459.6

Increases related to current period tax positions

119.5

119.2

116.0

Increases related to prior period tax positions

5.2

4.6

62.5

Decreases related to prior period tax positions

( 5.7 )

( 1.9 )

( 14.4 )

Statute of limitations expiration

( 10.7 )

( 16.6 )

( 8.1 )

Settlement with tax authorities

( 6.3 )

( 14.5 )

—

Changes in foreign exchange rates

43.9

( 0.5 )

0.3

Balance at end of period

$ 852.1

$ 706.2

$ 615.9

During 2025 , we increased our gross unrecognized tax benefits by $ 145.9 million , primarily associated with
intercompany transfer pricing matters . The unrecognized tax benefits were recorded as a $ 7.4 million decrease to our gross
deferred tax assets and a $ 138.5 million increase to our gross tax liability.
During 2024 , we increased our gross unrecognized tax benefits by $ 90.3 million , primarily associated with intercompany
transfer pricing matters. The unrecognized tax benefits were recorded as a $ 1.6 million increase to our gross deferred tax
assets and a $ 91.9 million increase to our gross tax liability.
During 2023 , we increased our gross unrecognized tax benefits by $ 156.3 million , primarily associated with
intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $ 3.7 million increase to our gross
deferred tax assets and a $ 160.0 million increase to our gross tax liability.
As of December 31, 2025 , we have classified $ 46.2 million , and $ 805.9 million of our unrecognized tax benefits as
credits to “ Deferred tax assets ,” and “ Other long-term liabilities ,” respectively, on our consolidated balance sheet.
Included in our unrecognized tax benefits as of December 31, 2025 , 2024 and 2023 , we had $ 436.6 million , $ 341.4
million and $ 288.7 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits, which would
affect our effective income tax rate if recognized.
We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes. In
2025 and 2023, we recognized total net interest and penalty expenses of $ 13.1 million and $ 84.9 million , respectively. In
2024, we recognized total net interest and penalty credits of $ 41.5 million . As of December 31, 2025 and 2024 , our accrual
for interest and penalties was $ 95.7 million and $ 82.6 million , respectively.
The IRS and other local and foreign tax authorities routinely examine our tax returns, including intercompany transfer
pricing, and it is reasonably possible that we will adjust the value of our uncertain tax positions related these matters and
other issues as we receive additional information from various taxing authorities, including reaching settlements with such
authorities. In the case of intercompany transfer pricing, it is reasonably possible that taxing authorities do not agree with
each other on the reallocation of income or the valuation of intellectual property, in which case we could be subject to double
taxation, despite bilateral treaty agreements available to prevent this. In 2023, we came to settlement with the U.K’s HM
Revenue & Customs (“HMRC”) with respect to our tax positions for 2015 through 2020 and subsequently received Closure
Notices for those periods in 2024. Due to the nature of the adjustments, we have asserted our rights under the U.S./U.K.
Income Tax Convention pursuant to the mutual agreement procedures for the relief of double taxation for these matters.
We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We have
various income tax audits ongoing at any time throughout the world. Except for jurisdictions where we have NOLs or tax

F-46

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

credit carryforwards, we are no longer subject to any tax assessment from tax authorities for years prior to 2014 in
jurisdictions that have a material impact on our consolidated financial statements.
In December 2022, E.U. member states reached an agreement to implement the minimum tax component (“Pillar Two”)
of the Organization for Economic Co-operation and Development’s (the “OECD’s”), global international tax reform initiative
with effective dates of January 1, 2024 and 2025. On January 5, 2026, the OECD announced that a ‘side-by-side’ agreement
was reached with member countries creating safe harbors to exempt U.S. multi-nationals from certain of the taxes under the
Pillar Two regime by recognizing the U.S. tax system as a compatible domestic minimum tax regime. Our exposure to other
countries’ minimum tax regimes was limited before these changes but the side-by-side agreement allows for certainty as our
structure may change in the future.
In July 2025, the U.S. enacted H.R.1, which includes significant provisions modifying the U.S. tax framework, including
the ability for companies to immediately deduct research and development expenditures for 2025 and provisions for
deducting previously capitalized amounts. H.R.1 does not have a material impact on our 2025 U.S. taxes, but we expect
further guidance to be issued. We will review guidance when issued for impacts on future years and disclose any impacts if
needed at that time. These legislative changes could have an impact on our future effective tax rates, tax liabilities, and cash
taxes.

