# Vertex Pharmaceuticals Inc / Ma: Form 10-Q for the period ended Sep 30, 2011

- Company: [Vertex Pharmaceuticals Inc / Ma](/companies/vrtx.md) (CIK 875320)
- Form: 10-Q
- Filed: 2011-11-03
- Accepted by EDGAR: Nov 3, 2011, 21:16 ET
- Period: 2011-09-30
- Accession: 0001047469-11-009007
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/875320/000104746911009007/a2206080z10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/875320/000104746911009007/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2011-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2011-07-01 to 2011-09-30 | $659.2m | us-gaap:Revenues |
| Revenue | 9 months, 2011-01-01 to 2011-09-30 | $847.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2011-07-01 to 2011-09-30 | $35.3m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2011-01-01 to 2011-09-30 | $40.7m | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2011-07-01 to 2011-09-30 | $189.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2011-01-01 to 2011-09-30 | $521.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2011-07-01 to 2011-09-30 | $110.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2011-01-01 to 2011-09-30 | $278.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2011-07-01 to 2011-09-30 | $215.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2011-01-01 to 2011-09-30 | −$110.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2011-07-01 to 2011-09-30 | $7.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2011-01-01 to 2011-09-30 | $26.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2011-07-01 to 2011-09-30 | −$27.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2011-01-01 to 2011-09-30 | −$3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2011-07-01 to 2011-09-30 | $221.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2011-01-01 to 2011-09-30 | −$129.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2011-07-01 to 2011-09-30 | $1.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2011-01-01 to 2011-09-30 | −$0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2011-07-01 to 2011-09-30 | $1.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2011-01-01 to 2011-09-30 | −$0.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2011-07-01 to 2011-09-30 | 219,349,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2011-01-01 to 2011-09-30 | 204,262,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2011-01-01 to 2011-09-30 | −$359.9m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2011-01-01 to 2011-09-30 | $25.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2011-09-30 | $542.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2011-09-30 | $1.25bn | us-gaap:AssetsCurrent |
| Total assets | at 2011-09-30 | $2.09bn | us-gaap:Assets |
| Current liabilities | at 2011-09-30 | $548.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2011-09-30 | $1.36bn | us-gaap:Liabilities |
| Long-term debt | at 2011-09-30 | $105.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2011-09-30 | $579.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,072 characters.

### Overview

We are in the business of discovering, developing and commercializing small molecule drugs for the treatment of serious diseases. In May 2011, we began marketing INCIVEK™ (telaprevir) in the United States for the treatment of patients with genotype 1 chronic hepatitis C virus, or HCV, infection. In October 2011, we submitted a New Drug Application, or NDA, in the United States and a marketing authorization application, or MAA, in the European Union for KALYDECO™ (ivacaftor/VX-770), the lead drug candidate in our cystic fibrosis, or CF, program.

In the third quarter of 2011, we generated earnings as a cashflow positive company, with net income attributable to us of $221.1 million and an increase in our cash, cash equivalents and marketable securities of $65.2 million. We recognized net revenues on sales of INCIVEK of $419.6 million in the third quarter of 2011, which was an increase of $345.1 million as compared to the second quarter of 2011. Our operating expenses also have been increasing on a quarterly basis because expenses related to our commercial organization and sales of INCIVEK have increased substantially. In order to maintain profitability and continue our investment in research and development activities, we will need to sustain or increase our product revenues in future quarters.

In September 2011, our collaborator, Janssen Pharmaceutica, N.V., or Janssen, obtained marketing approval for telaprevir from the European Commission. Janssen is marketing telaprevir under the brand name INCIVO™. We anticipate that royalties payable by Janssen to us on net sales of INCIVO will provide a secondary source of revenues beginning in the fourth quarter of 2011. In addition, we expect to begin receiving revenues from KALYDECO, if approved, in 2012.

We have ongoing Phase 2 clinical programs involving drug candidates intended for the treatment of HCV infection, CF, rheumatoid arthritis, or RA, and epilepsy, and have an ongoing Phase 1 clinical development program for VX-787, which is our first drug candidate intended for the treatment of influenza. We believe that our longer-term success will depend on our ability to continue to generate and develop innovative compounds for the treatment of serious diseases. As a result, we expect to continue investing in research programs directed toward the identification of new drug candidates and to develop and commercialize selected drug candidates that emerge from those programs, alone or with third-party collaborators.

#### Drug Development and Commercialization

Discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluation, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side-effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated as potential drug candidates never progress into formal development, and most drug candidates that do advance into formal development never receive marketing approval. Because our investments in drug candidates are subject to considerable risks, we closely monitor the results of our discovery research, clinical trials and nonclinical studies, and frequently evaluate our drug development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in relatively abrupt changes in focus and priority as new information becomes available and we gain additional understanding of our ongoing programs and potential new programs.

