VERTEX PHARMACEUTICALS INC / MA (VRTX)

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

Our discussion and analysis of our financial condition and results of operations for 2024 as compared to 2023 are discussed below. For a discussion of our financial condition and results of operations for 2023 as compared to 2022, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K, except as set forth below.

OVERVIEW

We are a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases, with a focus on specialty markets. We have seven approved medicines: five that treat the underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, one that treats severe sickle cell disease (“SCD”) and transfusion dependent beta thalassemia (“TDT”), life shortening inherited blood disorders, and one that treats moderate-to-severe acute pain. Our clinical-stage pipeline includes programs in CF, SCD, beta thalassemia, acute and peripheral neuropathic pain, APOL1-mediated kidney disease, IgA nephropathy and other autoimmune renal diseases and cytopenias, type 1 diabetes, myotonic dystrophy type 1, and autosomal dominant polycystic kidney disease.

In December 2024, the U.S. Food and Drug Administration (the “FDA”) approved ALYFTREK (vanzacaftor/tezacaftor/deutivacaftor), our once-daily next-in-class triple combination for the treatment of people with CF 6 years of age and older, and our fifth CF medicine. Collectively, our five medicines, led by TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), are being used to treat nearly three quarters of the approximately 94,000 people with CF in the U.S., Europe, Australia, and Canada. Through approvals of new medicines, label expansions, and expanded reimbursement, we are focused on increasing the number of people with CF who are eligible and able to receive our medicines. In December 2024, the FDA approved the expanded use of TRIKAFTA for the treatment of people with CF 2 years of age and older who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator (“CFTR”) gene or a mutation that is responsive to TRIKAFTA. With this approval, 94 additional non-F508del CFTR mutations have been added to the TRIKAFTA label, and approximately 300 additional people with CF in the U.S. are now eligible for TRIKAFTA. In addition, we are evaluating our CF medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for all people who have at least one mutation in their CFTR gene that is responsive to our CFTR modulators. We also are pursuing messenger ribonucleic acid (“mRNA”) and genetic therapies for people with CF who do not make full-length CFTR protein and, as a result, cannot benefit from our current CF medicines.

CASGEVY (exagamglogene autotemcel), our ex-vivo, non-viral CRISPR/Cas9 gene-edited cell therapy, is approved in the U.S., the European Union (“E.U.”), the United Kingdom (“U.K.”), the Kingdom of Saudi Arabia (“Saudi Arabia”), the Kingdom of Bahrain (“Bahrain”), the United Arab Emirates (the “UAE”), Switzerland and Canada for the treatment of people 12 years of age and older with SCD or TDT. We estimate approximately 60,000 people with severe SCD or TDT are or could become eligible for CASGEVY in the U.S., Canada, Europe, Saudi Arabia, and Bahrain.

In January 2025, the FDA approved JOURNAVX, our selective non-opioid NaV1.8 pain signal inhibitor, for the treatment of people with moderate-to-severe acute pain. We have begun our commercial launch of JOURNAVX in the U.S. for eligible adults. In addition, we are enrolling and dosing patients in a Phase 3 clinical trial evaluating suzetrigine for the treatment of diabetic peripheral neuropathy, a common form of peripheral neuropathic pain. In December 2024, we announced Phase 2 clinical trial results showing that treatment with suzetrigine demonstrated a statistically significant and clinically meaningful within-group reduction in pain on the numeric pain rating scale for people with lumbosacral radiculopathy (“LSR”), a form of peripheral neuropathic pain. The clinical trial also included a placebo reference arm, which showed a similar within-group reduction. Suzetrigine was safe and generally well-tolerated in the Phase 2 clinical trial. We hypothesize that a high placebo response in this clinical trial led to a lack of separation of the suzetrigine and placebo response curves. We believe we can innovate in pain clinical trial design to better control the placebo effect, and succeed in pivotal development with suzetrigine. We plan to advance suzetrigine into pivotal development in LSR, pending discussions with regulators on trial design and the regulatory package.

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Financial Highlights

Note: Charts above may not add due to rounding.

Business Updates

Marketed Products

Cystic Fibrosis

We expect to grow our CF business by increasing the number of people with CF who are eligible and able to receive our medicines. We have revised estimates for the number of people with CF in the U.S., Europe, Australia, and Canada from approximately 92,000 to approximately 94,000 people. Additionally, we continue to secure formal reimbursement in multiple additional countries that collectively comprise approximately 15,000 additional people with CF. Approximately 10,000 of those additional people with CF are eligible for treatment with CFTR modulators. We previously served many of these markets through named patient sales.

Recent progress in activities expanding our CF business is included below:

•In December 2024, the FDA approved ALYFTREK (vanzacaftor/tezacaftor/deutivacaftor), the once-daily next-in-class combination CFTR modulator for the treatment of people with CF 6 years of age and older who have at least one F508del mutation or another mutation in the CFTR gene that is responsive to ALYFTREK, which includes a total of 303 CFTR mutations. Regulatory submissions for ALYFTREK, including in the U.K., the E.U., Canada, Switzerland, Australia, and New Zealand, are currently under review.

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•In December 2024, the FDA approved the expanded use of TRIKAFTA for the treatment of people with CF with 94 additional non-F508del CFTR mutations. TRIKAFTA is now approved in the U.S. for a total of 272 CFTR mutations. We have also submitted regulatory applications to the European Medicines Agency (“EMA”) for TRIKAFTA/KAFTRIO for the treatment of people with CF and rare responsive mutations.

•We entered into an extended long-term reimbursement agreement with NHS England providing access to KAFTRIO, SYMKEVI and ORKAMBI, and continued access to KALYDECO, for existing and future eligible CF patients in England. We have entered into similar reimbursement agreements in Wales, Northern Ireland and Scotland. These reimbursement agreements include access to any future license extensions of these medicines.

•KAFTRIO is reimbursed in all 27 countries of the E.U.

Sickle Cell Disease and Beta Thalassemia

•CASGEVY is now approved in the U.S., the E.U., the U.K., Saudi Arabia, Bahrain, the UAE, Canada and Switzerland for people 12 years of age and older with SCD or TDT.

•We have activated more than 50 authorized treatment centers globally, and more than 50 patients have initiated cell collection. We expect significant growth in the number of new patients initiating cell collection throughout 2025.

•We entered into a reimbursement agreement with NHS England for eligible people with SCD to access CASGEVY, consistent with the reimbursement agreement reached in August 2024 with NHS England for eligible people with TDT to access CASGEVY.

•The Italian Medicines Agency has approved early access for CASGEVY, on a case-by-case basis, for the treatment of people with TDT and SCD.

Acute Pain

•In January 2025, the FDA approved JOURNAVX for the treatment of moderate-to-severe acute pain in adults. We are working to secure broad stocking agreements for JOURNAVX with national retail pharmacies and regional pharmacy chains. We expect to begin shipping JOURNAVX to pharmacies nationwide by the end of February, with retail availability beginning shortly thereafter.

•We expect that JOURNAVX will be qualified for the add-on payment under the Non-Opioids Prevent Addiction in the Nation (“NOPAIN”) Act, which provides for a separate payment in the hospital outpatient or surgical center setting for FDA-approved non-opioid treatments for pain.

Pipeline

We continue to advance a diversified pipeline of potentially transformative medicines for serious diseases utilizing a range of modalities. Recent and anticipated progress in activities supporting these efforts is included below:

Cystic Fibrosis

•We are enrolling and dosing in a Phase 3 clinical trial evaluating ALYFTREK in children with CF 2 to 5 years of age who have at least one F508del mutation or a mutation responsive to triple combination CFTR modulators.

•In collaboration with Moderna, Inc. (“Moderna”), we are developing VX-522, a CFTR mRNA therapeutic for the treatment of people with CF who do not produce full-length CFTR protein. The multiple ascending dose portion of the Phase 1/2 clinical trial for VX-522 is underway, with data expected in the first half of 2025. In the U.S., the FDA has granted Fast Track designation for VX-522.

•We continue to advance new oral small molecule combination therapies through preclinical and clinical development with the aim of achieving normal levels of CFTR function. The most advanced of the next generation of CFTR modulators have completed, or are in the process of completing, Phase 1 clinical trials. We also are investigating additional potential treatments for people with CF who do not make full-length CFTR protein and cannot benefit from CFTR modulators.

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Sickle Cell Disease and Beta Thalassemia

•We have completed enrollment of children 5 to 11 years of age with SCD or TDT in two global Phase 3 clinical trials evaluating CASGEVY, and we expect to complete dosing of this age group in 2025.

•We continue to advance preclinical assets for myeloablative conditioning agents that would have milder side-effects and could be used in connection with CASGEVY, which could broaden the eligible patient population.

Acute Pain

•We are enrolling and dosing patients in a Phase 2 clinical trial evaluating an oral formulation of VX-993, a next-generation selective NaV1.8 pain signal inhibitor, for the treatment of moderate-to-severe acute pain following bunionectomy surgery.

•We are enrolling and dosing healthy volunteers in a Phase 1 clinical trial evaluating an intravenous formulation of VX-993.

•The FDA has granted Fast Track Designation to VX-993 in moderate-to-severe acute pain in both the oral and intravenous formulations.

•We are advancing multiple NaV1.7 inhibitors, including in combination with NaV1.8 inhibitors, through research and earlier stages of development for both acute and peripheral neuropathic pain.

Peripheral Neuropathic Pain

•A Phase 3 clinical trial evaluating suzetrigine is enrolling and dosing patients with diabetic peripheral neuropathy, a common form of peripheral neuropathic pain. The FDA has granted suzetrigine Breakthrough Therapy designation in diabetic peripheral neuropathy.

•In December 2024, we announced Phase 2 clinical trial results for suzetrigine as a treatment for LSR, a form of peripheral neuropathic pain. The clinical trial met its primary endpoint, but the suzetrigine arm did not separate from the placebo reference arm. We plan to initiate a Phase 3 clinical trial evaluating suzetrigine in LSR, pending discussions with regulators on the regulatory package and optimized trial design.

•We are enrolling and dosing patients in a Phase 2 clinical trial evaluating the oral formulation of VX-993, a next generation NaV1.8 pain signal inhibitor, for the treatment of diabetic peripheral neuropathy.

APOL1-Mediated Kidney Disease

•Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”). We continue to enroll and dose people with AMKD in the Phase 3 portion of the global Phase 2/3 pivotal clinical trial (“AMPLITUDE”). We expect to complete enrollment in the interim analysis cohort in 2025 and apply for potential accelerated approval in the U.S., assuming a positive interim analysis.

•We initiated a Phase 2 proof-of-concept clinical trial (“AMPLIFIED”) evaluating inaxaplin as a treatment for people with AMKD and diabetes or other co-morbidities who are not currently eligible for the AMPLITUDE Phase 2/3 pivotal trial.

•The FDA granted Breakthrough Therapy designation to inaxaplin for APOL1-mediated focal segmental glomerulosclerosis (“FSGS”) and the EMA granted Orphan Drug and PRIME designations to inaxaplin for AMKD.

IgA Nephropathy and Other B Cell-Mediated Diseases

•In May 2024, we acquired Alpine, whose lead compound was povetacicept, a dual inhibitor of B cell activating factor (“BAFF”) and a proliferation-inducing ligand (“APRIL”) pathways. We are developing povetacicept as a potentially best-in-class approach to treat immunoglobulin A (“IgA”) nephropathy (“IgAN”), a serious progressive, autoimmune kidney disease that can lead to end-stage renal disease.

•We are enrolling and dosing patients in the U.S., Europe and Asia in our global pivotal Phase 3 trial evaluating povetacicept in people with IgAN (“RAINIER”). The trial is designed to have a pre-planned interim analysis

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evaluating the change from baseline in urine protein creatinine ratio (“UPCR”) after a certain number of patients reach 36 weeks of treatment. If positive, the interim analysis may serve as the basis for seeking accelerated approval in the U.S. Final analysis will occur at two years of treatment, with a primary endpoint of total eGFR slope through Week 104. We expect to complete enrollment in the interim analysis cohort in 2025 and apply for potential accelerated approval in the U.S., assuming a positive interim analysis.

•We are evaluating povetacicept as a potential treatment for additional B cell-mediated renal diseases in the RUBY-3 basket trial and hematologic conditions in the RUBY-4 basket trial. Both of these trials are ongoing, and we expect data in some of these conditions in 2025.

Type 1 Diabetes

•Zimislecel is an allogeneic stem cell-derived, fully differentiated, insulin-producing islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. We are evaluating zimislecel as a potential treatment for type 1 diabetes (“T1D”) in a sequential, three-part Phase 1/2 clinical trial. We expect to complete enrollment and dosing in the Phase 3 portion of this Phase 1/2/3 clinical trial in 2025 and, assuming positive data, we expect to file for potential approval after patients have completed one year of insulin-free follow-up. In addition, we have initiated a clinical trial evaluating zimislecel in people with T1D who have had a kidney transplant.

•Our second program in T1D evaluates VX-264, which encapsulates zimislecel in a novel device designed to eliminate the need for immunosuppression. The Phase 1/2 clinical trial is evaluating the safety, tolerability and efficacy of VX-264. We have completed Part A of this clinical trial and we are enrolling and dosing people with TID in Part B of the clinical trial, where patients receive the full-target dose with a stagger period between patients. Part C will dose at a full target dose without a stagger between patients. We expect to share Part B full-dose data from this clinical trial in 2025.

•Our hypoimmune islet cell program uses CRISPR/Cas9 technology to gene-edit the same allogeneic stem cell-derived, fully differentiated islets used in the zimislecel and VX-264 programs. The goal is to cloak the cells from the immune system to explore another possible path to eliminate the need for immunosuppressive therapy. This program continues to progress through the research stage. We are also pursuing alternative approaches to immunosuppression that could be used with zimislecel.

Myotonic Dystrophy Type 1

•Our lead approach for myotonic dystrophy type 1 (“DM1”), VX-670, was in-licensed from Entrada Therapeutics, Inc. (“Entrada”). VX-670 is an oligonucleotide connected to a cyclic peptide to promote effective delivery into cells, which holds the potential to address the underlying cause of DM1.

•We completed the single ascending dose portion of the global Phase 1/2 clinical trial for VX-670 in people with DM1. We are enrolling and dosing the multiple ascending dose portion of the trial, which will evaluate the safety and efficacy of VX-670.

Autosomal Dominant Polycystic Kidney Disease

•We are nearing completion of a Phase 1 clinical trial evaluating VX-407 in healthy volunteers, our first-in-class small molecule corrector that targets the underlying cause of autosomal dominant polycystic kidney disease (“ADPKD”) in people with a subset of PKD1 variants. In 2025, we expect to advance VX-407 into a Phase 2 proof-of-concept clinical trial in people with ADPKD.

External Innovation

Recent investments in external innovation are included below.

•In January 2025, we entered into a collaboration agreement with Zai Lab Limited (“Zai”) for the development and commercialization of povetacicept in mainland China, Hong Kong SAR, Macau SAR, Taiwan region and Singapore. Under this collaboration, Zai will help advance the povetacicept clinical trials, make the regulatory submissions in these territories, and will be responsible for commercialization activities in these territories, if povetacicept becomes an approved product.

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•In December 2024, we entered into a strategic collaboration and license agreement with Orna Therapeutics (“Orna”) to utilize Orna’s novel and proprietary lipid nanoparticle delivery solutions to enhance our efforts in developing next generation gene-editing therapies for patients with SCD and TDT.

Our Business Environment

In 2024, our net product revenues came primarily from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our medicines. We are continuing to progress commercialization of CASGEVY, which has received marketing approvals in the U.S., the E.U., the U.K., Saudi Arabia, Bahrain, the UAE, Switzerland and Canada for the treatment of SCD and TDT. In addition, we have begun our commercial launch of JOURNAVX for the treatment of acute pain, which received marketing approval in the U.S. in January 2025. We also continue to advance our pipeline of product candidates for the treatment of serious diseases outside of CF, SCD, TDT, and acute pain.

