Vertex Pharmaceuticals · 10-Q · Item 2 MD&A

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a global biotechnology company that invests in scientific innovation to create transformative medicines for

people with serious diseases, with a focus on specialty markets. We have seven approved medicines: five that treat the

underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, one that treats severe sickle cell disease

(“SCD”) and transfusion dependent beta thalassemia (“TDT”), life shortening inherited blood disorders, and one that treats

moderate-to-severe acute pain. We are also preparing for the anticipated launch of povetacicept, a potential treatment for IgA

nephropathy (“IgAN”). Our clinical-stage pipeline spans a range of programs targeting CF, SCD, beta thalassemia,

neuropathic pain, type 1 diabetes, IgA nephropathy, primary membranous nephropathy and other autoimmune diseases and

cytopenias, APOL1-mediated kidney disease, autosomal dominant polycystic kidney disease and myotonic dystrophy type 1,

reflecting our commitment to addressing significant unmet medical needs globally.

Financial Highlights

Total Revenues

T1In the second quarter of 2026, our total revenues increased to $3.3 billion as compared to $3.0

billion in the second quarter of 2025, primarily due to continued performance of our CF therapies

and growth from diversification into additional disease areas.

Cost of Sales

Our cost of sales as a percentage of our net product revenues increased to 14.7% in the second

quarter of 2026 as compared to 13.8% in the second quarter of 2025, as a result of changes in

product mix, partially offset by a lower blended royalty rate for our CF medicines.

Total R&D, AIPR&D

and SG&A Expenses

Our total research and development (“R&D”), acquired in-process research and development

expenses (“AIPR&D”) and T2selling, general and administrative (“SG&A”) expenses increased to

$1.6 billion in the second quarter of 2026 as compared to $1.4 billion in the second quarter of

2025, primarily due to increased investment to commercialize our new products.

Cash

T3Our total cash, cash equivalents and marketable securities increased to $13.6 billion as of June 30,

2026 as compared to $12.3 billion as of December 31, 2025 primarily due to cash flows provided

by our operating activities, partially offset by repurchases of our common stock.

Note: Charts above may not add due to rounding.

Business Updates

Marketed Products

Cystic Fibrosis

We expect that the number of people with CF taking our medicines will continue to grow through new approvals and

reimbursement agreements, treatment of younger patients, increased survival and expansion into additional geographies.

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

•T4In the second quarter of 2026, we secured reimbursement for ALYFTREK in four additional countries, including

Spain, bringing the total number of countries where ALYFTREK is reimbursed to 25. We also signed a letter of

intent with the Pan-Canadian Pharmaceutical Alliance for reimbursement of ALYFTREK for eligible patients six

years of age and older in Canada.

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Sickle Cell Disease and Beta Thalassemia

•T5In the second quarter of 2026, we recorded $76.4 million of CASGEVY product revenues, representing a 78%

increase compared to the first quarter of 2026 and a 151% increase compared to the second quarter of 2025.

•The U.S. Food and Drug Administration (the “FDA”) approved CASGEVY in children two years of age and older

with SCD or TDT, making it the first genetic therapy indicated for children as young as two years of age for both

SCD and TDT. Approximately 5,500 patients with SCD or TDT may be eligible for treatment with CASGEVY for

the first time with this approval. We also completed regulatory submissions in the Kingdom of Saudi Arabia (“Saudi

Arabia”) and the United Kingdom for the treatment of children five to eleven years of age.

•In May, we secured reimbursement for CASGEVY for eligible patients 12 years and older with SCD or TDT in

Germany. We are committed to working with government and reimbursement authorities globally to ensure

sustainable access for eligible patients.

Acute Pain

•In the second quarter of 2026, we recorded $49.6 million of JOURNAVX product revenues, representing a 71%

increase compared to the first quarter of 2026 and a more than 300% increase compared to the second quarter of

•In the second quarter and first six months of 2026, approximately 535,000 and 900,000 prescriptions, respectively,

have been filled for JOURNAVX across the hospital and retail settings.