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

We believe that by focusing on serious diseases and innovative drugs that have the potential to provide significant advantages over existing therapies, we can increase the likelihood that our drug candidates, if approved, will be commercially successful. Our marketing efforts for INCIVEK in the United States have focused on establishing effective marketing, distribution and pricing strategies; infrastructure to support commercial sales; appropriate and sustained levels of INCIVEK inventory; company-wide processes and systems to support compliance with applicable laws and regulations and post-marketing safety evaluations; and an effective sales force and managed markets organization to promote INCIVEK to healthcare providers and payors. We plan to continue to focus on our marketing efforts for INCIVEK and are in the process of negotiating with various government agencies and managed market organizations in an effort to expand the availability and extent of reimbursement from these third-party payors.

We believe that initial sales of INCIVEK have confirmed its commercially competitive profile, and to date a significant group of patients with genotype 1 HCV infection have sought treatment with an INCIVEK-based treatment regimen. We and Janssen are competing with Merck & Co., Inc.'s Victrelis™ (boceprevir), another HCV protease inhibitor that was approved for sale in the United States and Europe in 2011. KALYDECO (VX-770), if approved, would be the first drug to treat the underlying cause of CF in any patient population. However, it is difficult to predict future revenues that will be generated by telaprevir or by KALYDECO (VX-770), if it receives regulatory approvals, and we may need to adjust our business plan if demand declines or if our product revenues decrease based on competition from current or future therapies. Drugs that obtain market acceptance may later be rendered obsolete or noncompetitive by the introduction of additional therapies, expiration of intellectual property protections or introduction of generic competition. Medivir AB, in collaboration with Janssen, is currently evaluating an HCV protease inhibitor in Phase 3 clinical trials in combination with pegylated-interferon, or peg-IFN, and ribavirin, or RBV. In earlier-stage clinical trials, we are evaluating combinations involving VX-222, including all-oral combinations, and numerous competitors are evaluating protease inhibitors, HCV polymerase inhibitors and HCV NS5A inhibitors, including such competitors' all-oral combinations. We believe that these earlier-stage drug candidates, if approved, will not be available until several years from now. Approved drugs continue to be subject to, among other things, numerous regulatory risks, post-approval safety monitoring and risks related to supply chain disruptions.

We require a supply of INCIVEK for sale in North America and will require a supply of KALYDECO (VX-770) for sale worldwide if we are successful in obtaining marketing approval for KALYDECO (VX-770). We rely on an international network of third parties to manufacture and distribute our drug candidates for clinical trials, and we expect that we will continue to rely on third parties for the foreseeable future to meet our commercial supply needs for INCIVEK and any of our drug candidates that are approved for sale. Third-party contract manufacturers, including some in China, supply us with raw materials, and contract manufacturers in the European Union and the United States convert these raw materials into drug substance and convert the drug substance into final dosage form. Establishing and managing this global supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party relationships. Although we attempt to effectively manage the business relationships with companies in our supply chain, we do not have complete control over their activities. Also, because of the significant lead times required to manufacture our commercial supply of INCIVEK, we may have less flexibility to adjust our supply in response to increased demand than if we had shorter lead times.

We had not marketed pharmaceutical products before we obtained approval for INCIVEK, and prior to 2010 we had a relatively small commercial organization. As a result, in the past many of the regulations related to the marketing of pharmaceutical products had limited applicability to our business. As we expanded our commercial organization, we focused on implementing a comprehensive compliance program to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback and false claims statutes. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs.

#### Recent Developments

### HCV

In August 2011, we obtained approval to market INCIVEK in Canada for patients who have genotype 1 chronic HCV.

In September 2011, Janssen obtained approval from the European Commission to market INCIVO in the European Union. Janssen currently is marketing INCIVO in the United Kingdom, Germany, France and Sweden.

In September 2011, Mitsubishi Tanabe obtained approval to market telaprevir in Japan, which it plans to market under the brand name TELAVIC™.

We have ongoing Phase 3b clinical trials to support potential supplemental applications for INCIVEK, including a clinical trial evaluating a twice-daily dosing regimen of INCIVEK and a clinical trial evaluating shorter treatment durations for patients with genotype 1 chronic HCV with a specific genetic variation near the IL28B gene referred to as the "CC" variation. We also plan to initiate a Phase 3b clinical trial of INCIVEK in patients co-infected with HCV and HIV, as well as a Phase 2b clinical trial of INCIVEK in patients with recurrent HCV following a liver transplant.

We have completed enrollment in two, all-oral three-drug treatment arms of an ongoing Phase 2 clinical trial evaluating our HCV polymerase inhibitor VX-222 in combination with INCIVEK and RBV.

### CF

In October 2011, we submitted our NDA in the United States and our MAA in the European Union for KALYDECO (VX-770). KALYDECO (VX-770) has been evaluated in patients with CF 6 years of age and older who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator, or CFTR, gene. We requested Priority Review of the NDA from the FDA in the United States and have received agreement from the European Medicines Agency for accelerated assessment of KALYDECO (VX-770) in the European Union.