P. Commitments and Contingencies
2022 Credit Facility
In July 2022, Vertex and certain of its subsidiaries entered into a $ 500.0 million unsecured revolving facility (the “Credit
Agreement”) with Bank of America, N.A., as administrative agent and the lenders referred to therein (the “Lenders”), which
matures on July 1, 2027. The Credit Agreement was not drawn upon at closing and we have not drawn upon it to date.
Amounts drawn pursuant to the Credit Agreement, if any, will be used for general corporate purposes. Subject to satisfaction
of certain conditions, we may request that the borrowing capacity for the Credit Agreement be increased by an additional
$ 500.0 million . Additionally, the Credit Agreement provides a sublimit of $ 100.0 million for letters of credit.
Any amounts borrowed under the Credit Agreement will bear interest, at our option, at either a base rate or a Secured
Overnight Financing Rate (“SOFR”), in each case plus an applicable margin. Under the Credit Agreement, the applicable
margins on base rate loans range from 0.000 % to 0.500 % and the applicable margins on SOFR loans range from 1.000 % to
1.500 % , in each case based on our consolidated leverage ratio (the ratio of our total consolidated funded indebtedness to our
consolidated EBITDA for the most recently completed four fiscal quarter period).
Any amounts borrowed pursuant to the Credit Agreement are guaranteed by certain of our existing and future domestic
subsidiaries, subject to certain exceptions.
The Credit Agreement contains customary representations and warranties and affirmative and negative covenants,
including a financial covenant to maintain subject to certain limited exceptions, a consolidated leverage ratio of 3.50 to 1.00 ,
subject to an increase to 4.00 to 1.00 following a material acquisition. As of December 31, 2025 , we were in compliance with
the covenants described above. The Credit Agreement also contains customary events of default. In the case of a continuing
event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of
amounts due under outstanding loans.
Direct costs related to the Credit Agreement are recorded over its term and are not material to our financial statements.
Guaranties and Indemnifications
As permitted under Massachusetts law, our Articles of Organization and By-laws provide that we will indemnify certain
of our officers and directors for certain claims asserted against them in connection with their service as an officer or director.
The maximum potential amount of future payments that we could be required to make under these indemnification provisions
is unlimited. However, we have purchased directors’ and officers’ liability insurance policies that could reduce our monetary
exposure and enable us to recover a portion of any future amounts paid. No indemnification claims currently are outstanding,
and we believe the estimated fair value of these indemnification arrangements is minimal.

F-47

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

We customarily agree in the ordinary course of our business to indemnification provisions in agreements with clinical
trial investigators and sites in our product development programs, sponsored research agreements with academic and not-for-
profit institutions, various comparable agreements involving parties performing services for us, and our real estate leases. We
also customarily agree to certain indemnification provisions in our drug discovery, development and commercialization
collaboration agreements. With respect to our clinical trials and sponsored research agreements, these indemnification
provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal
injury or property damage, violations of law or certain breaches of our contractual obligations arising out of the research or
clinical testing of our compounds or product candidates. With respect to lease agreements, the indemnification provisions
typically apply to claims asserted against the landlord relating to personal injury or property damage caused by us, to
violations of law by us or to certain breaches of our contractual obligations. The indemnification provisions appearing in our
collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited
indemnification for our collaborator in the event of third-party claims alleging infringement of intellectual property rights. In
each of the cases above, the indemnification obligation generally survives the termination of the agreement for some
extended period, although we believe the obligation typically has the most relevance during the contract term and for a short
period of time thereafter. The maximum potential amount of future payments that we could be required to make under these
provisions is generally unlimited. We have purchased insurance policies covering personal injury, property damage and
general liability that reduce our exposure for indemnification and would enable us in many cases to recover all or a portion of
any future amounts paid. We have never paid any material amounts to defend lawsuits or settle claims related to these
indemnification provisions. Accordingly, we believe the estimated fair value of these indemnification arrangements is
minimal.
Legal Matters and Other Contingencies
As described in Note B, “Collaboration, License and Other Arrangements,” we have an agreement with the CFF (the
“CFF Agreement”) pursuant to which we owe third-party royalties payable on net sales of certain CF products, including
ALYFTREK. Since inception, our ALYFTREK net product revenues total $ 837.8 million . Based on the CFF Agreement, our
position is that the royalty burden associated with ALYFTREK is 4 % . On October 10, 2025, Royalty Pharma plc (“RP”), the
third party to whom the CFF assigned its rights (and the CFF, which remains a party to the CFF Agreement), initiated a
confidential arbitration alleging the royalty burden on ALYFTREK is approximately 8 % . RP is seeking a declaratory
judgment regarding the royalty burden on ALYFTREK as well as alleged unpaid royalties and other alleged damages
available under the CFF Agreement or applicable law, costs, expenses, attorneys’ fees, and interest. We believe RP’s position
is contrary to the plain terms of the CFF Agreement and intend to vigorously defend our position under the CFF Agreement.
On a quarterly basis, we evaluate developments with claims, whether asserted or unasserted, and legal proceedings that
could result in a loss contingency accrual, or an increase or decrease to a previously accrued loss contingency. There were no
material loss contingencies accrued as of December 31, 2025 or 2024 .
We also have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue for such
contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably
estimated. Other than our contingent consideration liabilities discussed in Note D, “Fair Value Measurements,” there were no
significant contingent liabilities accrued as of December 31, 2025 or 2024 .

