UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities
Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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VERTEX PHARMACEUTICALS INCORPORATED
(Name of Registrant as Specified In Its Charter)
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Payment
of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
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(set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Dear Shareholders:
Since 2012 we have executed on our strategy
of investing in scientific innovation to create transformative medicines for people with serious diseases - a strategy we believe
maximizes benefits for patients and generates long-term value for shareholders. By all measures, 2018 was an extraordinary year
for Vertex, as we accelerated our Phase 3 triple combination programs in cystic fibrosis, advanced and expanded our pipeline into
disease areas outside of CF and delivered exceptional performance for our shareholders. Over the longer term, the successful execution
of our strategy has caused Vertex to grow from a market capitalization of approximately $7 billion in early 2012 to over $45 billion
in early 2019.
In CF, we are on the brink of delivering a triple
combination regimen that will provide superior benefit to the vast majority of CF patients, bringing us closer to our goal of creating
highly effective treatments for all patients with CF. In 2018, we accelerated the clinical development of two triple combination
regimens -initiating Phase 3 development in early 2018 and obtaining positive Phase 3 clinical data from both of these programs
by early 2019. Based upon this data, we are on track to submit an NDA in the United States for a triple combination regimen in
the third quarter of 2019, followed soon thereafter by regulatory submissions in the European Union and other jurisdictions. We
believe that in 2020, just four years after the initial discovery of VX-445 and VX-659, we will begin delivering a triple combination
regimen to CF patients, including many who have been waiting years for the first treatment for the underlying cause of their disease
and others who are eligible for our current medicines but could benefit from improved treatment options.
Beyond CF, we expanded our pipeline by advancing
multiple programs into the clinic and obtaining important data from ongoing trials. In late 2018, we initiated a clinical trial
for our first drug candidate with the potential to treat alpha-1 antitrypsin deficiency, a genetic disorder that results in life-shortening
complications in the lung and liver. In pain, we have generated compelling Phase 2 data in three different pain types - acute pain,
musculoskeletal pain and neuropathic pain - with VX-150, a non-opioid drug candidate that inhibits NaV1.8. In collaboration with CRISPR
Therapeutics, we also initiated clinical trials to evaluate CTX001, a CRISPR/Cas9 gene editing therapy, as a potential treatment
for sickle cell disease and beta thalassemia. In addition to these drug candidates, we expect that we will advance additional compounds
into the clinic in 2019, including potential additional compounds targeting pain and alpha-1 antitrypsin deficiency and our first
compound targeting focal segmental glomerulosclerosis, a serious kidney disease. This rapid expansion of our pipeline is the result
of a research strategy that applies the lessons we learned in CF regarding the importance of: validated targets that address causal
human biology; predictive lab assays and clinical biomarkers that give us an early indication of clinical efficacy; rapid paths
to regulatory approval; and a focus on transformative medicines regardless of modality.
Our ability to bring our CF medicines to many
more patients resulted in $3.0 billion in total CF revenues in 2018, a 40% increase as compared to 2017, and we expect product
revenues to continue to increase in 2019 and beyond. Our revenue growth, together with disciplined operating expense management,
has created significant positive cash flows and expanding operating income, all while allowing us to continue investing in innovation
to generate additional transformational medicines.
While we are gratified that our accomplishments
have been reflected in our business performance, we are proudest of the way that our medicines are positively impacting the lives
of patients with CF. There is no more meaningful statement of the power of transformative medicines than their ability to change
the way patients think about themselves and their future.
Sincerely,
Jeffrey M. Leiden, M.D., Ph.D.
Chairman, Chief Executive Officer and President
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Notice of Annual
Meeting of Shareholders
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Wednesday,
June 5, 2019
9:30 a.m.
50 Northern Avenue
Boston, Massachusetts 02210
Dear Shareholders:
You are invited to attend Vertex Pharmaceuticals
Incorporated’s 2019 Annual Meeting of Shareholders. At the meeting, shareholders will vote:
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to elect the six director nominees that are set forth in the attached proxy statement to one year terms expiring in 2020;
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to approve an amendment and restatement of our 2013 Stock and Option Plan, that, among other things, increases the number
of shares authorized for issuance under this plan by 5.0 million shares;
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to approve an amendment and restatement of our Employee Stock Purchase Plan that, among other things, increases the number
of shares authorized for issuance under this plan by 2.0 million shares;
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to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2019;
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to approve our named executive officers’ compensation in an advisory vote; and
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on two proposals submitted by our shareholders, if properly presented at the meeting.
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Shareholders also will transact any other business
that may properly come before the annual meeting or any adjournment or postponement of the annual meeting.
RECORD DATE:
You can vote if you were a shareholder of record
on April 10, 2019.
Your vote matters. Whether or not you plan
to attend the annual meeting, please ensure that your shares are represented by voting, signing, dating and returning your proxy
in the enclosed envelope, which requires no postage if mailed in the United States.
April 26, 2019
By Order of the Board of Directors
Sabrina Yohai
Secretary
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IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS.
This proxy statement and the enclosed proxy card are first being mailed or furnished to our shareholders on or about
April 29, 2019. This proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2018 are available
to holders of record of our common stock at www.envisionreports.com/vrtx and to beneficial holders of our common stock at
www.edocumentview.com/vrtx.
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SUMMARY
By all measures, 2018 was an extraordinary year
for Vertex, as we continued to execute on our strategy of investing in scientific innovation to create transformative medicines
for people with serious diseases. In 2018, we obtained approval for and launched SYMDEKO/SYMKEVI, our third medicine for CF, and
accelerated the development of our triple combination regimens, which we believe will allow us to treat the vast majority of patients
with CF and will provide an improved treatment option for many patients currently taking our medicines. Outside of CF, we advanced
our Phase 2 clinical program in pain, initiated our first clinical trial of a potential medicine for alpha-1 anti-trypsin deficiency
and the first clinical trial for CTX001, which we are co-developing with CRISPR Therapeutics, as a potential treatment for beta
thalassemia and sickle cell disease. Our exceptional performance in 2018 included 40% growth in total product revenues and increasing
cash flows. As we enter 2019, we are on track to deliver more new transformative medicines for patients thereby increasing revenues,
expanding operating income and creating long-term shareholder value.
Financial Performance
Our CF medicines, KALYDECO, ORKAMBI and SYMDEKO/SYMKEVI,
are transforming the lives of eligible patients around the globe and driving our financial performance.
