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VERTEX   PHARMACEUTICALS INCORPORATED

130   WAVERLY STREET · CAMBRIDGE, MA 02139-4242

TEL. 617.444.6100 · FAX   617.444.7117

http://www.vrtx.com

September 17,   2012

Delivered via EDGAR

Securities and Exchange Commission
 Division of Corporation Finance

100 First Street, N.E.

Mail Stop 4720

Washington, DC 20549

Attn:

Jim B. Rosenberg, Senior Assistant Chief Accountant

Lisa Vanjoske, Assistant Chief Accountant

James Peklenk, Staff Accountant

Re:

Vertex Pharmaceuticals Incorporated

Form 10-K for the Fiscal Year Ended December 31,   2011

Filed February 22, 2012

Form 10-Q for the Quarterly Period Ended   March 31, 2012

Filed May 10, 2012

File No. 000-19319

Ladies and Gentlemen:

The purpose of this letter is to respond to the comments from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to Vertex Pharmaceuticals Incorporated (the “Company”) set forth in the Staff’s letter to Ian F. Smith dated August 20, 2012 (the “Comment Letter”) regarding the Company’s filings with the Commission referenced above.  The Comment Letter was issued in response to the Company’s letter to the Commission dated July 11, 2012 responding to the Staff’s original comment letter dated June 26, 2012. The comments from the Comment Letter are reproduced below together with the Company’s responses to those comments.

Comment 1

Refer to your response to our comments two and five.  Please tell us how you considered the guidance in ASC 730-10-15-4 a. through e. in determining that classifying the drug supply costs incurred prior to 2011 totaling $203.8 million as research and development expenses in your statements of operations complies with GAAP.

Response 1

The Company’s drug supply costs incurred prior to 2011 for telaprevir (an hepatitis C virus (“HCV”) protease inhibitor, which the Company markets under the brand name INCIVEK™ for the treatment of patients with genotype 1 HCV infection) are set forth below. These drug supply costs

consisted of (i) commercial drug supply costs including (a) raw materials and manufacturing costs, (b) costs incurred by the Company to establish the third-party infrastructure required to manufacture telaprevir and (c) costs of validating these third-party manufacturers’ systems, and (ii) costs for manufacturing services provided to the Company’s telaprevir research and development collaborators, Janssen Pharmaceutica, N.V. (“Janssen”) and Mitsubishi Tanabe Pharma Corporation (“Mitsubishi”).

2006- 2008

2009

2010

Total
   for period
   prior to
   2011

(in thousands)

INCIVEK (telaprevir) drug supply costs:

Commercial drug supply costs:

Raw materials and manufacturing costs

$

42,387

$

10,849

$

38,975

$

92,211

Third-party manufacturing infrastructure costs

18,374

1,503

772

20,649

Third-party validation expenses

31,061

1,872

592

33,525

Total commercial drug supply costs

91,822

14,224

40,339

146,385

Manufacturing services (collaborator supply)

28,350

6,170

22,922

57,442

Total INCIVEK drug supply costs

$

120,172

$

20,394

$

63,261

$

203,827

In determining to classify all of these drug supply costs as research and development expenses, the Company considered the guidance in ASC 730 “Research and Development,” including as described below the guidance in ASC 730-10-15-4 a. through e. (which requires that the costs of certain transactions and activities be excluded from research and development expenses).

Commercial Drug Supply Costs

(i)        The Company’s commercial drug supply costs include costs of purchasing raw materials; manufacturing costs incurred to convert these raw materials into active pharmaceutical ingredient (“API”) and finished goods; and costs incurred to establish the Company’s supply chain, which the Company was required to design, test and validate in order to obtain approval for INCIVEK (telaprevir) from the United States Food and Drug Administration (the “FDA”). These commercial drug supply costs did not include any costs of research and development activities conducted for others under contractual arrangements, which would be excluded from research and development expenses pursuant to ASC 730-10-15-4 a.

(ii)       ASC 730-10-15-4 b. does not apply to the Company’s commercial drug supply costs because this guidance applies solely to the costs of activities that are unique to companies in extractive industries.

(iii)      The Company’s commercial drug supply costs did not include any costs related to the acquisition, development or improvement by the Company of processes for use in selling activities or administrative activities that would be excluded from research and development expenses pursuant to ASC 730-10-15-4 c.