In October 2011, we initiated the second part of a Phase 2 clinical trial evaluating combination regimens of KALYDECO (VX-770) and VX-809, a corrector compound, in patients with the F508del mutation in the CFTR gene. In 2012, we plan to conduct a Phase 2 clinical trial of VX-661, another CFTR corrector compound.

In 2012, we plan to initiate a Phase 2 clinical trial of KALYDECO (VX-770) dosed as a monotherapy in patients ages 2 through 5 years who have at least one copy of the G551D mutation in the CFTR gene, as well as additional clinical trials designed to evaluate KALYDECO (VX-770) dosed as a monotherapy in patients with certain gating mutations in the CFTR gene other than the G551D mutation.

### Rheumatoid Arthritis

In September 2011, we announced data from our Phase 2a clinical trial that evaluated VX-509 in patients with RA over a twelve-week period. Based on the safety and efficacy data from this clinical trial, we plan to evaluate VX-509 as part of a six-month Phase 2b clinical trial in patients with RA. In this Phase 2b clinical trial, we expect to evaluate once-daily and twice-daily doses of VX-509 in combination with methotrexate, a commonly prescribed disease-modifying antirheumatic drug that is frequently used in combination with other RA drugs.

### Intangible Asset Impairment Charge

In the third quarter of 2011, we incurred an intangible asset impairment charge related to VX-759, the back-up HCV polymerase inhibitor to VX-222. Please refer to Note L, "Acquisition of ViroChem Pharma Inc.," in the accompanying notes to the condensed consolidated financial statements for further information.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. During the nine months ended September 30, 2011, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

### Results of Operations—Three and Nine Months Ended September 30, 2011 Compared with Three and Nine Months Ended September 30, 2010

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $659,200 | $23,795 | $635,405 | 2,670% | $847,286 | $77,846 | $769,440 | 988% |
| Operating costs and expenses | 443,493 | 223,383 | 220,110 | 99% | 957,368 | 607,289 | 350,079 | 58% |
| Gain (loss) on other items, net | 5,403 | (9,369) | n/a | n/a | (18,973) | (44,791) | (25,818) | (58)% |
| Net income (loss) attributable to Vertex | $221,110 | $(208,957) | n/a | n/a | $(129,055) | $(574,234) | $(445,179) | (78)% |

#### Net Income (Loss) Attributable to Vertex

In the third quarter of 2011, we had net income attributable to Vertex of $221.1 million. Our increased revenues were the result $419.6 million of INCIVEK net product revenues and $200.0 million in milestone revenues from Janssen recognized in the third quarter 2011, for which there were no comparable revenues in third quarter of 2010. Our increased revenues were partially offset by increased operating costs and expenses in the third quarter of 2011 as compared to the third quarter of 2010. A significant portion of the increase in operating costs and expenses was due to a $105.8 million impairment charge that we incurred in the third quarter of 2011 related to VX-759, a back-up HCV polymerase inhibitor that we determined was impaired based on, among other factors, the advancement of our lead HCV polymerase inhibitor VX-222. The remaining $114.3 million increase in operating costs and expenses in the third quarter of 2011 as compared to the third quarter of 2010 was principally attributable to a $61.8 million increase in sales, general and administrative expenses and a $35.3 million increase in costs of product revenues. Our operating costs and expenses in the third quarter of 2011 and 2010 included $29.4 million and $23.8 million, respectively, of stock-based compensation expense.

Our net loss attributable to Vertex in the nine months ended September 30, 2011 decreased as compared to our net loss attributable to Vertex in the nine months ended September 30, 2010, due to significant increases in our revenues, partially offset by significant increases in our operating costs and expenses. Our increased revenues were the result of INCIVEK net product revenues recognized in the second and third quarters of 2011 and $250.0 million in milestone revenues from Janssen recognized in 2011, for which there were no comparable revenues in the nine months ended September 30, 2010. The increased operating costs and expenses were primarily the result of the expansion of our commercial organization, costs related to INCIVEK sales and marketing in the United States and the impairment charge we recorded in the third quarter of 2011. Our operating costs and expenses in the nine months ended September 30, 2011 and 2010 included $89.2 million and $67.6 million, respectively, of stock-based compensation expense.

#### Net Income (Loss) Attributable to Vertex per Share

Our net income (loss) attributable to Vertex for the third quarter of 2011 was $1.02 per diluted share as compared to ($1.04) per diluted share for the third quarter of 2010. Our net income (loss) attributable to Vertex for the nine months ended September 30, 2011 was ($0.63) per diluted share as compared to ($2.87) per diluted share for the nine months ended September 30, 2010.

