Vertex Reports Full-Year and Fourth Quarter 2013 Financial Results and Provides Financial Guidance for 2014

  Vertex Reports Full-Year and Fourth Quarter 2013 Financial Results and   Provides Financial Guidance for 2014      -Full-year 2013 total revenues of $1.21 billion, including net product revenues of $371.3 million for KALYDECO in cystic fibrosis and $466.3 million                          for INCIVEK in hepatitis C-     -Cash, cash equivalents and marketable securities of approximately $1.47                         billion on December31, 2013-     -Company expects total 2014 revenues of $570 to $600 million, including KALYDECO net revenues of $470 to $500 million, and non-GAAP operating expenses                            of $900 to $950 million-  Business Wire  BOSTON -- January 29, 2014  Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated financial results for the full-year and fourth quarter ended December31, 2013. The company also today provided detailed financial guidance for 2014.  Vertex reported total 2013 revenues of $1.21 billion, including net product revenues of $371.3 million from KALYDECO^TM(ivacaftor) and $466.3 million from INCIVEK^® (telaprevir). The 2013 GAAP net loss attributable to Vertex was $(445.0) million, or $(1.98) per share. The 2013 non-GAAP net loss attributable to Vertex was $(203.3) million, or $(0.90) per diluted share. The non-GAAP net loss excludes 2013 gains of $69.8 million related to the Alios collaboration, primarily attributable to the net effect of the full write-down of VX-135 and related deconsolidation of Alios (see Note 6), and $174.4 million primarily related to the amendment of the company's collaboration with Janssen Pharmaceutica NV, and certain charges of $486.0 million. The company reported approximately $1.47 billion in cash, cash equivalents and marketable securities as of December31, 2013.  Vertex reported total fourth quarter 2013 revenues of $351.2 million, including net product revenues of $109.5 million from KALYDECO, $19.3 million from INCIVEK and the revenues related to the amendment of the company's collaboration with Janssen. The GAAP net income attributable to Vertex was $44.3 million, or $0.19 per share, for the fourth quarter of 2013. Non-GAAP net loss attributable to Vertex for the fourth quarter of 2013 was $(128.4) million, or $(0.56) per diluted share. The non-GAAP net loss excludes fourth quarter 2013 gains of $68.2 million attributable to the net effect of the write-down and the related Alios deconsolidation and $174.4 million primarily related to the Janssen amendment, and certain charges of $69.9 million, comprised primarily of restructuring charges and stock-based compensation expense.  "Data generated throughout the coming year will provide important information to help define our future as we seek to create a sustainable global company with multiple transformative medicines," commented Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. "Importantly, we enter 2014 in a strong financial position to enable continued investment in our key research and development programs for cystic fibrosis and other serious diseases. Over the coming months, we expect multiple important development and regulatory milestones that will help to define the potential of our approved and investigational CF medicines to treat more people with this disease."  On January 12, 2014, Vertex reviewed its corporate strategy for 2014 and provided a comprehensive update on key research and development programs. The company today provided the following updates:  Cystic Fibrosis    *VX-661 in Combination with Ivacaftor Granted Breakthrough Therapy     Designation: Vertex today announced that the U.S. Food and Drug     Administration (FDA) has granted Breakthrough Therapy designation for the     combination of VX-661 and ivacaftor to treat people with cystic fibrosis     (CF) who have two copies of the F508del mutation. According to the FDA,     Breakthrough Therapy designation is based on preliminary clinical evidence     and designed to expedite the development and review of medicines that are     intended to treat a serious condition and may demonstrate substantial     improvement over available therapy on one or more clinically significant     endpoints. Vertex has submitted a protocol to the FDA for a 12-week Phase     2 study to evaluate the safety, efficacy and pharmacokinetics of VX-661 in     combination with ivacaftor. The company iscurrently finalizing the design     of thisstudy and expects to begin the study in the first half of 2014.     The study will enroll people with two copies of the F508del mutation.  Rheumatoid Arthritis    *24-Week Results of Phase 2b Study of JAK3 Inhibitor VX-509: Vertex today     announced top-line 24-week results from a Phase 2b study of the Janus     kinase 3 (JAK3) inhibitor VX-509 in people with moderate to severe     rheumatoid arthritis (RA) who continued to receive stable doses of     methotrexate during the study. As previously announced, the study met its     12-week primary endpoints of both the proportion of people who achieved at     least a 20 percent improvement in signs and symptoms of RA, as measured by     the ACR improvement criteria (ACR20), and the change from baseline in     Disease Activity Score for 28 joints (DAS28). The top-line data announced     today showed continued improvements in the signs and symptoms of RA from     week 12 to 24 as measured by ACR20, ACR50 and ACR70. At week 24, all doses     of VX-509 showed statistically significant ACR20, ACR50 and ACR70     responses versus placebo. Across the four VX-509 dose groups, the ACR20,     ACR50 and ACR70 responses were between 61 and 63 percent, 38 and 47     percent and 15 and 25percent, respectively, at 24 weeks of treatment. The     ACR20, ACR50 and ACR70 responses for patients who received placebo were     17, 7 and 3 percent, respectively, at 24 weeks. Additional details on the     study design and 12-week results were provided is a press release issued     on October 18, 2013.      