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Our CF net product revenues increased to $3.04 billion in 2018, up 40% as compared
to 2017
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We exceeded our initial CF net product revenue guidance in 2018 by $313 million ($3.04 billion
as compared to the mid-point of our initial guidance of $2.73 billion)
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Our GAAP net income increased to $2.1 billion in 2018 from GAAP net income of $263 million
in 2017
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Our non-GAAP net income increased to $1.1 billion in 2018, up $564 million, or 114%,
from 2017, driven by our increased net product revenues (a reconciliation of non-GAAP net income is provided in Appendix C)
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We increased our net cash position by approximately $1.1 billion in 2018, to approximately
$3.2 billion
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In 2019, we expect to further increase CF product revenues by approximately 15% and to continue
generating substantial cash flows
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Beyond 2019, our CF net product revenues and operating income are positioned for substantial
further growth if we are successful in obtaining approval for a triple combination regimen
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
5
CF
Pipeline
Advances in our pipeline and our strategic execution
have moved us closer to our goal of delivering highly effective treatments to all patients with CF. In January 2012, KALYDECO was
first approved to treat approximately 1,000 patients with the G551D mutation in the United States. Since then, we have followed
a focused strategy of developing new medicines for CF: expanding the number of patients eligible for our medicines and seeking
improved treatment options for all patients. We believe our triple combination regimens will provide the first treatment for the
underlying cause of CF for patients with the F508del mutation and a mutation that results in minimal function in the defective
CFTR protein (referred to as F508del/Min patients) as well as an improved treatment option (greater efficacy) for the vast majority
of CF patients currently using our medicines.
CF Medicines
Since the beginning of 2018, we have:
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Obtained approval for SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor) in the United States
in early 2018 and in the European Union in late 2018
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Successfully launched SYMDEKO in the United States
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Obtained regulatory approvals and advanced clinical trials designed to provide younger children access to our CF medicines
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Entered into innovative long-term access agreements in ex-U.S markets, including Australia, Denmark, Israel, Luxembourg
and Sweden
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Triple Combinations
Regimens
Since the beginning of 2018, we have:
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Accelerated our Phase 3 development program for triple combination regimens
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Announced positive data from two Phase 3 clinical trials evaluating the triple combination of VX-659, tezacaftor and ivacaftor
in F508del/Min patients and F508del homozygous patients 12 years of age or older
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Announced positive data from two Phase 3 clinical trials evaluating the triple combination of VX-445, tezacaftor and ivacaftor
in F508del/Min patients and F508del homozygous patients 12 years of age or older
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Positioned ourselves to submit for one triple combination regimen — an NDA in the United States in the third quarter of
2019 and an MAA in the European Union in the fourth quarter of 2019
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Initiated a Phase 1 clinical trial to evaluate VX-121, an additional next-generation CFTR corrector
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
6
Non-CF
Pipeline
Over the last decade, we have demonstrated an
ability to serially discover and develop multiple transformative medicines for serious diseases. In 2018, we and our collaborators
continued our serial innovation, advancing promising non-CF programs for important diseases. Specifically, since the beginning
of 2018, we have:
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Initiated a Phase 1 clinical trial for a novel drug candidate for alpha-1 antitrypsin deficiency
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Initiated Phase 1/2 clinical trials of CTX001, an investigational gene-editing treatment that we are evaluating as a potential
treatment for beta-thalassemia and sickle cell disease
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Obtained clinical proof-of-concept from Phase 2 clinical trials evaluating VX-150, a selective non-opioid NaV1.8 inhibitor,
as a potential treatment for pain
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Advanced our research program for focal segmental glomerulosclerosis into late-stage preclinical development
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Janssen Pharmaceuticals, our collaborator, is conducting Phase 3 development of pimodivir as a potential treatment for
influenza
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* We are co-developing CTX001 with CRISPR Therapeutics
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** We have outlicensed pimodivir to Janssen Pharmaceuticals and M6620 to Merck KGaA
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Increased
Shareholder Value
Driven by our exceptional performance and our
pipeline success, our stock price increased by 11% from $149.86 per share to $165.71 per share in 2018. In 2018, our total shareholder
return was positive 10.6% as compared to negative total shareholder returns for the Nasdaq Biotechnology Index, or NBI, and the
S&P 500 index.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
7
Although we were pleased with our performance
in 2018, biotechnology companies are best measured over the long term and in comparison with their peers, as opposed to in one-year
increments and in isolation. The following chart shows our total shareholder return during the 1-year, 3-year and 5-year periods
ending December 31, 2018 compared to the NBI and the following members of our peer group: Alexion, Regeneron, BioMarin, Gilead,
Celgene and Biogen. These peers are the companies we consider most similar to our company based on their business models (see pages
51 and 52).
2018
Compensation Decisions and Pay-for Performance
In 2018, we received support from 96% of our
shareholders on our say-on-pay proposal. We believe this support is consistent with our shareholders’ understanding of our
business model and the long-term value we are creating. In 2018, our board of directors and management development and compensation
committee, or MDCC, reviewed our compensation programs and made the following key decisions:
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We maintained the same compensation program design that we implemented in 2016, which closely ties
pay with performance and has contributed to our short- and long-term successes
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The company’s exceptional performance in 2018 resulted in a leading rating (a company rating of 148.5 out of a potential
150) for 2018 and annual cash bonuses near the high end of the range for 2018, commensurate with the performance described
above
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Our CEO’s salary has been unchanged at $1.3 million since 2014 and is aligned with the median CEO base salary of
our peer companies. We increased the base salaries of certain of our other named executive officers by approximately 7% based
on a comparative analysis with our peer group
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We increased our target equity grants by $1.0 million for our CEO and $500,000 for our executive vice presidents based
on a market analysis of our peer group
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We continued our utilization of a mix of equity that consists of performance stock units that vest solely upon achievement
of rigorous performance goals, stock options that only have value if our stock price appreciates and time-vesting restricted
stock units that reward stock price appreciation but also serve as a long-term retention tool
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Corporate
Social Responsibility
Vertex has grown into a leading global biotechnology
company that serially innovates to bring transformative medicines to people with serious diseases around the world. As we’ve
grown, so too has our commitment to corporate social responsibility. As a reflection of that commitment, Barron’s included Vertex
on Barron’s 100 Most Sustainable Companies list.
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Community.
In 2018, Vertex and its employees supported more than 1,100 nonprofit organizations
in 13 countries through Vertex Volunteers and The Vertex Foundation’s Matching Gift Program. The Vertex Foundation,
a long-term source of charitable giving that was established in 2017, seeks to improve the lives of people with serious diseases
and in its communities through education, innovation, and health. These efforts are part of our 10-year, $500 million
corporate giving commitment.
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Workplace.
Our commitment to diversity and inclusion on our board and in our workforce is ingrained in our culture.
Five of our ten directors are diverse on a gender and/or ethnic basis. 51% of our global workforce and 38% of our leadership
are women. We have been recognized for these efforts, ranking fifth among 1,000 companies in Forbes’ 2019 Best Employers
for Diversity list.
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Environment.
We are committed to sustainability, with strong local efforts reducing our environmental impact. Vertex’s
facilities in Boston and San Diego are LEED Gold certified, and we are on track to reduce emissions by 35% by 2020 at our
Boston site (over a 2015 baseline). We are building on these efforts and working to establish long-term environmental targets.