### Revenues

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenues, net | $419,595 | $— | $419,595 | n/a | $494,130 | $— | $494,130 | n/a |
| Royalty revenues | 8,539 | 8,173 | 366 | 4% | 24,610 | 21,842 | 2,768 | 13% |
| Collaborative revenues | 231,066 | 15,622 | 215,444 | 1,379% | 328,546 | 56,004 | 272,542 | 487% |
| Total revenues | $659,200 | $23,795 | $635,405 | 2,670% | $847,286 | $77,846 | $769,440 | 988% |

### Product Revenues, Net

We began recognizing net product revenues on sales of INCIVEK in the United States in the second quarter of 2011. Our net product revenues in the third quarter of 2011 increased significantly as compared to the second quarter of 2011 as a result of month-over-month increases in net product revenues, and as a result of recognizing net product revenues for a full fiscal quarter in the third quarter of 2011 as compared to only the final five weeks of the second quarter of 2011.

### Royalty Revenues

In late September 2011, Janssen obtained approval from the European Commission and began marketing INCIVO in certain European countries. We expect that our royalty revenues related to INCIVO will increase significantly over the next several fiscal quarters as Janssen launches INCIVO in its territories. We also earned royalty revenues from Janssen on sales of INCIVO pursuant to an early access program that was authorized by the French government. In the three and nine months ended September 30, 2011, our royalty revenues reflect $1.3 million and $3.8 million, respectively, of royalty revenues due to sales of INCIVO by Janssen.

Our remaining royalty revenues in the three and nine months ended September 30, 2011, and all of our royalty revenues in periods prior to the second quarter of 2011, relate to sales by GlaxoSmithKline plc of HIV protease inhibitors that were discovered and developed pursuant to our collaboration with GlaxoSmithKline. In 2008, we sold our right to receive future royalties from GlaxoSmithKline with respect to these HIV protease inhibitors, excluding the portion allocated to pay a subroyalty on these net sales to a third party, in return for a one-time cash payment. We deferred the recognition of revenues from this sale and are recognizing these deferred revenues over the term of our agreement with GlaxoSmithKline under the units-of-revenue method. We recognize additional royalty revenues equal to the amount of a third-party subroyalty and an offsetting royalty expense for the third-party subroyalty payment.

### Collaborative Revenues

Our collaborative revenues have fluctuated significantly on a quarterly basis. This variability has been due to, among other things: the timing of recognition of up-front payments and significant milestone revenues, the variable level of net reimbursement we have received for the telaprevir development program from Janssen and revenues from services we provided to our telaprevir collaborators through our third-party manufacturing network. In the third quarter of 2011, we recognized the final milestone revenues we expect to recognize from our collaboration with Janssen, and we expect that in future periods our collaborative revenues from existing collaborations will represent a small percentage of our total revenues. The table presented below summarizes our collaborative revenues for the three and nine months ended September 30, 2011 and 2010:

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Nine Months Ended September 30, 2011 | 2010 |
| --- | ---: | ---: | ---: | ---: |
| Janssen | $207,720 | $4,566 | $272,894 | $22,912 |
| Mitsubishi Tanabe | 19,500 | 11,056 | 45,858 | 32,650 |
| Cystic Fibrosis Therapeutics Incorporated | 3,846 | — | 9,794 | — |
| Other | — | — | — | 442 |
| Total collaborative revenues | $231,066 | $15,622 | $328,546 | $56,004 |

We recognized $200.0 million in milestone revenues under our collaboration agreement with Janssen in the third quarter of 2011 related to the approval and launch of INCIVO in the European Union, and $50.0 million in milestone revenues under this collaboration agreement in the first quarter of 2011 related to the acceptance of the filing of the MAA for INCIVO. The $50.0 million milestone payment received in the first quarter of 2011 was applied to the redemption of $50.0 million of our secured notes due 2012, or 2012 Notes, as required pursuant to the terms of the 2012 Notes. The $200.0 million in milestone payments we were entitled to receive from Janssen based on the achievement of milestones in the third quarter of 2011 were reflected as accounts receivable, net on our condensed consolidated balance sheet as of September 30, 2011. We applied the proceeds from $105.0 million of these milestone payments, which were received in October 2011, toward the redemption of the remaining $105.0 million of 2012 Notes, and the other $95.0 million of these accounts receivable were paid directly to the purchaser of the remaining portion of these milestone payments. We do not expect to earn any additional milestones pursuant to our collaboration with Janssen, and we expect our future revenues related to the Janssen collaboration will primarily be reflected as royalty revenues.

In each of the three and nine months ended September 30, 2011 and 2010, we recognized $9.6 million and $28.7 million of deferred revenues from Mitsubishi Tanabe Pharma Corporation related to a one-time payment of $105.0 million that we received in 2009. We expect to continue recognizing $9.6 million of deferred revenues each quarter from the one-time payment of $105.0 million through the first quarter of 2012. In the second quarter of 2011, we began recognizing collaborative revenues pursuant to the April 2011 amendment to our collaboration agreement with the Cystic Fibrosis Therapeutics Incorporated.