Our strategy is to combine transformative advances in the understanding of causal human biology and the science of therapeutics to discover and develop innovative medicines. This approach includes advancing multiple compounds or therapies from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform selection of the most promising therapies for later-stage development, as well as to inform discovery and development efforts. We aim to rapidly follow our first-in-class therapies that achieve proof-of-concept with potential best-in-class candidates to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Across the industry, most potential drug or biological products never progress into development, and most products that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor our research and development activities, and frequently evaluate our pipeline 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 rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

Our business also requires ensuring appropriate manufacturing and supply of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties, including some in China, and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. Our foreign third-party manufacturers and suppliers may be subject to U.S. legislation, including the BIOSECURE Act, sanctions, trade restrictions and other foreign regulatory requirements which could increase costs or reduce the supply of material available to us, or delay the procurement or supply of such material. The processes for biological and cell and genetic therapies can be more complex than those required for small molecule drugs and require additional investments in different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

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In the U.S., we have worked successfully with third-party payors to promptly obtain appropriate levels of reimbursement for our CF medicines. In addition, we are working with U.S. government and commercial payors with respect to CASGEVY and JOURNAVX. We anticipate broad access with government and commercial payors for CASGEVY in the U.S., and we have recently entered into multiple agreements with government and commercial health insurance providers to provide such access. For JOURNAVX in the U.S., we have been working with government and commercial payors pre- and post-approval to support rapid and broad access. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that all our therapies provide and provide patients with appropriate levels of access to our medicines and therapies now and in the future. We cannot, however, predict how changes in the law, including through the Inflation Reduction Act of 2022 and passage of state laws (e.g., transparency laws and prescription drug affordability boards), will affect our ability to negotiate successfully with third-party payors and distribute our products. Similarly, in ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We are working with ex-U.S. payors with respect to CASGEVY, and we are pursuing long-term reimbursement agreements. We have secured reimbursed access for people with SCD or TDT in Saudi Arabia, Bahrain, Luxembourg, and England. In addition, the Italian Medicines Agency has approved early access for CASGEVY, on a case-by-case basis, to treat people with SCD and TDT. We expect to continue to focus significant resources to expand and maintain reimbursement for our CF medicines, CASGEVY, JOURNAVX, and, ultimately, our pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire technologies, products, product candidates and other businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. We have acquired multiple biotechnology companies over the last several years and expect to continue to identify and evaluate such opportunities. The accounting for these acquisitions can vary significantly based on whether we conclude the transactions represent business combinations or asset acquisitions. In 2024, we acquired Alpine for approximately $5.0 billion in cash. Alpine’s lead molecule, povetacicept, has shown potential to treat multiple diseases or conditions and become a pipeline-in-a-product. We accounted for the Alpine transaction as an asset acquisition because povetacicept represented substantially all of the fair value of the gross assets that we acquired. As a result, $4.4 billion of the fair value attributed to povetacicept was expensed as AIPR&D in 2024. In 2019 and 2022, we acquired Semma Therapeutics, Inc. (“Semma”) and ViaCyte, Inc. (“ViaCyte”), respectively, pursuant to which we established and accelerated the development of our T1D program. We accounted for each of these acquisitions as a business combination.

Please refer to our critical accounting policies, “Acquisitions,” for further information regarding the significant judgments and estimates related to our acquisitions.

Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates, and other technologies that have the potential to complement our ongoing research and development efforts.

Over the last several years, we entered into collaboration agreements with a number of companies, including CRISPR Therapeutics AG (“CRISPR”), Entrada, and Moderna. Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as AIPR&D, including, a $75.0 million milestone paid to Entrada in 2024, and, in 2023, total payments of $242.6 million to Entrada and total upfront and milestone payments of $170.0 million to CRISPR related to T1D. These payments were expensed to AIPR&D because they were primarily attributable to acquired in-process research and development for which there was no alternative future use. However, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

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Joint Development and Commercialization Agreement with CRISPR

In 2017, we entered into a joint development and commercialization agreement with CRISPR (the “CRISPR JDCA”), which we amended and restated in 2021.

Pursuant to the CRISPR JDCA, we lead global development, manufacturing and commercialization of CASGEVY, with support from CRISPR. We also conduct all research, development, manufacturing and commercialization activities relating to other product candidates and products under the CRISPR JDCA throughout the world subject to CRISPR’s reserved right to conduct certain activities.

CASGEVY was approved by the FDA in December 2023 for the treatment of SCD. In connection with this approval, we made a $200.0 million milestone payment to CRISPR in January 2024, which we accrued to “Other current liabilities” and recorded within “Other intangible assets, net” on our consolidated balance sheet as of December 31, 2023. We are recording intangible asset amortization expense to “Cost of sales” related to this intangible asset. Subsequent to receiving marketing approval for CASGEVY, we continue to lead the research and development activities under the CRISPR JDCA, subject to CRISPR’s reserved right to conduct certain activities. We are reimbursed by CRISPR for its 40% share of these research and development activities, subject to certain adjustments, and we record this reimbursement from CRISPR as a credit within “Research and development expenses.” We also share with CRISPR 40% of the net commercial profits or losses incurred with respect to CASGEVY, subject to certain adjustments, which is recorded to “Cost of sales.” The net commercial profits or losses equal the sum of the product revenues, cost of sales and selling, general and administrative expenses that we have recognized related to the CRISPR JDCA.

Prior to receiving marketing approval from the FDA for CASGEVY in December 2023, we accounted for the CRISPR JDCA as a cost-sharing arrangement, with costs incurred related to CASGEVY allocated 60% to us and 40% to CRISPR, subject to certain adjustments. In 2023 and 2022, we recognized net reimbursements from CRISPR as credits to “Research and development expenses” and to “Selling, general and administrative expenses,” related to CRISPR’s share of the CRISPR JDCA’s operating expenses.

Acquired In-Process Research and Development Expenses

In 2024 and 2023, our AIPR&D included $4.6 billion and $527.1 million, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the asset acquisitions, collaborations, and licenses of third-party technologies described above. Please refer to Note B, “Collaboration, License and Other Arrangements,” for further information regarding our asset acquisitions, collaboration, in-license agreements.

Out-licensing Arrangements

We also have out-licensed certain development programs to collaborators who are leading the development or commercialization of these programs, either globally or within certain geographic regions. Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development, and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative and royalty revenues resulting from these programs. None of our out-license agreements had a significant impact on our consolidated statements of operations during the three years ended December 31, 2024.

As noted above, in January 2025, we entered into a collaboration agreement with Zai for the development and commercialization of povetacicept in mainland China, Hong Kong SAR, Macau SAR, Taiwan region and Singapore.

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RESULTS OF OPERATIONS

Revenues

Product Revenues, Net

In 2024, our net product revenues increased by $1.2 billion, or 12%, as compared to 2023. Increases in our TRIKAFTA/KAFTRIO product revenues were due to strong performance and demand globally, including expansions into younger age groups and label extensions, and higher net realized pricing in the U.S. The decrease in our “Other product revenues” was primarily the result of CF patients switching to TRIKAFTA/KAFTRIO from our other CF products. In 2024, “Other product revenues” included $10.0 million related to CASGEVY. There were no ALYFTREK sales in 2024.

Our net product revenues from the U.S. and from ex-U.S. markets were as follows:

In 2025, we expect our net product revenues to increase due to the approval of ALYFTREK for CF in the U.S., continued demand globally for TRIKAFTA/KAFTRIO, including in younger age groups and from label expansions, increased CASGEVY patient infusions, and contribution from the launch of JOURNAVX.

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Operating Costs and Expenses

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our CF products as well as the cost of producing inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation, our tiered third-party royalties on sales of ALYFTREK, TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with lower royalties on sales of ALYFTREK and TRIKAFTA/KAFTRIO than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 14% and 13% in 2024 and 2023, respectively. The increase in costs of sales as a percentage of our net product revenues was primarily due to costs associated with CASGEVY following its regulatory approval in the fourth quarter of 2023. In 2025, we expect our total cost of sales to increase due to expected increased net product revenues, CASGEVY contract manufacturing costs, and costs associated with JOURNAVX, partially offset by lower royalties due to sales of ALYFTREK.

Research and Development Expenses

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

Over the past three years, we have incurred $9.3 billion in research and development expenses associated with product discovery and development. The successful development of our product 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 product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our product candidates to market are not available.

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Any estimates regarding development and regulatory timelines for our product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses

Our research expenses have been increasing over the last several years as we invested in our pipeline and expanded our cell and genetic therapy capabilities, resulting in increased headcount and stock-based compensation expense, and outsourced services, other direct expenses, and infrastructure costs. We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

Our development expenses increased by $368.5 million, or 15%, in 2024 as compared to 2023, due to continued investments in internal headcount and related expenses and infrastructure to support advancement of additional therapies into mid-to-late-stage development, including our T1D program. Growth in internal headcount over the last several years has increased our stock-based compensation expense, which has historically fluctuated and is expected to continue to fluctuate from one period to another based on the probability of achieving milestones associated with our performance-based awards. In 2024, development expenses also included compensation expense associated with cash-settled unvested equity awards related to our acquisition of Alpine. Outsourced services and other direct expenses in 2024 were similar to 2023 as increased expenses to support our T1D program were offset by the completion of our Phase 3 trials for ALYFTREK and JOURNAVX and the commercialization of CASGEVY. In 2025, we expect our development expenses to continue to increase due to our advancing pipeline programs, including our IgAN, pain and T1D programs.

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Acquired In-process Research and Development Expenses

In 2024, AIPR&D included $4.4 billion resulting from our acquisition of Alpine, which was accounted for as an asset acquisition, the $75.0 million milestone to Entrada, and a $40.0 million upfront payment to Orna. In 2023, AIPR&D consisted of our $225.1 million upfront payment to Entrada, $100.0 million upfront payment and $70.0 million T1D research milestone to CRISPR, $47.5 million acquisition of a novel GPCR program from Septerna, and various other payments. Our AIPR&D has historically fluctuated, and is expected to continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our existing and future business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 29% in 2024 as compared to 2023, primarily due to increased commercial investments to prepare for the launch of JOURNAVX and support the launch of CASGEVY, and stock-based compensation expense. We expect our selling, general and administrative expenses to continue to increase in 2025 to support these new product launches and additional investments in infrastructure to scale our organization.

Contingent Consideration

In 2024, the fair value of our contingent consideration decreased by $0.5 million. In 2023, the fair value of our contingent consideration decreased by $51.6 million primarily due to our determination that additional pre-clinical studies of the delivery system for our gene-editing components for Duchenne muscular dystrophy (“DMD”) would be required. In future periods, we expect the fair value of contingent consideration to increase or decrease based on, among other things, our estimates of the probability of achieving and the timing of these contingent development and regulatory milestone payments, as well as the time value of money and changes in market interest rates.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income decreased from $614.7 million in 2023 to $598.1 million in 2024, primarily due to decreased cash equivalents and available-for-sale debt securities following our acquisition of Alpine in the second quarter of 2024. Our future interest income is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was $30.6 million in 2024, as compared to $44.1 million in 2023. The majority of our interest expense in these years was related to imputed interest expense associated with finance leases for our corporate headquarters in Boston. As discussed in Note L, “Leases,” our corporate headquarters leases were amended in August 2024, which resulted in an accounting classification change from finance to operating leases. As a result, we expect our interest expense to decrease in future periods because operating lease expenses are recorded within operating expenses in our consolidated statements of operations.

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Other Income (Expense), Net

Other income (expense), net was expenses of $86.1 million and $22.8 million in 2024 and 2023, respectively. These amounts primarily related to net unrealized losses resulting from changes in the fair value of certain of our strategic equity investments, which consist of investments in our collaborators that may be public or privately-held companies. To the extent that we continue to hold strategic equity investments in publicly traded biotechnology companies, we expect that our other income (expense), net will continue to fluctuate in future periods due to the volatility in the stock prices of these companies that impacts the fair value of our investments. As of December 31, 2024, the fair value of our investments in publicly traded companies was $36.6 million. We discuss these potential future fluctuations further in Item 7a. Quantitative and Qualitative Disclosures About Market Risk.

Income Taxes

Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the amount and allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions.

Our provision for income taxes was $784.1 million for 2024 and $760.2 million for 2023. In 2024, our 315.5% effective tax rate was materially different than the U.S. statutory rate primarily due to the $4.4 billion of non-deductible AIPR&D resulting from our acquisition of Alpine, which significantly lowered our pre-tax income. The non-deductible AIPR&D was partially offset by a benefit from a research and development tax credit study that was completed in 2024 and excess tax benefits related to stock-based compensation.

In 2023, our 17.4% effective tax rate was lower than the U.S. statutory rate primarily due to a benefit from a research and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of December 31, 2024 and 2023:

Working Capital

As of December 31, 2024, total working capital was $6.0 billion, which represented a decrease of $4.6 billion from $10.6 billion as of December 31, 2023 primarily due to cash paid to acquire Alpine.

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Cash Flows

Operating Activities

Cash used in operating activities was $492.6 million in 2024 as compared to cash provided by operating activities of $3.5 billion in 2023. The largest driver of the decrease in cash provided by operating activities was cash paid to acquire Alpine.

Investing Activities

Cash used in investing activities were $3.8 billion and $3.1 billion in 2024 and 2023, respectively. The largest portion of our investing activities in each year were net purchases of available-for-sale debt securities.

Financing Activities

Cash used in financing activities were $1.5 billion and $562.2 million in 2024 and 2023, respectively. Our financing activities in each year were primarily related to repurchases of our common stock pursuant to our share repurchase program and payments related to our employee stock benefit plans.

Sources and Uses of Liquidity

We intend to rely on our existing cash, cash equivalents and current marketable securities together with our operating profitability as our primary source of liquidity. We expect that cash flows from our product sales together with our cash, cash equivalents and current 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 our future sales of currently marketed products, and the potential introduction of one or more new product candidates to the market, our business development activities and the number, breadth and cost of our research and development programs.

Credit Facilities & Financing Strategy

We may borrow up to a total of $500.0 million pursuant to a revolving credit facility that we entered into in July 2022 and could repay and reborrow amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the borrowing capacity be increased by an additional $500.0 million, for a total of $1.0 billion. Negative covenants in our credit agreement could prohibit or limit our ability to access this source of liquidity. As of December 31, 2024, the facility was undrawn, and we were in compliance with these covenants.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities, or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will 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.

Future Capital Requirements

We have significant future capital requirements, including:

•Expected operating expenses to conduct research and development activities, manufacture and commercialize our existing and future products, and to operate our organization.

•Cash that we pay for income taxes.

•Royalties we pay related to sales of our CF products.

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•Facility, operating and finance lease obligations as described below.

•Firm purchase obligations related to our supply and manufacturing processes.

In addition, other potential significant future capital requirements may include:

•We have entered into certain agreements with third parties that include the funding of certain research, development, manufacturing and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Other transactions include the potential for future lease-related expenses and other costs. Our obligation to fund these research and development and commercialization efforts and to pay these potential milestones, expenses and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause their discontinuance. We may enter into additional agreements, including acquisitions, collaborations, licensing arrangements and equity investments, which require additional capital.

•To the extent we borrow amounts under our existing credit agreement, we would be required to repay any outstanding principal amounts in 2027.

•As of December 31, 2024, we had $1.4 billion remaining authorization available under our $3.0 billion Share Repurchase Program that our Board of Directors approved in February 2023. This program does not have an expiration date and can be discontinued at any time. We expect to fund these programs through a combination of cash on hand and cash generated by operations.

Additional information on several of our future capital requirements is provided below.

Research and Development Costs

We have ongoing clinical trials of product candidates at various stages of clinical development. Our clinical trial costs are dependent on, among other things, the size, number, and length of our clinical trials. These costs can increase as product candidates move from earlier-stage clinical trials into later-stage clinical development.

Leases

We account for the majority of our real estate leases and each of our embedded leases with contract manufacturing organizations as operating leases. These include leases for our corporate headquarters at Fan Pier in Boston, Massachusetts and office and laboratory space at the Jeffrey Leiden Center for Cell and Genetic Therapies (the “Jeffrey Leiden Center”) near our corporate headquarters. We amended our corporate headquarters leases in 2024 to, among other terms, extend the lease termination dates from December 2028 to June 2044. Our lease for the Jeffrey Leiden Center commenced in 2021 pursuant to an initial 15-year lease term for this building. We also have several embedded leases with contract manufacturing organizations related to the manufacturing and commercialization of our products with remaining lease terms up to 8 years as of December 31, 2024.

