SecProbe.io

CORRESP
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  VERTEX
  PHARMACEUTICALS INCORPORATED

  130 WAVERLY
  STREET • CAMBRIDGE, MA 02139 • USA

  TEL.
  617.444.6100 • FAX 617.444.6344

  http://www.vrtx.com

April 27, 2006

Delivered by
facsimile

Securities and Exchange Commission

450 Fifth Street, N.W.

Mail Stop 3-9

Washington, DC 20549

  Attn:

  Jim B. Rosenberg, Senior Assistant Chief
  Accountant

  Oscar Young, Senior Accountant

  James Peklenk, Staff Accountant

  Division of Corporation Finance

  Re:

  Vertex Pharmaceuticals Incorporated

  Form 10-K for the Fiscal Year Ended December 31,
  2005

  File No. 000-19319

Ladies and Gentlemen:

This letter is intended to provide responses
to comments from the staff of the Securities and Exchange Commission to Vertex
Pharmaceuticals Incorporated (“the Company”) set forth in the Staff’s letter to
Dr. Joshua Boger, dated April 14, 2006 (the “Comment Letter”),
regarding the Company’s 2005 Annual Report on Form 10-K.

The Comment Letter is reproduced below
together with our response thereto.

Comment 1.

We have the following
comments regarding your revenue recognition policy related to substantive
milestone payments that are reasonably assured:

a)            When
you have evidence of fair value for your remaining obligations, please clarify
for us why it is appropriate to then recognize that payment as earned. In this
regard, it is unclear whether you consider the milestone payment and the
remaining obligations to be separate units of accounting. If so, it is unclear
whether the portion of the payment attributable to the remaining obligations
should instead be deferred and recognized upon the satisfaction of the
obligation.

b)            When
you do not have fair value for your remaining obligations, please clarify for
us why it is appropriate to recognize the payments over the period of performance.
In this regard, it is unclear whether you consider the substantive milestone
payments and the remaining obligations as a single unit of accounting. If so,
it is unclear whether all the obligations are satisfied over a period of time
or if the payment should instead be deferred until the satisfaction of all
obligations.

c)             To
the extent that your policy is not appropriate, please provide us proposed
revisions to the policy and tell us whether those revisions would have had a
material impact on previously reported financial condition or results of
operations.

Response 1.

1(a)                           In
those circumstances where collection of a substantive milestone is reasonably
assured, the Company has remaining obligations to perform under its
collaboration arrangements, and the Company has evidence of fair value for
these remaining obligations, management considers the milestone payment and the
remaining obligations to be separate units of accounting. In these
circumstances, the Company uses the residual method under Emerging Issues Task
Force (EITF) Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables to allocate revenue among the milestones and
the remaining obligations of the arrangement. To date, the Company has not
recognized any revenue from milestone payments in circumstances where the
Company has remaining obligations for which management believes it has
sufficient evidence of fair value for these obligations.

1(b)                           In
those circumstances where collection of a substantive milestone is reasonably
assured, the Company has remaining obligations to perform under it
collaboration arrangements, and the Company does not have sufficient evidence
of fair value for these remaining obligations, management considers the
milestone payment and the remaining obligations on the contract as a single
unit of accounting. Primarily, the Company’s collaborations include obligations
to provide research and/or development services that are performed by the
Company for the collaborator over a specified period of time. In these
circumstances, the Company’s collaborations do not require specific
deliverables at specific times or at the end of the contract term, but rather
the Company’s obligations are satisfied over a period of time. In these
instances substantive milestones are recognized over the period of performance.
In those circumstances where a collaboration requires a specific deliverable
separate and distinct from any ongoing research and/or development activities
and for which the Company does not have evidence of fair value, the substantive
milestone payment are combined with any remaining obligations and deferred
until the satisfaction of all obligations.

1(c)                           The
Company believes that its policy for revenue recognition is in accordance EITF
00-21, and SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition”. The Company proposes to add additional disclosure
relative to the its disclosure of its revenue recognition policies in future
periodic filings, commencing with the Quarterly Report on Form 10-Q for
the period ended March 31, 2006. Specifically, the Company will add the
text underlined below to the “Revenue Recognition” footnote to its Consolidated
Balance Sheets (reproduced in its entirety for your reference).

Revenue
Recognition

The Company recognizes revenue in accordance with the Securities and
Exchange Commission’s (“SEC”) Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements” (“SAB 101”), as amended by SEC Staff
Accounting Bulletin No. 104, “Revenue Recognition,” (“SAB 104”) and
for revenue arrangements entered into after June 30, 2003, Emerging Issues
Task Force Issue

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No. 00-21,
“Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”).