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
8
Corporate Governance
We are committed to maintaining strong corporate
governance practices that promote the long-term interests of our shareholders and strengthen board and management accountability.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
9
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Voting
Matters
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Item
1:
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FOR
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Election of Directors for One Year Term Expiring in 2020
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all Nominees
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Item
2:
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FOR
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Approval of Amendment and Restatement of 2013 Stock and Option Plan
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Item
3:
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FOR
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Approval of Amendment to Employee Stock Purchase Plan
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Item
4:
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FOR
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Ratify Selection of Independent Auditor for 2019
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Item
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FOR
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Approve, on an Advisory Basis, Our Named Executive Officer Compensation
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Item
6:
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AGAINST
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Shareholder Proposal Regarding Report Relating to Drug Pricing and Executive Compensation
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Item
7:
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AGAINST
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Shareholder Proposal Regarding Lobbying Report
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VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
10
Table of Contents
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
11
PROXY STATEMENT
This proxy statement, with the enclosed proxy
card, is being furnished to shareholders of Vertex Pharmaceuticals Incorporated in connection with the solicitation by our board
of directors of proxies to be voted at our 2019 annual meeting of shareholders and at any postponements or adjournments thereof.
The annual meeting will be held on Wednesday, June 5, 2019, at 9:30 a.m. at our headquarters, which are located at 50 Northern
Avenue, Boston, Massachusetts.
This proxy statement and the enclosed proxy
card are first being mailed or otherwise furnished to our shareholders on or about April 29, 2019. Our 2018 Annual Report on Form
10-K and other materials regarding our company are being mailed to the shareholders with this proxy statement, but are not part
of this proxy statement.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
12
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Item 1
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Election of Directors
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Our board of directors has
nominated Sangeeta Bhatia, Lloyd Carney, Terrence Kearney, Yuchun Lee, Jeffrey Leiden, and Bruce Sachs for election at our 2019
annual meeting of shareholders to hold office until our 2020 annual meeting of shareholders.
Our board of directors is our company’s
ultimate decision-making body, except with respect to those matters reserved to the shareholders. Our board selects our senior
management team, which in turn is responsible for the day-to-day operations of our company. Our board acts as an advisor and counselor
to senior management and oversees its performance.
In 2017, we amended our charter and
by-laws to phase out our staggered board. Six members of our board of directors will be up for election at our 2019 annual
meeting of shareholders and all of our board members will be up for election at our 2020 annual meeting of shareholders.
Sangeeta Bhatia, Lloyd Carney, Terrence Kearney, Yuchun Lee, Jeffrey Leiden, and Bruce Sachs have been nominated by our board
for election at the 2019 annual meeting of shareholders for one-year terms that will expire at the 2020 annual meeting of
shareholders. Elaine Ullian, a current director, is not standing for re-election at the 2019 annual meeting of shareholders.
Each of the nominees has agreed to be named in this proxy statement and to serve if elected. We believe that all of the
nominees will be able and willing to serve if elected. However, if any nominee should become unable or unwilling to serve for
any reason, proxies may be voted for another person nominated as a substitute by our board, or our board may reduce the
number of directors.
Board Structure and Composition
The corporate governance and nominating committee
of our board of directors is responsible for recommending the composition and structure of our board and for developing criteria
for board membership. This committee regularly reviews director competencies, qualities and experiences, with the goal of ensuring
that our board is comprised of a team of directors who function collegially and effectively and who are able to apply their experience
toward meaningful contributions to general corporate strategy and oversight of corporate performance, risk management, organizational
development and succession planning.
Our by-laws provide that the size of our
board may range between three and eleven members. We currently have ten members on our board and expect to have nine members of
our board following the 2019 annual meeting of shareholders. Our corporate governance and nominating committee may seek additional
director candidates who meet the criteria below in order to complement the qualifications and experience of our existing board
members. Our corporate governance and nominating committee may engage a search firm to recommend candidates who satisfy the criteria.
Director
Criteria, Qualifications and Experience; Diversity
The corporate governance and
nominating committee seeks to recommend for nomination directors of stature who have a substantive knowledge of our business
and industry or who can bring to the board specific and valuable strategic or management capabilities acquired in other
industries. The committee expects each of our directors to have proven leadership, sound judgment, integrity and a commitment
to the success of our company. It also seeks personal qualities that foster a respectful environment in which our directors
listen to one another and hold engaged and constructive discussions. These goals for our board composition presuppose a
diverse range of viewpoints, experiences and specific expertise. The corporate governance and nominating committee considers
a nominee’s personal characteristics and business experience relative to those of our existing board members, including
the type of prior management experience, levels of expertise relevant to our business and its growth stage, prior board
service, reputation in the business community, personal characteristics such as gender and race, and other factors that the
committee believes to be important. When considering whether or not to re-nominate a director for board service, the
corporate governance and nominating committee also considers whether the potential nominee has served as a member of the
board for more than 20 years and whether the potential nominee is over 72 years of age. Our commitment to diversity is
demonstrated by the composition of our board, which includes three women and three ethnically diverse individuals.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
13
The follow table and charts provide information
regarding our director nominees, each of whom is a continuing director, and Elaine Ullian, who is not seeking reelection at our
2019 annual meeting of shareholders.
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Bhatia
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Carney
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Garber
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Kearney
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Lee
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Leiden
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McGlynn
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Sachs
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Ullian
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Young
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Leadership Experience.
We
believe that directors who have held significant leadership positions over extended periods of time provide our company with
special insights.
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Industry Knowledge.
We seek
directors with substantive knowledge of the healthcare and biotechnology industries to successfully advise and oversee the
strategic development and direction of our company.
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Financial Expertise.
We believe
that an understanding of finance is important for members of our board, and our budgeting processes and financial and strategic
transactions require our directors to be financially knowledgeable.
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International Perspective.
We have significant operations outside the United States and value directors with experience in the operation of complex multinational
organizations.
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Public Policy and Regulation.
We operate in a highly-regulated industry and seek directors who have experience in public policy and the regulation
of medicines.
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Academic Experience or Technological
Background.
As a biotechnology company that seeks to develop transformative medicines for patients with serious diseases,
we look for directors with backgrounds in academia, science and technology and, in particular, the research and development
of pharmaceutical products.
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Commitment to Company Values
and Goals.
We seek directors who are committed to our company and its values and goals and who value the contributions
that can be provided by individuals who believe in our company and its prospects for success.
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Independence
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Y
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Y
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Y
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Y
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Y
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N
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Y
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Y
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Y
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Y
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Age
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50
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57
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63
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64
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53
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63
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59
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59
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71
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74
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Tenure on Board
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3
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0
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1
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7
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6
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9
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7
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20
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21
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4
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Gender
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F
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M
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M
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M
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M
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M
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F
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M
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F
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M
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Ethnic Diversity
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VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
14
Shareholder-Recommended Director Candidates
The corporate governance and
nominating committee will consider director candidates recommended by shareholders using the same criteria for director
selection described above under
Director Criteria, Qualifications and Experience; Diversity.