As of December 31, 2024, our largest finance lease relates to the lease for our research site in San Diego, California, which commenced in 2019 pursuant to an initial 16-year lease term.

Our total future minimum lease payments for our leases for each of the next five years and in total are included in Note L, “Leases.” The total future undiscounted minimum lease payments were $2.7 billion and $189.0 million related to our operating and finance leases, respectively, as of December 31, 2024. To support future product development and commercialization efforts, we may enter into additional lease agreements, which require additional capital.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. 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 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.

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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.

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

•revenue recognition;

•acquisitions, including intangible assets, goodwill and contingent consideration;

•inventories; and

•income taxes.

Our accounting policies, including the ones discussed below, are more fully described in Note A, “Nature of Business and Accounting Policies.”

Revenue Recognition

Product Revenues, Net

We generate product revenues from sales in the U.S. and in international markets. We sell our products principally to a limited number of specialty pharmacy and specialty distributors in the U.S., which account for the largest portion of our total revenues. Our customers in the U.S. subsequently resell our products to patients, health care providers, or authorized treatment centers (“ATCs”) for CASGEVY. We contract with government agencies so that our products will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We make international sales primarily through distributor arrangements and to retail pharmacies, as well as to hospitals and clinics, many of which are government-owned or supported customers. In certain markets, we may not utilize a specialty distributor or specialty pharmacy to distribute CASGEVY. In these markets, we sell CASGEVY directly to ATCs. We recognize net product revenues from sales of our products when our customers obtain control of our products, which typically occurs upon delivery to customers for our small molecule products, including CF, and upon infusion of our gene-therapy products, including CASGEVY. Revenues from our product sales are recorded at the net sales price, or transaction price, which requires us to make several significant estimates regarding the net sales price.

The most significant estimate we are required to make for our product revenues is related to government, commercial, and private payor rebates, chargebacks, discounts and fees, collectively rebates. The values of the rebates provided to third-party payors per course of treatment vary significantly and are based on government-mandated discounts and our arrangements with other third-party payors. To estimate our total rebates, we estimate the percentage of prescriptions that will be covered by each third-party payor, which is referred to as the payor mix. We track available information regarding changes, if any, to the payor mix for our products, to our contractual terms with third-party payors and to applicable governmental programs and regulations and levels of our products in the distribution channel. We adjust our estimated rebates based upon new information as it becomes available, including information regarding actual rebates for our products. Claims by third-party payors for rebates are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known.

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The following table summarizes activity related to our product revenue accruals for rebates for 2024, 2023 and 2022:

We have also entered into annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive for our products. Upon exceeding the annual reimbursement amount provided by the customer’s contract with us, products are provided free of charge, which is a material right. If we estimate that the annual reimbursement amount under a contract will be exceeded for an annual period, we defer a portion of the consideration received, which includes upfront payments and fees, for shipments made up to the annual reimbursement limit as “Other current liabilities.” Once the annual reimbursement limit has been reached, we recognize the deferred amount as revenue when we deliver the free products. To estimate the portion of the consideration received to be recognized as revenue and the portion of the amount to be deferred, we rely on our forecast of the number of units we will distribute during the applicable annual period in each international market in which our contracts with government-owned and supported customers limit the amount of annual reimbursement we can receive. Our forecasts are based on, among other things, our historical experience.

The preceding estimates and judgments materially affect our recognition of net product revenues. Changes in our estimates of net product revenues could have a material effect on net product revenues recorded in the period in which we determine that change occurs.

Acquisitions

As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts.

We are required to make several significant judgments and estimates to determine the accounting treatment for each acquisition transaction. If we determine that substantially all the fair value associated with an acquisition is concentrated in a single asset, or the acquisition does not constitute a business, we account for it as an asset acquisition. For example, we accounted for our $5.0 billion acquisition of Alpine in 2024 as an asset acquisition because povetacicept, Alpine’s lead molecule, represented substantially all of the fair value of the gross assets that we acquired. As a result, $4.4 billion of the fair value attributed to povetacicept was expensed to AIPR&D in 2024. If the fair value that we acquired in an acquisition is distributed among more than one asset, and the acquisition constitutes a business, we account for it as a business combination.

For an asset acquisition involving rights to intellectual property related to in-process research and development that is not yet associated with a product that has achieved regulatory approval, we generally expense our upfront payment to AIPR&D, because there is no alternative future use for the asset that was acquired.

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For business combinations, we are required to make several significant judgments and estimates to calculate and allocate the purchase price to the assets that we have acquired and the liabilities that we have assumed on our consolidated balance sheet. The most significant judgments and estimates relate to the fair value of the in-process research and development assets and contingent consideration liabilities related to these business combinations. Based on these judgments and estimates, the fair value of the goodwill that we record as a result of these business combinations may be material.

In-process Research and Development Intangible Assets

As of both December 31, 2024 and 2023, we had $603.6 million of in-process research and development assets on our consolidated balance sheet within “Other intangible assets, net,” which primarily relate to our T1D clinical program established through our acquisitions of Semma and ViaCyte.

We characterize in-process research and development assets on our consolidated balance sheets as indefinite-lived intangible assets until the completion or abandonment of the associated research and development efforts. We test our in-process research and development intangible assets for impairment on an annual basis, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. When we determine that an indefinite-lived intangible asset has become impaired or we abandon the associated research and development project, we write down the carrying value to its fair value and record an impairment charge in the period in which the impairment occurs. For example, we recorded a $13.0 million impairment of an in-process research and development intangible asset to “Research and development expenses” in 2022 due to a decision to revise the scope of certain acquired gene-editing programs. If one of our product candidates achieves regulatory approval, the in-process research and development intangible assets associated with the product candidate become finite-lived intangible assets as described below.

We use significant judgment to determine the fair value of our in-process research and development assets and have utilized either the multi-period excess earnings or the relief from royalty methods of the income approach. Each method requires us to estimate the probability of technical and regulatory success, revenue projections and growth rates, and appropriate discount and tax rates. The multi-period excess earnings method also requires us to estimate development and commercial costs. The relief from royalty method also requires us to estimate the after-tax royalty savings expected from ownership of the asset that we acquired.

Contingent Consideration

We may owe Exonics former equity holders up to $678.3 million upon the achievement of certain events associated with research programs focused on DMD and other severe neuromuscular diseases, including DM1. As of December 31, 2024 and 2023, we had $76.9 million and $77.4 million, respectively, of liabilities on our consolidated balance sheets attributable to the fair value of these contingent development and regulatory payments.

We record an increase or a decrease in the fair value of the contingent consideration liabilities on our consolidated balance sheet and in our consolidated statement of income on a quarterly basis. We determine the fair value of our contingent consideration liabilities using a probability weighted discounted cash flow method of the income approach, which requires us to make estimates of the timing of regulatory and commercial milestone achievement and the corresponding estimated probability of technical and regulatory success rates. We use significant judgment in determining the appropriateness of these assumptions during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liabilities. Due to the early stage of Exonics’ programs, these significant assumptions could be affected by future economic and market conditions.

In November 2023, we determined that additional pre-clinical studies of the delivery system for our gene-editing components for DMD will be required. As a result, we revised our estimates regarding the timing of the development and regulatory milestones and the probability of achieving those milestones, which reduced the estimated fair value of our contingent consideration as of December 31, 2023.

Goodwill

As of December 31, 2024 and 2023, we had goodwill of $1.1 billion on our consolidated balance sheets. During 2024, we did not have any business development transactions accounted for as a business combination. Goodwill reflects the difference between the fair value of the consideration transferred and the fair value of the net assets acquired. Thus, the goodwill that we record is dependent on the significant judgments and estimates inherent in these fair values. We have one reporting unit for goodwill reporting purposes. We evaluate our goodwill for impairment on an annual basis, and more

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frequently if indicators are present or changes in circumstances suggest that impairment may exist. We have not identified any goodwill impairment to date.

Finite-lived Intangible Assets

As of December 31, 2024 and 2023, we had $222.3 million and $236.3 million, respectively, of finite-lived intangible assets on our consolidated balance sheet within “Other intangible assets, net.” These finite-lived intangible assets primarily relate to $208.0 million of CASGEVY regulatory approval milestones recorded in 2023.

We amortize our finite-lived intangible assets related to our marketed products, which represent the majority of our finite-lived intangible assets, using the straight-line method within “Cost of sales” over the remaining estimated life of the assets beginning in the period in which regulatory approval is achieved or the assets are acquired and continuing through the period that we no longer have either exclusive rights to market the products associated with the assets or in-license rights to the intellectual property underlying the assets. We test finite-lived intangible assets for impairment if indicators are present or changes in circumstances suggest that the carrying value of an asset may not be recoverable. If we determine that the carrying value of a finite-lived intangible asset may not be recoverable, we compare the carrying value of the asset to the undiscounted cash flows that we expect the asset to generate. When we determine that a finite-lived intangible asset has become impaired, we write down the carrying value of the asset to its fair value and record an impairment charge in the period in which the impairment occurs.

Inventories

We capitalize inventories prior to regulatory approval when we consider the related product candidate to have a high likelihood of regulatory approval and expect to recover the related costs. In making this determination, we evaluate, among other factors, the status of regulatory submissions and communications with regulatory authorities, information regarding the product candidate’s safety and efficacy, and the outlook for commercial sales, including the existence of any competition. During the first quarter of 2024, following positive results related to our Phase 3 trials for JOURNAVX, we began capitalizing inventories produced in preparation for our planned product launch. In January 2025, we received approval from the FDA to market JOURNAVX in the U.S. Prior to making this determination, we expensed inventoriable and related costs associated with JOURNAVX, as well as ALYFTREK, as “Research and development expenses.”

Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. If our estimate of the tax effect of reversing temporary differences is (i) not reflective of actual outcomes, (ii) modified to reflect new developments or interpretations of the tax law, or (iii) revised to incorporate new accounting principles, or changes in the expected timing or manner of the reversal, our results of operations could be materially impacted.

We provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized. On a periodic basis, we reassess our valuation allowances on our deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Significant judgment is required in making these assessments to maintain or adjust our valuation allowances and, to the extent our future expectations change we would have to assess the recoverability of these deferred tax assets at that time. As of December 31, 2024, we maintained a valuation allowance of $272.9 million related primarily to U.S. state tax attributes.

We record liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We adjust our liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. We are subject to tax laws and audits in multiple jurisdictions and significant judgment is required in making this assessment. Consequently, we regularly re-evaluate uncertain tax positions and consider various factors, including changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, and changes in facts or circumstances related to a tax position. As of December 31, 2024, our liability for uncertain tax positions was $706.2 million.

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RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note A, “Nature of Business and Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements and new accounting pronouncements adopted during 2024.

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

Our discussion and analysis of our financial condition and results of operations for 2023 as compared to 2022 are discussed below. For a discussion of our financial condition and results of operations for 2022 as compared to 2021, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K, except as set forth below.

OVERVIEW

We are a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases, with a focus on specialty markets. We have four approved medicines that treat the underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, and one approved therapy that treats severe sickle cell disease (“SCD”) and transfusion dependent beta thalassemia (“TDT”), life shortening inherited blood disorders. Our pipeline includes clinical-stage programs in CF, sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, type 1 diabetes, myotonic dystrophy type 1 and alpha-1 antitrypsin deficiency.

Our triple combination regimen, TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in 2019 in the United States (“U.S.”) and in 2020 in the European Union (“E.U.”). Collectively, our four medicines are being used to treat nearly three quarters of the approximately 92,000 people with CF in North America, Europe, and Australia. We are evaluating our CF medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for all people who have at least one mutation in their cystic fibrosis transmembrane conductance regulator (“CFTR”) gene that is responsive to our CFTR modulators. We also are pursuing messenger ribonucleic acid (“mRNA”) and genetic therapies for people with CF who do not make full-length CFTR protein and, as a result, cannot benefit from our current CF medicines.

CASGEVY (exagamglogene autotemcel or “exa-cel”), an ex-vivo, non-viral CRISPR/Cas9 gene-edited cell therapy, was recently approved in the U.S., the E.U., the United Kingdom (“U.K.”), the Kingdom of Saudi Arabia (“Saudi Arabia”), and the Kingdom of Bahrain (“Bahrain”) for the treatment of people 12 years of age and older with SCD and TDT. We estimate approximately 35,000 people with severe SCD or TDT could be eligible for CASGEVY in the U.S. and Europe, with additional people in Saudi Arabia and Bahrain. In addition, we are preparing for near-term launches of potential new products in CF and acute pain.

Financial Highlights

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Note: Charts above may not add due to rounding.

Business Updates

Marketed Products

Cystic Fibrosis

We expect to grow our CF business with (i) continued uptake by patients in countries where we are early in our launch, such as those with recently achieved reimbursement agreements, (ii) label expansions, including into younger patient groups, and (iii) growth in the number of people living with CF. Recent progress in activities supporting continued uptake and label expansions is included below:

•The U.S. Food and Drug Administration (“FDA”), the European Commission, the Medicines and Healthcare Products Regulatory Agency (“MHRA”), and Health Canada approved TRIKAFTA/KAFTRIO for the treatment of children with CF 2 to 5 years of age who have at least one F508del mutation in the CFTR gene.

•The European Medicines Agency (“EMA”) validated the Marketing Authorization Application (“MAA”) extension for KAFTRIO in combination with ivacaftor to include people with CF who have a rare mutation in the CFTR gene that is responsive based on clinical and/or in vitro data, including the N1303K mutation. We plan to submit regulatory filings for these mutations in Australia, Brazil, Canada, New Zealand and Switzerland, and we plan to submit for regulatory approval of a subset of these mutations not currently included in the U.S. TRIKAFTA label to the FDA.

•The FDA and the European Commission approved the use of ORKAMBI for children with CF 12 to less than 24 months of age who are homozygous for the F508del mutation in the CFTR gene.

•The FDA and MHRA approved KALYDECO in children with CF from 1 month to less than 4 months of age.

Sickle Cell Disease and Beta Thalassemia

•CASGEVY is now approved in the U.S., the E.U., the U.K., Saudi Arabia, and Bahrain for people 12 years of age and older with SCD or TDT.

•The French National Authority for Health (“HAS”) approved our request for the implementation of an early access program (“EAP”) for the use of CASGEVY to treat eligible people with TDT from 12 to 35 years of age. We are also pursuing an EAP submission for SCD in France and we expect to receive the outcome of this decision in the coming months.

•Our regulatory submission for CASGEVY in both SCD and TDT is currently under review in Switzerland. We expect to submit for regulatory approval of CASGEVY in Canada in the first half of 2024.

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•We have activated 12 authorized treatment centers (“ATCs”) in the U.S. and three ATCs in Europe. We are aiming to activate approximately 50 ATCs in the U.S. and 25 in Europe. We also have activated one of two planned ATCs in Saudi Arabia.

•We entered into an agreement with Synergie Medication Collective, a medication contracting organization, which covers approximately 100 million people, to provide access to CASGEVY.

Potential Near-Term Launch Opportunities

We are preparing for the following near-term launches of potential new products:

Vanzacaftor/tezacaftor/deutivacaftor in CF

•We completed the pivotal SKYLINE 102 and SKYLINE 103 clinical trials, which evaluate the efficacy and safety of our new once-daily investigational triple combination vanzacaftor/tezacaftor/deutivacaftor relative to TRIKAFTA in people with CF 12 years of age and older, and the RIDGELINE clinical trial of vanzacaftor/tezacaftor/deutivacaftor in children with CF 6 to 11 years of age, at the end of 2023.

•In February 2024, we announced positive data from this Phase 3 program evaluating the new triple combination regimen. We expect to submit global regulatory filings by mid-2024, including a New Drug Application (“NDA”) to the FDA, using a priority review voucher, and MAAs to the EMA and Health Canada.

VX-548 in Acute Pain

•We completed the pivotal program evaluating our lead compound, VX-548, for the treatment of moderate-to-severe acute pain, which included one randomized controlled Phase 3 pivotal trial in abdominoplasty, one randomized, controlled Phase 3 clinical trial in bunionectomy, and one single-arm safety and effectiveness clinical trial. In January 2024, we announced positive results from these clinical trials and we announced our plans to submit an NDA to the FDA for VX-548 in moderate-to-severe acute pain by mid-2024.