(iv)      ASC 730-10-15-4 d. excludes from research and development expenses costs of routine or periodic alterations to existing products, production lines and manufacturing processes.  The Company evaluated the activities related to its commercial drug supply costs incurred prior to 2011, including activities related to the design, testing and validation of the INCIVEK production lines and manufacturing processes, and determined that none of the costs related to

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these activities should be excluded from research and development expenses pursuant to ASC 730-10-15-4 d. because (a) INCIVEK was not yet a marketed product (as it was not approved by the FDA until May 23, 2011) and (b) none of the activities related to the manufacturing processes were routine or periodic alterations, because they remained subject to FDA review and approval until May 23, 2011.

(v)       The Company’s commercial drug supply costs did not include any costs for market research or market testing activities that would be excluded from research and development expenses pursuant to ASC 730-10-15-4 e.

Manufacturing Services (Collaborator Supply)

(i)        The Company applied ASC 808-10-15 to its research and development arrangements with Janssen and Mitsubishi and determined that they are properly classified as collaborative arrangements.  The Company conducted research and development activities related to the development of telaprevir, including the evaluation of telaprevir in multiple clinical trials and the development of the commercial manufacturing process and supply chain for telaprevir, pursuant to contracts providing for the Company’s collaborations with Janssen and Mitsubishi. Under the Company’s collaborative telaprevir arrangements, (1) the Company led the clinical development program for telaprevir, (2) the parties shared responsibility and costs for conducting research and development activities, (3) the Company licensed to its collaborators the rights to manufacture and commercialize telaprevir in their territories in return for royalties and/or milestone payments and (4) the Company retained the exclusive right to manufacture and commercialize telaprevir in North America.  These activities included (a) the design and validation of the Company’s third-party manufacturing network and (b) arranging for the Company’s third-party contract manufacturers to supply Janssen with raw materials and Mitsubishi with work-in-process.  These raw materials and work-in-process were necessary to support the clinical trials of telaprevir conducted by Janssen and Mitsubishi and the initial commercial launch of telaprevir by Janssen and Mitsubishi during the period in which they were each establishing their independent manufacturing supply chain for telaprevir in their respective territories.  The expenses related to supplying the Company’s collaborators are reflected in the above table under the caption “Manufacturing services (collaborator supply).”

In applying the guidance in ASC 808-10-15, the Company concluded that its arrangements with Janssen and Mitsubishi were collaborative arrangements because (A) each of the parties was actively participating in the collaboration and (B) the parties shared in significant risks and rewards that were dependent on the successful development of telaprevir.  Accordingly, the Company determined that its telaprevir research and development expenses were costs incurred in connection with collaborative arrangements in which the Company retained significant potential benefits and that, conversely, ASC 730-10-15-4 a., which applies to costs of research and development activities conducted for others under a contractual arrangement, did not apply.

(ii)       ASC 730-10-15-4 b. did not apply to the Company’s manufacturing services (collaborator supply) costs because this guidance applies solely to the costs of activities that are unique to companies in extractive industries.

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(iii)      The Company’s manufacturing services (collaborator supply) costs did not include any costs related to the acquisition, development or improvement by the Company of processes for use in selling activities or administrative activities that would be excluded from research and development expenses pursuant to ASC 730-10-15-4 c.

(iv)      The Company’s manufacturing services (collaborator supply) costs did not include any costs related to routine or periodic alterations to existing products, production lines or manufacturing processes that would be excluded from research and development expenses pursuant to ASC 730-10-15-4 d.

(v)       The Company’s manufacturing services (collaborator supply) costs did not include any costs for market research or market testing activities that would be excluded from research and development expenses pursuant to ASC 730-10-15-4 e.

Accordingly, the Company reflected all of the INCIVEK drug supply costs incurred prior to 2011 as research and development expenses.

Comment 2

Refer to your response to our comment three.  In your response you state that, as of January 1, 2011, you had expensed, in periods prior to 2011, $84 million in INCIVEK inventory which you refer to as “Zero Cost Inventory”.  You state that these Inventory costs were charged to R&D expense in your Statements of Operations for periods prior to 2011 because you had not received FDA approval to commercialize INCIVEK until May 2011.  Further you state that this inventory is to be sold to your customers when they reach the finished goods stage and that the future Revenue from Product Sales of this $84 million in “Zero Cost Inventory” approximates $1.8 billion.  Finally you stated that this inventory should be sold by the end of 2013 although your table on page 6 indicates that there would still be $10 million in inventory at December 31, 2013.  We have the following additional comments:

·      To the extent that costs included in the $84 million are not part of the drug supply costs referred to in comment one above, tell us how you considered the guidance in ASC 730-10-15-4 a. through e. in determining that classifying these costs incurred prior to 2011 as research and development expenses in your statements of operations complies with GAAP.