•We have reached agreements with two additional major pharmacy benefit managers for Medicare Part D coverage of

JOURNAVX. As a result, seniors covered by three of the four major Medicare Part D pharmacy benefit managers

have reimbursed access. Twenty-three states provide coverage for JOURNAVX via Medicaid. In total,

approximately 260 million individuals have reimbursed access to JOURNAVX across a wide range of commercial

and government payers.

Pipeline

We continue to advance a diversified pipeline of potentially transformative medicines for serious diseases utilizing a

range of modalities. Recent and anticipated progress in activities supporting these efforts is included below:

Cystic Fibrosis

•Following positive results from the Phase 3 clinical trial evaluating ALYFTREK in children with CF two to five

years of age, we initiated global regulatory submissions for this age group.

Acute and Peripheral Neuropathic Pain

•During the second quarter of 2026, Health Canada accepted our new drug submission for suzetrigine for the

treatment of moderate-to-severe acute pain, and review is underway.

•We expect to complete enrollment in both Phase 3 clinical trials evaluating suzetrigine in diabetic peripheral

neuropathy, a form of peripheral neuropathic pain, by the end of 2026.

IgA Nephropathy and Other B Cell-Mediated Diseases

•We are developing povetacicept, a dual inhibitor of B cell activating factor (“BAFF”) and a proliferation-inducing

ligand (“APRIL”) cytokines, for multiple diseases. Povetacicept represents a potentially best-in-class approach to

control B cell activity in IgAN.

•T6The FDA accepted our biologics license application for accelerated approval of povetacicept for adults with IgAN

and assigned a PDUFA target action date of November 30, 2026. If approved, povetacicept will become the first

commercialized therapy in our emerging nephrology franchise.

•We have completed our regulatory submission for accelerated approval of povetacicept in adults with IgAN in Saudi

Arabia, and the Saudi Food and Drug Authority has granted Breakthrough Designation to povetacicept.

•Povetacicept represents a potentially best-in-class approach to control B cell activity in primary membranous

nephropathy (“pMN”), another B cell-mediated disease. We completed the Phase 2B portion of the Phase 2/3

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OLYMPUS pivotal trial evaluating povetacicept in people with pMN, and we confirmed the dose selection for the

Phase 3 portion, which is underway.

APOL1-Mediated Kidney Disease

•Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”). We expect to

complete full enrollment in the AMPLITUDE Phase 2/3 pivotal clinical trial evaluating inaxaplin in the second half

•We expect to share data from the interim analysis of the AMPLITUDE clinical trial in early 2027. We expect to

conduct the pre-planned interim analysis for potential U.S. accelerated approval once the interim analysis cohort has

been treated for 48 weeks.

Type 1 Diabetes

•Zimislecel is an allogeneic, stem cell-derived, fully differentiated, insulin-producing islet cell replacement therapy,

using standard immunosuppression to protect the implanted cells. We are enrolling and dosing patients in the Phase

1/2/3 clinical trial of zimislecel in people with type 1 diabetes (“T1D”).

•The FDA cleared the Investigational New Drug Application for VX-017, our stem cell-derived, fully differentiated

islet cell therapy designed to treat all eligible patients with T1D, regardless of blood type. We plan to initiate a Phase

1/2 clinical trial to evaluate the safety and efficacy of VX-017 in people with T1D in the near term.

•We expect to provide updated timelines for the zimislecel and VX-017 programs in 2026.

Investment in External Innovation

•In July, we entered into an agreement and plan of merger (the “Crinetics Merger Agreement”) to acquire all of the

issued and outstanding shares of common stock of Crinetics Pharmaceuticals, Inc. (“Crinetics”) for $85.00 per share

in cash, for a total equity value of approximately $10.0 billion (the “Crinetics Acquisition”). We expect the

transaction to close in the third quarter of 2026, subject to certain customary conditions. Crinetics’ PALSONIFY®

(paltusotine) is a once-daily oral therapy for adults with acromegaly, a rare and debilitating condition caused by a

pituitary tumor that secretes excess growth hormone, who had an inadequate response to surgery and/or for whom

surgery is not an option. PALSONIFY is approved by the FDA and the European Medicines Agency, and is under

review by other global regulatory bodies. Crinetics’ most advanced pipeline candidate, atumelnant, is a once-daily

oral adrenocorticotropic hormone receptor antagonist in Phase 3 development for congenital adrenal hyperplasia.