•In the U.S., VX-548 has been granted Breakthrough Therapy and Fast Track designations for moderate-to-severe acute pain.

Pipeline

We continue to advance a diversified pipeline of potentially transformative medicines for serious diseases utilizing a range of modalities. Recent and anticipated progress in activities supporting these efforts is included below:

Cystic Fibrosis

•In collaboration with Moderna, we are developing VX-522, a CFTR mRNA therapeutic for the treatment of people with CF who do not produce full-length CFTR protein. We completed dosing in the single ascending dose part of the clinical trial for VX-522 and initiated the multiple ascending dose part of the clinical trial in late 2023. We expect to share data from this clinical trial in late 2024 or early 2025. In the U.S., the FDA has granted Fast Track designation for VX-522.

•We are investigating a portfolio of other small molecules targeting the underlying cause of CF with the aim of achieving carrier levels of CFTR function. We also are investigating additional potential treatments for people with CF who do not make full-length CFTR protein and cannot benefit from CFTR modulators.

Sickle Cell Disease and Beta Thalassemia

•We have completed enrollment in two global Phase 3 clinical trials evaluating CASGEVY in children 5 to 11 years of age with SCD or TDT.

•We continue to work on preclinical assets for myeloablative conditioning agents that would have milder side-effects and could be used in connection with CASGEVY, which could broaden the eligible patient population.

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Peripheral Neuropathic Pain

•We have completed the Phase 2 dose-ranging clinical trial evaluating VX-548 in patients with diabetic peripheral neuropathy, a common form of chronic peripheral neuropathic pain, and announced positive results from this clinical trial. We plan to meet with regulators in the first quarter of 2024 and then we expect to advance VX-548 for the treatment of diabetic peripheral neuropathy into pivotal development.

•We initiated a second Phase 2 clinical trial evaluating VX-548 in patients with peripheral neuropathic pain in December 2023. This clinical trial will evaluate VX-548 in patients with lumbosacral radiculopathy, a second type of peripheral neuropathic pain. Screening, enrollment and dosing are underway in this clinical trial.

•We expect to initiate a Phase 2 clinical trial evaluating the oral formulation of VX-993, a next generation NaV1.8 inhibitor, for the treatment of peripheral neuropathic pain in 2024.

Acute Pain

•We have completed a Phase 1 clinical trial evaluating an oral formulation of VX-993, a next generation NaV1.8 inhibitor. We expect to initiate a Phase 2 clinical trial evaluating the oral formulation of VX-993 for the treatment of moderate-to-severe acute pain in the second half of 2024.

•We anticipate completing IND-enabling studies and filing an Investigational New Drug Application (“IND”) for an intravenous formulation of VX-993 for the treatment of moderate-to-severe acute pain in 2024.

•We are advancing multiple NaV1.7 inhibitors, including in combination with NaV1.8 inhibitors, through research and earlier stages of development for both acute and peripheral neuropathic pain.

APOL1-Mediated Kidney Disease

•Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”), including APOL1-mediated focal segmental glomerulosclerosis (“FSGS”). We completed enrollment in the Phase 2B dose-ranging portion of the pivotal program for inaxaplin, a single Phase 2/3 clinical trial in patients with AMKD. We expect to select a dose and begin the Phase 3 portion of the clinical trial in the first quarter of 2024.

•The FDA granted Breakthrough Therapy designation to inaxaplin for APOL1-mediated FSGS and the EMA granted Orphan Drug and PRIME designations to inaxaplin for AMKD.

Type 1 Diabetes

•VX-880 is an allogeneic stem cell-derived, fully differentiated, insulin-producing islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. We are evaluating VX-880 as a potential treatment for type 1 diabetes (“T1D”) in a sequential, three-part Phase 1/2 clinical trial. We have completed enrollment in Part C of the clinical trial. We have placed the clinical trial on a protocol-specified pause, pending review of the totality of the data by an independent data monitoring committee and global regulators, following two patient deaths, both unrelated to VX-880.

•Our second Phase 1/2 program in T1D evaluates VX-264, which encapsulates the same VX-880 cells in a novel device designed to eliminate the need for immunosuppression. This trial is a sequential, multi-part study to evaluate the safety, tolerability and efficacy of VX-264. We have completed Part A of the clinical trial and Part B has been initiated in multiple centers and countries.

•Our hypoimmune islet cell program uses CRISPR/Cas9 technology to gene-edit the same allogeneic stem cell-derived, fully differentiated islets used in the VX-880 and VX-264 programs. The goal is to cloak the cells from the immune system to explore another possible path to eliminate the need for immunosuppressive therapy. This program continues to progress through the research stage.

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Myotonic Dystrophy Type 1

•We have established a collaboration with Entrada Therapeutics, Inc. (“Entrada”) to address the functional impact of the causal mutation in the gene that causes myotonic dystrophy type 1 (“DM1”), which includes VX-670. VX-670 is designed to enable efficient intracellular delivery of an oligonucleotide, which we believe will address the underlying pathophysiology and restore normal cell function.

•We initiated a Phase 1/2 clinical trial evaluating VX-670 in patients with DM1. The clinical trial is active and enrolling in Canada and will initiate in the U.K. in the near term.

Alpha-1 Antitrypsin Deficiency

•We are working to address the underlying genetic cause of alpha-1 antitrypsin (“AAT”) deficiency (“AATD”). We are developing novel small molecule correctors of Z-AAT protein folding, with the goal of enabling the secretion of functional AAT into the blood and addressing both the lung and the liver aspects of AATD. We continue to enroll and dose healthy volunteers in Phase 1 clinical trials evaluating VX-634 and VX-668, our next-wave investigational molecule AAT correctors with significantly improved potency and drug-like properties as compared to the first-generation AATD correctors.

Our Business Environment

In 2023, our net product revenues came from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our medicines, including through label expansions, expanded reimbursement, and the development of new medicines. We are advancing our pipeline of product candidates for the treatment of serious diseases outside of CF, including CASGEVY, which recently received marketing approvals in the U.S., the E.U., the U.K., Saudi Arabia, and Bahrain for the treatment of SCD and TDT. We anticipate broad access with government and commercial payors for CASGEVY in the U.S., and we anticipate early access programs initially, such as the recently approved early access program for TDT in France, and are pursuing long-term reimbursement agreements outside of the U.S.

Our strategy is to combine transformative advances in the understanding of causal human biology and the science of therapeutics to discover and develop innovative medicines. This approach includes advancing multiple compounds or therapies from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform selection of the most promising therapies for later-stage development, as well as to inform discovery and development efforts. We aim to rapidly follow our first-in-class therapies that achieve proof-of-concept with potential best-in-class candidates to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Across the industry, most potential drug or biological products never progress into development, and most products that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our product 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 rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to

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manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require additional investments in different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

In the U.S., we have worked successfully with third-party payors to promptly obtain appropriate levels of reimbursement for our CF medicines and are currently working with U.S. government and commercial payors with respect to CASGEVY. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that our therapies provide and provide patients with appropriate levels of access to our medicines and therapies now and in the future. We cannot, however, predict how recent changes in the law, including through the Inflation Reduction Act of 2022 and passage of state laws (e.g., transparency laws and prescription drug affordability boards), will affect our ability to negotiate successfully with third-party payors and distribute our products. Similarly, in ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We are beginning to work with ex-U.S. payors with respect to CASGEVY. We expect to continue to focus significant resources to expand and maintain reimbursement for our CF medicines, CASGEVY and, ultimately, pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire technologies, products, product candidates and other businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. We have engaged in a number of acquisitions of privately held biotechnology companies over the last several years. In 2019, we acquired Semma Therapeutics, Inc., pursuant to which we established our T1D program, and Exonics Therapeutics, Inc., which enhanced our gene-editing capabilities to repair mutations that cause severe neuromuscular diseases, such as DM1 and Duchenne muscular dystrophy. In 2022, we acquired ViaCyte, Inc. (“ViaCyte”), which had intellectual property, tools, technologies and assets with the potential to accelerate development of our T1D programs. Our acquisition of ViaCyte, for $315.0 million, was accounted for as a business combination. As of the acquisition date, the cash payment was allocated primarily to goodwill and the fair value of an in-process research and development asset.

In 2023 and 2022, we also acquired programs that were accounted for as asset acquisitions resulting in $47.5 million and $60.0 million of AIPR&D, respectively.

Please refer to our critical accounting policies, “Acquisitions,” for further information regarding the significant judgments and estimates related to our acquisitions.

Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates, and other technologies that have the potential to complement our ongoing research and development efforts.

Over the last several years, we entered into collaboration agreements with a number of companies, including CRISPR, Entrada, and Moderna, Inc. Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as AIPR&D, including, in 2023, our total payments of $242.6 million to Entrada and our total upfront and milestone payments of $170.0 million to CRISPR related to T1D, because they are primarily attributable to acquired in-process research and development for which there is no

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alternative future use. However, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

Joint Development and Commercialization Agreement with CRISPR

In 2017, we entered into a joint development and commercialization agreement (the “Original JDCA”) with CRISPR, pursuant to which we are developing and commercializing CASGEVY for SCD and TDT. The Original JDCA was entered into following our exercise of an option to co-develop and co-commercialize the hemoglobinopathies program that was contained in a collaboration agreement that we entered into with CRISPR in 2015.

In April 2021, we and CRISPR entered into an amendment and restatement of the Original JDCA (the “A&R JDCA”). In June 2021, we made a $900.0 million upfront payment to CRISPR in connection with the closing of the transactions contemplated by the A&R JDCA. We concluded that we did not have any alternative future use for the acquired in-process research and development and recorded this upfront payment to AIPR&D. Under the terms of the A&R JDCA, we lead worldwide development, manufacturing, and commercialization of CASGEVY. As of July 1, 2021, 60% of the net profits and net losses for CASGEVY are allocated to us and 40% of the net profits and net losses for CASGEVY are allocated to CRISPR, subject to certain adjustments. We concluded that the Original JDCA and the A&R JDCA are cost-sharing arrangements, which result in the net impact of the arrangements, excluding amounts recorded to AIPR&D, being recorded in “Research and development expenses” or “Selling, general and administrative expenses.” in our consolidated statements of income.

CASGEVY was approved by the FDA in December 2023 for the treatment of SCD. Upon this approval, we made a $200.0 million milestone payment to CRISPR, which we recorded within “Other intangible assets, net” on our consolidated balance sheet as of December 31, 2023. We also recorded an immaterial amount of intangible asset amortization expense to “Cost of sales” in the fourth quarter of 2023 related to this intangible asset. Subsequent to receiving marketing approval for CASGEVY, we continue to lead the research and development activities under the A&R JDCA, subject to CRISPR’s reserved right to conduct certain activities. We are reimbursed by CRISPR for its 40% share of these research and development activities, subject to certain adjustments, and we continue to record this reimbursement from CRISPR within “Research and development expenses.” We also share with CRISPR 40% of the net commercial profits or losses incurred with respect to CASGEVY, subject to certain adjustments. In 2023, the net commercial loss incurred with respect to CASGEVY was not material to our consolidated statement of income.

Acquired In-Process Research and Development Expenses

In 2023 and 2022, our AIPR&D included $527.1 million and $115.5 million, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the collaborations, licenses of third-party technologies, and asset acquisitions described above. Please refer to Note B, “Collaboration, License and Other Arrangements,” for further information regarding our collaboration, in-license agreements and asset acquisitions.

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RESULTS OF OPERATIONS

Revenues

Product Revenues, Net

In 2023, our net product revenues increased by $938.5 million, or 11%, as compared to 2022. The increase was primarily due to the continued strong uptake of TRIKAFTA/KAFTRIO in ex-U.S. markets and label extensions in younger age groups, and the continued performance of TRIKAFTA in the U.S., following the launch of TRIKAFTA in children with CF 2 to 5 years of age. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO.

Our net product revenues from the U.S. and from ex-U.S. markets were as follows:

We expect that our CF net product revenues will increase in 2024 as a result of the continued performance of TRIKAFTA/KAFTRIO, label expansions into younger age groups for our previously approved products, and expanded access to our medicines. Starting in the fourth quarter of 2023, we have received approval for CASGEVY in the U.S., the E.U., the U.K., Saudi Arabia, and Bahrain for the treatment of SCD and TDT. We expect 2024 to be a foundational year for CASGEVY, as we lay the groundwork for the first patients to initiate this multi-month treatment.

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Operating Costs and Expenses

Beginning in 2022, we separately classify upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses,” in our consolidated statements of income in cases where such acquired assets do not have an alternative future use. To conform prior periods to our current presentation, we have reclassified $1.1 billion from “Research and development expenses” to AIPR&D for 2021.

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our products as well as the cost of producing inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation, our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with lower royalties on sales of TRIKAFTA/KAFTRIO than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 13% and 12% in 2023 and 2022, respectively. In 2024, we expect our total cost of sales, including as a percentage of our net product revenues, will increase due to expected increases in our CF net product revenues and costs associated with CASGEVY.

Research and Development Expenses

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

Over the past three years, we have incurred $9.4 billion in total research and development and AIPR&D expenses associated with product discovery and development. The successful development of our product 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 product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of

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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 product candidates to market are not available.

Any estimates regarding development and regulatory timelines for our product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses

Our research expenses have been increasing over the last several years as we have invested in our pipeline and expanded our cell and genetic therapy capabilities, resulting in increased headcount, outside services and other direct expenses, and infrastructure costs associated with our research facilities. We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

Our development expenses increased by $543.7 million, or 28%, in 2023 as compared to 2022, primarily due to increased costs to support clinical trials and drug supply associated with our advancing pipeline programs, including pain and T1D, and our stock-based compensation expense. We are investing significantly in headcount, leveraging outsourced services, and in infrastructure to support these programs. Our stock-based compensation expense increased in 2023 as compared to 2022, primarily due increased headcount eligible for our employee stock programs and the timing of expense recognition related to certain performance-based restricted stock units. We expect our development expenses to continue to increase in 2024 due to our advancing pipeline programs, including our T1D program.

Acquired In-process Research and Development Expenses

AIPR&D in 2023 was primarily related to our $225.1 million upfront payment to Entrada, $100.0 million upfront

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payment and $70.0 million T1D research milestone to CRISPR, $47.5 million acquisition of a novel GPCR program from Septerna, and various other payments. AIPR&D in 2022 was primarily related to the $60.0 million payment to acquire Catalyst’s complement portfolio, a $25.0 million upfront payment pursuant to our license agreement with Verve, and various other payments. Our AIPR&D has historically fluctuated, and is expected to continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our existing and future business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

AIPR&D in 2021 primarily related to the $900.0 million upfront payment we made to CRISPR in connection with the A&R JDCA.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 20% in 2023 as compared to 2022, primarily due to the continued investment to support the commercialization of our medicines, including increased commercial headcount, outsourced services to support our pipeline product candidates and stock-based compensation expense. We expect our selling, general and administrative expenses to continue to increase in 2024 as we progress our efforts in preparation for the potential commercialization of VX-548 and launch CASGEVY.

Contingent Consideration

In 2023, the fair value of our contingent consideration decreased by $51.6 million primarily due to our determination that additional pre-clinical studies of the delivery system for our gene-editing components for Duchenne muscular dystrophy (“DMD”) will be required. In 2022, the fair value of our contingent consideration decreased by $57.5 million, primarily as a result of a revision to the scope of certain gene-editing programs in the second quarter of 2022. In future periods, we expect the fair value of contingent consideration to increase or decrease based on, among other things, our estimates of the probability of achieving and the timing of these contingent development and regulatory milestone payments, as well as the time value of money and changes in market interest rates.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income increased to $614.7 million in 2023, as compared to $144.6 million in 2022, primarily due to increased market interest rates and increased cash equivalents and available-for-sale debt securities. Our future interest income is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was $44.1 million in 2023, as compared to $54.8 million in 2022. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters in Boston.

Other Income (Expense), Net

Other income (expense), net was expenses of $22.8 million and $164.8 million in 2023 and 2022, respectively. These amounts related primarily to net unrealized gains or losses resulting from changes in the fair value or sales of certain of our strategic equity investments, which consist of investments in our collaborators that may be public or private companies. To the extent that we continue to hold strategic equity investments in publicly traded companies, we expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic equity investments. As of December 31, 2023, these investments had a fair value of $46.0 million. We discuss these potential future fluctuations further in Item 7a. Quantitative and Qualitative Disclosures About Market Risk.

