Vertex Pharmaceuticals (VRTX) Risk Analysis

As of December 31, 2024, we had 256.9 million shares of common stock issued and outstanding. As of December 31, 2024, we also had 2.7 million unvested restricted stock units ("RSUs"), 0.9 million unvested performance stock units ("PSUs") at target, and outstanding options to purchase 1.6 million shares of common stock with a weighted-average exercise price of $156.36 per share. The majority of our unvested RSUs are likely to vest based on our employees' continued employment. The number of PSUs that vest is dependent on a potential range of shares issuable pursuant to certain financial and non-financial milestones, and our employees' continued employment. Outstanding vested options are likely to be exercised if the market price of our common stock exceeds the applicable exercise price. In addition, we may issue additional common stock or restricted securities in the future as part of financing activities or business development activities and any such issuances may have a dilutive effect on our then-existing shareholders. Sales of substantial amounts of our common stock in the open market, or the availability of such shares for sale, could adversely affect the price of our common stock. The issuance of restricted common stock or common stock upon exercise of any outstanding options would be dilutive, and may cause the market price for a share of our common stock to decline.

In February 2023, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase up to $3.0 billion of our common stock from time to time through open market or privately negotiated transactions, of which $1.6 billion has been repurchased as of December 31, 2024. Our stock repurchases will depend upon, among other factors, market conditions, our cash balances and potential future capital requirements, results of operations, financial condition, and other factors that we may deem relevant. We can provide no assurance that we will repurchase stock at favorable prices, if at all.

To achieve our long-term business objectives, we seek to license or acquire products, product candidates and other technologies that have the potential to complement our ongoing research and development efforts, access emerging technologies and license or acquire pipeline assets. These transactions may be similar to prior transactions, may be structured differently than prior transactions, or may involve larger transactions or later-stage assets. We have faced and will continue to face significant competition for the acquisition of rights to these types of products, product candidates and other technologies from a variety of other companies, some of which have significantly more financial resources and experience in business development activities than we have. In addition, investors and non-profit organizations may be willing to provide capital to the companies that control additional products, product candidates or technologies, which may provide incentives for companies to advance these products, product candidates or technologies independently. Also, the cost of acquiring, in-licensing or otherwise obtaining rights to such products, product candidates or other technologies has grown dramatically in recent years and may be at levels that we cannot afford or that we believe are not justified by market potential. As a result, we may not be able to acquire, in-license or otherwise obtain rights to additional products, product candidates or other technologies on acceptable terms or at all.

Effectively integrating acquired businesses, technologies and exclusive licenses is challenging. We may not realize the benefits anticipated from our external innovation transactions, including the value of Alpine's pipeline and candidates, which could adversely affect our business and financial condition. Achieving the anticipated benefits of any transaction and successfully integrating acquired businesses or technologies, including Alpine, involves a number of risks, including: - failure to successfully develop and commercialize the acquired products, product candidates or technologies or to achieve other strategic objectives;- delays or inability to progress preclinical programs into clinical development or unfavorable data from clinical trials evaluating the acquired or licensed product or product candidates;- difficulty in integrating the products, product candidates, technologies, business operations and personnel of an acquired asset or company;- disruption of our ongoing business and distraction of our management and employees from daily operations or other opportunities and challenges;- the potential loss of key employees of an acquired company;- entry into markets in which we have no or limited direct prior experience or where competitors in such markets have stronger market positions;- potential failure of the due diligence processes to identify significant problems, liabilities or challenges of an acquired company, or acquired or licensed products, product candidate or technology, including problems, liabilities or challenges with respect to intellectual property, clinical or non-clinical data, safety, accounting practices, employee, or third-party relations and other known and unknown liabilities;- liability for activities of the acquired company or licensor before the acquisition or license, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;- exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of an acquisition or license, including claims from terminated employees, customers, former equity holders or other third parties; and - difficulties in the integration of the acquired company's departments, systems, including accounting, human resource and other administrative systems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies. Acquisitions, licensing arrangements and other strategic transactions are inherently risky, and ultimately, if we do not complete an announced acquisition, collaboration or strategic transaction or integrate an acquired or licensed asset, business or technology successfully and in a timely manner, we may not realize the anticipated benefits of the strategic transaction. We may later incur impairment charges related to assets acquired in any such transaction. Moreover, relatively small changes in key assumptions and judgements may result in the recognition of significant intangible asset impairment charges, which could have a material adverse impact on our results of operations. Even if we achieve the long-term benefits associated with our strategic transactions, our expenses and short-term costs may increase materially and adversely affect our liquidity and short-term net income. Future strategic transactions could result in increased operating expenses, potentially dilutive issuances of equity securities, the incurrence of debt, the creation of contingent liabilities, impairment expenses related to goodwill, or impairment or amortization expenses related to other intangible assets, all of which could harm our financial condition.