Safety results through 24 weeks of treatment were similar to results     observed through 12 weeks. Through 24 weeks, the discontinuation rate due     to adverse events was 9.1 percent for the pooled VX-509 treatment group     and 8.5 percent for the placebo group. Overall, adverse event rates     through 24 weeks were 59.9 percent in the pooled VX-509 treatment groups     compared to 42.3 percent for those who received placebo. There were two     deaths in the study, including one death in the VX-509 200 mg QD group in     a patient with pneumonia and pancytopenia and a previously reported death     in the VX-509 100 mg BID group in a patient who had cardiac failure.      In addition to the Phase 2b study in RA, Vertex has completed certain     drug-drug interaction studies of VX-509 in healthy volunteers. These     studies demonstrate that dosing with VX-509 inhibits CYP3A4 andindicate     that dose modification with frequently prescribed medicines (e.g.     atorvastatin, methylprednisone) or limited concomitant use of certain     medications (e.g. oral midazolam) with VX-509 may berequired.      Vertex is pursuing collaborative opportunities to support further global     development of VX-509.  Full-Year 2013 Financial Results  Total Revenues: Total revenues for 2013 were $1.21 billion, compared with $1.53 billion in total revenues for 2012. The components of total revenues for 2013 and 2012 were:                                                               Twelve Months Ended December 31,                                2013                2012 Product revenues, net          (in millions) INCIVEK revenues, net          $   466.3            $  1,161.8 KALYDECO revenues, net         371.3               171.6 Total product revenues, net    $   837.6            $  1,333.5 Royalty revenues Royalty revenues from INCIVO   130.7                117.6 Other royalty revenues         25.9                23.9 Total royalty revenues         $   156.6            $  141.5 Collaborative revenues         $   217.7           $  52.1 Total revenues                 $   1,212.0         $  1,527.0  A table of the components of total revenues on a quarterly basis for the last five quarters is provided following the Condensed Consolidated Statements of Operations Data.    *Net Product Revenues from INCIVEK     Vertex's 2013 net product revenues from INCIVEK were $466.3 million,     compared to $1.16 billion for 2012. The reduced revenues from INCIVEK were     primarily due to fewer HCV patients receiving treatment with INCIVEK in     2013 compared to 2012. Vertex expects a continued decline in INCIVEK     revenues as a result of increased competition.    *Net Product Revenues from KALYDECO     Vertex's 2013 net product revenues from KALYDECO were $371.3 million,     compared to $171.6 million for 2012. The increased revenues, compared to     2012, resulted primarily from the rapid uptake of KALYDECO by eligible     patients in Europe in 2013. Nearly all eligible patients with the G551D     mutation in the United States and Europe have started treatment with     KALYDECO. In 2014, further growth in KALYDECO revenues is dependent on     completion of reimbursement discussions in Australia and Canada for     eligible patients with the G551D mutation and on the potential expansion     of the KALYDECO label.    *Royalty Revenues from INCIVO^®     Vertex recognized $130.7 million in INCIVO royalty revenues in 2013 from     the company's collaborator Janssen, compared to $117.6 million in INCIVO     royalty revenues in 2012. In November 2013, Vertex sold its rights to     future royalties on INCIVO sales by Janssen for a $152.0 million cash     payment. Beginning in the first quarter of 2014, Vertex will no longer     receive INCIVO royalties.  Cost of Product Revenues: Cost of product revenues was $89.0 million in 2013, compared to cost of product revenues of $236.7 million in 2012. The decrease in cost of product revenues was attributable to lower total product revenues and certain 2012 charges to account for excess INCIVEK inventory.  Research and Development (R&D) Expenses: R&D expenses were $918.8 million in 2013, including certain charges of $121.5 million, compared to $806.2 million in 2012, including certain charges of $87.5 million. The increase in Vertex's R&D investment is principally due to progression and expansion of clinical development programs in cystic fibrosis, including initiation of a pivotal Phase 3 program for the combination of lumacaftor and ivacaftor.  Sales, General and Administrative (SG&A) Expenses: SG&A expenses were $362.3 million in 2013, including certain charges of $53.2 million, compared to $436.8 million in 2012, including certain charges of $46.4 million. This decrease in SG&A expenses resulted primarily from reduced HCV marketing and commercial expenses, partially offset by increased investment to support the expanded global use of KALYDECO.  GAAP Net Loss Attributable to Vertex: Vertex's 2013 GAAP net loss was $(445.0) million or $(1.98) per share. Vertex's GAAP net loss for 2012 was $(107.0) million, or $(0.50) per diluted share.  Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex's 2013 non-GAAP net loss was $(203.3) million, or $(0.90) per diluted share. The 2013 non-GAAP loss excludes 2013 gains of $69.8 million, primarily attributable to the net effect of the full write-down of VX-135 and related deconsolidation of Alios, and $174.4 million, primarily related to the amendment of the company's collaboration with Janssen, and certain charges of $486.0 million, primarily related to the impairment of an intangible hepatitis C asset (VX-222), restructuring charges and stock-based compensation expense. Vertex's non-GAAP net income for 2012 was $255.5 million, or $1.18 per diluted share, excluding $362.6 million in certain charges. The difference in the company's 2013 non-GAAP net loss, compared to 2012 non-GAAP net income, is primarily attributable to decreased INCIVEK revenues.  Cash Position: As of December31, 2013, Vertex had $1.47 billion in cash, cash equivalents and marketable securities compared to $1.32 billion in cash, cash equivalents and marketable securities as of December31, 2012.  