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Income Taxes

Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions.

Our provision for income taxes was $760.2 million for 2023 and $910.4 million for 2022. Our effective tax rate of 17.4% for 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.

Our effective tax rate of 21.5% for 2022 was higher than the U.S. statutory rate primarily due to an increase in our uncertain tax positions associated with intercompany transfer pricing matters partially offset by excess tax benefits related to stock-based compensation, tax credits, and changes in our estimated prior-year tax liabilities.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of December 31, 2023 and 2022:

Working Capital

Our total working capital of $10.6 billion as of December 31, 2023 was similar to our total working capital of $10.5 billion as of December 31, 2022 primarily due to $3.8 billion of income from operations mostly offset by net purchases of long-term marketable securities of $2.4 billion, income tax payments and repurchases of our common stock of $427.6 million.

Cash Flows

Operating Activities

Cash provided by operating activities was $3.5 billion in 2023 as compared to $4.1 billion in 2022. The largest driver of

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the decrease in cash provided by operating activities in 2023 as compared to 2022 was an increase in cash paid for income taxes.

Investing Activities

Cash used in investing activities was $3.1 billion and $321.1 million in 2023 and 2022, respectively. In 2023, our investing activities primarily related to net purchases of available-for-sale debt securities of $2.9 billion. In 2022, our investing activities included a net payment of $295.9 million to acquire ViaCyte and $204.7 million in purchases of property and equipment, partially offset by net sales and maturities of available-for-sale debt securities of $227.3 million.

Financing Activities

Cash used in financing activities was $562.2 million and $67.7 million in 2023 and 2022, respectively. In 2023, our financing activities primarily related to repurchases of our common stock pursuant to our share repurchase program and payments related to our employee stock benefit plans. In 2022, the largest portions of our financing activities were payments related to our employee stock benefit plans and payments on finance leases.

Sources and Uses of Liquidity

As of December 31, 2023, we had current cash, cash equivalents, and marketable securities of $11.2 billion, which represented an increase of $439.8 million from $10.8 billion as of December 31, 2022. We intend to rely on our existing cash, cash equivalents and current marketable securities together with cash flows from product sales as our primary source of liquidity.

We expect that cash flows from our product sales together with our cash, cash equivalents and current 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 our future product sales, and the potential introduction of one or more of our other product candidates to the market, our business development activities and the number, breadth, cost and prospects of our research and development programs.

Credit Facilities & Financing Strategy

We may borrow up to a total of $500.0 million pursuant to a revolving credit facility that we entered into in July 2022 and could repay and reborrow amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the borrowing capacity be increased by an additional $500.0 million, for a total of $1.0 billion. Negative covenants in our credit agreement could prohibit or limit our ability to access this source of liquidity. As of December 31, 2023, the facility was undrawn, and we were in compliance with these covenants.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities, or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will 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.

Future Capital Requirements

We have significant future capital requirements, including:

•Expected operating expenses to conduct research and development activities, manufacture and commercialize our existing and future products, and to operate our organization.

•Cash that we pay for income taxes.

•Royalties we pay related to sales of our CF products.

•Facility, operating and finance lease obligations as described below.

•Firm purchase obligations related to our supply and manufacturing processes.

In addition, other potential significant future capital requirements may include:

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•We have entered into certain business development-related and strategic agreements with third parties that include the funding of certain research, development, manufacturing and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Other transactions include the potential for future lease-related expenses and other costs. Our obligation to fund these research and development and commercialization efforts and to pay these potential milestones, expenses and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause their discontinuance. We may enter into additional business development transactions and strategic agreements, including acquisitions, collaborations, licensing arrangements and equity investments, which require additional capital.

•To the extent we borrow amounts under our existing credit agreement, we would be required to repay any outstanding principal amounts in 2027.

•As of December 31, 2023, we had $2.6 billion remaining authorization available under our $3.0 billion Share Repurchase Program that our Board of Directors approved in February 2023. We expect to fund repurchases of our common stock through a combination of cash on hand and cash generated by operations. This program does not have an expiration date and can be discontinued at any time.

Additional information on several of our future capital requirements is provided below.

Research and Development Costs

At any point in time, we have several ongoing clinical trials at various stages of clinical development. Our clinical trial costs are dependent on, among other things, our research activities advancing to later-stage clinical development as well as the size, number, and length of our clinical trials.

Leases

Finance Leases

Our corporate headquarters is in two buildings that we lease at Fan Pier in Boston, Massachusetts. We commenced lease payments on these buildings in 2013 and the initial lease periods end in December 2028. We also lease office and laboratory space in San Diego, California. We commenced lease payments for this building in 2019 pursuant to an initial 16-year lease term. We account for each of these buildings as finance leases.

Operating Leases

We account for our remaining real estate leases as operating leases, including office and laboratory space at the Jeffrey Leiden Center for Cell and Genetic Therapies near our corporate headquarters. Base rent payments commenced in 2021 pursuant to an initial 15-year lease term for this building.

Our total future minimum lease payments for our finance and operating leases for each of the next five years and in total are included in Note L, “Leases.” The total future undiscounted minimum lease payments were $583.0 million and $436.1 million related to our finance and operating leases, respectively, as of December 31, 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. 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 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.

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

•revenue recognition;

•acquisitions, including intangible assets, goodwill and contingent consideration; and

•income taxes.

Our accounting policies, including the ones discussed below, are more fully described in Note A, “Nature of Business and Accounting Policies.”

Revenue Recognition

CF Product Revenues, Net

We generate CF product revenues from sales in the U.S. and in international markets. We sell our CF products principally to a limited number of specialty pharmacy and specialty distributors in the U.S., which account for the largest portion of our total revenues. Our customers in the U.S. subsequently resell our products to patients and health care providers. We contract with government agencies so that our products will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We make international sales primarily through distributor arrangements and to retail pharmacies, as well as to hospitals and clinics, many of which are government-owned or supported customers. We recognize net CF product revenues from sales of our products when our customers obtain control of our products, which typically occurs upon delivery to our customers. Revenues from our CF product sales are recorded at the net sales price, or transaction price, which requires us to make several significant estimates regarding the net sales price.

The most significant estimate we are required to make for our CF product revenues is related to government and private payor rebates, chargebacks, discounts and fees, collectively rebates. The values of the rebates provided to third-party payors per course of treatment vary significantly and are based on government-mandated discounts and our arrangements with other third-party payors. To estimate our total rebates, we estimate the percentage of prescriptions that will be covered by each third-party payor, which is referred to as the payor mix. We track available information regarding changes, if any, to the payor mix for our products, to our contractual terms with third-party payors and to applicable governmental programs and regulations and levels of our products in the distribution channel. We adjust our estimated rebates based upon new information as it becomes available, including information regarding actual rebates for our products. Claims by third-party payors for rebates are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known.

The following table summarizes activity related to our CF product revenue accruals for rebates for 2023, 2022 and 2021:

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We have also entered into annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive for our CF products. Upon exceeding the annual reimbursement amount provided by the customer’s contract with us, products are provided free of charge, which is a material right. If we estimate that the annual reimbursement amount under a contract will be exceeded for an annual period, we defer a portion of the consideration received, which includes upfront payments and fees, for shipments made up to the annual reimbursement limit as “Other current liabilities.” Once the annual reimbursement limit has been reached, we recognize the deferred amount as revenue when we ship the free products. To estimate the portion of the consideration received to be recognized as revenue and the portion of the amount to be deferred, we rely on our forecast of the number of units we will distribute during the applicable annual period in each international market in which our contracts with government-owned and supported customers limit the amount of annual reimbursement we can receive. Our forecasts are based on, among other things, our historical experience.

The preceding estimates and judgments materially affect our recognition of net CF product revenues. Changes in our estimates of net CF product revenues could have a material effect on net CF product revenues recorded in the period in which we determine that change occurs.

Acquisitions

As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. If we determine that substantially all the fair value associated with an acquisition is concentrated in a single asset, and the acquisition does not constitute a business, we account for it as an asset acquisition. For an asset acquisition involving rights to intellectual property related to in-process research and development that is not yet associated with a product that has achieved regulatory approval, we generally record our upfront payment to AIPR&D, because there is no alternative future use for the asset that was acquired. For example, we accounted for our A&R JDCA with CRISPR in 2021 as an asset acquisition of rights to in-process research and development for which we did not have any alternative future use and recorded the associated $900.0 million upfront payment to AIPR&D.

If the fair value that we acquired in an acquisition is distributed among more than one asset, and the acquisition constitutes a business, we account for it as a business combination.

We are required to make several significant judgments and estimates to calculate the purchase price for our business combinations and then allocate it to the assets that we have acquired and the liabilities that we have assumed on our consolidated balance sheet. The most significant judgments and estimates relate to the fair value of the in-process research and development assets and contingent consideration liabilities related to these business combinations. Based on these judgments and estimates, the fair value of the goodwill that we record as a result of these business combinations may be material.

In-process Research and Development Intangible Assets

As of each of December 31, 2023 and 2022, we had $603.6 million of in-process research and development assets on our consolidated balance sheet within “Other intangible assets, net.” Most recently, we recorded a $216.6 million in-process research and development intangible asset related to our acquisition of ViaCyte on our consolidated balance sheet in 2022. We characterize in-process research and development assets on our consolidated balance sheets as indefinite-lived intangible assets until either the project underlying it is completed or the asset becomes impaired and is subsequently written-off. We test our in-process research and development intangible assets for impairment on an annual basis, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. When we determine that an indefinite-lived intangible asset has become impaired or we abandon the associated research and development project, we write down the carrying value to its fair value and record an impairment charge in the period in which the impairment occurs. For example, we recorded a $13.0 million impairment of an in-process research and development intangible asset to “Research and development expenses” in 2022 due to a decision to revise the scope of certain acquired gene-editing programs. If one of our product candidates achieves regulatory approval, the in-process research and development intangible assets associated with the product candidate become finite-lived intangible assets as described below.

To determine the fair value of our in-process research and development assets, we have utilized either the multi-period excess earnings or the relief from royalty methods of the income approach. Each method requires us to estimate the probability of technical and regulatory success, revenue projections and growth rates, and appropriate discount and tax rates.

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The multi-period excess earnings method also requires us to estimate development and commercial costs. The relief from royalty method also requires us to estimate the after-tax royalty savings expected from ownership of the asset that we acquired.

Contingent Consideration

As of December 31, 2023 and 2022, we had $77.4 million and $129.0 million, respectively, of liabilities on our consolidated balance sheets attributable to the fair value of the contingent development and regulatory payments that we may owe to Exonics’ former equity holders upon the achievement of certain events associated with research programs focused on DMD and other severe neuromuscular diseases, including DM1.

We record an increase or a decrease in the fair value of the contingent consideration liabilities on our consolidated balance sheet and in our consolidated statement of income on a quarterly basis. We determine the fair value of our contingent consideration liabilities using a probability weighted discounted cash flow method of the income approach, which requires us to make estimates of the timing of regulatory and commercial milestone achievement and the corresponding estimated probability of technical and regulatory success rates. We use significant judgment in determining the appropriateness of these assumptions during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liabilities. Due to the early stage of Exonics’ programs, these significant assumptions could be affected by future economic and market conditions.

In November 2023, we determined that additional pre-clinical studies of the delivery system for our gene-editing components for DMD will be required. As a result, we revised our estimates regarding the timing of the development and regulatory milestones and the probability of achieving those milestones, which reduced the estimated fair value of our contingent consideration as of December 31, 2023.

Goodwill

As of December 31, 2023 and 2022, we had goodwill of $1.1 billion on our consolidated balance sheets. During 2023, we did not have any business combinations. In 2022, we recorded $85.8 million of goodwill on our consolidated balance sheet related to our acquisition of ViaCyte. Goodwill reflects the difference between the fair value of the consideration transferred and the fair value of the net assets acquired. Thus, the goodwill that we record is dependent on the significant judgments and estimates inherent in these fair values. We have one reporting unit for goodwill reporting purposes. We evaluate our goodwill for impairment on an annual basis, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We have not identified any goodwill impairment to date.

Finite-lived Intangible Assets

As of December 31, 2023, we had $236.3 million of finite-lived intangible assets on our consolidated balance sheet within “Other intangible assets, net.” These finite-lived intangible assets, which were recorded during 2023, relate to $208.0 million of CASGEVY regulatory approval milestones, including $200.0 million we paid to CRISPR pursuant to the A&R JDCA, and $30.0 million for a non-exclusive sublicense of developed technology related to CASGEVY.

We amortize our finite-lived intangible assets using the straight-line method within “Cost of sales” over the remaining estimated life of the assets beginning in the period in which regulatory approval is achieved or the assets are acquired and continuing through the period that we no longer have either exclusive rights to market the products associated with the assets or in-license rights to the intellectual property underlying the assets. We test finite-lived intangible assets for impairment if indicators are present or changes in circumstances suggest that the carrying value of an asset may not be recoverable. If we determine that the carrying value of a finite-lived intangible asset may not be recoverable, we compare the carrying value of the asset to the undiscounted cash flows that we expect the asset to generate. When we determine that a finite-lived intangible asset has become impaired, we write down the carrying value of the asset to its fair value and record an impairment charge in the period in which the impairment occurs.

Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. If our estimate of the tax effect of reversing temporary differences is (i) not reflective of actual outcomes, (ii) modified to reflect new

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developments or interpretations of the tax law, or (iii) revised to incorporate new accounting principles, or changes in the expected timing or manner of the reversal, our results of operations could be materially impacted.

We provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized. On a periodic basis, we reassess our valuation allowances on our deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Significant judgment is required in making these assessments to maintain or adjust our valuation allowances and, to the extent our future expectations change we would have to assess the recoverability of these deferred tax assets at that time. As of December 31, 2023, we maintained a valuation allowance of $266.6 million related primarily to U.S. state tax attributes.

We record liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We adjust our liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. We are subject to tax laws and audits in multiple jurisdictions and significant judgment is required in making this assessment. Consequently, we regularly re-evaluate uncertain tax positions and consider various factors, including changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, and changes in facts or circumstances related to a tax position. As of December 31, 2023, our liability for uncertain tax positions was $615.9 million.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note A, “Nature of Business and Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements and new accounting pronouncements adopted during 2023.

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

Our discussion and analysis of our financial condition and results of operations for 2022 as compared to 2021 are discussed below. For a discussion of our financial condition and results of operations for 2021 as compared to 2020, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K, except as set forth below.

OVERVIEW

We are a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases, with a focus on specialty markets. We have four approved medicines that treat the underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, and we continue to focus on developing additional treatments for CF. Beyond CF, we have a pipeline that includes mid- and late-stage clinical programs in sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, type 1 diabetes, and alpha-1 antitrypsin deficiency, and earlier-stage programs in diseases such as muscular dystrophies.

Our triple combination regimen, TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in 2019 in the United States (the “U.S.”) and in 2020 in the European Union (the “E.U.”). Collectively, our four medicines are being used by the majority of the approximately 88,000 people with CF in North America, Europe, and Australia. We are evaluating our medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for all people who have at least one mutation in their cystic fibrosis transmembrane conductance regulator (“CFTR”) gene that is response to our CFTR modulators. We also are pursuing genetic therapies for people with CF who do not make CFTR protein and, as a result, cannot benefit from our current CF medicines.

Financial Highlights

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Business Updates

Marketed Products

We expect to continue to grow our CF business by increasing the number of people with CF who are eligible and able to receive our medicines, including younger people, and providing improved treatment options for people who are already eligible for one of our medicines. Recent and anticipated progress in activities supporting these efforts is included below:

•The European Commission and the United Kingdom’s Medicines and Healthcare products Regulatory Agency (“MHRA”) granted marketing authorization for KAFTRIO for the treatment of children with CF 6 through 11 years of age who have at least one F508del mutation in the CFTR gene.

•The U.S. Food and Drug Administration (the “FDA”) approved the use of ORKAMBI in children with CF 12 months to less than 24 months of age who are homozygous for the F508del mutation in the CFTR gene.