We cannot predict whether or not we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from our completed or ongoing clinical trials. Among the factors that could delay our development programs are: - ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials and the number of clinical trials we must conduct;- failure or delay in reaching agreement on acceptable terms with prospective contract research organizations ("CROs") and clinical trial sites;- failure to add or delay in adding a sufficient number of clinical trial sites and obtaining institutional review board or independent ethics committee approval at each clinical trial site;- suspension or termination of clinical trials of product candidates for various reasons, including non-compliance with regulatory requirements;- clinical trial sites deviating from clinical trial protocol or dropping out of a clinical trial;- delays in enrolling volunteers or patients into clinical trials, including as a result of low numbers of patients that meet the eligibility criteria for the trial;- a lower than anticipated retention rate of volunteers or patients in clinical trials;- the need to repeat clinical trials as a result of unfavorable or inconclusive results, unforeseen complications in testing or clinical investigator error;- inadequate supply or deficient quality of product candidate materials or other materials necessary for the conduct of our clinical trials;- unfavorable FDA or foreign regulatory authority inspection and review of a manufacturing facility that supplied clinical trial materials or its relevant manufacturing records or a clinical trial site or records of any clinical or preclinical investigation;- unfavorable or inconclusive scientific results from clinical trials;- serious and unexpected treatment-related side-effects experienced by participants in our clinical trials or by participants in clinical trials being conducted by our competitors to evaluate product candidates with similar mechanisms of action or structures to therapies that we are developing;- favorable results in testing of our competitors' product candidates, or FDA or foreign regulatory authority approval of our competitors' product candidates; or - action by the FDA or a foreign regulatory authority to place a clinical hold or partial clinical hold on a trial or compound or deeming the clinical trial conduct as problematic. For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory, and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and the credibility of our estimates may be adversely affected and, as a result, our stock price may decline.

Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis is subject to a number of factors. Clinical trials are expensive and require significant operational resources. Delays in patient enrollment or unforeseen drop-out rates may result in increased costs and longer development times. The enrollment of patients further depends on many factors, including: - the proximity of patients to clinical trial sites;- the size of the patient population, the nature of the protocol, and the design of the clinical trial;- our ability to recruit clinical trial investigators with the appropriate competencies and experience;- the number of other clinical trials ongoing and competing for patients in the same indication;- our ability to obtain and maintain patient consents;- reporting of the preliminary results of any of our clinical trials;- the availability of effective treatments for the relevant disease and eligibility criteria for the clinical trial;- the risk that patients enrolled in clinical trials will drop out of the clinical trials before clinical trial completion; and - factors we may not be able to control, such as pandemics that may limit patients, principal investigators or staff or clinical site availability. We, our collaborators, the FDA, or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time if we or they believe the healthy volunteers or patients participating in such clinical trials are being exposed to unacceptable health risks or for other reasons. Any such suspension could materially adversely affect the development of a particular product candidate and our business.