Our Business Environment

In the first half of 2026, our total product revenues came primarily from the sale of our medicines for the treatment of

CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will

provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our

medicines. Outside of CF, we continue to advance the commercialization of CASGEVY for the treatment of SCD and TDT,

and JOURNAVX for the treatment of acute pain, and we are preparing for a potential launch of povetacicept for the treatment

of IgAN. In addition, we are advancing our pipeline of product candidates for the treatment of serious diseases outside of CF,

SCD, TDT and acute pain.

Our strategy is to combine transformative advances in the understanding of causal human biology and the science of

therapeutics to discover and develop innovative medicines. This approach includes advancing multiple compounds or

therapies from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform

selection of the most promising therapies for later-stage development, as well as to inform discovery and development

efforts. We aim to serially innovate in our disease areas of interest and follow our first-in-class therapies with potential best-

in-class candidates to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We

believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may

provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we

acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic

research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our

areas of therapeutic interest and to access technologies needed to execute on our strategy.

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Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires

significant financial resources along with extensive technical and regulatory expertise. Across the industry, most potential

drug or biological products never progress into development, and most products that advance into development never receive

marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor our research

and development activities, and frequently evaluate our pipeline programs in light of new data and scientific, business and

commercial insights, with the objective of balancing risk and potential. This process can result in rapid changes in focus and

priorities as new information becomes available and as we gain additional understanding of our ongoing programs and

potential new programs, as well as those of our competitors. In addition, our product candidates must satisfy rigorous

standards of safety and efficacy before they can be approved for sale by regulatory authorities. Our analysis of data obtained

from nonclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could

delay, limit or prevent regulatory approval.

Our business also requires ensuring appropriate manufacturing and supply of our products. As we advance our product

candidates through clinical development toward commercialization and market and sell our approved products, we build and

maintain our supply chain and quality assurance resources. We rely on a global network of third parties, including some in

China, and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical

trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for

each newly approved product, we adapt our supply chain for existing products to include additional formulations or to

increase scale of production for existing products as needed. The processes for biological and cell and genetic therapies can

be more complex than those required for small molecule drugs and require additional investments in different systems,

equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as

well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors,

such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our

products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We

dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our

products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets. In the U.S., we

work with government and commercial payors to obtain and maintain appropriate levels of reimbursement for our medicines.

In ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region, as

required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We expect to

continue to focus significant resources to expand and maintain reimbursement for our CF medicines, CASGEVY,

JOURNAVX, and, ultimately, our pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to license or acquire technologies, products, product candidates and businesses

that are aligned with our corporate and research and development strategies and complement and advance our ongoing

research and development efforts. We have acquired multiple biotechnology companies over the last several years and expect

to continue to identify and evaluate such opportunities. The accounting for an acquisition can vary significantly based on

whether we conclude the relevant transaction represents a business combination or asset acquisition.

In 2024, we acquired Alpine Immune Sciences, Inc. (“Alpine”) and its lead molecule, povetacicept, for approximately

$5.0 billion. Povetacicept, has shown potential to treat multiple diseases or conditions and become a pipeline-in-a-product.

We accounted for the Alpine transaction as an asset acquisition because povetacicept represented substantially all of the fair

value of the gross assets that we acquired. As a result, $4.4 billion of the fair value attributed to povetacicept was expensed as

In July 2026, we entered into the Crinetics Merger Agreement to acquire Crinetics as described above. Crinetics is a

publicly traded biotechnology company focused on discovering, developing, and commercializing novel therapeutics for

endocrine diseases and endocrine-related tumors. We will acquire Crinetics for $85.00 per share in cash, for a total equity

value of approximately $10.0 billion. We expect to fund the acquisition with our cash, cash equivalents, and proceeds from

the 2026 Term Loan, as defined below. The Crinetics Acquisition is not conditioned on our receipt of financing. We will

account for the acquisition in the period that it closes.

