ITEM 1.    BUSINESS

OVERVIEW

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

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

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

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

OUR STRATEGY

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

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

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

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

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

HCV INFECTION

Background: Effects and Prevalence of HCV Infection

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

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

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

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

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

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

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

HCV Drug Candidates

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

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

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

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

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

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CYSTIC FIBROSIS

Background: Effects and Prevalence of Cystic Fibrosis

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

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

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

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

KALYDECO (ivacaftor/VX-770)

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

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

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

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

CF Drug Candidates

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

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

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

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IMMUNE-MEDIATED INFLAMMATORY DISEASES

Background: Effects and Prevalence of Rheumatoid Arthritis

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

VX-509

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

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

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

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

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EPILEPSY

Background: Effects and Prevalence of Epilepsy

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

VX-765

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

INFLUENZA

Background: Effects and Prevalence of Influenza

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

VX-787

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

COMMERCIAL ORGANIZATION

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

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

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

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

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

RESEARCH

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

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

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

CORPORATE COLLABORATIONS

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

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Janssen Pharmaceutica, N.V.

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

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

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

Mitsubishi Tanabe Pharma Corporation

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

Cystic Fibrosis Foundation Therapeutics Incorporated

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

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

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

Alios BioPharma, Inc.

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

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

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

INTELLECTUAL PROPERTY

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

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

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

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

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

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

•

United States and foreign patents and patent applications covering telaprevir, VX-222 and other HCV protease and polymerase inhibitors and the use of these compounds to treat HCV infection.



•

United States and foreign patent applications licensed from Alios covering ALS-2200 and ALS-2158 and the use of these compounds to treat HCV infection.



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United States and foreign patent applications covering potentiator compounds and corrector compounds for the CFTR protein, including ivacaftor, VX-809 and VX-661 and many other related compounds, and the use of those potentiators and correctors to treat CF.



•

United States and foreign patents and patent applications covering inhibitors of a variety of kinase proteins, including VX-509, a JAK3 inhibitor, and the use of those inhibitors to treat rheumatoid arthritis.

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•

United States and foreign patents and patent applications covering ICE inhibitors, including VX-765, and the use of VX-765 to treat epilepsy.



•

United States and foreign patents and patent applications covering influenza virus inhibitors, including VX-787.



•

United States and foreign patent applications covering the manufacture, pharmaceutical compositions, related solid forms, formulations, dosing regimens and methods of use of these compounds, including our two marketed products telaprevir and ivacaftor.

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

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

MANUFACTURING

Manufacturing Approach and Philosophy

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

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

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

Manufacture of INCIVEK (telaprevir)

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

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

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

Manufacture of KALYDECO (ivacaftor)

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

COMPETITION

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

HCV Infection

Competitive Products

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

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

Development-stage Product Candidates

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

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

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

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

Cystic Fibrosis

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

GOVERNMENT REGULATION

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

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United States Government Regulation

New Drug Application Approval Processes

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

•

refusal to approve pending applications;



•

withdrawal of an approval;



•

imposition of a clinical hold;



•

warning letters;



•

product seizures;



•

total or partial suspension of production or distribution; or



•

injunctions, fines, disgorgement, or civil or criminal penalties.

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

•

completion of preclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLP, and other applicable regulations;



•

submission to the FDA of an investigational new drug, or IND, application, which must become effective before clinical trials in the United States may begin;



•

performance of adequate and well-controlled clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed drug for its intended use;



•

submission to the FDA of a New Drug Application, or NDA;



•

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product will be produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the product's identity, strength, quality and purity; and



•

FDA review and approval of the NDA.

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

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

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

•

Phase 1.   The drug initially is introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some drug candidates for severe or life-threatening diseases, such as cancer, especially when the drug candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.



•

Phase 2.   Clinical trials are initiated in a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the drug candidate for specific targeted diseases and to determine dosage tolerance and optimal dosage.



•

Phase 3.   Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the drug candidate and provide an adequate basis for regulatory approval and product labeling.

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

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

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

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

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

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

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

Expedited Review and Approval

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

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

Post-approval Requirements

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

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

•

record-keeping requirements;



•

reporting of adverse experiences with the product;



•

providing the FDA with updated safety and efficacy information;



•

drug sampling and distribution requirements;



•

notifying the FDA and gaining its approval of specified manufacturing or labeling changes;



•

complying with certain electronic records and signature requirements; and



•

complying with FDA promotion and advertising requirements.

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

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

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

Patent Term Restoration and Marketing Exclusivity

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

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

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

Pediatric Exclusivity

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

Foreign Regulation

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

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

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

Orphan Drug Designation

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

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

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

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

Reimbursement

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

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

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

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

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

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

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

Other United States Regulations

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

Anti-Kickback Laws

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

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

State and Federal Prohibitions on False Claims

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

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

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

Physician Payment Sunshine Act

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

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

EMPLOYEES

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

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OTHER MATTERS

Financial Information Regarding Geographic Areas

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

Information Available on the Internet

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

Corporate Information

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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