### Operating Costs and Expenses

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of product revenues | $35,285 | $— | $35,285 | n/a | $40,689 | $— | $40,689 | n/a |
| Research and development expenses | 189,052 | 170,434 | 18,618 | 11% | 521,268 | 468,528 | 52,740 | 11% |
| Sales, general and administrative expenses | 110,654 | 48,855 | 61,799 | 126% | 278,840 | 125,322 | 153,518 | 122% |
| Royalty expenses | 3,121 | 3,228 | (107) | (3)% | 9,689 | 9,681 | 8 | 0% |
| Restructuring expense (credit) | (419) | 866 | n/a | n/a | 1,082 | 3,758 | (2,676) | (71)% |
| Intangible asset impairment charge | 105,800 | — | 105,800 | n/a | 105,800 | — | 105,800 | n/a |
| Total costs and expenses | $443,493 | $223,383 | $220,110 | 99% | $957,368 | $607,289 | $350,079 | 58% |

### Cost of Product Revenues

Our cost of product revenues consists of the costs of producing INCIVEK inventories that correspond to product revenues for the reporting period, plus the third-party royalties payable on our net sales of INCIVEK. We expensed most of the manufacturing costs of INCIVEK sold in the three and nine months ended September 30, 2011 as research and development expenses in periods prior to January 1, 2011. We expect our cost of product revenues to increase as a percentage of net sales in future periods.

### Research and Development Expenses

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research expenses | $57,444 | $48,416 | $9,028 | 19% | $160,548 | $140,146 | $20,402 | 15% |
| Development expenses | 131,608 | 122,018 | 9,590 | 8% | 360,720 | 328,382 | 32,338 | 10% |
| Total research and development expenses | $189,052 | $170,434 | $18,618 | 11% | $521,268 | $468,528 | $52,740 | 11% |

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

To date, we have incurred in excess of $4.5 billion in research and development expenses associated with drug discovery and development. The successful development of our drug candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may vary substantially according to the type, complexity and novelty of the drug candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available.

Over the last several years, costs related to INCIVEK have represented the largest portion of the development costs for our clinical drug candidates. We expect to continue to incur development costs related to the conduct of additional clinical trials to support potential supplemental applications for INCIVEK. We submitted an NDA and an MAA for KALYDECO (VX-770) in October 2011 and could begin receiving product revenues from KALYDECO (VX-770), if approved, in 2012. Our other drug candidates are less advanced and, as a result, any estimates regarding development and regulatory timelines for these drug candidates are highly subjective and subject to change. We cannot make a meaningful estimate when, if ever, these drug candidates, including VX-222 and those we in-licensed from Alios BioPharma, Inc., will generate revenues and cash flows.

#### Research Expenses

*(in thousands)*

*(in thousands)*

| Research Expenses: | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salary and benefits | $21,016 | $17,422 | $3,594 | 21% | $56,766 | $50,036 | $6,730 | 13% |
| Stock-based compensation expense | 6,841 | 6,063 | 778 | 13% | 19,730 | 17,988 | 1,742 | 10% |
| Laboratory supplies and other direct expenses | 8,932 | 6,383 | 2,549 | 40% | 24,979 | 21,543 | 3,436 | 16% |
| Contractual services | 3,236 | 3,300 | (64) | (2)% | 8,980 | 7,559 | 1,421 | 19% |
| Infrastructure costs | 17,419 | 15,248 | 2,171 | 14% | 50,093 | 43,020 | 7,073 | 16% |
| Total research expenses | $57,444 | $48,416 | $9,028 | 19% | $160,548 | $140,146 | $20,402 | 15% |

We have maintained a substantial investment in research activities, with changes in various categories of expense resulting in increases of 19% and 15% in research expenses in the three and nine months ended September 30, 2011, respectively, as compared to the comparable periods in 2010. We expect to continue to invest in our research programs in an effort to identify additional drug candidates.

#### Development Expenses

*(in thousands)*

*(in thousands)*

| Development Expenses: | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salary and benefits | $32,559 | $29,908 | $2,651 | 9% | $93,847 | $80,103 | $13,744 | 17% |
| Stock-based compensation expense | 11,811 | 10,916 | 895 | 8% | 37,924 | 31,046 | 6,878 | 22% |
| Laboratory supplies and other direct expenses | 9,405 | 9,901 | (496) | (5)% | 25,145 | 24,348 | 797 | 3% |
| Contractual services | 37,939 | 30,042 | 7,897 | 26% | 101,746 | 76,940 | 24,806 | 32% |
| Drug supply costs | 14,623 | 18,970 | (4,347) | (23)% | 30,017 | 53,994 | (23,977) | (44)% |
| Infrastructure costs | 25,271 | 22,281 | 2,990 | 13% | 72,041 | 61,951 | 10,090 | 16% |
| Total development expenses | $131,608 | $122,018 | $9,590 | 8% | $360,720 | $328,382 | $32,338 | 10% |

In the nine months ended September 30, 2010, our drug supply costs included both costs of raw materials and work in process that we were producing for the commercial launch of INCIVEK and costs of manufacturing services that we provided our collaborators through our third-party manufacturing network. On January 1, 2011, we began to capitalize our INCIVEK inventory, which resulted in decreases of $4.3 million and $24.0 million, respectively, in the drug supply costs in the three and nine months ended September 30, 2011 as compared to the three and nine months ended September 30, 2010.