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Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development,

manufacture and commercialization of products, product candidates and other technologies that have the potential to

complement our ongoing research and development efforts.

Over the last several years, we entered into collaboration agreements with a number of companies, including CRISPR

Therapeutics AG (“CRISPR”) and Entrada Therapeutics, Inc. (“Entrada”).

Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume

the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option

payments. Most of these collaboration payments are expensed as AIPR&D because they were primarily attributable to

acquired in-process research and development for which there was no alternative future use. However, depending on many

factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of

the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are

engaged, the accounting for these transactions can vary significantly. We expect to continue to identify and evaluate

collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have

engaged in previously.

Acquired In-Process Research and Development Expenses

In the first half of 2026 and 2025, our AIPR&D included $21.9 million and $22.0 million, respectively, related to

upfront, contingent milestone, or other payments pursuant to our business development transactions, including the asset

acquisitions, collaborations, and licenses of third-party technologies described above. Please refer to Note B, “Collaboration,

License and Other Arrangements,” for further information regarding our asset acquisitions, collaborations and in-license

agreements.

Out-licensing Arrangements

We also have out-licensed certain development programs to collaborators who are leading the development or

commercialization of these programs, either globally or within certain geographic regions.

In January 2025 and June 2025, we entered into agreements with Zai Lab Limited (“Zai”) and Ono Pharmaceuticals Co.,

Ltd (“Ono”), respectively, for the development and commercialization of povetacicept in various Asian markets. Zai licensed

povetacicept for mainland China, Hong Kong SAR, Macau SAR, Taiwan region and Singapore, while Ono licensed

povetacicept for Japan and South Korea. Zai and Ono will help advance povetacicept clinical trials, and will be responsible

for obtaining marketing authorizations and commercialization activities, if povetacicept becomes an approved product, in

their licensed territories. We are eligible to receive certain future milestone payments and tiered royalties on future net sales

of povetacicept in these regions.

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RESULTS OF OPERATIONS

Total Revenues

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

TRIKAFTA/KAFTRIO

(2)%

(5)%

ALYFTREK

Other CF product revenues (1)

Total CF product revenues, net

8%

CASGEVY

JOURNAVX

Product revenues, net

Other revenues

—

**

—

**

Total revenues

(1) Include KALYDECO, ORKAMBI and SYMDEKO/SYMKEVI.

** Not meaningful

Product Revenues, Net

In the second quarter and first half of 2026, our net product revenues increased 13% and 11%, as compared to the second

quarter and first half of 2025, respectively, primarily due to continued performance of our CF therapies and growth from

diversification into additional disease areas.

Other Revenues

In the second quarter of 2025, our other revenues included a $20.6 million upfront payment received from our

collaboration agreement with Ono Pharmaceuticals Co., Ltd. In the first half of 2025, our other revenues also included a

$10.0 million upfront payment received from our collaboration agreement with Zai Lab Limited.

Total Revenues by Geographic Location

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

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

United States

9%

ex-U.S.

Total revenues

In the second quarter and first half of 2026, our U.S. total revenues increased 11% and 9%, as compared to the second

quarter and first half of 2025, respectively, primarily due to continued strong patient demand, including from new initiations

of ALYFTREK, and higher realized net prices in CF, and contributions from CASGEVY and JOURNAVX.

In the second quarter and first half of 2026, our ex-U.S. total revenues increased 14% and 12%, as compared to the

second quarter and first half of 2025, respectively, primarily due to strong CF performance across multiple geographies,

including ALYFTREK uptake, increased CASGEVY product revenues, and favorable impacts from foreign exchange.