For cell and genetic therapy programs addressing rare genetic diseases with small patient populations, we may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical studies in an adequate and timely manner. Additionally, patients may be unwilling to participate in our clinical trials because of concerns that cell and genetic therapies are unsafe or unethical, negative publicity from adverse safety events in the biotechnology or gene therapy industries, or for other reasons, including competitive clinical studies for similar patient populations. Moreover, adverse developments in clinical trials conducted by others of cell and genetic therapy products or products created using similar technology, or adverse public perception of the field of cell and genetic therapies, may cause the FDA and other regulatory bodies to revise the requirements for approval of any cell or genetic therapy product candidates we may develop or limit the use of products utilizing technologies such as ours, either of which could materially harm our business.

We invest significant resources in the research and development of therapies for serious diseases and conditions, including CF, SCD, TDT, acute and peripheral neuropathic pain, IgAN, AMKD, T1D, DM1, and ADPKD. Product development is highly uncertain and expensive. Product candidates that may appear promising in research and development may fail to reach commercial success for many reasons, including: - the failure to establish safety and efficacy through clinical trials;- the failure to obtain marketing approval for the product candidate;- the inability to manufacture the product candidate on economically feasible terms;- the failure to gain and maintain market acceptance among physicians and patients or other members of the medical community; and - the failure to obtain market acceptance or adequate reimbursement levels from third-party payors or foreign governments for such product. If we are not able to successfully develop and commercialize additional products our business could be materially harmed.

We believe that a portion of the value attributed to our company by investors is based on our approved and potential treatments for acute and peripheral neuropathic pain. JOURNAVX, which was approved in January 2025 for moderate-to-severe acute pain in adults, may not gain or maintain market acceptance among physicians and patients or other members of the medical community. In addition to the risks normally associated with launching a new branded product, JOURNAVX will need to compete, and obtain reimbursement from third-party payors, in an acute pain market that largely consists of low-cost generic drugs, including opioids, non-steroidal anti-inflammatory drugs, acetaminophen and local anesthetics. Similarly, if we are successful in developing and obtaining approval for suzetrigine in peripheral neuropathic pain, this product will face competition from generic anticonvulsant and antidepressant drugs. If we are not able to successfully develop and commercialize treatments for acute and peripheral neuropathic pain, our future net product revenues and cash flows will be adversely affected and our business could be materially harmed.