•In the fourth quarter of 2022, we submitted global regulatory filings for TRIKAFTA/KAFTRIO in children with CF 2 to 5 years of age and for KALYDECO in children with CF from 1 month to less than 4 months of age.

•TRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in more than 30 countries outside the U.S.

Pipeline

We continue to advance a pipeline of potentially transformative small molecule and cell and genetic therapies aimed at treating serious diseases. Recent and anticipated progress in activities supporting these efforts is included below.

Cystic Fibrosis

•We are conducting two Phase 3 global, randomized, double-blind, active-controlled clinical trials, SKYLINE 102 and SKYLINE 103, evaluating our new once-daily investigational triple combination of vanzacaftor/tezacaftor/deutivacaftor, formerly known as VX-121/tezacaftor/VX-561, in people with CF 12 years of age and older, and have completed enrollment in these trials. We expect to complete these clinical trials by the end of 2023. We also have initiated a clinical trial of vanzacaftor/tezacaftor/deutivacaftor in children with CF 6 to 11 years of age, known as the RIDGELINE study.

•In collaboration with Moderna, we are developing VX-522, an mRNA therapeutic for the treatment of people with CF who do not produce any CFTR protein. In December 2022, the FDA cleared our Investigational New Drug Application (“IND”) for VX-522. We have initiated a single-ascending dose clinical trial for VX-522 in people with CF, which is active and enrolling patients. We expect to complete this single ascending dose clinical trial and initiate the multiple ascending dose clinical trial in 2023. The FDA has granted Fast Track designation for VX-522.

Sickle Cell Disease and Beta Thalassemia

•We are evaluating the use of a non-viral ex vivo CRISPR gene-editing therapy, exagamglogene autotemcel (“exa-cel”), formerly known as CTX001, for the treatment of sickle cell disease (“SCD”) and transfusion-dependent beta thalassemia (“TDT”).

•In the fourth quarter of 2022, we completed regulatory submissions to the European Medicines Agency (“EMA”) and the MHRA for exa-cel for SCD and TDT, and both the EMA and the MHRA have validated the marketing authorization application. Exa-cel has been granted EMA Priority Medicines (“PRIME”) designation in the E.U. and Orphan Drug designation in the E.U. and the United Kingdom (the “U.K.”).

•In November 2022, we initiated the submission of a biologics licensing application (“BLA”) for exa-cel for SCD and TDT for rolling review by the FDA, and expect to complete the submission by the end of the first quarter of 2023. In the U.S., exa-cel has been granted Fast Track, Regenerative Medicine Advanced Therapy, Rare Pediatric Disease, and Orphan Drug designations.

•Two additional Phase 3 clinical trials evaluating exa-cel in pediatric patients with SCD and TDT are ongoing.

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Pain

•We have discovered multiple selective small molecule inhibitors of NaV1.8, with the objective of creating a new class of pain medicines that provide effective non-opioid pain relief, without abuse potential. In March 2022, we announced positive Phase 2 data for VX-548, a NaV1.8 inhibitor, for treatment of acute pain. We have initiated two randomized, double-blind, placebo-controlled Phase 3 trials with a total of 2,000 patients with moderate to severe acute pain following bunionectomy or abdominoplasty surgery. The Phase 3 program for VX-548 also includes a single-arm study evaluating the safety and effectiveness of VX-548 in multiple other types of moderate to severe pain. We expect to complete these Phase 3 trials in late 2023 or early 2024.

•The FDA granted VX-548 Breakthrough Therapy and Fast Track designations for the treatment of moderate to severe acute pain.

•At the end of 2022, we initiated a Phase 2 clinical trial evaluating VX-548 in diabetic peripheral neuropathy, a common form of peripheral neuropathic pain.

APOL1-Mediated Kidney Disease

•Inaxaplin, formerly known as VX-147, is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”), including APOL1-mediated focal segmental glomerulosclerosis (“FSGS”). Based on positive Phase 2 data in FSGS, we initiated pivotal development of inaxaplin in a single Phase 2/3 adaptive clinical trial in patients with AMKD. We continue to enroll patients in this Phase 2/3 clinical trial and we expect to complete the Phase 2 dose-ranging portion of the trial in 2023.

•The FDA granted inaxaplin Breakthrough Therapy designation for APOL1-mediated FSGS and the EMA granted inaxaplin Orphan Drug and PRIME designations for AMKD.

Type 1 Diabetes

•VX-880 is a stem cell-derived, allogeneic, fully differentiated, insulin-producing islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. A clinical trial is ongoing to evaluate VX-880 as a potential treatment for type 1 diabetes (“T1D”), and proof-of-concept has been achieved. We have completed enrollment in Part B of the Phase 1/2 clinical trial and, after completion of Part B, we expect to begin Part C of the trial, with concurrent dosing, in 2023.

•We continue to advance additional programs in T1D, in which these same stem cell-derived, fully differentiated, insulin-producing islet cells are encapsulated and implanted in an immunoprotective device or are modified to produce hypoimmune cells with the goal of eliminating the need for immunosuppression. In December 2022, our Clinical Trial Application (“CTA”) in Canada for VX-264, the cells and device program, was authorized and we plan to begin screening, enrollment and dosing in Canada in the coming months. In the U.S., the IND is on hold.

Alpha-1 Antitrypsin Deficiency

•We are working to address the underlying genetic cause of alpha-1 antitrypsin (“AAT”) deficiency (“AATD”). We are developing novel small molecule correctors of Z-AAT protein folding, with the goal of enabling the secretion of functional AAT into the blood and addressing both the lung and the liver aspects of AATD. We have initiated a Phase 1 clinical trial for VX-634, which is the first in a series of next-wave investigational molecules with significantly improved potency and drug-like properties as compared to our previous AAT correctors, allowing potential exploration of the full dose response.

•We initiated a second Phase 2 clinical trial of VX-864, a first-generation AAT corrector, to assess the impact of longer-term treatment on the liver, as well as the levels of functional AAT in the plasma.

Duchenne Muscular Dystrophy

•We are investigating a novel approach to treating Duchenne muscular dystrophy (“DMD”), which delivers CRISPR/Cas9 gene-editing technology to muscle cells, with the goal of restoring near-full length dystrophin protein expression by targeting specific mutations in the dystrophin gene that cause the disease. We are conducting enabling studies for our first in vivo gene-editing therapy for DMD and we expect to submit an IND for this program in 2023.

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Investment in External Innovation

Recent investments in external innovation are included below.

•We acquired from Catalyst Biosciences, Inc. (“Catalyst”) a portfolio of protease medicines that target the complement system and related intellectual property.

•We acquired ViaCyte, Inc. (“ViaCyte”), a biotechnology company focused on delivering novel stem cell-derived cell replacement therapies as a potential functional cure for T1D. A Phase 1/2 clinical trial of VCTX-211, a hypoimmune cell program that we are developing in partnership with CRISPR Therapeutics AG (“CRISPR”), is active and enrolling patients.

•We established a strategic collaboration and licensing agreement with Entrada Therapeutics, Inc. (“Entrada”), focused on discovering and developing intracellular Endosomal Escape Vehicle (“EEV”) therapeutics for DM1 (the “Entrada Agreement”).

Our Business Environment

Our net product revenues come from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our medicines, including through label expansions, expanded reimbursement, and the development of new medicines. We are advancing our pipeline of product candidates for the treatment of serious diseases outside of CF. Our strategy is to combine transformative advances in the understanding of causal human biology and the science of therapeutics to discover and develop innovative medicines. This approach includes advancing multiple compounds from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform selection of the most promising compounds for later-stage development, and to inform discovery and development of additional compounds. We aim to rapidly follow our first-in-class therapies that achieve proof-of-concept with potential best-in-class candidates to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Across the industry, most potential drug or biological products never progress into development, and most products that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our product 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 rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require additional investments in different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We

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dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

In the U.S., we have worked successfully with third-party payors to promptly obtain appropriate levels of reimbursement for our CF medicines. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that our medicines provide and provide patients with appropriate levels of access to our medicines now and in the future. We cannot, however, predict how recent changes in the law, including through the Inflation Reduction Act of 2022, will affect our ability to negotiate successfully with third-party payors in the future. In ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We expect to continue to focus significant resources to obtain expanded reimbursement for our CF medicines and, ultimately, pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts.

In 2022, we acquired ViaCyte, a privately held biotechnology company with intellectual property, tools, technologies and assets with potential to accelerate development of our T1D programs, for $315.0 million; and acquired from Catalyst a portfolio of protease medicines that target the complement system and related intellectual property (the “Catalyst complement portfolio”) for $60.0 million. We expect to continue to identify and evaluate potential acquisitions and may include larger transactions or later-stage assets.

Our acquisition of ViaCyte was accounted for as a business combination. As of the acquisition date, the cash payment was allocated primarily to goodwill and the fair value of an in-process research and development asset. Operating expenses incurred by ViaCyte after the acquisition date and specific expenses associated with the acquisition are reflected in our consolidated statement of operations.

Our acquisition of the Catalyst complement portfolio was accounted for as an asset acquisition because substantially all the fair value acquired was concentrated in in-process research and development assets, which did not constitute a business, and for which we determined there was no alternative future use. As a result, we recorded our $60.0 million upfront payment to AIPR&D.

Please refer to our critical accounting policies, “Acquisitions,” for further information regarding the significant judgments and estimates related to our acquisitions.

Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates, and other technologies that have the potential to complement our ongoing research and development efforts.

Over the last several years, we entered into collaboration agreements with a number of companies, including Arbor Biotechnologies, Inc., CRISPR, Kymera Therapeutics, Inc., Mammoth Biosciences, Inc., Moderna, Inc., Obsidian Therapeutics, Inc., and Verve Therapeutics, Inc. Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as AIPR&D; however, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

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In addition, in the fourth quarter of 2022, we announced a strategic collaboration and licensing agreement (the “Entrada Agreement”) with Entrada focused on discovering and developing intracellular EEV therapeutics for DM1. In February 2023, the Entrada Agreement closed upon, among other things, the satisfaction of customary closing conditions and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Upon closing, we made an upfront payment of approximately $224.0 million to Entrada, and purchased approximately $26.0 million of Entrada’s common stock in connection with the Entrada Agreement. We will account for the Entrada Agreement in the first quarter of 2023.

Joint Development and Commercialization Agreement with CRISPR

In 2017, we entered into a joint development and commercialization agreement (the “Original JDCA”) with CRISPR, pursuant to which we are developing and preparing to commercialize exa-cel for SCD and TDT. The Original JDCA was entered into following our exercise of an option to co-develop and co-commercialize the hemoglobinopathies program that was contained in a collaboration agreement that we entered into with CRISPR in 2015.

In April 2021, we and CRISPR entered into an amendment and restatement of the Original JDCA (the “A&R JDCA”). In June 2021, we made a $900.0 million upfront payment to CRISPR in connection with the closing of the transactions contemplated by the A&R JDCA. We concluded that we did not have any alternative future use for the acquired in-process research and development and recorded this upfront payment to AIPR&D. Under the terms of the A&R JDCA, we are leading worldwide development, manufacturing, and commercialization of exa-cel. As of July 1, 2021, 60% of the net profits and net losses for exa-cel are allocated to us and 40% of the net profits and net losses for exa-cel are allocated to CRISPR, subject to certain adjustments. CRISPR may earn an additional one-time $200.0 million milestone payment upon regulatory approval of exa-cel. We concluded that the Original JDCA and the A&R JDCA are cost-sharing arrangements, which result in the net impact of the arrangements, excluding amounts recorded to AIPR&D, being recorded in “Research and development expenses” in our consolidated statements of operations.

Acquired In-Process Research and Development

In 2022 and 2021, our AIPR&D included $115.5 million and $1.1 billion, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the collaborations, licenses of third-party technologies, and asset acquisitions described above.

Out-License Agreements

We also have out-licensed internally developed programs to collaborators who are leading the development of these programs. Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development, and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative and royalty revenues resulting from these programs. None of our out-license agreements had a significant impact on our consolidated statements of operations during 2022 and 2021.

Please refer to Note B, “Acquired In-Process Research and Development and Other Arrangements,” for further information regarding our in-license agreements and out-license agreements.

Strategic Investments

In connection with our business development activities, we have periodically made equity investments in our collaborators. As of December 31, 2022, we held strategic equity investments in certain public and private companies, and we expect to make additional strategic equity investments in the future. While we invest the majority of our cash, cash equivalents, and marketable securities in instruments that meet specific credit quality standards and limit our exposure to any one issue or type of instrument, our strategic investments are maintained and managed separately from our other cash, cash equivalents, and marketable securities. As discussed below in “Other Income (Expense), Net” in our Results of Operations, any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities) are recorded to other income (expense), net in our consolidated statements of operations.

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RESULTS OF OPERATIONS

Revenues

Product Revenues, Net

In 2022, our net product revenues increased by $1.4 billion, or 18%, as compared to 2021 primarily due to the launches of TRIKAFTA/ KAFTRIO in multiple countries internationally and the continued performance of TRIKAFTA in the U.S., following the June 2021 launch of TRIKAFTA for children with CF 6 through 11 years of age. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO.

Our net product revenues from the U.S. and from ex-U.S. markets were as follows:

We expect that our net product revenues will increase in 2023 as a result of the continued performance of TRIKAFTA/KAFTRIO, label expansions into younger age groups for our previously approved products, and expanded access to our medicines.

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Operating Costs and Expenses

Beginning in 2022, we separately classify upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses,” in our consolidated statements of operations in cases where such acquired assets do not have an alternative future use. To conform prior periods to our current presentation, we have reclassified $1.1 billion and $184.6 million from “Research and development expenses” to AIPR&D for 2021 and 2020, respectively.

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our products as well as the cost of producing inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation, our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with royalties on sales of TRIKAFTA/KAFTRIO lower than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 12% in each of 2022 and 2021. In 2023, we expect our total cost of sales will increase due to expected increases in our net product revenues and our cost of sales as a percentage of our net product revenues will be similar to our cost of sales as a percentage of net product revenues in 2022 and 2021.

Research and Development Expenses

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

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Over the past three years, we have incurred $7.5 billion in total research and development and AIPR&D expenses associated with product discovery and development. The successful development of our product 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 product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our product candidates to market are not available.

Any estimates regarding development and regulatory timelines for our product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses

Our research expenses have been increasing over the last several years as we have invested in our pipeline and expanded our cell and genetic therapy capabilities, resulting in increased headcount and infrastructure costs associated with our research facilities. We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

Our development expenses increased by $488.1 million, or 34%, in 2022 as compared to 2021, primarily due to increased costs to support clinical trials associated with our advancing pipeline programs, including our CF triple combination of vanzacaftor/tezacaftor/deutivacaftor, pain and T1D. We are investing in both our internal headcount, leveraging outsourced services, and investing in infrastructure to support these programs. We expect our development expenses to continue to increase in 2023 as a result of our advancing pipeline programs, including our pain and T1D programs. In 2022 and 2021, costs related to our CF programs represented the largest portion of our development costs.

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Acquired In-process Research and Development Expenses

AIPR&D in 2022 was primarily related to a $60.0 million payment to acquire the Catalyst complement portfolio, a $25.0 million upfront payment pursuant to our license agreement with Verve, and various other payments. AIPR&D in 2021 included the $900.0 million upfront payment to CRISPR, a $60.0 million option payment to ApoLo1 Bio, LLC to buy-out all future milestone and royalty payments, and upfront payments of $31.0 million and $25.0 million to Mammoth Biosciences, Inc. and Arbor Biotechnologies, Inc., respectively. Our AIPR&D has historically fluctuated, and is expected to continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our existing and future business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 12% in 2022 as compared to 2021, primarily due to the continued investment to support the commercialization of our medicines and increased support for our pipeline product candidates. We expect our selling, general and administrative expenses to continue to increase in 2023 as we progress our efforts in preparation for the commercialization of exa-cel.

Contingent Consideration

The fair value of our contingent consideration decreased by $57.5 million in 2022, primarily as a result of a revision to the scope of certain gene-editing programs in the second quarter of 2022. The fair value of contingent consideration decreased by $3.1 million in 2021. In future periods, we expect the fair value of contingent consideration to increase or decrease based on, among other things, our estimates of the probability of achieving and the timing of these contingent development and regulatory milestone payments, as well as the time value of money and changes in market interest rates.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income increased to $144.6 million in 2022, as compared to $4.9 million in 2021, primarily due to increased market interest rates and increased cash equivalents and available-for-sale debt securities. Our future interest income is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was $54.8 million in 2022 as compared to $61.5 million in 2021. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters in Boston.