Fourth Quarter 2013 Financial Results  Total Revenues: Total revenues for the fourth quarter of 2013 were $351.2 million, compared with $334.0 million in total revenues for the fourth quarter of 2012. The components of total revenues for the fourth quarter of 2013 and 2012 were:                                                               Three Months Ended December 31,                                2013               2012 Product revenues, net          (in millions) INCIVEK revenues, net          $   19.3            $   222.8 KALYDECO revenues, net         109.5              58.5 Total product revenues, net    $   128.8           $   281.3 Royalty revenues Royalty revenues from INCIVO   26.4                36.8 Other royalty revenues         10.5               6.7 Total royalty revenues         $   36.9            $   43.5 Collaborative revenues         $   185.4          $   9.2 Total revenues                 $   351.2          $   334.0    *Net Product Revenues from INCIVEK     Vertex's fourth quarter 2013 net product revenues from INCIVEK were $19.3     million, compared to $222.8 million for the fourth quarter of 2012. The     reduced revenues from INCIVEK were due to fewer HCV patients receiving     treatment with INCIVEK in the fourth quarter of 2013 compared to the     fourth quarter of 2012 and a reduced realized price. Vertex expects a     continued decline in INCIVEK revenues as a result of increased     competition.    *Net Product Revenues from KALYDECO     Vertex's fourth quarter 2013 net product revenues from KALYDECO were     $109.5 million, compared to $58.5 million for the fourth quarter of 2012.     The increased revenues, compared to the fourth quarter of 2012, resulted     primarily from the rapid uptake of KALYDECO in eligible patients in Europe     following the conclusion of reimbursement discussions. Nearly all eligible     patients with the G551D mutation in the United States and Europe have     started treatment with KALYDECO. In 2014, further growth in KALYDECO     revenues is dependent on completion of reimbursement discussions in     Australia and Canada for eligible patients with the G551D mutation and on     the potential expansion of the KALYDECO label.    *Royalty Revenues from INCIVO^®     Vertex recognized $26.4 million in INCIVO royalty revenues for the fourth     quarter of 2013 from the company's collaborator Janssen, compared to $36.8     million in INCIVO royalty revenues for the fourth quarter of 2012. In     November 2013, Vertex sold its rights to future royalties on INCIVO sales     by Janssen for a $152.0 million cash payment. Beginning in the first     quarter of 2014, Vertex will no longer receive INCIVO royalties.  Cost of Product Revenues: Cost of product revenues was $13.3 million for the fourth quarter of 2013, compared to cost of product revenues of $75.6 million for the fourth quarter of 2012. The decrease in cost of product revenues was attributable to lower total product revenues and certain 2012 charges to account for excess INCIVEK inventory.  Research and Development (R&D) Expenses: R&D expenses were $249.6 million for the fourth quarter of 2013, including certain charges of $40.1 million, compared to $213.1 million for the fourth quarter of 2012, including certain charges of $21.8 million. The increase in Vertex's R&D investment is principally due to progression and expansion of clinical development programs in cystic fibrosis, including initiation of a pivotal Phase 3 program for the combination of lumacaftor and ivacaftor.  Sales, General and Administrative (SG&A) Expenses: SG&A expenses were $75.2 million for the fourth quarter of 2013, including certain charges of $9.7 million, compared to $110.5 million for the fourth quarter of 2012, including certain charges of $11.4 million. This decrease in SG&A expenses resulted primarily from reduced HCV marketing and commercial expenses, partially offset by increased investment to support the expanded global use of KALYDECO.  GAAP Net Income (Loss) Attributable to Vertex: Vertex's fourth quarter 2013 GAAP net income was $44.3 million, or $0.19 per share. Vertex's GAAP net loss for the fourth quarter of 2012 was $(76.1) million, or $(0.35) per diluted share.  Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex's fourth quarter 2013 non-GAAP net loss was $(128.4) million, or $(0.56) per diluted share, excluding fourth quarter 2013 gains of $68.2 million attributable to the net effect of the full write-down of VX-135 and the related deconsolidation of Alios, and $174.4 million primarily related to the amendment of the company's collaboration with Janssen, and certain charges of $69.9 million, comprised primarily of restructuring charges and stock-based compensation expense. Vertex's non-GAAP net income for the fourth quarter of 2012 was $9.0 million, or $0.04 per diluted share, excluding $85.1 million in certain charges. The difference in the company's fourth quarter 2013 non-GAAP net income (loss), compared to the fourth quarter of 2012, is primarily attributable to a decrease in total revenues, specifically decreased INCIVEK revenues due to fewer HCV patients receiving treatment.  2014 Financial Guidance  This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals.    *Total Revenues: Vertex expects total 2014 net revenues of $570 to $600     million. Total revenues include net product revenues for KALYDECO and     INCIVEK, as well as royalty and collaborative revenues.         *KALYDECO Net Revenues: Vertex expects KALYDECO net revenues of $470          to $500 million for 2014.    *Non-GAAP Operating Expenses: Vertex expects that its 2014 non-GAAP     operating expenses will be in the range of $900 to $950 million. The     company's planned 2014 investment includes approximately $40 to $50     million of expense related to development of an all-oral treatment regimen     for hepatitis C.         *Research and Development Expenses: Vertex expects that full-year 2014          non-GAAP R&D expenses will be in the range of $665 to $695 million.          The research component of 2014 non-GAAP R&D expenses is expected to          remain consistent with 2013 at approximately $200 million.        *Sales, General and Administrative Expenses: Vertex expects that          full-year 2014 non-GAAP SG&A expenses will be in the range of $235 to          $255 million.  Vertex's expected non-GAAP operating expense excludes cost of revenues, stock-based compensation expense, restructuring charges, transition costs related to the relocation of our corporate headquarters, post-restructuring HCV collaborative revenues and development costs, and any similar expenses incurred in 2014.  