There is considerable uncertainty within our industry about the validity, scope, and enforceability of many issued patents in the U.S. and elsewhere in the world, and, to date, the law and practice remains in flux both in the agencies that grant patents and in the courts. We cannot currently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted as being infringed by the manufacture, use and sale of our products. There has been, and we expect that there may continue to be, significant litigation and other disputes in the pharmaceutical industry regarding patents and other intellectual property rights. Litigation, arbitrations, administrative proceedings, and other legal actions with private parties and governmental authorities concerning patents and other intellectual property rights may be protracted, expensive, and distracting to management. Competitors may sue us as a way of delaying the introduction of our products or to remove our products from the market. Any litigation, including litigation related to Abbreviated New Drug Applications ("ANDA"), litigation related to 505(b)(2) applications, interference proceedings to determine priority of inventions, derivations proceedings, inter partes review, oppositions to patents in foreign countries, litigation against our collaborators or similar actions, may be costly and time consuming and could harm our business. We expect that litigation may be necessary in some instances to determine the validity and scope of certain of our proprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Ultimately, the outcome of such litigation could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our consolidated financial statements. On July 22, 2022, we filed a lawsuit against Lupin in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 10,646,481 ("the '481 patent"), 8,883,206 ("the '206 patent"), 10,272,046 ("the '046 patent"), and 11,147,770 ("the '770 patent"). The lawsuit follows our receipt of a Notice Letter on June 9, 2022, advising that Lupin had submitted an ANDA to the FDA seeking approval to manufacture and market a generic version of KALYDECO granules in the U.S. The Notice Letter indicated that Lupin submitted a "Paragraph IV" certification to the FDA in which Lupin asserts that the '481 patent, the '206 patent, and the '046 patent are invalid or would not be infringed by Lupin's generic product. On February 28, 2023, U.S. Patent No. 11,564,916 ("the ‘916 patent") was listed in the Orange Book as covering KALYDECO granules. By letter dated April 25, 2023, Lupin notified us that it had amended its ANDA to include a Paragraph IV certification with respect to the '916 patent. On May 26, 2023, we filed a lawsuit against Lupin in the U.S. District Court for the District of Delaware alleging infringement of the '916 patent. On October 11, 2023, U.S. Patent No. 11,752,106 (the "'106 patent") was listed in the Orange Book as covering KALYDECO granules. By letter dated February 27, 2024, Lupin notified Vertex that it had amended its ANDA to include a Paragraph IV certification with respect to the ‘106 patent. On April 11, 2024, Vertex filed a lawsuit against Lupin in the U.S. District Court for the District of Delaware alleging infringement of the ‘106 patent. The Court subsequently entered a scheduling order, which consolidated the lawsuit asserting infringement of the ‘106 patent with the earlier filed lawsuits asserting infringement of the ‘481, ‘206, ‘046, ‘770, and ‘916 patents. A three-day trial is scheduled for September 15, 2025. Other than the '770 patent, which was listed in the Orange Book on April 14, 2022, Lupin does not appear to challenge our other U.S. patents covering KALYDECO granules, the last of which expires on August 5, 2027. Therefore, regardless of the outcome of the litigation, Lupin cannot receive final approval of its ANDA before that date. We intend to vigorously enforce our intellectual property rights relating to KALYDECO granules and the '481, '206, '046, '770, '916, and '106 patents. CRISPR has licensed certain rights to a worldwide patent portfolio that covers various aspects of the CRISPR/Cas9 editing platform technology including, for example, compositions of matter and methods of use in targeting or cutting DNA from Dr. Emmanuelle Charpentier, one of the named inventors of this patent portfolio. The patent portfolio also has named inventors who assigned their rights to the CVC Group. For example, in connection with their collaboration, Novartis and Intellia Therapeutics, Inc. have reportedly obtained a license to this patent portfolio in certain fields. Both the CVC Group and Broad have obtained granted patents that purport to cover aspects of CRISPR/Cas9 editing platform technology. Patents and patent applications in this patent portfolio have been the subject of numerous contentious proceedings in the U.S., Europe, and other jurisdictions, including interference proceedings in the USPTO between the CVC Group and (separately) Broad, Sigma-Aldrich and ToolGen. On February 28, 2021, the USPTO issued a decision in Interference No. 106, 115, concluding that Broad invented certain applications of CRISPR/Cas9 technology in eukaryotic cells before the CVC Group. The CVC Group has appealed the decision to the U.S. Court of Appeals for the Federal Circuit. If the decision is upheld on appeal (including a potential subsequent appeal to the Supreme Court), Broad would maintain its granted patents directed to those applications CRISPR/Cas9 technology in eukaryotic cells, and the CVC Group's pending patent applications directed to that subject matter would not proceed to grant. We can give no assurances to the ultimate outcome of these proceedings or the disputes between the CVC Group and Broad, Sigma-Aldrich and ToolGen. In December 2023, we entered into an agreement with Editas, providing us a non-exclusive sublicense to certain patents relating to CRISPR/Cas9 technology owned by Broad and Harvard, which are licensed to Editas. In addition to Broad, other third parties have filed patent applications claiming CRISPR/Cas9-related inventions and may allege that they invented one or more of the inventions claimed by the CVC Group. Thus, the USPTO may, in the future,declare an interference between certain CVC Group patent applications and one or more patent applications. Third parties could seek to assert their patents, if issued, against us based on our CRISPR/Cas9-based activities, including commercialization. Defense of these claims, regardless of their merit, could involve substantial litigation expense and could result in a substantial diversion of management and other employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. In that event, we could be unable to further develop and commercialize CASGEVY or other products that we may develop using the CRISPR/Cas9 technology we license from CRISPR. To the extent that valid present or future third-party patents or other intellectual property rights cover our products, product candidates or technologies, we or our strategic collaborators may seek licenses or other agreements from the holders of such rights to avoid or settle legal claims. Such licenses may not be available on acceptable terms, which may hinder our ability to, or prevent us from being able to, manufacture and market our products. Payments under any licenses that we are able to obtain would reduce our profits derived from the covered products.