·      Tell us why a material portion of the $112.4 million and $126.9 million Inventory at December 31, 2011 and March 31, 2012 should not be classified as “non-current” assets since your accounting is on a FIFO basis and you estimate that you will still have over $10 million of “Zero Cost Inventory” unsold at December 31, 2013.

·      Tell us what the shelf life is for INCIVEK and why you believe you will be able to realize inventory held at December 31, 2011, March 31, 2012 and June 30, 2012.

Response 2

·      The entire $84 million in Zero Cost Inventory is included in the commercial drug supply costs referred to in comment one above.

·      The $10 million in Zero Cost Inventory that the Company estimated would remain unsold at December 31, 2013 represented the costs of the final raw materials that the Company purchased

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prior to 2011, which it expected would be converted into finished goods and sold after December 31, 2013. Even though the Company uses FIFO, the Company expected that a significant portion of the inventories reflected on the Company’s balance sheets as of December 31, 2011 and March 31, 2012 would be realized prior to the date that the Company realized the final portion of the Zero Cost Inventory. This is due to the costs incurred after January 1, 2011 (to advance raw materials and work-in-process that were previously expensed through the supply chain and to convert them into finished goods) that are capitalized as part of inventories and then expensed as cost of product revenues when the finished goods are sold.

The INCIVEK manufacturing process requires a minimum period of 18 months from the placement of orders for raw materials until the production of finished goods, which is similar to the lead times required to manufacture other pharmaceutical products. The Company manages its inventories in order to mitigate the risk of potential product shortages that could result from increases in demand, risks of disruptions at manufacturing facilities and the potential for product quality issues.  During the quarters ended December 31, 2011 and March 31, 2012, the Company continued to build additional INCIVEK inventories due to the higher than expected demand for INCIVEK in the initial launch period and the forecasted demand for INCIVEK (the Company would later reduce its expectations regarding future INCIVEK demand based on the factors discussed in detail below in response to comment three).  Applying the guidance in ASC 210-10-20 and ASC 210-10-45-1 and consistent with the classification of inventories by other companies in the pharmaceutical industry, the Company classified its inventories as current assets because it expected these inventories to be consumed through commercial sale and none of these inventories were subject to any contractual or labeling restrictions.

·      INCIVEK tablets (which correspond to the Company’s finished goods inventories) have a shelf life of two years. The API in INCIVEK has a shelf life of approximately six years (including initial conversion into an intermediate form, which must be done within four years, and the conversion of the intermediate form into INCIVEK tablets, which must be done within two years).  Raw materials do not have a specified shelf-life, but the Company has stability data indicating that they can be stored for several years prior to conversion into API.

In order to estimate whether it will be able to realize its inventories, the Company evaluates inventories at each stage of the supply chain, taking into account the conversion process and timing as well as the shelf life of the inventories at each stage in the process, and comparing the available inventories with the Company’s expectations regarding future demand for INCIVEK.  This analysis requires the Company to make significant estimates and judgments.  As of December 31, 2011 and March 31, 2012, the Company estimated that all of its inventories would be realizable.

As described in greater detail in response to comment three below, in the second quarter of 2012, the Company recorded a lower of cost or market charge relating to excess and obsolete inventories following an adverse change in the Company’s commercial outlook for INCIVEK and expectations of decreased demand.  At June 30, 2012, based on the Company’s analysis of inventories at each stage in the Company’s supply chain and its revised commercial outlook for INCIVEK, the Company (a) impaired a significant portion of raw materials and work-in-process inventories that the Company no longer estimated would be realized, but (b) did not impair any finished goods because it continued to expect to sell all of the INCIVEK finished goods prior to

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the expiration of the two-year shelf life for these tablets. The raw materials and work-in-process that were impaired as of June 30, 2012 included raw materials and work-in-process that the Company had estimated as of December 31, 2011 and March 31, 2012 would be realizable, bas