Non-GAAP Financial Measures  In this press release, Vertex's financial results and financial guidance are provided in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. In particular, Vertex provides its full-year and fourth quarter non-GAAP net income (loss) for the periods ending December 31, 2013 and 2012 excluding stock-based compensation expense, restructuring expenses, inventory reserves, intangible asset impairment charges, net of tax, certain interest expenses related to the 2015 Notes, transition costs related to the relocation of our corporate headquarters, post-restructuring HCV collaborative revenues and development costs, and gains and charges related to changes in fair value of the company's HCV nucleotide analogue program and ensuing deconsolidation of Alios. These results are provided as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help indicate underlying trends in the company's business, are important in comparing current results with prior period results and provide additional information regarding its financial position. Management also uses these non-GAAP financial measures to establish budgets and operational goals that are communicated internally and externally, and to manage the company's business and to evaluate its performance. A reconciliation of the GAAP financial results to non-GAAP financial results is included in the attached financial statements.   Vertex Pharmaceuticals Incorporated Fourth Quarter and Twelve Month Results Condensed Consolidated Statements of Operations Data (in thousands, except per share amounts) (unaudited)                       Three Months Ended         Twelve Months Ended                       December 31,                December 31,                       2013         2012          2013          2012 Revenues: Product revenues,     $ 128,822     $ 281,309     $ 837,645      $ 1,333,458 net Royalty revenues      36,887        43,451        156,592        141,498 Collaborative         185,448      9,234        217,738       52,086       revenues (Note 1) Total revenues        351,157       333,994       1,211,975      1,527,042 Costs and expenses: Cost of product       13,281        75,595        88,979         236,742 revenues (Note 2) Royalty expenses      8,983         12,120        41,298         43,143 Research and development           249,609       213,109       918,783        806,185 expenses (R&D) Sales, general and administrative        75,188        110,452       362,342        436,796 expenses (SG&A) Restructuring         27,658        194           40,521         1,844 expense (Note 3) Intangible asset impairment charges    250,600      —            663,500       —            (Note 4) (Note 6) Total costs and       625,319       411,470       2,115,423      1,524,710 expenses Income (loss) from    (274,162  )   (77,476   )   (903,448   )   2,332 operations Other expense, net    (66,091   )   (3,296    )   (72,669    )   (14,713     ) (Note 5)(Note 6) Income (loss) before provision      (340,253  )   (80,772   )   (976,117   )   (12,381     ) for (benefit from) income taxes Provision for (benefit from)        (155,704  )   (2,696    )   (288,567   )   38,754       income taxes (Note 4) Net loss              (184,549  )   (78,076   )   (687,550   )   (51,135     ) Net loss (income) attributable to       228,834      1,928        242,522       (55,897     ) noncontrolling interest Net income (loss) attributable to       $ 44,285     $ (76,148 )   $ (445,028 )   $ (107,032  ) Vertex                                                                   Net income (loss) per share attributable to Vertex common shareholders: Basic                 $ 0.19        $ (0.35   )   $ (1.98    )   $ (0.50     ) Diluted               $ 0.19        $ (0.35   )   $ (1.98    )   $ (0.50     )                                                                   Shares used in per share calculations: Basic                 231,264       214,607       224,906        211,946 Diluted               235,717       214,607       224,906        211,946                                                                                 Consolidated Revenues (in millions) (unaudited)                  Three Months Ended                  December 31,   September     June 30,    March 31,   December                  2013          30,          2013       2013       31,                                 2013                                  2012 Product revenues, net INCIVEK          $  19.3        $  85.6       $ 155.8     $ 205.6     $  222.8 revenues, net KALYDECO         109.5         101.1        99.0       61.8       58.5 revenues, net Total product    128.8          186.7         254.8       267.4       281.3 revenues, net Royalty revenues Royalty revenues from    26.4           21.0          44.1        39.0        36.8 INCIVO Other royalty    10.5          6.0          5.0        4.5        6.7 revenues Total royalty    36.9           27.0          49.1        43.6        43.5 revenues Collaborative    185.4         8.0          6.8        17.4       9.2 revenues Total revenues   $  351.2      $  221.7     $ 310.8    $ 328.4    $  334.0                                                                             Reconciliation of GAAP to Non-GAAP Financial Information-Fourth Quarter (in thousands, except per share amounts) (unaudited)  Three Months Ended December 31, 2013                                                                   Adjustments                                                  Alios         Stock-based    Other                  GAAP           Transaction  Compensation  Adjustments    Non-GAAP                                 (Note 6)      Expense        (Note 8)                                                                              Income (loss) from             $ (274,162 )   $ 262,475     $   23,240     $ (140,042 )   $ (128,489 ) operations Other income     (66,091    )   55,204      —             12,283       1,396       (expense), net Income (loss) before provision for    (340,253   )   317,679       23,240         (127,759   )   (127,093   ) (benefit from) income taxes Provision for (benefit from)   (155,704   )   157,056     —             —            1,352       income taxes Net