We have invested significant resources in the development and commercialization of CASGEVY. While we have previously successfully commercialized several small molecule drugs, we have limited experience with the commercialization of cell and genetic therapies. Manufacturing and commercialization of CASGEVY is subject to similar risks and uncertainties as small molecules. In addition: - the manufacturing process for CASGEVY is more complex than the manufacturing processes for our small molecule medicines and we may encounter difficulties in the production of CASGEVY and ensuring that the product meets required specifications;- there are multiple steps along the CASGEVY patient treatment journey, many of which involve significant clinical complexities performed by third parties, including the collection of blood cells from patients, transfer of those cells to and from a manufacturing facility, and other procedures either before or after delivery of CASGEVY;- the commercial success of CASGEVY continues to depend in part on the medical community, patients, governments, and third-party or governmental payors accepting it as a medically useful, cost-effective, ethical, and safe, and providing adequate reimbursement; and - global market acceptance continues to be dependent in part on the prevalence and severity of side effects associated with the procedure by which CASGEVY is administered, including the prevalence and severity of any side effects resulting from the myeloablative preconditioning regime. In addition, there is actual and potential future competition for CASGEVY, including bluebird's SCD gene therapy, LYFGENIA™, and its TDT gene therapy, ZYNTEGLO™, which are both approved in the U.S. If competing therapies are commercialized, or developed and then commercialized, more successfully by other companies as a treatment for people with SCD or TDT, our future net product revenues and cash flows will be adversely affected and our business could be materially harmed If we are not successful in commercializing CASGEVY, our business could be materially harmed.