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Operating Costs and Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Cost of sales

Research and development expenses

2%

—%

Acquired in-process research and development

expenses

**

**

Selling, general and administrative expenses

Intangible asset impairment charge

—

—

**

—

**

Change in fair value of contingent consideration

**

**

Total costs and expenses

—%

** Not meaningful

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our CF products as well as the cost of

producing inventories. Our cost of sales as a percentage of our net product revenues increased to 14.7% and 14.0% in the

second quarter and first half of 2026, respectively, as compared to 13.8% and 13.5% in the second quarter and first half of

2025, respectively, as a result of changes in product mix, partially offset by a lower blended royalty rate for our CF

medicines.

Pursuant to our agreement (the “CFF Agreement”) with the Cystic Fibrosis Foundation (the “CFF”), our tiered third-

party royalties on sales of ALYFTREK, TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI,

calculated as a percentage of net sales, range from the single digits to the sub-teens, with lower royalties on sales of

ALYFTREK and TRIKAFTA/KAFTRIO than for our other products. The royalty burden associated with TRIKAFTA/

KAFTRIO is 9.33%, and our position is that the royalty burden associated with ALYFTREK is 4%. On October 10, 2025,

Royalty Pharma plc (“RP”), the third party to whom the CFF assigned its rights (and the CFF, which remains a party to the

CFF Agreement), initiated a confidential arbitration alleging the royalty burden on ALYFTREK is approximately 8%. RP is

seeking a declaratory judgment regarding the royalty burden on ALYFTREK as well as alleged unpaid royalties and other

alleged damages available under the CFF Agreement or applicable law, costs, expenses, attorneys’ fees, and interest. We

believe RP’s position is contrary to the plain terms of the CFF Agreement and intend to vigorously defend our position under

the CFF Agreement.

Research and Development Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Research expenses

(1)%

(1)%

Development expenses

2%

—%

Total research and development expenses

2%

—%

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Research Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Research Expenses:

Salary and benefits

(3)%

—%

Stock-based compensation expense

(6)%

(5)%

Outsourced services and other direct expenses

—%

(4)%

Infrastructure costs

1%

4%

Total research expenses

(1)%

(1)%

Our research expenses include investment in our pipeline, including our cell and genetic therapy capabilities. We expect

to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Development Expenses:

Salary and benefits

4%

6%

Stock-based compensation expense

8%

6%

Outsourced services and other direct expenses

(1)%

(8)%

Infrastructure costs

7%

Total development expenses

2%

—%

As we have advanced our pipeline of transformative medicines, we have invested in internal headcount and infrastructure

to support multiple mid- and late-stage clinical development programs, including our povetacicept, T1D, peripheral

neuropathic pain and AMKD programs. We expect to continue to invest in these programs, launch new products and advance

our pipeline going forward. Our outsourced services and other direct expenses were lower as compared to the first half of

2025 due to the discontinuation of certain clinical programs during 2025.

Our research and development expenses include internal and external costs incurred for research and development of our

products and product candidates. We assign external costs of services provided to us by clinical research organizations and

other outsourced research by individual program. Our internal costs include salary and benefits, stock-based compensation

expense, laboratory supplies and other direct expenses and infrastructure costs, the majority of which are not assigned to

individual products or product candidates. Our stock-based compensation expenses, including those recorded as research and

development expenses, have historically fluctuated and are expected to continue to fluctuate from one period to another

primarily due to changes in the probability of achieving milestones associated with our performance-based awards.

Acquired In-Process Research and Development Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Acquired in-process research and development

expenses

**

**

** Not meaningful

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AIPR&D in the second quarters and first halves of 2026 and 2025 included various upfront and milestone payments

related to our collaboration and in-licensing arrangements. Our AIPR&D has historically fluctuated, and is expected to

continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our

existing and future business development transactions, including collaborations, licenses of third-party technologies, and

asset acquisitions.