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Other Income (Expense), Net

Other income (expense), net was expense of $164.8 million in 2022 and income of $4.9 million in 2021. The vast majority of these amounts relate to net unrealized gains or losses resulting from changes in the fair value and sales of certain of our strategic investments. As of December 31, 2022, the fair value of our investments in publicly traded companies was $116.8 million. To the extent that we continue to hold strategic investments in publicly traded companies, we will record other income (expense) related to these investments on a quarterly basis. We expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic investments.

Income Taxes

Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions.

Our provision for income taxes was $910.4 million for 2022 and $388.3 million for 2021. Our effective tax rate of 21.5% for 2022 was higher than the U.S. statutory rate primarily due to an increase in our unrecognized tax benefit liabilities associated with intercompany transfer pricing matters partially offset by excess tax benefits related to stock-based compensation, tax credits, and changes in our estimated prior-year tax liabilities.

Our effective tax rate of 14.2% for 2021 was lower than the U.S. statutory rate primarily due to discrete tax benefits of (i) $94.8 million associated with an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in June 2021 and will become effective in April 2023, and (ii) $44.1 million resulting from an R&D tax credit study that we completed in 2021.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of December 31, 2022 and 2021:

Working Capital

As of December 31, 2022, total working capital was $10.5 billion, which represented an increase of $3.1 billion from $7.4 billion as of December 31, 2021. The increase in total working capital in 2022 was primarily related to $4.1 billion of cash provided by operations driven by increased product revenues, partially offset by our $295.9 million net payment to acquire ViaCyte and purchases of property and equipment.

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Cash Flows

Operating Activities

Cash provided by operating activities was $4.1 billion in 2022 as compared to $2.6 billion in 2021 primarily due to a $979.9 million increase in net income resulting from increased product revenues, the $900.0 million upfront payment to CRISPR paid in 2021, and an increase in product revenue accruals, partially offset by higher income tax payments.

Investing Activities

Cash used in investing activities was $321.1 million and $340.9 million in 2022 and 2021, respectively. In 2022, our investing activities included a net payment of $295.9 million to acquire ViaCyte and $204.7 million in purchases of property and equipment, partially offset by net sales and maturities of available-for-sale debt securities of $227.3 million. Our investing activities in 2021 primarily related to purchases of property and equipment, and, to a lesser extent, purchases of notes receivable and strategic investments.

Financing Activities

Cash used in financing activities was $67.7 million and $1.5 billion in 2022 and 2021, respectively. In 2022, the largest portion of our financing activities were payments related to our employee stock benefit plans and payments on finance leases. In 2021, the largest portion of our financing activities was $1.4 billion of share repurchases pursuant to our share repurchase programs.

Sources and Uses of Liquidity

As of December 31, 2022, we had cash, cash equivalents, and marketable securities of $10.8 billion, which represented an increase of $3.3 billion from $7.5 billion as of December 31, 2021. We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity.

We expect that cash flows from our products 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 our products, and the potential introduction of one or more of our other product candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.

Credit Facilities & Financing Strategy

We may borrow up to a total of $500.0 million pursuant to a revolving credit facility that we entered into in July 2022 and could repay and reborrow amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the borrowing capacity be increased by an additional $500.0 million, for a total of $1.0 billion. Negative covenants in our credit agreement could prohibit or limit our ability to access this source of liquidity. As of December 31, 2022, the facility was undrawn, and we were in compliance with these covenants.

In July 2022, in conjunction with entering into our new credit agreement, we terminated the $500.0 million credit agreement we entered into in 2019. In September 2022, a $2.0 billion credit agreement we entered into in 2020 expired in accordance with its terms.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities, or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will consider all financing opportunities, whenever they may occur, that could strengthen

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our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

Future Capital Requirements

We have significant future capital requirements, including:

•Expected operating expenses to conduct research and development activities, manufacture and commercialize our existing and future products, and to operate our organization.

•Facility and finance lease obligations as described below.

•Royalties we pay to the Cystic Fibrosis Foundation on sales of our CF products.

•Cash paid for income taxes.

In addition, we have significant potential future capital requirements including:

•We have entered into certain business development-related agreements with third parties that include the funding of certain research, development, and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Our obligation to fund these research and development and commercialization efforts and to pay these potential milestone and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs associated with our collaborations, licensing arrangements and acquisitions. We may enter into additional business development transactions, including acquisitions, collaborations, licensing arrangements and equity investments, that require additional capital.

•To the extent we borrow amounts under our existing credit agreement, we would be required to repay any outstanding principal amounts in 2027.

•In February 2023, our Board of Directors approved a share repurchase program, pursuant to which we are authorized to repurchase up to $3.0 billion of our common stock. The share repurchase program does not have an expiration date and can be discontinued at any time.

Additional information on several of our future capital requirements is provided below.

Research and Development Costs

At any point in time, we have several ongoing clinical trials at various stages of clinical development. Our clinical trial costs are dependent on, among other things, our research activities advancing to later-stage clinical development as well as the size, number, and length of our clinical trials.

Leases

Finance Leases

Our corporate headquarters is in two buildings that we lease at Fan Pier in Boston, Massachusetts. We commenced lease payments on these buildings in 2013 and the initial lease periods end in December 2028. We also lease office and laboratory space in San Diego, California. We commenced lease payments for this building in 2019 pursuant to an initial 16-year lease term. We account for each of these buildings as finance leases.

Operating Leases

We account for our remaining real estate leases as operating leases, including office and laboratory space at the Jeffrey Leiden Center for Cell and Genetic Therapies near our corporate headquarters. Base rent payments commenced in 2021 pursuant to an initial 15-year lease term for this building.

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Our total future minimum lease payments for our finance and operating leases for each of the next five years and in total are included in Note M, “Leases.” The total future undiscounted minimum lease payments were $666.3 million and $491.3 million related to our finance and operating leases, respectively, as of December 31, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. 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 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.

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

•revenue recognition;

•acquisitions, including intangible assets, goodwill and contingent consideration; and

•income taxes.

Our accounting policies, including the ones discussed below, are more fully described in Note A, “Nature of Business and Accounting Policies.”

Revenue Recognition

Product Revenues, Net

We generate product revenues from sales in the U.S. and in international markets. We sell our products principally to a limited number of specialty pharmacy and specialty distributors in the U.S., which account for the largest portion of our total revenues. We make international sales primarily through distributor arrangements and to retail pharmacies or pharmacy chains, as well as to hospitals and clinics, many of which are government-owned or supported customers. Our customers in the U.S. subsequently resell our products to patients and health care providers. We contract with government agencies so that our products will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We recognize net product revenues from sales of our products when our customers obtain control of our products, which typically occurs upon delivery to our customers. Revenues from our product sales are recorded at the net sales price, or transaction price, which requires us to make several significant estimates regarding the net sales price.

The most significant estimate we are required to make is related to government and private payor rebates, chargebacks, discounts and fees, collectively rebates. The values of the rebates provided to third-party payors per course of treatment vary significantly and are based on government-mandated discounts and our arrangements with other third-party payors. To estimate our total rebates, we estimate the percentage of prescriptions that will be covered by each third-party payor, which is referred to as the payor mix. We track available information regarding changes, if any, to the payor mix for our products, to our contractual terms with third-party payors and to applicable governmental programs and regulations and levels of our products in the distribution channel. We adjust our estimated rebates based upon new information as it becomes available, including information regarding actual rebates for our products. Claims by third-party payors for rebates are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. Our credits to revenue related to prior period sales have not been significant (typically less than 1% of gross product revenues) and primarily related to U.S. rebates.

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The following table summarizes activity related to our accruals for rebates for 2022, 2021 and 2020:

We have also entered into annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right. We defer a portion of the consideration received, which includes upfront payments and fees, for shipments made up to the annual reimbursement limit as “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. To estimate the portion of the consideration received to be recognized as revenue and the portion of the amount to be deferred, we rely on our forecast of the number of units we will distribute during the applicable annual period in each international market in which our contracts with government-owned and supported customers limit the amount of annual reimbursement we can receive. Our forecasts are based on, among other things, our historical experience.

The preceding estimates and judgments materially affect our recognition of net product revenues. Changes in our estimates of net product revenues could have a material effect on net product revenues recorded in the period in which we determine that change occurs.

Acquisitions

As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. If we determine that substantially all the fair value that we acquire in an acquisition is concentrated in a single asset, and the acquisition does not constitute a business, we account for it as an asset acquisition. For an asset acquisition of intellectual property that has not yet achieved regulatory approval, we record our upfront payment to AIPR&D, as long as we determine there is no alternative future use for the asset that was acquired.

If the fair value that we acquired in an acquisition is distributed among more than one asset, and the acquisition constitutes a business, we account for it as a business combination.

We are required to make several significant judgments and estimates to calculate the purchase price for our business combinations and then allocate it to the assets that we have acquired and the liabilities that we have assumed on our consolidated balance sheet. The most significant judgments and estimates relate to the fair value of the in-process research and development assets and contingent consideration liabilities related to these business combinations. Based on these judgments and estimates, the fair value of the goodwill that we record as a result of these business combinations may be material. Once recorded, these assets are subject to quarterly impairment analysis and our contingent consideration liabilities are adjusted quarterly, which requires similar judgments and estimates.

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Intangible Assets

In 2022, we recorded a $216.6 million in-process research and development intangible asset related to our acquisition of ViaCyte on our consolidated balance sheet. We also recorded a $13.0 million impairment of an in-process research and development intangible asset to “Research and development expenses,” due to a decision to revise the scope of certain acquired gene-editing programs. As of December 31, 2022, we had $603.6 million of in-process research and development assets on our consolidated balance sheet. Each of these assets is accounted for as an indefinite-lived intangible asset and reflected on our consolidated balance sheets until either the project underlying it is completed or the asset becomes impaired. Our in-process research and development intangible assets are tested for impairment on an annual basis, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. When we determine that an asset has become impaired or we abandon a project, we write down the carrying value of the related intangible asset to its fair value and record an impairment charge in the period in which the impairment occurs.

To determine the fair value of our in-process research and development assets, we have utilized either the multi-period excess earnings or the relief from royalty methods of the income approach. Each method requires us to estimate the probability of technical and regulatory success, revenue projections and growth rates, and appropriate discount and tax rates. The multi-period excess earnings method also requires us to estimate development and commercial costs. The relief from royalty method also requires us to estimate the after-tax royalty savings expected from ownership of the asset that we acquired.

Contingent Consideration

As of December 31, 2022 and 2021, we had $129.0 million and $186.5 million, respectively, of liabilities on our consolidated balance sheets attributable to the fair value of the contingent development and regulatory payments that we may owe to Exonics’ former equity holders upon the achievement of certain events. The decrease in fair value of contingent consideration during 2022 was primarily due to a revision to the scope of certain acquired gene-editing programs.

We record an increase or a decrease in the fair value of the contingent consideration liabilities on our consolidated balance sheet and in our consolidated statement of operations on a quarterly basis. We determine the fair value of our contingent consideration liabilities using a probability weighted discounted cash flow method of the income approach, which requires us to make estimates of the timing of regulatory and commercial milestone achievement and the corresponding estimated probability of technical and regulatory success rates. Significant judgment is used in determining the appropriateness of these assumptions during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liabilities. Due to the early stage of Exonics’ programs, these significant assumptions could be affected by future economic and market conditions.

Goodwill

As of December 31, 2022 and 2021, we had goodwill of $1.1 billion and $1.0 billion, respectively, on our consolidated balance sheets. In 2022, we recorded $85.8 million of goodwill on our consolidated balance sheet related to our acquisition of ViaCyte. In 2021, we did not have any business combinations; therefore, we did not record any additional goodwill. Goodwill reflects the difference between the fair value of the consideration transferred and the fair value of the net assets acquired. Thus, the goodwill that we record is dependent on the significant judgments and estimates inherent in the fair value of our in-process research and development assets and contingent consideration liabilities. We have one reporting unit for goodwill reporting purposes. We evaluate our goodwill for impairment on an annual basis, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We have not identified any goodwill impairment to date.

Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. If our estimate of the tax effect of reversing temporary differences is (i) not reflective of actual outcomes, (ii) modified to reflect new developments or interpretations of the tax law, or (iii) revised to incorporate new accounting principles, or changes in the expected timing or manner of the reversal, our results of operations could be materially impacted.

We provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized. On a

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periodic basis, we reassess our valuation allowances on our deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Significant judgment is required in making these assessments to maintain or reverse our valuation allowances and, to the extent our future expectations change we would have to assess the recoverability of these deferred tax assets at that time. As of December 31, 2022, we maintained a valuation allowance of $237.8 million related primarily to U.S. state tax attributes.

We record liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We adjust our liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. We are subject to tax laws and audits in multiple jurisdictions and significant judgment is required in making this assessment. Consequently, we regularly re-evaluate uncertain tax positions and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, and changes in facts or circumstances related to a tax position. As of December 31, 2022, our liability for uncertain tax positions was $459.6 million.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note A, “Nature of Business and Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements and new accounting pronouncements adopted during 2022.

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

Our discussion and analysis of our financial condition and results of operations for 2021 as compared to 2020 are discussed below. For a discussion of our financial condition and results of operations for 2020 as compared to 2019, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K, except as set forth below.

OVERVIEW

We invest in scientific innovation to create transformative medicines for people with serious diseases with a focus on specialty markets. We have four approved medicines to treat cystic fibrosis, or CF, a life-threatening genetic disease, and are focused on increasing the number of people with CF eligible and able to receive our medicines through label expansions, approval of new medicines and expanded reimbursement. We are broadening our pipeline into additional disease areas through internal research efforts and accessing external innovation through business development transactions.

Our triple combination regimen, TRIKAFTA/KAFTRIO was approved in 2019 in the United States, or U.S., and in 2020 in the European Union, or E.U. Collectively, our four medicines are being used by the majority of the approximately 83,000 people with CF in North America, Europe and Australia. We are evaluating our medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for approximately 90% of people with CF.

We continue to research and develop product candidates for the treatment of serious diseases, including genetic therapies to address the remaining approximately 10% of people with CF, sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, type 1 diabetes, pain, alpha-1 antitrypsin deficiency, Duchenne muscular dystrophy, and myotonic dystrophy type 1.

Financial Highlights

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Business Updates

Marketed Products

We expect to continue to grow our CF business by increasing the number of people with CF eligible and able to receive our medicines and providing improved treatment options for people who are already eligible for one of our medicines. Since the beginning of 2021, we have made significant progress in activities supporting these efforts.

•The U.S. Food and Drug Administration, or the FDA, approved the use of TRIKAFTA for children with CF 6 through 11 years of age who have at least one F508del mutation or at least one mutation that is responsive to TRIKAFTA.

•In January 2022, the European Commission and the U.K.’s Medicines and Healthcare products Regulatory Agency granted marketing authorization for KAFTRIO in the treatment of children with CF 6 through 11 years of age who have at least one F508del mutation in the CFTR gene.

•TRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in more than 20 countries outside the U.S.

•Our Phase 3 clinical trial evaluating ORKAMBI for the treatment of children with CF 12 through 24 months of age met its primary endpoint. Based on these data, we plan to submit regulatory filings in the U.S. and Europe in the first and second quarters of 2022, respectively.

Pipeline

We continue to advance a pipeline of potentially transformative small molecule, and cell and genetic therapies aimed at treating serious diseases. Since the beginning of 2021, we have made important progress in activities supporting these programs.

Cystic Fibrosis

•In the third quarter of 2021, we announced the initiation of Phase 3 clinical trials evaluating a once-daily investigational triple combination of VX-121/tezacaftor/VX-561 (deutivacaftor). Enrollment is underway in these two Phase 3 clinical trials, and we expect to complete enrollment in both trials by late 2022 or early 2023.