Our development expenses, excluding our drug supply costs, increased by $13.9 million, or 14%, in the three months ended September 30, 2011 as compared to the three months ended September 30, 2010, and by $56.3 million, or 21%, in the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. These increases were primarily due to increased workforce expenses and contractual services expenses.

### Sales, General and Administrative Expenses

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) | Nine Months Ended September 30, 2011 | 2010 | Increase/ (Decrease) $% | Increase/ (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales, general and administrative expenses | $110,654 | $48,855 | $61,799 | 126% | $278,840 | $125,322 | $153,518 | 122% |

Sales, general and administrative expenses increased substantially in the three and nine months ended September 30, 2011 as compared to the comparable periods in 2010, primarily as a result of substantial increases in expenses incurred by our commercial organization, which are classified as sales expenses. The sales expenses increased from $18.7 million in the third quarter of 2010 to $68.9 million in the third quarter of 2011, and from $43.5 million in the nine months ended September 30, 2010 to $172.3 million in the nine months ended September 30, 2011. These sales expenses include salary and benefits for our sales force and managed market organization, the majority of whom were hired in the second half of 2010, and market research and other third-party expenses incurred prior to and increasing through the commercial launch of INCIVEK in the United States. We expect that these sales expenses will continue to increase during the remainder of 2011 as we continue to market INCIVEK in the United States and begin marketing INCIVEK in Canada.

### Royalty Expenses

Royalty expenses in the three and nine months ended September 30, 2011 were consistent with royalty expenses in the three and nine months ended September 30, 2010. Royalty expenses through September 30, 2011 primarily relate to a subroyalty payable to a third party on net sales of the HIV protease inhibitors that were discovered and developed under our collaboration with GlaxoSmithKline. The subroyalty expense offsets a corresponding amount of royalty revenues. We expect to continue to recognize this subroyalty as an expense in future periods. In future periods, we expect royalty expenses will increase significantly because we will record third-party royalties payable on sales of INCIVO by Janssen as a royalty expense.

### Restructuring Expense (Credit)

As of September 30, 2011, our lease restructuring liability was $26.6 million. Our restructuring expense (credit) was $(0.4) million in the third quarter of 2011 compared to the $0.9 million in the third quarter of 2010. Our restructuring expense was $1.1 million in the nine months ended September 30, 2011 compared to the $3.8 million in the nine months ended September 30, 2010. During the fourth quarter of 2011, we expect to make additional cash payments of $3.7 million against the accrued expense and to receive $2.3 million in sublease rental payments. All of these amounts relate to our lease of office and laboratory space at Kendall Square in Cambridge, Massachusetts.

### Intangible Asset Impairment Charge

In the third quarter of 2011, we evaluated for impairment VX-759, an HCV polymerase inhibitor that we acquired through our acquisition of ViroChem Pharma Inc. in 2009. VX-759 was a back-up drug candidate for our lead polymerase inhibitor VX-222. Based on, among other factors, the advancement of VX-222 in the third quarter of 2011 and our consideration of potentially competitive drug candidates, we determined that the fair value of VX-759 had become impaired. We evaluated the fair value of VX-759 from the perspective of a market participant and based on our analysis, including the preparation of updated present value models, determined that the fair value of VX-759 was zero as of September 30, 2011. Accordingly, we recorded a $105.8 million impairment charge in the third quarter of 2011. In connection with this impairment charge, we recorded a credit of $32.7 million in our provision for income taxes resulting in a net effect on our income (loss) related to this impairment charge of $73.1 million in the three and nine months ended September 30, 2011.

### Non-operating Items

### Interest Income

Interest income decreased by $0.4 million to $0.1 million for the three months ended September 30, 2011 from $0.5 million for the three months ended September 30, 2010. Interest income increased by $0.2 million to $1.7 million for the nine months ended September 30, 2011 from $1.4 million for the nine months ended September 30, 2010. Our cash, cash equivalents and marketable securities yielded less than 1% on an annual basis in the third quarter of 2011.

### Interest Expense

Interest expense increased by $3.1 million, or 79%, to $7.1 million in the third quarter of 2011 from $4.0 million in the third quarter of 2010. Interest expense increased by $14.4 million, or 125%, to $26.0 million in the nine months ended September 30, 2011 from $11.6 million in the nine months ended September 30, 2010. These increases were primarily the result of the 3.35% convertible senior subordinated notes due 2015, or 2015 Notes, we issued in September 2010. In the fourth quarter of 2011, we expect to incur approximately $3.4 million in interest expense related to the 2015 Notes and $7.9 million in interest expense related to the 2012 Notes.