Shareholders recommending
candidates for consideration should submit any pertinent information regarding the candidate, including biographical
information and a statement by the proposed candidate that he or she is willing to serve if nominated and elected, by mail to
our corporate secretary at our offices at 50 Northern Avenue, Boston, Massachusetts 02210. If a shareholder wishes to
nominate a candidate to be considered for election as a director at the 2020 annual meeting of shareholders using the
procedures set forth in our by-laws, the shareholder must follow the procedures described in
Other
Information—Shareholder Proposals for the 2020 Annual Meeting and Nominations for Director
on page 80 of this proxy
statement.
Our by-laws provide for proxy access, a process
that allows qualifying shareholders to nominate a director candidate for consideration at an annual meeting of shareholders and
have such candidate be included in our proxy materials for the applicable shareholder meeting. The key elements of our proxy
access by-law are as follows:
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Provision
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Requirement
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Ownership Threshold and Holding Period
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Available to shareholders owning 3% or more of our shares continuously
for at least 3 years.
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Number of Board Seats
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Total number of proxy access nominees is capped at 20% of the existing
board seats (or the closest whole number below 20%), with a minimum of two.
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Aggregation Limits
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20-shareholder limit on the number of shareholders who can aggregate
their shares to satisfy the 3% ownership requirement.
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Proxy Fights
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Proxy access nominees will not be included in the proxy materials if
we receive notice that a shareholder intends to nominate a candidate who is not to be included in our proxy
materials.
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Future Ineligibility
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Proxy access nominees who fail
to receive at least 10% of the votes cast “for” such nominee may not be re-nominated as a proxy access nominee
for the next two annual meetings.
|
The above table is only a summary of
our proxy access by-law and is qualified in its entirety by our by-laws, which are set forth in Exhibit 3.1 of a Quarterly
Report on Form 10-Q that we filed with the SEC on July 28, 2017. A shareholder who wishes to nominate a proxy access nominee
to be considered for election as a director at the 2020 annual meeting of shareholders must follow the procedures set forth
in our by-laws as well as those described in
Other Information—Shareholder Proposals for the 2020 Annual Meeting and
Nominations for Director
on page 80 of this proxy statement.
Majority Vote Standard
Our by-laws provide for a majority
vote standard for uncontested elections of our directors. Under our by-laws, director nominees in an uncontested election who
receive more votes cast “for” such director nominee than “against” such director nominee are elected.
Our board’s policy is that any nominee for director in an uncontested election who receives a greater number of votes
“against” than votes “for” the nominee’s election shall promptly tender his or her resignation
to the chair of our board following certification of the shareholder vote. Our corporate governance and nominating committee
will promptly consider the tendered resignation. Based on all factors it deems in its discretion to be relevant, the
committee will recommend that our board either accept or reject the resignation and may recommend that the board adopt
measures designed to address any issues perceived to underlie the election results. Our board will then act on the corporate
governance and nominating committee’s recommendation. We will promptly disclose our board’s decision, including,
if applicable, the reasons for rejecting the tendered resignation. Any director whose resignation is being
considered under this policy will not participate in the corporate governance and nominating committee or board
considerations, recommendations or actions with respect to the tendered resignation.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
15
Director Nominees
Present Terms Expiring
in 2019 and Proposed Terms to Expire in 2020
Sangeeta Bhatia, M.D., Ph.D.
|
Age: 50
|
Committee Assignments:
|
|
Director Since: 2015
|
|
Chair – Science and Technology Committee
|
|
|
|
Member – Corporate Governance and Nominating Committee
|
Dr. Bhatia is a professor at the Massachusetts Institute of Technology,
or MIT, where she currently serves as the John J. and Dorothy Wilson Professor of Health Sciences & Technology/Electrical
Engineering & Computer Science. For the 2018 year, Dr. Bhatia was on sabbatical from MIT while she served as a co-founder
of Glympse Bio, a private company focused on developing in vivo sensing technology dedicated to disease monitoring. Prior to joining
MIT in 2005, Dr. Bhatia was a professor of bioengineering and medicine at the University of California at San Diego from 1998 through
2005. Dr. Bhatia also is an investigator for the Howard Hughes Medical Institute, a member of the Department of Medicine at Brigham
and Women’s Hospital, a member of the Broad Institute and a member of the Koch Institute for Integrative Cancer Research.
Dr. Bhatia holds a Sc.B. in biomedical engineering from Brown University, an S.M. and Ph.D. in Mechanical Engineering from MIT
and an M.D. from Harvard Medical School.
Skills and Qualifications
:
Dr. Bhatia is a leading
academic scientist and medical researcher. Her extensive experience in the field of biomedical engineering and in-depth understanding
on the use of advanced technologies in medical research provides valuable insights to our board of directors, including with respect
to our key research and development initiatives.
Lloyd Carney
|
Age: 57
|
Committee Assignments:
|
|
Director Since: 2019
|
|
Expected to Join – Audit and Finance Committee
|
Mr. Carney is the Chairman and Chief Executive
Officer of ChaSerg Technology Acquisition Corp., a technology acquisition company. He was the Chief Executive Officer of Brocade
Communications Systems Inc., or Brocade, a global supplier of networking hardware and software, from January 2013 until 2017, when
it was acquired by Broadcom. Prior to Brocade, he served as Chief Executive Officer of Xsigo Systems, a cloud-based infrastructure
solutions provider, until its acquisition by Oracle. He has also served as the Chief Executive Officer and Chairman of Micromuse
Inc., a software solutions provider for business and service assurance, until its acquisition by IBM. Earlier in his career he
had held senior leadership roles at Juniper Networks, Inc., Nortel Networks Inc., and Bay Networks, Inc. He currently sits on the
board of directors at Visa Inc. and Nuance Communications, Inc. He holds a Bachelor of Science degree in Electrical Engineering
Technology from Wentworth Institute, a Master of Science degree in Applied Business Management from Lesley College, and an Honorary
Doctorate degree in Engineering from Wentworth Institute.
Skills and Qualifications:
Mr. Carney brings strong business judgment, honed through his time as a senior executive and board member of multiple global
technology companies, to our board of directors. Mr. Carney has extensive corporate leadership experience, including service as
the CEO of several technology companies, as well as financial expertise.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
16
Terrence Kearney
|
Age:
64
|
Committee Assignments:
|
|
Director Since:
2011
|
|
Chair – Audit and Finance Committee
|
|
|
|
Member – Management Development and Compensation Committee
|
Mr. Kearney served as the Chief Operating
Officer of Hospira, Inc., a specialty pharmaceutical and medication delivery company, from April 2006 to January 2011. From April
2004 to April 2006, he served as Hospira’s Senior Vice President, Finance, and Chief Financial Officer, and he served as
Acting Chief Financial Officer through August 2006. Mr. Kearney served as Vice President and Treasurer of Abbott Laboratories from
2001 to April 2004. From 1996 to 2001, Mr. Kearney was Divisional Vice President and Controller for Abbott’s International
Division. Mr. Kearney serves as a member of the Board of Directors at Acceleron Pharma Inc., a biopharmaceutical company. He served
as a member of the Board of Directors of Innovia (formerly known as Theravance, Inc.), a royalty management company, from October
2014 through April 2016, and as member of the Board of Directors of AveXis, Inc., a gene therapy company, from January 2016 until
its acquisition in May 2018. Mr. Kearney has been a member of the Board of Directors of Levo Therapeutics, Inc., a biotechnology
company focused on developing treatments for Prader-Willi Syndrome, since 2018. He received his B.S. in biology from the University
of Illinois and his M.B.A. from the University of Denver.