•We are conducting enabling studies for CF messenger ribonucleic acid, or mRNA, therapeutics designed to treat the underlying cause of CF by enabling cells in the lungs to produce functional CFTR protein for the treatment of the approximately 10% of people with CF who do not produce any CFTR protein. We expect to submit an Investigational New Drug Application, or IND, for this program in 2022.

Sickle Cell Disease and Beta Thalassemia

•We are evaluating the use of a non-viral ex vivo CRISPR gene-editing therapy, CTX001, for the treatment of severe sickle cell disease, or SCD, and transfusion-dependent beta thalassemia, or TDT. Enrollment is complete in the ongoing clinical trials evaluating CTX001 in severe SCD and TDT.

•Data presented to date support the profile of CTX001 as a potential one-time functional cure for people with severe SCD and TDT. CTX001 safety data to date is generally consistent with an autologous stem cell transplant and myeloablative conditioning. We anticipate regulatory submissions of CTX001 in late 2022.

APOL1-Mediated Kidney Disease

•In December 2021, we announced that patients with APOL1-mediated focal segmental glomerulosclerosis, or FSGS, treated with VX-147, a small molecule inhibitor of APOL1 function, on top of standard of care achieved a statistically significant, substantial and clinically meaningful reduction of proteinuria in a Phase 2 proof-of-concept clinical trial. We anticipate completing our end of Phase 2 meetings with regulators and advancing VX-147 into pivotal development in people with APOL1-mediated kidney disease, or AMKD, including APOL1-mediated FSGS, in the first quarter of 2022.

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Type 1 Diabetes

•VX-880 is a stem cell-derived, allogeneic, fully differentiated, insulin-secreting islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. Our Phase 1/2 clinical trial evaluating VX-880 as a potential treatment for type 1 diabetes, or T1D, is ongoing at multiple clinical sites in the U.S. In January 2022, we announced positive Day 150 data for the first T1D patient in this clinical trial, including restoration of islet cell function and rapid improvements in multiple measures. In this first patient, the safety of VX-880 was generally consistent with the immunosuppressive regimen used in this study. We will continue to dose patients in 2022.

•We also are pursuing additional programs in T1D, in which these stem cell-derived, fully differentiated, insulin-secreting islet cells are encapsulated and implanted in an immunoprotective device or modified to produce hypoimmune cells. We are conducting IND-enabling studies for the cells and device program, and we expect to submit an Investigational New Drug Application, or IND, for this program in 2022.

Pain

•Two Phase 2 dose ranging acute pain clinical trials evaluating VX-548, a selective small molecule inhibitor of NaV1.8, are underway; one following bunionectomy surgery and the other following abdominoplasty surgery. We expect to obtain data from the clinical trials evaluating VX-548 in the first quarter of 2022.

Alpha-1 Antitrypsin, or AAT, Deficiency

•We plan to advance one or more novel small molecule Z-AAT correctors into the clinic in 2022.

Investments in External Innovation

•Pursuant to a collaboration with CRISPR that we amended in 2021, we now lead global development, manufacturing and commercialization of CTX001, with support from CRISPR.

•We entered into research collaborations with Obsidian Therapeutics, Inc., Arbor Biotechnologies, Inc., and Mammoth Biosciences, Inc.

Our Business Environment

Our net product revenues come from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our medicines, including through label expansions, expanded reimbursement, and the development of new medicines. We are actively pursuing a pipeline of product candidates for the treatment of serious diseases outside of CF. Our strategy is to combine transformative advances in the understanding of human disease biology and the science of therapeutics in order to discover and develop new medicines. This approach includes advancing multiple compounds from each program, spanning multiple modalities, into early clinical trials and evaluating patient data to inform discovery and development of additional compounds, with the goal of bringing first-in-class and best-in-class therapies to patients, and to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Most chemical compounds that are investigated as potential drug or biological product candidates never progress into development, and most product candidates that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our product 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 rapid changes in focus and priorities as new

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information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations, in the U.S. and ex-U.S. markets.

In the U.S., we have worked successfully with third-party payors in order to promptly obtain appropriate levels of reimbursement for our CF medicines. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that our medicines provide and provide patients with appropriate levels of access to our medicines now and in the future. In Europe and other ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We expect to continue to focus significant resources to obtain expanded reimbursement for our CF medicines and, ultimately, pipeline therapies in U.S. and ex-U.S. markets.

COVID-19

We continue to monitor the impacts of the COVID-19 global pandemic on our business, including in our clinical trials, manufacturing facilities and capabilities, and ability to access necessary resources. COVID-19 has not materially affected our supply chain or the demand for our medicines, and we believe that we will be able to continue to supply all of our approved medicines to patients globally. We adjusted our business operations in response to COVID-19 and have continued to monitor local COVID-19 trends and government guidance for each of our site locations. We are utilizing a site-specific approach to assess and permit employee access to our sites. Currently, our sites are open to certain employees where appropriate and permitted by local laws and guidelines.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. In 2019, we invested significantly in business development transactions designed to augment our pipeline, including the acquisition of Semma Therapeutics, Inc., or Semma, a privately-held company focused on the use of stem cell-derived human islets as a treatment for T1D, and Exonics Therapeutics, Inc., or Exonics, a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause Duchenne muscular dystrophy, or DMD, and other severe neuromuscular diseases, including myotonic dystrophy type 1, or DM1. In the Semma acquisition, we paid approximately $950.0 million in cash to Semma equity holders. In the Exonics acquisition, we paid approximately $245.0 million upfront to Exonics equity holders and agreed to additional payments based upon successful achievement of specified development and regulatory milestones. We expect to continue to identify and evaluate potential acquisitions and may include larger transactions or later-stage assets.

Both of our 2019 acquisitions were accounted for as business combinations. As of the acquisition date for each transaction, the cash payments, as well as the fair value of contingent consideration for Exonics, were allocated primarily to

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goodwill and the fair value of several in-process research and development assets that we acquired. The fair value of contingent consideration related to Exonics was recorded as a liability and continues to be adjusted on a quarterly basis. As a result, these acquisitions are primarily reflected in additional assets and liabilities on our consolidated balance sheet. Operating expenses incurred by Exonics and Semma after the acquisition dates and specific expenses associated with the acquisitions are reflected in our consolidated statement of operations.

Please refer to our critical accounting policies, “Acquisitions,” for further information regarding the significant judgments and estimates related to our acquisitions.

Collaboration and Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates, and other technologies that have the potential to complement our ongoing research and development efforts. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

In-License Agreements

We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license product candidates or technologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with a number of companies, including Arbor Biotechnologies, Inc., CRISPR, Kymera Therapeutics, Inc., Mammoth Biosciences, Inc., Moderna, Inc., and Obsidian Therapeutics, Inc. Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program, and/or agree to make contingent payments, which could consist of milestone, royalty, and option payments. Most of these collaboration payments are expensed as research and development expenses; however, depending on many factors, including the structure of the collaboration, the significance of the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. Our research and development expenses included $1.1 billion in 2021, $184.6 million in 2020 and $318.3 million in 2019 related to upfront, milestone and other payments pursuant to our collaboration agreements and other business development agreements. The increase in these payments in 2021 was primarily related to the $900.0 million upfront payment we made to CRISPR that is described below.

Joint Development and Commercialization Agreement with CRISPR

In 2017, we entered into a joint development and commercialization agreement, or the Original JDCA, with CRISPR pursuant to which we are developing and preparing to commercialize CTX001 for TDT and SCD. The Original JDCA was entered into following our exercise of an option to co-develop and co-commercialize the hemoglobinopathies program that was contained in a collaboration agreement that we entered into with CRISPR in 2015.

In April 2021, we and CRISPR entered into an amendment and restatement of the Original JDCA, or the A&R JDCA. In June 2021, we made a $900.0 million upfront payment to CRISPR in connection with the closing of the transactions contemplated by the A&R JDCA. We concluded that we did not have any alternative future use for the acquired in-process research and development and recorded this upfront payment to “Research and development expenses.” Under the terms of the A&R JDCA, we are leading worldwide development, manufacturing, and commercialization of CTX001. As of July 1, 2021, 60% of the net profits and net losses for CTX001 are allocated to us and 40% of the net profits and net losses for CTX001 are allocated to CRISPR. CRISPR may earn an additional one-time $200.0 million milestone payment upon regulatory approval of CTX001. We concluded that the Original JDCA and the A&R JDCA are cost-sharing arrangements, which result in the net impact of the arrangements being recorded in “Research and development expenses” in our consolidated statements of operations.

Out-License Agreements

We also have out-licensed internally-developed programs to collaborators who are leading the development of these programs. These out-license arrangements include our agreement with Merck KGaA, Darmstadt, Germany, which licensed oncology research and development programs from us in early 2017. Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development, and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant

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expenses in connection with these programs and have the potential for future collaborative and royalty revenues resulting from these programs.

Please refer to Note B, “Collaborative and Other Arrangements,” for further information regarding our in-license agreements and out-license agreements.

Strategic Investments

In connection with our business development activities, we have periodically made equity investments in our collaborators. As of December 31, 2021, we held strategic equity investments in certain public and private companies, and we expect to make additional strategic equity investments in the future. While we invest the majority of our cash, cash equivalents, and marketable securities in instruments that meet specific credit quality standards and limit our exposure to any one issue or type of instrument, our strategic investments are maintained and managed separately from our other cash, cash equivalents, and marketable securities. As discussed below in “Other Income (Expense), Net” in our Results of Operations, any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities) are recorded to other income (expense), net in our consolidated statement of operations.

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RESULTS OF OPERATIONS

Revenues

Product Revenues, Net

In 2021, our net product revenues increased by $1.4 billion, or 22%, as compared to 2020 primarily due to the launch of KAFTRIO in multiple countries internationally, which was approved in the E.U. in the third quarter of 2020, and the performance of TRIKAFTA in the U.S., including the launch of TRIKAFTA in June 2021 for children with CF 6 through 11 years of age. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO.

Our net product revenues from the U.S. and from ex-U.S. markets were as follows:

We expect that our net product revenues will increase in 2022 due to increasing numbers of people being treated with our medicines. The increase is expected to result from continued performance of KAFTRIO outside the U.S. and TRIKAFTA in the U.S., label expansions for our previously approved products, and expanded access to our medicines.

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Other Revenues

Our other revenues were $1.0 million and $2.9 million in 2021 and 2020, respectively, related to collaborative milestones that we earned. Our other revenues have historically fluctuated significantly from one period to another based on our collaborative out-license activities, and may continue to fluctuate in the future.

Operating Costs and Expenses

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our products as well as the cost of producing inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation, our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with royalties on sales of TRIKAFTA/KAFTRIO slightly lower than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 12% in each of 2021 and 2020. In 2022, we expect our total cost of sales will increase due to expected increases in our net product revenues and our cost of sales as a percentage of our net product revenues will be similar to our cost of sales as a percentage of net product revenues in 2021 and 2020.

Research and Development Expenses

Our research and development expenses include internal and external costs incurred for research and development of our products and product candidates and expenses related to certain technologies that we acquire or license through business development transactions. We do not assign our internal costs, such as salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses and infrastructure costs, to individual products or product candidates, because the employees within our research and development groups typically are deployed across multiple research and development programs. We assign external costs of services provided to us by clinical research organizations and other outsourced research by individual program. Apart from upfront, milestone, and other payments related to our business development activities, our internal costs are significantly greater than our external costs. All research and development costs for our products and product candidates are expensed as incurred.

Over the past three years, we have incurred $6.6 billion in research and development expenses associated with product discovery and development. The successful development of our product 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 product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical

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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 product candidates to market are not available. Any estimates regarding development and regulatory timelines for our product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses

We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases. Our research expenses have historically fluctuated, and are expected to continue to fluctuate, from one period to another due to upfront, milestone and certain other payments related to our business development activities that are reflected in the preceding table as collaborative payments. Our research expenses, apart from these collaborative payments, have been increasing over the last several years as we have invested in our pipeline and expanded our cell and genetic therapy capabilities.

Development Expenses

In 2021 and 2020, costs related to our CF programs represented the largest portion of our development costs, apart from the $900.0 million upfront payment to CRISPR in 2021, which is included in the preceding table under collaborative payments. Our development expenses increased by $1.2 billion, or 104%, in 2021 as compared to 2020, primarily due to the payment to CRISPR and increased expenses related to our diversifying pipeline, including clinical trials, headcount, and infrastructure costs. We expect our development expenses, apart from payments related to our business development activities, to continue to increase in 2022 as a result of our diversifying pipeline.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 9% in 2021 as compared to 2020, primarily due to the continued investment to support the commercialization of our medicines and increased support for our pipeline products. We expect our selling, general and administrative expenses to continue to increase in 2022.

Contingent Consideration

The change in the fair value of our contingent consideration potentially payable to Exonics’ former equity holders was a $3.1 million decrease in 2021 and a $13.1 million increase in 2020. In future periods, we expect the fair value of contingent consideration to increase or decrease based on, among other things, our estimates of the probability of achieving and the timing of these contingent development and regulatory milestone payments, as well as the time value of money and changes in market interest rates.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income was $4.9 million in 2021, which was lower than our interest income of $22.2 million in 2020, due to a decrease in prevailing market interest rates, despite an increase in our cash equivalents and available-for-sale debt securities. Our future interest income will be dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was $61.5 million in 2021 as compared to $58.2 million in 2020. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters in Boston.

Other Income (Expense), Net

In 2021 and 2020, we recorded net other income of $4.9 million and $296.6 million, respectively, primarily related to net gains of $17.1 million and $311.9 million in 2021 and 2020, respectively, resulting from changes in the fair value and sales of certain of our strategic investments. As of December 31, 2021, the fair value of our investments in publicly traded companies was $230.9 million. To the extent that we continue to hold strategic investments, particularly strategic investments in publicly traded companies, we will record other income (expense) related to these strategic investments on a quarterly basis. We expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic investments.

Income Taxes

Our provision for income taxes was $388.3 million for 2021 and $405.2 million for 2020. Our effective tax rate of 14% for 2021 was lower than the U.S. statutory rate primarily due to discrete tax benefits of (i) $94.8 million associated with an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in June 2021 and will become effective in April 2023, and (ii) $44.1 million resulting from an R&D tax credit study that we completed in 2021.

Our effective tax rate of 13% for 2020 was lower than the U.S. statutory rate primarily due to (i) a discrete tax benefit of $209.0 million associated with the transfer of intellectual property rights to the U.K., (ii) a discrete tax benefit associated with the write-off of a long-term intercompany receivable, (iii) a discrete tax benefit associated with an increase in the U.K.’s corporate tax rate from 17% to 19%, which was enacted and became effective in July 2020, and (iv) excess tax benefits related to stock-based compensation. The impact of these items was partially offset by U.S. income tax on foreign earnings.

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Net Income

In summary, our net income decreased to $2.3 billion in 2021 as compared to $2.7 billion in 2020 primarily due to (i) our $900.0 million upfront payment to CRISPR in 2021 and (ii) less other income derived from changes in the fair value of our strategic investments in 2021 as compared to 2020, (iii) partially offset by increased operating income in 2021, apart from the payment to CRISPR, resulting from our product revenues.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of December 31, 2021 and 2020:

Working Capital

As of December 31, 2021, total working capital was $7.4 billion, which represented an increase of $1.2 billion from $6.3 billion as of December 31, 2020. The increase in total working capital in 2021 was primarily related to $2.6 billion of cash provided by operations, which was net of our $900.0 million payment to CRISPR, partially offset by $1.4 billion of cash used to repurchase our common stock pursuant to our share repurchase programs and purchases of property and equipment of $235.0 million.

Sources and Uses of Liquidity

As of December 31, 2021, we had cash, cash equivalents, and marketable securities of $7.5 billion, which represented an increase of $866.0 million from $6.7 billion as of December 31, 2020. We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity.

We expect that cash flows from our products 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 our products, and the potential introduction of one or more of our other product candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.

Credit Facilities & Financing Strategy

We may borrow up to a total of $2.5 billion pursuant to two revolving credit facilities. We may repay and reborrow amounts under these revolving credit agreements without penalty. Subject to certain conditions, we may request that the borrowing capacity for each of the credit agreements be increased by an additional $500.0 million, for a total of $3.5 billion collectively. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity. As of December 31, 2021, we were in compliance with these covenants.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will 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.

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Cash Flows