Selling, General and Administrative Expenses

Three Months Ended

Six Months Ended

Change

Change

(in millions, except percentages)

Selling, general and administrative expenses

In the second quarter and first half of 2026, our selling, general and administrative expenses increased by 37% and 31%

as compared to the second quarter and first half of 2025, respectively, primarily due to increased internal headcount and

commercial investment to support JOURNAVX and the anticipated launch of povetacicept in IgAN. We expect to continue to

invest in our commercialization capabilities in support of our current and future product launches.

Intangible Asset Impairment Charge

In the first quarter of 2025, based on results from a Phase 1/2 clinical trial evaluating our VX-264 clinical program in

patients with T1D, we concluded that VX-264 will not be advancing further in clinical development. Based on this event, we

performed an interim impairment test on the fair value of our VX-264 indefinite-lived in-process research and development

asset. As a result, we recorded a full intangible asset impairment charge of $379.0 million associated with VX-264 in the first

Non-Operating Income (Expense), Net

Interest Income, Net

Our net interest income of $120.6 million and $235.4 million in the second quarter and first half of 2026, respectively,

was similar to our net interest income of $118.7 million and $236.6 million of net interest income in the second quarter and

first half of 2025, respectively. Due to our anticipated acquisition of Crinetics in the third quarter of 2026, we expect our

future net interest income to decrease.

Other Income (Expense), Net

Other income (expense), net was income of $24.3 million in the second quarter of 2026, $13.2 million in the second

quarter of 2025, and $24.3 million in the first half of 2026, and net expenses of $4.4 million in the first half of 2025. Our

other income (expense), net in the second quarter and first half of 2026 was primarily due to a realized gain associated with

one of our strategic investments. Our other income (expense), net in the second quarter and first half of 2025 was primarily

due to net unrealized and realized gains and losses resulting from changes in the fair value of certain of our strategic equity

investments and net foreign currency exchange gains and losses

Income Taxes

Our effective tax rate fluctuates from period to period due to the global nature of our operations. The factors that most

significantly impact our effective tax rate include changes in tax laws, excess tax benefits related to stock-based

compensation, variability in the amount and allocation of our taxable earnings among multiple jurisdictions, the amount and

characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the

value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions.

In July 2025, the U.S. enacted H.R.1, which includes significant provisions modifying the U.S. tax framework, including

the ability for companies to immediately deduct research and development expenditures for 2025 and provisions for

deducting previously capitalized amounts. H.R.1 does not have a material impact on our U.S. taxes for the first half of 2026,

but we expect further guidance to be issued. We will review guidance when issued for impacts on future years and disclose

any impacts if needed at that time. These legislative changes could have an impact on our future effective tax rates, tax

liabilities, and cash taxes.

Our effective tax rate of 19.4% in the first half of 2026 was lower than the U.S. statutory rate, primarily due to excess tax

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benefits related to stock-based compensation. Our effective tax rate of 16.6% in the first half of 2025 was lower than the U.S.

statutory rate, primarily due to excess tax benefits related to stock-based compensation and tax credits.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of June 30, 2026 and December 31, 2025:

Change

(in millions, except percentages)

Cash, cash equivalents and marketable securities:

Cash and cash equivalents

Marketable securities

Long-term marketable securities

Total cash, cash equivalents and marketable

securities

Working Capital:

Total current assets

Total current liabilities

2%

Total working capital

Working Capital

As of June 30, 2026, total working capital was $8.6 billion, which represented an increase of $1.3 billion, or 17%,

compared to December 31, 2025, primarily due to increased cash, cash equivalents and marketable securities resulting from

the continued performance of our CF therapies.

Cash Flows

Six Months Ended June 30,

(in millions)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Operating Activities

Cash provided by operating activities increased to $2.6 billion in the first half of 2026, as compared to $1.9 billion in the

first half of 2025, primarily due to increased net product revenues, the timing of income tax payments, and reduced purchases

of inventory.

Investing Activities

Cash used in investing activities of $477.7 million and $540.3 million in the first half of 2026 and 2025, respectively,

were primarily related to net purchases of available-for-sale debt securities and property and equipment.