Sales of our products depend in part upon the availability of reimbursement from third-party payors. Third-party payors include government health programs such as Medicare and Medicaid in the U.S. and the national health care systems in ex-U.S. markets, managed care providers, private health insurers and other organizations. The trend in the health care industry is cost containment, and efforts of third-party payors to contain or reduce health care costs may adversely affect our ability to establish or maintain appropriate prices for our products or any drugs that we may develop and commercialize. In the U.S., there have been, and we expect that there will continue to be, a number of federal and state proposals to implement governmental controls that are similar to those that currently exist in Europe. For example, the Affordable Care Act ("ACA") required manufacturers of Medicare Part D brand name drugs to provide discounts on those drugs to Medicare Part D beneficiaries during the coverage gap; increased the rebates paid by pharmaceutical companies to state Medicaid programs on drugs covered by Medicaid; and imposed an annual fee, which increases annually, on sales by branded pharmaceutical manufacturers. Additionally, private payors, including health maintenance organizations and pharmacy benefit managers in the U.S., are adopting more aggressive utilization management techniques and are increasingly applying restrictive plan designs that can impact patients and manufacturers, and they continue to push for significant discounts and rebates from manufacturers. On August 16, 2022, the IRA was enacted. Among other things, the IRA establishes a Drug Price Negotiation Program, under which the government may negotiate maximum fair prices for certain drugs covered by Medicare that do not have generic or biosimilar competition. The first set of maximum fair prices will be effective in 2026. Certain products are excluded from the negotiation program including drugs that have a single orphan drug designation and that are not approved for any other orphan or non-orphan diseases or conditions. We cannot predict with certainty whether there will be future legislative changes to the scope of these exclusions or how they will affect future drugs that we may develop and commercialize. The law also requires manufacturers to pay a rebate to Medicare if the price of a Medicare drug (under both Part B and Part D) increases faster than the rate of inflation and redesigns the Part D benefit. Starting in 2025, manufacturers of brand drugs and biologics will be required to provide a 10% discount during the initial phase and a 20% discount during the catastrophic phase of the Part D benefit. The IRA continues a trend in the U.S. toward reducing drug prices and limiting spending by the federal health care programs on drugs. We expect that this law will affect our business once fully implemented, and it is possible that other legislative updates will have an adverse impact on our revenue. The IRA also requires the Secretary of the Department of Health and Human Services (the "Secretary") to issue program guidance on numerous areas associated with implementation of the law's requirements, including for drug price negotiation and inflation rebates. While CMS has issued guidance covering the first two years of the program (2026 and 2027), we do not know with certainty what guidance will apply in future years or how such guidance will affect our business. It is possible the U.S. Congress or administration may take further actions to address health care costs and access to medicine, and specifically address coverage and reimbursement of cell and gene therapies. For example, the Center for Medicare and Medicaid Innovation ("CMMI") was directed to consider new healthcare payment and delivery models that would lower drug costs and promote access to innovative drug therapies for Medicare and Medicaid beneficiaries. In February 2023, the U.S. Administration addressed access for cell and gene therapies in diseases such as SCD through the CMS program known as The Cell and Gene Therapy Access Model ("CGT Access Model"). The CGT Access Model was designed to provide an opportunity to accelerate and enhance broad Medicaid access for eligible patients across all 50 U.S. states by allowing state Medicaid agencies to delegate authority to CMS to coordinate and facilitate outcomes-based payment arrangements ("OBAs") with cell and gene therapy manufacturers, such as ours. In 2024, we reached an agreement with CMS to expand access by participating in the CGT Access Model for SCD to benefit Medicaid beneficiaries. States may begin participating in the Cell & Gene Therapy Access Model on a rolling-basis, between January 2025 and January 2026. In January 2025, President Trump repealed Executive Order 14087, which had directed CMS to consider innovative pricing models, ultimately leading to the CGT Access Model. The rescission currently does not appear to impact our agreement with CMS or CMS' authority to proceed with the CGT Access Model; however, any discontinuation of the CGT Access Model, or CMS' termination of our agreement to participate in the model in the future, could impact access to CASGEVY. Third-party payors throughout the world also have been attempting to control drug spending in light of global economic pressures. In reimbursement negotiations, many payors are requesting price discounts and caps on total expenditures and limiting both the types and variety of drugs that they will cover if they are not able to secure them. Some payors restrict reimbursement of drugs through implementing utilization management controls. As part of these negotiations, many ex-U.S. government payors also are requiring companies to establish product cost-effectiveness as a condition of reimbursement. These cost-effectiveness reviews may overlook many of the benefits provided by innovative medicines, and for the most part, have not taken into account the specific circumstances of products that treat rare diseases. This has led to conclusions that certain medicines, including our products in certain jurisdictions, are not cost-effective. As a result, certain countries have declined to reimburse, or delayed their reimbursement of, some of our products. Although not mandated in the U.S., various organizations have started advocating for cost-effectiveness analyses in the U.S. as well as value-based contracting in which the amount of reimbursement for a product is based on patient outcomes and other clinical or economic metrics related to the performance of such product. If U.S. payors were to adopt such assessments and make negative coverage determinations or utilize value-based contracts that result in penalties to, or lower rates of, reimbursement, it could adversely affect our product revenues. Our business would be materially adversely affected if we are not able to obtain or maintain coverage and reimbursement of our products from third-party payors on a broad, timely, or satisfactory basis, or if such coverage is subject to overly broad or restrictive utilization management controls. The increasing availability and use of innovative specialty pharmaceuticals for rare or other diseases or conditions, combined with their higher cost as compared to other types of pharmaceutical products, is generating significant third-party payor interest in developing cost-containment strategies targeted to this sector. Government regulations in both U.S. and ex-U.S. markets could further limit the prices that can be charged for our products, including for those with broader patient populations, and may limit our commercial opportunity. The increasing use of cost-effectiveness assessments in markets around the world and the financial challenges faced by many governments may lead to significant adverse effects on our business.