Skills and Qualifications:
Mr. Kearney’s corporate leadership experience, industry knowledge and financial expertise make him a valuable contributor
to our board of directors. He has a practical perspective on the management of global pharmaceutical operations, including commercial,
manufacturing and research and development activities, and financial management strategies. He is an “audit committee financial
expert” with particular experience in matters faced by the audit committee of a company with pharmaceutical product revenues
and related expenses.
Yuchun Lee
|
Age:
53
|
Committee Assignments:
|
|
Director Since:
2012
|
|
Member – Audit and Finance Committee
|
|
|
|
Member – Science and Technology Committee
|
Mr. Lee serves as an Executive in Residence
and Partner of General Catalyst Partners, a venture capital firm, positions he has held since April of 2013. Mr. Lee also
serves as the Chief Executive Officer of Allego, Inc. and is Executive Chairman of Clarabridge, Inc. Mr. Lee was the Vice President
of IBM’s Enterprise Marketing Management Group from November 2010 through January 2013. Mr. Lee co-founded Unica Corporation,
a provider of software and services used to automate marketing processes, in 1992, and was Unica’s President and/or Chief
Executive Officer from 1992 through November 2010, when Unica was acquired by IBM. From 1989 to 1992, Mr. Lee was a senior consultant
at Digital Equipment Corporation, a supplier of general computing technology and consulting services. Mr. Lee holds a B.S. and
an M.S. in electrical engineering and computer science from the Massachusetts Institute of Technology and an M.B.A. from Babson
College.
Skills and Qualifications:
Mr. Lee’s expertise in marketing processes and customer engagement and business and financial experience make him a
valuable contributor to our board of directors. Mr. Lee is an innovator who founded and managed the growth of a successful technology
company and gained further leadership experience while serving as an executive at IBM. Mr. Lee’s experiences outside of
the biopharmaceutical sector provide the board with an important perspective on the issues facing the company.
Jeffrey Leiden, M.D.,
Ph.D.
|
Age: 63
|
Committee
Assignments:
|
|
Director
Since: 2009
|
|
Chairman, Chief Executive Officer and President
|
Dr. Leiden is our Chairman, Chief Executive
Officer and President. He has held the positions of Chief Executive Officer and President since February 2012 after joining us
as CEO Designee in December 2011. He has been a member of our Board of Directors since July 2009, the Chairman of our Board of
Directors since May 2012, and served as our lead independent director from October 2010 through December 2011. Dr. Leiden was a
Managing Director at Clarus Ventures, a life sciences venture capital firm, from 2006 through January 2012. Dr. Leiden was President
and Chief Operating Officer of Abbott Laboratories, Pharmaceuticals Products Group, and a member of the Board of Directors of Abbott
Laboratories from 2001 to 2006. From 1987 to 2000, Dr. Leiden held several academic appointments, including the Rawson Professor
of Medicine and Pathology and Chief of Cardiology and Director of the Cardiovascular Research Institute at the University of Chicago,
the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health, and Professor of Medicine
at Harvard Medical School. He is an elected member of both the American Academy of Arts and Sciences and the Institute of
Medicine of the National Academy of Sciences. Dr. Leiden serves as a director of Quest Diagnostics Inc., a medical diagnostics
company, and Massachusetts Mutual Life Insurance Company, an insurance company. Dr. Leiden was a director and the non-executive
Vice Chairman of the board of Shire plc, a specialty biopharmaceutical company, from 2006 to January 2012. Dr. Leiden received
his M.D., Ph.D. and B.A. degrees from the University of Chicago.
Skills and Qualifications:
Dr. Leiden possesses strong leadership qualities, demonstrated through his service as a senior executive in the pharmaceutical
industry and as a life sciences venture capitalist, and has extensive knowledge of the science underlying drug discovery and development
through his experiences as a distinguished physician, scientist and teacher. As our CEO and as a former senior executive at Abbott
Laboratories he brings a global perspective to our business and public policy issues facing our company. He also provides our
board of directors with in-depth knowledge of our company through the day-to-day leadership of our executives.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
17
Bruce Sachs
|
Age: 59
|
Committee
Assignments:
|
|
Director
Since: 1998
|
|
Chair – Management Development and Compensation Committee
|
|
Co-lead
Independent Director
|
|
Member – Audit and Finance Committee
|
Mr. Sachs is a General Partner at Charles
River Ventures, a venture capital firm he joined in 1999. From 1998 to 1999, he served as Executive Vice President and General
Manager of Ascend Communications, Inc. From 1997 until 1998, Mr. Sachs served as President and Chief Executive Officer of Stratus
Computer, Inc. From 1995 to 1997, he served as Executive Vice President and General Manager of the Internet Telecom Business Group
at Bay Networks, Inc. From 1993 to 1995, he served as President and Chief Executive Officer of Xylogics, Inc. Mr. Sachs holds
a B.S.E.E. in electrical engineering from Bucknell University, an M.E.E. in electrical engineering from Cornell University, and
an M.B.A. from Northeastern University.
Skills and Qualifications:
Mr. Sachs brings strong business judgment, honed through his experience developing business strategy as a senior executive
and in venture capital, to our board of directors. Mr. Sachs has a deep understanding of our business and the global business
environment along with expertise in the technology that supports our infrastructure and operations. In addition, Mr. Sachs has
extensive business leadership experience, including service as a CEO at a technology company, as well as financial expertise.
Board Recommendation
In each of the director nominee and continuing
director biographies, we highlight the specific experience, qualifications, attributes, and skills that led the board of directors
to conclude that the director nominee or continuing director should serve on our board at this time.
Our board of directors recommends
that shareholders vote
FOR
each of the nominees.
Continuing Directors
— Terms to Expire in 2020
Alan Garber, M.D., Ph.D.
|
Age:
63
|
Committee Assignments:
|
|
Director Since:
2017
|
|
Member – Science and Technology Committee
|
Dr. Garber is Provost of Harvard University
and the Mallinckrodt Professor of Health Care Policy at Harvard Medical School, a Professor of Economics in the Faculty of Arts
and Sciences, Professor of Public Policy in the Harvard Kennedy School of Government, and Professor in the Department of Health
Policy and Management in the Harvard T.H. Chan School of Public Health. From 1998 until he joined Harvard in 2011, he was the Henry
J. Kaiser Jr. Professor, a Professor of Medicine, and a Professor (by courtesy) of Economics, Health Research and Policy, and of
Economics in the Graduate School of Business at Stanford University. Dr. Garber is a member of the National Academy of Medicine,
the American Society of Clinical Investigation, the Association of American Physicians, and the American Academy for Arts and Sciences.