Q. Segment Information
Segment reporting is prepared on the same basis that our chief executive officer, who is our chief operating decision
maker (“CODM”), manages the business, makes operating decisions and assesses performance. We operate in one segment,
pharmaceuticals. We have selected net income (loss) as our reported measure of segment profit or loss because it is regularly
provided to our CODM, allows our CODM to allocate resources because it encapsulates the results of our processes that
generate revenues and expenses, and is important to the users of our financial statements. Enterprise-wide disclosures about
revenues, significant customers, significant segment expenses, and property and equipment, net by location are presented
below.

F-48

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Revenues by Product
“ Product revenues, net ” consisted of the following:

Year ended December 31,

2025

2024

2023

(in millions)

TRIKAFTA/KAFTRIO

$ 10,312.7

$ 10,238.6

$ 8,944.7

ALYFTREK

837.8

—

—

Other product revenues

820.1

781.5

924.5

Total product revenues, net

$ 11,970.6

$ 11,020.1

$ 9,869.2

In 2025 , “ Other product revenues ” included $ 115.8 million from CASGEVY and $ 59.6 million from JOURNAVX. In
2024 , “ Other product revenues ” included CASGEVY product revenues of $ 10.0 million and there were no revenues from
JOURNAVX. The remaining “ Other product revenues ” are related to KALYDECO, ORKAMBI, and SYMDEKO/
SYMKEVI, our other CF products .
R evenues by Geographic Location
“ Product revenues, net ” are allocated based on the location of the customer. “ Other revenues ” are allocated based on the
location of the Vertex entity associated with such revenues. Our “ Total revenues ” consisted of the following:

Year ended December 31,

2025

2024

2023

(in millions)

United States

$ 7,548.6

$ 6,684.9

$ 6,040.4

Outside of the United States

Europe

3,460.3

3,453.9

3,109.0

Other

992.4

881.3

719.8

Total revenues outside of the United States

4,452.7

4,335.2

3,828.8

Total revenues

$ 12,001.3

$ 11,020.1

$ 9,869.2

In 2025, our “ Other revenues ” of $ 30.7 million were attributed to the U.S. We did not have any “ Other revenues ” in
2024 or 2023.
Significant Customers
Gross p roduct revenues and net accounts receivable from each of our customers who individually accounted for 10% or
more of total gross product revenues and/or 10% or more of total accounts receivable consisted of the following:

Percentage of Total Gross Product Revenues

Percentage of Accounts Receivable

Year Ended December 31,

As of December 31,

2025

2024

2023

2025

2024

McKesson Corporation

22 %

26 %

26 %

19 %

17 %

Accredo Health Group, Inc.

12 %

11 %

11 %

< 10 %

< 10 %

Lloyds Pharmacy

< 10 %

< 10 %

< 10 %

10 %

13 %

F-49

VERTEX PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements (Continued)

Significant Segment Expenses
Significant segment expenses are set forth in the following table:

Year ended December 31,

2025

2024

2023

(in millions)

Total revenues

$ 12,001.3

$ 11,020.1

$ 9,869.2

Costs and expenses:

Cost of sales - products

601.5

516.3

349.2

Cost of sales - royalty

1,049.8

1,014.2

913.0

Research expenses

827.9

804.5

705.6

Development expenses

3,081.6

2,825.8

2,457.3

Acquired in-process research and development expenses

133.0

4,628.4

527.1

Selling and other commercial expenses

1,102.8

838.5

592.4

General and administrative expenses

650.3

625.8

544.2

Intangible asset impairment charge

379.0

—

—

Interest income

( 490.9 )

( 598.1 )

( 614.7 )

Other Segment items (1)

23.1

116.2

15.3

Provision for income taxes

690.0

784.1

760.2

Net income (loss)

$ 3,953.2

$ ( 535.6 )

$ 3,619.6

(1) Other segment items included in “Net income (loss) ” primarily include changes in the fair value of contingent consideration,
interest expense and changes in the fair value of equity investments.
Long-lived Assets by Location
Long-lived assets by location consisted of the following:

As of December 31,

2025

2024

(in millions)

United States

$ 2,888.4

$ 2,392.4

Outside of the United States

United Kingdom

167.6

176.6

Other

27.0

15.6

Total long-lived assets outside of the United States

194.6

192.2

Total long-lived assets

$ 3,083.0

$ 2,584.6