income       (184,549   )   160,623       23,240         (127,759   )   (128,445   ) (loss) Net loss (income) attributable to               228,834       (228,834  )  —             —             —           noncontrolling interest (Alios) Net income (loss)           $ 44,285      $ (68,211 )  $   23,240    $ (127,759 )   $ (128,445 ) attributable to Vertex                                                                              Net income (loss) per diluted share attributable     $ 0.19                                                     $ (0.56    ) to Vertex common shareholders (Note 7)                                                                                          Three Months Ended December 31, 2012                                                                Adjustments                                                 Alios         Stock-based    Other                  GAAP          Transaction  Compensation  Adjustments   Non-GAAP                                (Note 6)      Expense        (Note 8)                                                                            Income (loss) from             $ (77,476 )   $  5,706      $   27,524     $  55,383     $ 11,137 operations Other income     (3,296    )   (243      )  —             —           (3,539   ) (expense), net Income (loss) before provision for    (80,772   )   5,463         27,524         55,383        7,598 (benefit from) income taxes Provision for (benefit from)   (2,696    )   1,325       —             —           (1,371   ) income taxes Net income       (78,076   )   4,138         27,524         55,383        8,969 (loss) Net loss (income) attributable to               1,928        (1,928    )  —             —            —         noncontrolling interest (Alios) Net income (loss)           $ (76,148 )   $  2,210    $   27,524    $  55,383    $ 8,969   attributable to Vertex                                                                            Net loss per diluted share attributable to Vertex        $ (0.35   )                                              $ 0.04 common shareholders (Note 7)   Reconciliation of GAAP to Non-GAAP Financial Information-Fourth Quarter (in thousands) (unaudited)                                                Three Months Ended December 31,                                                2013             2012 GAAP total costs and expenses                  $  625,319        $  411,470 Adjustments: Cost of product revenues (Note 2) and          (22,264     )     (87,715     ) royalty expenses Stock-based compensation expense               (23,240     )     (27,524     ) Alios transaction (Note 6)                     (262,475    )     (5,706      ) Other Adjustments (Note 8)                     (42,354     )     (194        ) Non-GAAP total costs and expenses              $  274,986        $  290,331                                                                   GAAP research and development expenses         $  249,609        $  213,109 Adjustments: Stock-based compensation expense               (17,075     )     (17,019     ) Alios transaction (Note 6)                     (9,749      )     (4,784      ) Other Adjustments (Note 8)                     (13,254     )     —            Non-GAAP research and development expenses     $  209,531        $  191,306                                                                   GAAP sales, general and administrative         $  75,188         $  110,452 expenses Adjustments: Stock-based compensation expense               (6,165      )     (10,505     ) Alios transaction (Note 6)                     (2,126      )     (922        ) Other Adjustments (Note 8)                     (1,442      )     —            Non-GAAP sales, general and administrative     $  65,455         $  99,025 expenses                                                                                 Reconciliation of GAAP to Non-GAAP Financial Information-Twelve Months (in thousands, except per share amounts) (unaudited)  Twelve Months Ended December 31, 2013                                                                             Adjustments                                                             Alios         Stock-based    Debt         Other                  GAAP           Transaction  Compensation  Conversion  Adjustments   Non-GAAP                                 (Note 6)      Expense        Costs        (Note 8)                                                                                          Income (loss) from             $ (903,448 )   $ 283,823     $   126,853    $   —        $ 296,079     $ (196,693 ) operations Other income     (72,669    )   55,033      —             3,908       12,283       (1,445     ) (expense), net Income (loss) before provision for    (976,117   )   338,856       126,853        3,908        308,362       (198,138   ) (benefit from) income taxes Provision for (benefit from)   (288,567   )   166,145     —             —           127,586      5,164       income taxes Net income       (687,550   )   172,711       126,853        3,908        180,776       (203,302   ) (loss) Net loss (income) attributable to               242,522       (242,522  )  —             —           —            —           noncontrolling interest (Alios) Net income (loss)           $ (445,028 )   $ (69,811 )  $   126,853   $   3,908   $ 180,776    $ (203,302 ) attributable to Vertex                                                                                          Net income (loss) per diluted share attributable     $ (1.98    )                                                           $ (0.90    ) to Vertex common shareholders (Note 7)                                                                                                                                                                              Twelve Months Ended December 31, 2012                               Adjustments                                                                               Other                                 Alios         Stock-based    Adjustments                  GAAP           Transaction  Compensation  (Note 8)      Non-GAAP                                 (Note 6)      Expense                                                                                                                                           