He is a Fellow of the American Association for the Advancement of Science, the American College of Physicians, and the Royal College
of Physicians. Dr. Garber is also a Research Associate with the National Bureau of Economic Research and served as founding Director
of its Health Care Program for nineteen years. He also has served as a member of the National Advisory Council on Aging at the
National Institutes of Health, as a member of the Board of Health Advisers of the Congressional Budget Office and as Chair of the
Medicare Evidence Development and Coverage Advisory Committee at the Centers for Medicare and Medicaid Services. Dr. Garber has
been a member of the Board of Directors of Exelixis, Inc., a biopharmaceutical company, since 2005. Dr. Garber holds an A.B. summa
cum laude, an A.M. and a Ph.D., all in Economics, from Harvard University, and an M.D. with research honors from Stanford University.
Skills and Qualifications:
Dr. Garber brings extensive leadership experience and knowledge regarding science, medicine and the healthcare industry and
in particular healthcare economics to our board of directors. The insights he has developed as an expert in health care policy
and as an advisor to government agencies provides our board important perspectives on the issues facing our company.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
18
Margaret McGlynn
|
Age:
59
|
Committee Assignments:
|
|
Director Since:
2011
|
|
Member – Science and Technology Committee
|
|
|
|
Member – Corporate Governance and Nominating Committee
|
Ms. McGlynn retired from Merck &
Co. in 2009, where she served as President, Vaccines and Infectious Diseases and as President, Hospital and Specialty Products.
During her 26 year career at Merck, she also held various leadership roles in the U.S. and globally in marketing, sales, managed
care and business development. Following her retirement, Ms. McGlynn served as the President and Chief Executive Officer of
the International AIDS Vaccine Initiative, a global not-for-profit organization whose mission is to ensure the development of safe,
effective and accessible HIV vaccines for use throughout the world, from 2011 until 2015. Ms. McGlynn serves as a member of the
Board of Directors for Air Products and Chemicals, Inc., a company specializing in gases and chemicals for industrial uses, and
Amicus Therapeutics, Inc., a biopharmaceutical company. She is also a member of the National Industrial Advisory Committee at the
University at Buffalo School of Pharmacy and Pharmaceutical Sciences. Ms. McGlynn holds a B.S. in Pharmacy and an M.B.A. in Marketing
from the State University of New York at Buffalo.
Skills and Qualifications:
Ms. McGlynn’s leadership experience and industry knowledge make her a valuable contributor to our board of directors.
Her service as an executive at Merck and her service on the board of Amicus Therapeutics and the board and audit committee of
Air Products and Chemicals, Inc. give her a practical understanding of organizational practices valuable to a company at our stage
of growth. Her experience in the development and commercialization of products across several therapeutic areas, and in her board
roles and advocacy in rare diseases, provides her with a valuable understanding of the scientific, public policy, regulatory and
marketplace issues we face in the drug development and commercialization process.
William Young
|
Age:
74
|
Committee Assignments:
|
|
Director Since:
2014
|
|
Member – Corporate Governance and Nominating Committee
|
|
|
|
Member – Management Development and Compensation Committee
|
Mr. Young is a Senior Advisor with Blackstone
Life Sciences (which acquired Clarus Ventures in 2018). Mr. Young joined Clarus Ventures, a life sciences venture capital firm,
in 2010. Prior to Clarus Ventures, Mr. Young served from 1999 until June 2009 as the Chairman and Chief Executive Officer
of Monogram Biosciences, Inc., a biotechnology company acquired by Laboratory Corporation of America in June 2009. From 1980
to 1999, Mr. Young was employed at Genentech, Inc. in positions of increasing responsibility, including as Chief Operating
Officer from 1997 to 1999, where he was responsible for all product development, manufacturing and commercial functions. Prior
to joining Genentech, Mr. Young was with Eli Lilly & Co. for 14 years. Mr. Young currently serves as the Chairman of the
Board of Directors of NanoString Technologies, Inc., and as a member of the Board of Directors of Theravance BioPharma Inc. Mr.
Young retired from BioMarin Pharmaceutical Inc.’s Board of Directors in November 2015 and as Biogen’s Chairman of the
Board in June 2014. Mr. Young holds a B.S. in Chemical Engineering from Purdue University, an M.B.A. from Indiana University and
an Honorary Doctorate in Engineering from Purdue University. Mr. Young was elected to the National Academy of Engineering in 1993
for his contributions to biotechnology.
Skills and Qualifications:
Mr. Young is a valuable contributor to our board of directors due to the in-depth knowledge of the biotechnology industry
that he acquired through his extensive experience as both a CEO and board member at numerous pharmaceutical and biotechnology
organizations and as a venture capitalist focused on the life sciences industry. Mr. Young’s strong leadership qualities,
global industry knowledge and financial expertise provide him with the background to work collaboratively with both management
and fellow board members in order to address issues facing our company.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
19
CORPORATE GOVERNANCE AND RISK MANAGEMENT
We are committed to good corporate
governance and integrity in our business dealings. Our governance practices are documented in our Statement of Corporate Governance
Principles, which addresses the role and composition of our board of directors and the functioning of the board and its committees.
You can find our governance documents, including our Statement of Corporate Governance Principles, charters for each committee
of the board and our Code of Conduct, on our website www.vrtx.com under “Investors—Corporate Governance—Governance
Documents.”
Independence, Chair
and Co-lead Independent Directors
Our board of directors has determined that nine
of our ten directors qualify as “independent” under the definition of that term adopted by The Nasdaq Stock Market
LLC, or Nasdaq. Our independent directors are Dr. Bhatia, Mr. Carney, Dr. Garber, Mr. Kearney, Mr. Lee, Ms. McGlynn, Mr. Sachs
and Mr. Young and Ms. Ullian, who is not seeking re-election at our 2019 annual meeting of shareholders. Our independent directors
meet in executive session without management at each regularly scheduled board meeting.
Dr. Leiden, our president and chief executive
officer, serves as the chairman of our board. Our employment agreement with Dr. Leiden provides that he will serve as the chairman
of our board through March 31, 2020. In addition, we have two co-lead independent directors who are elected by the independent
directors. Each of the board committees is chaired by one of our independent directors.
Our board believes that strong, independent board
leadership is a critical aspect of effective corporate governance, and our corporate governance principles require that if the
chair is not an independent director, then the independent directors elect a lead independent director. Since December 2011, Mr.
Sachs and Ms. Ullian have served as our co-lead independent directors. We believe this structure provides our board independent
leadership, while providing the benefit of having our chief executive officer, the individual with primary responsibility for managing
our day-to-day operations, chair regular board meetings as we discuss key business and strategic issues. Combined with the co-lead
independent directors and experienced and independent committee chairs, this structure provides strong independent oversight of
management.