### Change in Fair Value of Derivative Instruments

In the third quarter of 2011 and 2010, we recorded charges of $8.1 million and $5.9 million, respectively, in connection with the embedded and free-standing derivatives associated with our September 2009 financial transactions. In the nine months ended September 30, 2011 and 2010, we recorded charges of $15.9 million and $34.6 million, respectively, in connection with the embedded and free-standing derivatives associated with our September 2009 financial transactions. We expect that we will incur the $0.9 million in expenses related to changes in the fair value of the derivative instruments in the fourth quarter of 2011.

### Provision for (Benefit from) Income Taxes

In the third quarter of 2011, we recorded a benefit from income taxes of $32.7 million related to the impairment of VX-759 and a provision of $4.9 million for income taxes payable by Alios on revenues from us. In the nine months ended September 30, 2011, we recorded a benefit from income taxes of $32.7 million related to the impairment of VX-759 and a provision of $29.3 million for income taxes payable by Alios on revenues from us.

### Noncontrolling Interest (Alios)

The net income (loss) attributable to noncontrolling interest (Alios) recorded on our condensed consolidated statements of operations reflects Alios' net income (loss) for the reporting period, excluding revenues related to the up-front payment we made to Alios and adjusted for any changes during the reporting period in the fair value of the contingent milestone and royalty payments potentially payable by us to Alios. A summary of net income (loss) attributable to noncontrolling interest (Alios) for the three and nine months ended September 30, 2011 is as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2011 | Nine Months Ended September 30, 2011 |
| --- | ---: | ---: |
| Income (loss) before provision for income taxes | $(5,258) | $(6,059) |
| Provision for income taxes | (4,850) | (29,298) |
| Change in fair value of contingent milestone and royalty payments | 17,450 | 17,450 |
| Net income (loss) attributable to noncontrolling interest (Alios) | $7,342 | $(17,907) |

In future periods, the net income (loss) attributable to noncontrolling interest (Alios) could have a material effect on the net income (loss) attributable to Vertex, particularly if there is a significant change in the fair value of the contingent milestone and royalty payments payable by us to Alios.

### Liquidity and Capital Resources

As of September 30, 2011, we had cash, cash equivalents and marketable securities, excluding Alios' cash and cash equivalents, of $658.7 million, which was an increase of $65.2 million from $593.5 million as of June 30, 2011. This increase was primarily the result of cash receipts from INCIVEK sales, partially offset by cash expenditures we made in the third quarter of 2011 related to, among other things, research and development expenses and sales, general and administrative expenses.

In order to continue to operate as a cashflow positive company and to continue our substantial investment in research and development activities, we need to sustain or increase our product revenues in future quarters.

Our cash, cash equivalents and marketable securities, excluding Alios' cash and cash equivalents, decreased by $372.7 million during the nine months ended September 30, 2011, primarily because of our significant net cash expenditures in the nine months ended September 30, 2011, including in the first half of 2011 prior to our receipt of significant cash receipts from sales of INCIVEK. These cash expenditures were related to, among other things, research and development expenses, sales, general and administrative expenses, the $60.0 million up-front payment we made to Alios and capital expenditures for property and equipment of $25.3 million. Our cash expenditures in the nine months ended September 30, 2011 were partially offset by $108.7 million in cash received from issuances of common stock from employee benefit plans, and the cash we have received from sales of INCIVEK.

#### Sources of Liquidity

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

As of September 30, 2011, we had $221.5 million in accounts receivable, net related to sales of INCIVEK in the United States. Because our contracts with our distributors provide for customary prompt payment discounts, we expect that in the fourth quarter of 2011 our distributors will pay the accounts receivable that were outstanding on September 30, 2011 and we will receive additional payments for a portion of the INCIVEK that is sold to our distributors in the fourth quarter of 2011. In addition to the accounts receivable related to product sales of INCIVEK to our distributors, our accounts receivable as of September 30, 2011 includes $200.0 million related to the milestone payments we earned from Janssen in the third quarter of 2011. A portion of this $200.0 million was paid in October 2011 to a third party that purchased the right to receive $95.0 million of these payments, and the remainder was used to redeem $105.0 million of outstanding 2012 Notes in October 2011.

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

#### Future Capital Requirements

We are incurring substantial expenses to commercialize INCIVEK, while at the same time continuing diversified research and development efforts for our drug candidates and expanding our organization. Our operating expenses have increased in recent periods as we expanded our organization and launched commercial sales of INCIVEK, with aggregate research and development and sales, general and administrative expenses equaling $299.7 million in the third quarter of 2011 as compared to $219.3 million in the third quarter of 2010. In addition to funding our operating expenses, we have outstanding $400.0 million in aggregate principal amount of 2015 Notes. The 2015 Notes bear interest at the rate of 3.35% per annum, and we are required to make semi-annual interest payments on the outstanding principal balance of the 2015 Notes on April 1 and October 1 of each year. The 2015 Notes will mature on October 1, 2015. The 2015 Notes are convertible, at the option of the holder, into our common stock at a price equal to approximately $48.83 per share, subject to adjustment.