The Company’s revenues are generated primarily through collaborative
research, development and commercialization agreements. The terms of the
agreements typically include payment to Vertex of non-refundable up-front
license fees, funding of research and development efforts, milestone payments
and/or royalties on product sales.

Agreements containing multiple elements are divided into separate units
of accounting if certain criteria are met, including whether the delivered
element has stand-alone value to the customer and whether there is objective
and reliable evidence of fair value of the undelivered obligation(s). The
consideration received is allocated among the separate units based on their
respective fair values or the residual method, and the applicable revenue
recognition criteria are applied to each of the separate units.

The Company recognizes revenues from non-refundable, up-front license
fees on a straight-line basis over the contracted or estimated period of
performance, which is typically the research or development term. Research and
development funding is recognized as earned, ratably over the period of effort.

Substantive milestones realized in collaboration
arrangements are recognized as earned when the corresponding payment is
reasonably assured, subject to the following policies in those circumstances
where the Company has obligations remaining after achievement of the milestone:

In those circumstances where
collection of a substantive milestone is reasonably assured, the Company has
remaining obligations to perform under its collaboration arrangements, and
the Company has evidence of fair value for its remaining obligations,
management considers the milestone payment and the remaining obligations to be
separate units of accounting. In these circumstances, the Company uses the
residual method under Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables to allocate revenue among the milestones and the
remaining obligations.

In those circumstances where
collection of a substantive milestone is reasonably assured, the Company has
remaining obligations to perform under its collaboration arrangements, and
the Company does not have sufficient evidence of fair value for its remaining
obligations, management considers the milestone payment and the remaining
obligations on the contract as a single unit of accounting. In those
circumstances where our collaboration does not require specific deliverables at
specific times or at the end of the contract term, but rather our obligations are satisfied over a
period of time, substantive milestones are recognized over the period of performance. This typically results in a

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portion of the milestone payment being recognized as
revenue at the date the milestone is achieved, which portion is equal to the
applicable percentage of the performance period that has elapsed as of the date
the milestone is achieved, with the balance being deferred and recognized over
the remaining period of performance.

The Company evaluates whether milestones are substantive at the
inception of the agreement based on the contingent nature of the milestone,
specifically reviewing factors such as the technological risk that must be
overcome as well as the level of effort and investment required to achieve the
milestone. Milestones that are not considered substantive and do not meet the
separation criteria are accounted for as license payments and recognized on a
straight-line basis over the remaining period of performance.

Payments received after performance obligations are met completely are
recognized when earned.

Royalty revenue is recognized based upon actual and estimated net sales
of licensed products in licensed territories as provided by the licensee and is
recognized in the period the sales occur. Differences between actual royalty
revenues and estimated royalty revenues, which have not historically been
significant, are reconciled and adjusted for in the quarter they become known.

Comment 2.

When you
issued shares to holders of your notes in exchange for those notes, please tell
us why it was appropriate to calculate the loss on extinguishment based on the
incremental shares issued over the number that would have previously been
issued upon conversion of the notes under the original terms. In so doing,
please refer to paragraphs 3(c), 20 and 21 of APB 26 and explain why you did
not calculate the loss based on the excess of the fair value of the shares
issued over the carrying amounts of the notes.

Response 2:

In connection with the transactions that
occurred in 2005 in which the Company issued common stock in exchange for
convertible notes outstanding, the Company considered Accounting Principles
Board (APB) Opinion No, 26. APB 26, paragraph 2 indicates that APB 26 does not
apply to conversions of convertible debt when conversion privileges included in
terms of the debt at issuance are changed, or additional consideration is paid,
to induce conversion of the debt to equity securities as described in FASB
Statement (SFAS) No. 84, Induced Conversions of
Convertible Debt. Since the exchange offers were exercisable for a
limited period of time and included the issuance of more equity securities than
were otherwise issuable pursuant to the conversion privileges included in the
original terms of the debt the Company determined that the provisions of APB 26
would not apply and the exchanges should be accounted for in accordance with
SFAS 84. In accordance with paragraphs 3 and 4 of SFAS 84, we recorded the loss
on the

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exchange as the difference in the fair value of all securities
transferred in the transaction and the fair value of the securities issuable
pursuant to the original conversion terms.

***

Please contact me at 617-444-6417 in the
event that you have any questions or concerns with respect to this matter. In
the event that I am not available, please contact my colleague, Jeffrey
Donohue, at 617-444-6131.

  Very truly yours,

  /s/ Kenneth S. Boger

  Kenneth S. Boger

  Senior Vice President and General Counsel

  cc:

  Ian F. Smith, Executive Vice President and
  Chief Financial Officer

  Johanna Messina-Power, Corporate Controller

  Jeffrey Donohue, Corporate Counsel

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