Our co-lead independent directors’ responsibilities include:
|
|
calling and leading regular and special meetings of the independent directors;
|
|
|
serving as a liaison between our executive officers and the independent directors;
|
|
|
reviewing the planned dates for regularly scheduled board meetings and the primary agenda
items for each meeting; and
|
|
|
reviewing with the chair of each board committee agenda items that fall within the scope of
the responsibilities of that committee.
|
Board Committees
Our board of directors has established
various committees, each of which has a written charter, to assist in discharging its duties: the audit and finance
committee, or audit committee, the corporate governance and nominating committee, or CGNC, the MDCC and the science and
technology committee, or S&T committee. Each member of the audit committee, CGNC and MDCC is an independent director
as that term is defined by the SEC and Nasdaq. The primary responsibilities of each of the committees are set forth below,
and the committee memberships are provided in the table appearing on page 21 of this proxy statement.
Each of the committees has the authority, as
its members deem appropriate, to engage legal counsel or other experts or consultants in order to assist the committee in carrying
out its responsibilities.
Risk Management
Our board of directors discharges its overall
responsibility to oversee risk management with a focus on our most significant risks. We face considerable risk related to the
commercialization of our approved products, including regulatory risk with respect to our promotional activities and competition
from approved drugs and investigational drug candidates that may have product profiles superior to our approved products. We continue
to invest significant resources in research programs and clinical development programs as part of our strategy to develop transformative
medicines for patients with serious diseases. With respect to each of our drug development and commercialization programs, we face
considerable risk that the program will not ultimately result in a commercially successful pharmaceutical product. Our board and
its committees monitor and manage the strategic, compliance and operational risks related to our medicines and our research and
development programs through regular board and committee discussions that include presentations to the board and its committees
by our executive officers as well as during in-depth short- and long-term strategic reviews held at least annually.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
20
For certain specific risk types, our board has
delegated oversight responsibility to board committees as follows:
|
|
Our audit committee oversees our policies and programs related to our financial
and accounting systems, accounting policies and investment strategies, internal audit function and cybersecurity. The audit
and finance committee also is responsible for addressing risks arising from related party transactions.
|
|
|
Our MDCC oversees risks associated with our compensation policies, management resources and
structure, and management development and selection processes.
|
|
|
Our CGNC oversees risks related to the company’s governance structure.
|
|
|
Our S&T committee oversees risks related to our research and development investments.
|
|
|
Our MDCC and corporate governance and nominating committee work together to oversee CEO succession
planning.
|
Code of Conduct
We have adopted a Code of Conduct that applies to all of our directors
and employees, including our chief executive officer and chief financial and accounting officers. Our Code of Conduct is available
on our website www.vrtx.com under “Investors—Corporate Governance—Governance Documents.” Disclosure regarding
any amendments to, or waivers from, provisions of the Code of Conduct that apply to our directors or principal executive, financial
or accounting officers will be posted on our website or included in a Current Report on Form 8-K within four business days following
the date of the amendment or waiver.
Board Attendance,
Committee Meetings and Committee Membership
The following table sets information regarding
the members of our board of directors. We expect that in June 2019, (i) Lloyd Carney, who joined our board in February 2019, will
join the audit and finance committee, and (ii) we will make additional changes to our committee memberships resulting from Elaine
Ullian’s retirement from our board of directors.
|
Director
(1)
|
|
Independence
|
|
Board
|
|
Audit
Committee
|
|
CGNC
|
|
MDCC
|
|
S&T Committee
|
|
2018
Attendance at
Meetings
(2)
|
|
Sangeeta N. Bhatia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93%
|
|
Lloyd Carney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
Alan Garber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
Terrence C. Kearney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
Yuchun Lee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95%
|
|
Jeffrey M. Leiden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
Margaret G. McGlynn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
Bruce I. Sachs
|
|
|
|
|
|
|
|
|
|
|
|
|
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100%
|
|
Elaine S. Ullian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
William D. Young
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89%
|
|
2018 Meetings
|
|
|
|
7
|
|
9
|
|
5
|
|
7
|
|
3
|
|
|
|
|
= Member
|
|
|
= Chair
|
|
|
= Co-lead
|
|
(1)
|
We invite each of our directors to attend shareholder
meetings, and our chairman and two co-lead independent directors attended our 2018 annual shareholders meeting.
|
|
(2)
|
Includes meetings of the board of directors and meetings
of each committee of the board while the director served on such committee. Mr. Carney joined our board in February 2019.
|
Audit and Finance Committee
The primary purposes of the audit committee are to:
|
|
appoint, oversee and, if necessary, replace, our independent
registered public accounting firm;
|
|
|
assist our board of directors in fulfilling its responsibility for oversight
of our accounting and financial reporting processes;
|
|
|
review and make recommendations to our board concerning our financial
structure and financing strategy;
|
|
|
oversee our policies and programs related to our financial and accounting
systems and cybersecurity programs; and
|
|
|
oversee our internal audit function.
|
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
21
Our independent registered public accounting
firm reports directly to, and is held accountable by, our audit committee in connection with the audit of our annual financial
statements and related services.
Mr. Kearney, the chair of our audit committee,
is our “audit committee financial expert” as that term is defined in applicable regulations of the SEC. In addition,
each of the other members of the audit committee is qualified to serve as an audit committee financial expert under the SEC’s
rules.
The report of the audit committee appears on
page 39 of this proxy statement.
Our audit committee reviews and, if appropriate,
recommends for approval or ratification by our board, all transactions with related persons that are required to be disclosed by
us pursuant to Item 404(a) of Regulation S-K promulgated by the SEC, except for transactions, if any, related to the employment
of executive officers, which would be recommended for approval by the MDCC. Our policies and procedures with respect to transactions
with related persons are governed by our written Related Party Transaction Policy. Pursuant to this policy, related party transactions
include transactions, arrangements or relationships in which our company is a participant, the amount involved exceeds $120,000,
and one of our executive officers, directors, director nominees or 5% shareholders or their immediate family members, whom we refer
to as related persons, has a direct or indirect material interest, except where disclosure of such transaction would not be required
pursuant to Item 404(a) of Regulation S-K. As appropriate for the circumstances, our audit committee will review and consider the
related person’s interest in the related party transaction and such other factors as it deems appropriate. In 2018, we had
one transaction disclosable pursuant to Item 404(a) of Regulation S-K, pursuant to which we obtained software services from Allego
Inc., where Yuchun Lee, a member of our board of directors, serves as CEO. The transaction involved no payments directly to Mr.
Lee and payments of approximately $123,000 to Allego, Inc. The audit committee approved the transaction as the transactions were
entered into at arm’s length and comparable to those that would be provided to other unrelated entities in the marketplace.