In the third quarter of 2011, our cash flows from sales of INCIVEK were sufficient to meet our operating expenses, and we expect our cash flows from sales of INCIVEK together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by telaprevir, the timing of regulatory approvals for KALYDECO (VX-770), the number, breadth, cost and prospects of our discovery and development programs, and our decisions regarding manufacturing and commercial investments.

#### Financing Strategy

Although we do not have any plans to do so in the near term, we may raise additional capital through public offerings or private placements of our securities, securing new collaborative agreements or other methods of financing. Any such capital transactions may or may not be similar to transactions in which we have engaged in the past. As part of our strategy for managing our capital structure, we have from time to time adjusted the amount and maturity of our debt obligations through new issues, privately negotiated transactions and market purchases, depending on market conditions and our perceived needs at the time. We expect to continue pursuing a general financial strategy that may lead us to undertake one or more additional transactions with respect to our outstanding debt obligations, and the amounts involved in any such transactions, individually or in the aggregate, may be material. Any such transaction related to our outstanding debt obligations may or may not be similar to transactions in which we have engaged in the past. We will continue to manage our capital structure and to consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

### Contractual Commitments and Obligations

Our commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission, or SEC, on February 17, 2011. There have been no material changes from the contractual commitments and obligations previously disclosed in that Annual Report on Form 10-K, as updated by the Form 10-Q for the quarter ended March 31, 2011, which was filed with the SEC on May 6, 2011, and as updated by the Form 10-Q for the quarter ended June 30, 2011, which was filed with the SEC on August 9, 2011, except that we redeemed the outstanding 2012 Notes with proceeds from milestones payments we received from Janssen in the fourth quarter of 2011.

### Recent Accounting Pronouncements

Refer to Note B, "Accounting Policies—Recent Accounting Pronouncements," in the accompanying notes to the condensed consolidated financial statements. There were no new accounting pronouncements adopted during the nine months ended September 30, 2011 that had a material impact on our financial statements.

## Market risk

As filed, 1,202 characters.

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

### Interest Rate Risk

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

## Controls and procedures

As filed, 1,471 characters.

### Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, as of September 30, 2011 our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

### Changes in Internal Controls Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the third quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,566 characters.

Information regarding risk factors appears in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on February 17, 2011. There have been no material changes from the risk factors previously disclosed in that Annual Report on Form 10-K.

### SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and, in particular, our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I—Item 2, contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding:

our expectations regarding clinical trials, development timelines and regulatory authority filings and submissions for INCIVEK, KALYDECO (VX-770), VX-222, VX-809, VX-509, VX-765, VX-661, VX-787, ALS-2158 and ALS-2200;

our ability to continue successfully marketing INCIVEK;

our expectations regarding the timing and structure of clinical trials of our drug and drug candidates, including telaprevir, KALYDECO (VX-770), VX-222, VX-509, VX-765, VX-661, VX-787, ALS-2158 and ALS-2200 and combinations of telaprevir with VX-222 and KALYDECO (VX-770) with VX-809 or VX-661, and the timing of our receipt of data from our clinical trials;

expectations regarding the amount of, timing of and trends with respect to our revenues, costs and expenses and other gains and losses, including those related to future product revenues and royalty revenues from sales of telaprevir, to the intangible assets associated with the ViroChem acquisition and the Alios collaboration, to gains (losses) with respect to the noncontrolling interest (Alios) and to the liabilities we recorded in connection with the September 2009 financial transactions;

the data that will be generated by ongoing and planned clinical trials and the ability to use that data to support regulatory filings;

our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates for further investigation, clinical trials or potential use as a treatment;

the focus of our drug development efforts and our financial and management resources and our plan to continue investing in our research and development programs and to develop and commercialize selected drug candidates that emerge from those programs, alone or with third-party collaborators;

the establishment, development and maintenance of collaborative relationships;

our ability to use our research programs to identify and develop new drug candidates to address serious diseases and significant unmet medical needs;

statements regarding our leases of buildings to be built in Boston, Massachusetts;

our estimates regarding obligations associated with a lease of a facility in Kendall Square, Cambridge, Massachusetts; and

our liquidity and our expectations regarding the possibility of raising additional capital.

Without limiting the foregoing, the words "believes," "anticipates," "plans," "intends," "expects" and similar expressions are intended to identify forward-looking statements. Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results. We also provide a cautionary discussion of risks and uncertainties under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on February 17, 2011. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed could also adversely affect us. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Filed Nov 3, 2011.
Source: SEC EDGAR, the filing index for accession 0001047469-11-009007. Last ingested by Listed: Nov 6, 2026, 12:56 ET. No prices; not investment advice.