Income (loss) from             $ 2,332        $ 20,062      $   113,804    $ 135,033     $ 271,231 operations Other income     (14,713    )   (18       )  —             —            (14,731   ) (expense), net Income (loss) before provision for    (12,381    )   20,044        113,804        135,033       256,500 (benefit from) income taxes Provision for (benefit from)   38,754        (39,029   )  —             1,239        964        income taxes Net income       (51,135    )   59,073        113,804        133,794       255,536 (loss) Net loss (income) attributable to               (55,897    )   55,897      —             —            —          noncontrolling interest (Alios) Net income (loss)           $ (107,032 )   $ 114,970   $   113,804   $ 133,794    $ 255,536  attributable to Vertex                                                                             Net income (loss) per diluted share attributable     $ (0.50    )                                              $ 1.18 to Vertex common shareholders (Note 7)                                                                                         Reconciliation of GAAP to Non-GAAP Financial Information-Twelve Months (in thousands) (unaudited)                                               Twelve Months Ended December 31,                                               2013              2012 GAAP total costs and expenses                 $  2,115,423       $ 1,524,710 Adjustments: Cost of product revenues (Note 2) and         (130,277      )    (279,885    ) royalty expenses Stock-based compensation expense              (126,853      )    (113,804    ) Alios transaction (Note 6)                    (283,823      )    (20,062     ) Other Adjustments (Note 8)                    (468,117      )    (1,844      ) Non-GAAP total costs and expenses             $  1,106,353       $ 1,109,115                                                                   GAAP research and development expenses        $  918,783         $ 806,185 Adjustments: Stock-based compensation expense              (81,204       )    (71,242     ) Alios transaction (Note 6)                    (27,088       )    (16,264     ) Other Adjustments (Note 8)                    (13,254       )    —            Non-GAAP research and development expenses    $  797,237         $ 718,679                                                                   GAAP sales, general and administrative        $  362,342         $ 436,796 expenses Adjustments: Stock-based compensation expense              (45,649       )    (42,562     ) Alios transaction (Note 6)                    (6,135        )    (3,798      ) Other Adjustments (Note 8)                    (1,442        )    —            Non-GAAP sales, general and administrative    $  309,116         $ 390,436 expenses                                                                                 Condensed Consolidated Balance Sheets Data (in thousands) (unaudited)                                          December 31, 2013  December 31, 2012 Assets Cash, cash equivalents and marketable    $   1,465,076       $    1,321,215 securities Restricted cash and cash equivalents     —                   69,983 (Alios) (Note 6) Accounts receivable, net                 85,517              143,250 Inventories (Note 2)                     14,147              30,464 Other current assets                     23,836              24,673 Restricted cash                          130                 31,934 Property and equipment, net              696,911             433,609 Intangible assets (Note 4)               —                   663,500 Goodwill                                 30,992              30,992 Other non-current assets                 2,432              9,668 Total assets                             $   2,319,041      $    2,759,288                                                               Liabilities and Shareholders' Equity Other liabilities                        $   422,377         $    429,372 Accrued restructuring expense            28,353              23,328 Deferred tax liability (Note 4)          —                   280,367 Deferred revenues                        70,969              123,808 Construction financing lease             440,937             268,031 obligation Convertible notes (due 2015) (Note 5)    —                   400,000 Noncontrolling interest (Alios) (Note    —                   235,202 6) Shareholders' equity (Vertex)            1,356,405          999,180 Total liabilities and shareholders'      $   2,319,041      $    2,759,288 equity                                                               Common shares outstanding                233,789             217,287                                                                Note 1: During the fourth quarter of 2013, the company sold its product royalty rights relating to INCIVO (telaprevir) to Janssen Pharmaceutica NV. Under this amendment to the company's collaboration agreement with Janssen, Janssen made a $152.0 million cash payment to Vertex in the fourth quarter of 2013 and will cease paying royalties to Vertex on INCIVO sales beginning in 2014. As a result of the amendment, Janssen will have sole authority to execute INCIVO marketing and promotion activities in these regions.  Note 2: In the twelve months ended December31, 2013, the company recorded within cost of product revenues reserves for excess and obsolete inventories of $10.4 million. In the three and twelve months ended December31, 2012, the company recorded within cost of product revenues reserves for excess and obsolete inventories of $55.2million and $133.2million, respectively.  Note 3: The Company recorded $27.5 million and $39.0 million in restructuring expenses during the three and twelve months ended December 31, 2013, respectively, in connection with its 2013 restructuring.  Note 4: As of December31, 2013, there were no intangible assets or deferred tax liability reflected in the condensed consolidated balance sheet.  In the first quarter of 2013, the company determined that the value of VX-222 had become impaired and that the fair value of VX-222 was zero as of March 31, 2013. This resulted in a $412.9 million impairment charge. In connection with this impairment charge, the company recorded a credit of $127.6 million in its provision for income taxes.  