Financing Activities

Cash used in financing activities of $965.5 million and $1.0 billion in the first half of 2026 and 2025, respectively, were

primarily related to repurchases of our common stock pursuant to our share repurchase programs and payments in connection

with common stock withheld for employee tax obligations.

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Sources and Uses of Liquidity

We intend to rely on our existing cash, cash equivalents and current marketable securities together with our operating

profitability as our primary source of liquidity. We expect that cash flows from our product sales together with our cash, cash

equivalents and current marketable securities will be sufficient to fund our operations for at least the next twelve months. In

July 2026, we entered into the Crinetics Merger Agreement to acquire Crinetics for $85.00 per share in cash, for a total equity

value of approximately $10.0 billion, which we will fund with our cash, cash equivalents, and proceeds from the 2026 Term

Loan, as defined below.

The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors,

including our future sales of currently marketed products, and the potential introduction of one or more new product

candidates to the market, our business development activities, and the number, breadth and cost of our research and

development programs.

Credit Facilities & Financing Strategy

In July 2026, we entered into a $4.5 billion term loan credit agreement (the “2026 Term Loan”), which we plan to use to

finance the Crinetics Acquisition, and can be prepaid without penalty. We may also borrow up to a total of $500.0 million

pursuant to a revolving credit facility that we entered into in July 2026 (the “2026 Revolver”) and could repay and reborrow

amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the

borrowing capacity be increased by an additional $500.0 million, for a total of $1.0 billion. Covenants in the 2026 Term Loan

and the 2026 Revolver could prohibit or limit our ability to access these sources of liquidity.

Future Capital Requirements

We have significant future capital requirements, including:

•T7We expect to acquire Crinetics in the third quarter of 2026, which we intend to fund with our cash, cash equivalents,

and proceeds from the 2026 Term Loan described above.

•Expected operating expenses to conduct research and development activities, manufacture and commercialize our

existing and future products, and to operate our organization.

•Cash that we pay for income taxes.

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

•Facility, operating and finance lease obligations.

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

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

•We have entered into certain agreements with third parties that include the funding of certain research, development,

manufacturing and commercialization efforts. Certain of our transactions, including collaborations, licensing

arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the

achievement of pre-established developmental and regulatory targets and/or commercial targets. Other transactions

include the potential for future lease-related expenses and other costs. Our obligation to fund these research and

development and commercialization efforts and to pay these potential milestones, expenses and royalties is

contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause their

discontinuance. We may enter into additional agreements, including acquisitions, collaborations, licensing

arrangements and equity investments, which require additional capital.

•To the extent we borrow amounts under the 2026 Revolver, we would be required to repay any outstanding principal

•To the extent we borrow amounts under the 2026 Term Loan discussed above, we will be required to repay a portion

of any outstanding principal on each of the first three anniversaries from the date upon which we borrowed against

the 2026 Term Loan, including $1.0 billion on the first anniversary.

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•As of June 30, 2026, we had $2.6 billion remaining available under the share repurchase program that our Board of

Directors authorized in May 2025. The program does not have an expiration date and can be discontinued at any

time. We expect to fund the program through a combination of cash on hand and cash generated by operations.

Other than our anticipated payment to acquire Crinetics and our entry into the 2026 Term Loan noted above, there have

not been any material changes to our future capital requirements disclosed in our Annual Report on Form 10-K for the year

ended December 31, 2025, which was filed with the Securities and Exchange Commission, or SEC, on February 13, 2026.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private

placements of our securities, or securing new collaborative agreements or other methods of financing. We will continue to

manage our capital structure and will consider all financing opportunities, whenever they may occur, that could strengthen

our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on

acceptable terms, if at all.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed

consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The

preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported

amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated

financial statements and the reported amounts of revenues and expenses during the reported periods. These items are

monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates

could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We

base our estimates on historical experience and various other assumptions that we believe to be reasonable under the

circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be

substantially accurate. During the six months ended June 30, 2026, there were no material changes to our critical accounting

policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, please refer to Note A, “Basis of Presentation and Accounting

Policies.”