There also has been an increase in state legislation and regulations related to drug pricing and drug pricing transparency. In the U.S., various states, including Nevada, Maryland, Louisiana, New York, California, Washington, Massachusetts, New Jersey, Connecticut, Vermont, New Hampshire, Utah, Minnesota, Oregon, Colorado, New Mexico, Virginia, Maine, Texas, North Dakota, West Virginia, Florida, and New Jersey have passed legislation requiring companies to disclose extensive information relating to drug prices, drug price increases, and spending on research, development, and marketing, among other things. Although it is not always clear what states will do with the collected information, some laws were designed to obtain additional product discounts. Additionally, certain states have enacted laws establishing Prescription Drug Affordability Boards ("PDABs"). Some state PDABs either have the authority or have defined a pathway where they may be granted the authority to establish upper payment limits for prescription drugs, including Colorado, Maryland, Washington, and Minnesota. Under the Washington law, the PDAB cannot select for an affordability review drugs that are solely for the treatment of an orphan-designated disease or condition. In August 2023, the Colorado PDAB selected five drugs for an affordability review, including TRIKAFTA; later that year, it found TRIKAFTA to be not unaffordable, and thus not eligible for an upper payment limit. We cannot, however, predict whether future reviews by the Colorado PDAB, or any other PDAB, will come to the same conclusion about TRIKAFTA or any of our other therapies, or the amount of any potential upper payment limit. We may continue to see more state action requiring additional disclosures or other actions. In addition, we could see increased federal activity related to drug pricing and transparency requiring disclosures or other actions instead of, or in addition to, state requirements. Similar initiatives also are occurring in, or being considered by, some of our ex-U.S. markets, including Italy and Brazil. Additional state actions, including the importation of drugs from other countries, also may affect the availability and accessibility of our medicines. For example, on January 5, 2024, the FDA authorized Florida's Agency for Health Care Administration's drug importation program under section 804 of the Federal Food, Drug, and Cosmetic Act, which eventually would allow Florida to import certain prescription drugs from Canada. The importation of drugs from Canada or other countries that potentially could compete with our medicines could create increased pressure on our revenue and profitability. Complying with these laws can be expensive and requires significant personnel and operational resources. Furthermore, any additional required discounts would adversely affect the pricing of, and revenues from, our products. Finally, while we seek to comply with all statutory and regulatory requirements, we face increased enforcement activity by the U.S. federal government, state governments, and private payors against pharmaceutical and biotechnology companies for pricing and reimbursement-related issues as well as inquiries from the U.S. Congress. Other federal activities seeking to specifically address drug pricing and reimbursement include: - rulemaking related to importation of prescription drugs from Canada, as well as guidance related to importation of prescription drugs from other foreign countries;- attempts to establish reference pricing for certain physician-administered drugs;- executive orders relating to drug pricing that are intended to broadly impact the pharmaceutical industry;- changes to the federal anti-kickback statute safe harbors that eliminate anti-kickback statute discount safe harbor protection for certain manufacturer rebate arrangements; and - legislation relating to drug pricing, including enhanced transparency measures into drug pricing. We expect government scrutiny over drug pricing, reimbursement, and distribution to continue. Potential future government regulation of drug prices or reimbursement creates uncertainties about our portfolio and could have a material adverse effect on our operations. Moreover, antitrust and/or competition laws are increasingly being used to scrutinize pricing on high-value medicines and entities involved in drug distribution or reimbursement, including some with whom we do business. Defending against an antitrust or competition claim can be expensive and requires significant personnel and operational resources, may ultimately lead to a reduction in the prices of our products, and can ultimately result a material adverse effect on profitability and our business overall. Additionally, governmental efforts to pursue compulsory licensing, including the pursuit of so-called "march in" rights, could affect our pricing strategy and result in an adverse impact on our revenue.