In the fourth quarter of 2013, the company determined that the value of the HCV nucleotide analogue program related to the company's collaboration agreement with Alios BioPharma, Inc. had become impaired and that the fair value of the intangible asset was zero as of December 31, 2013. This resulted in a $250.6 million impairment charge. Accordingly, a benefit for income taxes of $102.1 million was recorded in the fourth quarter of 2013.  Note 5: In the second quarter of 2013, the company elected to redeem $400.0 million in aggregate principal amount of 3.35% convertible senior subordinated notes due 2015 (“2015 Notes”). In response, the holders of the 2015 Notes converted their 2015 Notes into approximately 8.2 million shares of the company's common stock. In accordance with the terms of the 2015 Notes, the company made additional make-whole interest payments of $6.7 million, payable in shares of the company's common stock.  Note 6: The company has consolidated the financial statements of its collaborator Alios from the second quarter of 2011 through December 31, 2013. The company determined that it would no longer consolidate Alios as of December 31, 2013. During the period the company consolidated Alios, the company's interest and obligations with respect to Alios' assets and liabilities were limited to those accorded to the company in its collaboration agreement with Alios. Restricted cash and cash equivalents (Alios) as of December 31, 2012 reflected Alios' cash and cash equivalents, which Vertex did not have any interest in and which was not available to fund the collaboration.  The net effect of the impairment charge, the tax benefit, and the related deconsolidation was a gain of approximately $68.2 million attributable to Vertex in 2013. The gain of $68.2 million is approximately the difference between (i) losses we recorded in 2011 and 2012 based on estimated increases in the fair value of potential milestone and royalty payments payable by us to Alios and (ii) the upfront and milestone payments that we made to Alios pursuant to the Alios collaboration.  Note 7: Shares used in non-GAAP net income (loss) per diluted share attributable to Vertex common shareholders were 231,264,000 and 217,291,000 for the three months ended December31, 2013 and 2012, respectively, and 224,906,000 and 215,263,000 for the twelve months ended December31, 2013 and 2012, respectively.  Note 8: In the three and twelve months ended December 31, 2013, "Other Adjustments" consists of (i) gains of $174.4 million related to post-restructuring HCV collaborative revenues and development costs,(ii) an intangible asset impairment charge, net of tax, related to VX-222, of $0.0 and $285.3 million, respectively, (iii) restructuring expenses of $27.7 and $40.5 million, respectively, (iv) $19.0 million of transition costs related to the relocation of our corporate headquarters and (v) inventory reserves of $0.0 and $10.4 million, respectively.  In the three and twelve months ended December 31, 2012, "Other Adjustments" consists of (i) inventory reserves, net of tax, of $55.2 and $132.0 million, respectively and (ii) restructuring expenses of $0.2 and $1.8 million, respectively.  INDICATION AND IMPORTANT SAFETY INFORMATION FOR KALYDECO™ (ivacaftor)  Ivacaftor (150mg tablets) is indicated for the treatment of cystic fibrosis (CF) in patients age 6 years and older who have a G551D mutation in the CFTR gene.  Ivacaftor is not for use in people with CF due to other mutations in the CFTR gene. It is not effective in patients with CF with 2 copies of the F508del mutation (F508del/F508del) in the CFTR gene. The efficacy and safety of ivacaftor in children younger than 6 years of age have not been evaluated.  Elevated liver enzymes (transaminases; ALT and AST) have been reported in patients receiving ivacaftor. It is recommended that ALT and AST be assessed prior to initiating ivacaftor, every 3 months during the first year of treatment, and annually thereafter. Patients who develop increased transaminase levels should be closely monitored until the abnormalities resolve. Dosing should be interrupted in patients with ALT or AST of greater than 5 times the upper limit of normal. Following resolution of transaminase elevations, consider the benefits and risks of resuming ivacaftor dosing.  Use of ivacaftor with medicines that are strong CYP3A inducers, such as the antibiotics rifampin and rifabutin; seizure medications (phenobarbital, carbamazepine, or phenytoin); and the herbal supplement St. John's Wort, substantially decreases exposure of ivacaftor which may diminish effectiveness. Therefore, co-administration is not recommended.  The dose of ivacaftor must be adjusted when used concomitantly with potent and moderate CYP3A inhibitors. The dose of ivacaftor must be adjusted when used in patients with moderate or severe hepatic disease.  Ivacaftor can cause serious adverse reactions including abdominal pain and high liver enzymes in the blood. The most common side effects associated with ivacaftor include headache; upper respiratory tract infection (the common cold), including sore throat, nasal or sinus congestion, and runny nose; stomach (abdominal) pain; diarrhea; rash; and dizziness. These are not all the possible side effects of ivacaftor. A list of the adverse reactions can be found in the product labeling for each country where ivacaftor is approved. Patients should tell their healthcare providers about any side effect that bothers them or does not go away.  Please see full U.S. Prescribing Information for KALYDECO at www.KALYDECO.com, the EU Summary of Product Characteristics for KALYDECO at http://goo.gl/N3Tz4, the Canadian Product Monograph for KALYDECO at www.vrtx.ca and the Australian Consumer Medical Information and Product Information for KALYDECO (ivacaftor) at http://bit.ly/18wlMld.  Indication and Important Safety Information for INCIVEK (telaprevir)  INCIVEK® (telaprevir) is a prescription medicine used with the medicines peginterferon alfa and ribavirin to treat chronic (lasting a long time) hepatitis C genotype 1 infection in adults with stable liver problems, who have not been treated before or who have failed previous treatment. It is not known if INCIVEK is safe and effective in children under 18 years of age.  Important Safety Information  INCIVEK® (telaprevir) should always be used in combination with peginterferon alfa and ribavirin. INCIVEK combination treatment may cause serious side effects including skin rash and serious skin reactions, anemia (low red blood cell count) that can be severe, and birth defects or death of an unborn baby.  Skin rashes are common with INCIVEK combination treatment. Sometimes these skin rashes and other skin reactions can become serious, require treatment in a hospital, and may lead to death. Patients should call their healthcare provider right away if they develop any skin changes or itching during treatment with INCIVEK. Their healthcare provider will decide if they need treatment or if they need to stop INCIVEK or any of their other medicines. Patients should not stop taking INCIVEK combination treatment without talking with their healthcare provider first.  Patients' healthcare providers will do blood tests regularly to check for anemia. If anemia is severe, the healthcare providers may tell them to stop taking INCIVEK.  INCIVEK combined with peginterferon alfa and ribavirin may cause birth defects or death of an unborn baby. Therefore, a patient should not take INCIVEK combination treatment if she is pregnant or may become pregnant, or if he is a man with a sexual partner who is pregnant. Females who can become pregnant and females whose male partner takes these medicines must have a negative pregnancy test before starting treatment, every month during treatment, and for 6 months after treatment ends. Patients must use two forms of effective birth control during treatment and for 6 months after all treatment has ended. These two forms of birth control should not contain hormones, as these may not work during treatment with INCIVEK.  INCIVEK and other medicines can affect each other and can also cause side effects that can be serious or life-threatening. There are certain medicines patients cannot take with INCIVEK combination treatment. Patients should tell their healthcare providers about all the medicines they take, including prescription and over-the-counter medicines, vitamins and herbal supplements.  The most common side effects of INCIVEK combination treatment include itching, nausea, diarrhea, vomiting, anal or rectal problems (including hemorrhoids, discomfort, burning or itching around or near the anus), taste changes and tiredness. There are other possible side effects of INCIVEK, and side effects associated with peginterferon alfa and ribavirin also apply to INCIVEK combination treatment. Patients should tell their healthcare provider about any side effect that bothers them or doesn't go away.  Please see full Prescribing Information including Boxed Warning, and the Medication Guide for INCIVEK available at www.INCIVEK.com.  About Vertex  Vertex is a global biotechnology company that aims to discover, develop and commercialize innovative medicines so people with serious diseases can lead better lives. Vertex scientists and our collaborators are working on new medicines to cure or significantly advance the treatment of cystic fibrosis, hepatitis C, rheumatoid arthritis and other life-threatening diseases. In addition to our clinical development programs, Vertex has more than a dozen ongoing preclinical programs aimed at other serious and life-threatening diseases.  Founded in 1989 in Cambridge, Mass., Vertex today has research and development sites and commercial offices in the United States, Europe, Canada and Australia. For four years in a row, Science magazine has named Vertex one of its Top Employers in the life sciences. For additional information and the latest updates from the company, please visit www.vrtx.com.  Special Note Regarding Forward-looking Statements  This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, Dr. Leiden's statements in the fourth paragraph of the press release, the information provided in the section captioned "2014 Financial Guidance," and the information provided regarding (i) Vertex's plans regarding the design and initiation of a Phase 2 study of VX-661 in combination with ivacaftor; (ii) the suggestion that use of VX-509 with certain other medicines may require dose modification or limited concomitant use; (iii) Vertex pursuing collaborative opportunities to support further global development of VX-509; and (iv) Vertex's expectations regarding 2014 revenues, including KALYDECO and INCIVEK revenues. While Vertex believes the forward-looking statements contained in this press release are accurate, these forward-looking statements represent the company's beliefs only as of the date of this press release and there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements. Those risks and uncertainties include, among other things, that the company's expectations regarding its 2014 revenues and financial results and its 2014 non-GAAP operating expenses may be incorrect (including because one or more of the company's assumptions underlying its revenue or expense expectations may not be realized), that data from the company's development programs may not support registration or further development of its compounds due to safety, efficacy or other reasons, and other risks listed under Risk Factors in Vertex's annual report and quarterly reports filed with the Securities and Exchange Commission and available through the company's website at www.vrtx.com. Vertex disclaims any obligation to update the information contained in this press release as new information becomes available.  Conference Call and Webcast  The company will host a conference call and webcast today at 5:00 p.m. ET. To access this call, dial (866) 501-1537 (U.S.) or +1 (720) 545-0001 (International). The call will also be available as a live and archived webcast on Vertex's website at www.vrtx.com in the "Investors" section under "Events and Presentations." To ensure a timely connection, it is recommended that users register at least 15 minutes prior to the scheduled webcast.  (VRTX-GEN)  Contact:  Vertex Pharmaceuticals Incorporated Investors: Michael Partridge, 617-341-6108 or Kelly Lewis, 617-961-7530 or Media: Zach Barber, 617-341-6992 mediainfo@vrtx.com