Corporate Governance
and Nominating Committee
The CGNC:
|
|
assists our board of directors in developing and implementing
our corporate governance principles;
|
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|
recommends the size and composition of our board and its committees;
|
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develops and recommends to our board an annual self-evaluation process
to assess the effectiveness of our board and oversees this process;
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reviews and recommends, with the advice of the MDCC, non-employee director
compensation on an annual basis;
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identifies qualified individuals to become members of our board;
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|
|
recommends director nominations to the full board; and
|
|
|
assists the board in external recruiting and evaluating potential candidates
for the CEO position.
|
Management Development
and Compensation Committee
The primary purposes of the MDCC are to oversee the discharge of our
board of directors’ responsibilities relating to:
|
|
compensating and developing our executives
(and assisting the corporate governance and nominating committee with respect to director compensation);
|
|
|
recommending to our board (i) ratings for the company
performance against company goals for the prior year and (ii) goals and weighting of goals for the next year;
|
|
|
assisting the board in evaluating potential internal
candidates for the CEO position; and
|
|
|
reviewing and approving our benefit and equity compensation
plans.
|
The MDCC has the authority to delegate any of its responsibilities
to individual members to the extent deemed appropriate by the MDCC in its sole discretion, but subject always to the general oversight
of the board.
See
Compensation Discussion and Analysis—Detailed Discussion
below for a discussion of the MDCC’s role in overseeing executive compensation.
The report of the MDCC appears on page 64 of this proxy statement.
Science and Technology
Committee
Our S&T committee discharges our board of directors’ responsibilities
relating to the oversight of our investment in pharmaceutical research and development. In furtherance of that oversight function,
the S&T committee:
|
|
reviews and assesses our current and planned research and development programs and technology initiatives
from a scientific perspective;
|
|
|
assesses the capabilities of our key scientific personnel and the depth and breadth of our scientific resources; and
|
|
|
provides strategic advice to our board regarding emerging science and technology issues and trends.
|
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
22
Compensation Committee
Interlocks and Insider Participation
Mr. Kearney, Mr. Sachs, Ms. Ullian and Mr.
Young served on the MDCC during 2018. Each member of the MDCC was an independent director while serving on the MDCC. No
member of our board of directors who was a member of our MDCC at any time during 2018 has ever been one of our employees or
officers. No member of our board who was a member of our MDCC at any time during 2018 has ever been a party to a transaction
required to be disclosed pursuant to Item 404(a) of Regulation S-K prior to becoming a member of our MDCC. During 2018, none
of our executive officers served as a member of the board of directors or compensation committee of the board of directors,
or performed the equivalent functions, of any entity that has one or more executive officers serving as a member of our board
or the MDCC.
Public Policy and
Engagement
The biotechnology industry is a highly-regulated industry, and it
is important to our business, our patients and our shareholders that we engage compliantly on public policy issues. This includes
providing advocacy for healthcare innovation and patient access to care. We engage with various policy makers to help promote
an environment in which we can continue to innovate and develop transformative medicines for the benefit of patients with serious
diseases.
We meet all federal, state and local laws and reporting requirements
governing corporate political contributions. We file quarterly reports on our federal lobbying activity in compliance with the
Honest Leadership and Open Government Act of 2007. These reports are available to the public at
https://soprweb.senate.gov/index.cfm?event=selectfields
.
Vertex is a member of a number of industry and trade groups, including
the Biotechnology Industry Association. These organizations represent the biotechnology industry and/or businesses more broadly
in engaging with policy makers on issues that affect our business. Our governmental affairs executives evaluate our participation
in these organizations regularly to ensure that they are broadly aligned with our business objectives, but we do not always agree
with positions taken by these organizations and/or its members.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
23
DIRECTOR COMPENSATION
Non-Employee Director
Compensation Program
We have designed and implemented our compensation
program for our non-employee directors to attract, motivate and retain individuals who are committed to our values and goals and
who have the expertise and experience that we need to achieve those goals.
The compensation program for our non-employee directors is:
|
Compensation Elements
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
Annual Cash Retainer
|
|
|
|
$
|
100,000
|
|
|
Annual Committee Chair Retainer
|
|
Audit and Finance Committee
|
|
$
|
30,000
|
|
|
|
|
Management Development and Compensation Committee
|
|
$
|
25,000
|
|
|
|
|
Corporate Governance and Nominating Committee
|
|
$
|
20,000
|
|
|
|
|
Science and Technology Committee
|
|
$
|
20,000
|
|
|
Committee Membership Retainer
|
|
|
|
|
|
|
|
|
|
Audit and Finance Committee
|
|
$
|
15,000
|
|
|
|
|
Management Development and Compensation Committee
|
|
$
|
12,500
|
|
|
|
|
Corporate Governance and Nominating Committee
|
|
$
|
10,000
|
|
|
|
|
Science and Technology Committee
|
|
$
|
10,000
|
|
|
Annual Co-Lead Independent Director Retainer
|
|
|
|
$
|
40,000
|
|
|
Equity
|
|
|
|
|
|
|
|
Initial Equity Grant
|
|
A $400,000 value-based award in restricted stock units vesting after 12 months
|
|
Annual Equity Retainer
|
|
On June 1 of each year, a $400,000 value-based award, which the directors can elect to receive in the form of:
|
|
|
|
options that are fully-vested upon grant;
|
|
|
|
restricted stock units that vests on the first anniversary of the date of grant; or
|
|
|
|
a mix of options and restricted stock units
|
Each of our non-employee directors is eligible
to defer 50% or 100% of the cash and restricted stock portion of his/her compensation set forth above and elect to receive deferred
stock units that are paid out in common stock upon the earliest to occur of (i) termination of the non-employee director’s
service on our board of directors, (ii) a change of control and (iii) the non-employee directors disability or death.
Our non-employee directors also are reimbursed
for their business-related expenses incurred in connection with attendance at board and committee meetings and related activities.
Our only employee director, Dr. Leiden, receives no separate compensation for his service in such capacity.
We annually review the compensation program for
our non-employee directors. In the second half of 2018, based on a market assessment of the board compensation at our peer companies,
we modified the non-employee director compensation program to (i) reduce the value of the equity compensation to our directors
from $475,000 to $400,000 and (ii) allow the directors to choose whether to receive their equity grants in the form of restricted
stock units or stock options.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
24
2018 Summary Compensation
|
Director
|
|
Fees Earned or
Paid in Cash
|
|
|
Stock
Awards
(1)
|
|
|
Option
Awards
(1)
|
|
|
Total
|
|
|
Sangeeta N. Bhatia
|
|
$
|
130,000
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
605,315
|
|
|
Alan Garber
|
|
$
|
110,000
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
585,315
|
|
|
Terrence C. Kearney
|
|
$
|
142,500
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
617,815
|
|
|
Yuchun Lee
|
|
$
|
125,000
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
600,315
|
|
|
Margaret G. McGlynn
|
|
$
|
120,000
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
595,315
|
|
|
Bruce I. Sachs
(2)
|
|
$
|
180,000
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
655,315
|
|
|
Elaine S. Ullian
|
|
$
|
172,500
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
647,815
|
|
|
William D. Young
|
|
$
|
122,500
|
|
|
$
|
275,085
|
|
|
$
|
200,230
|
|
|
$
|
597,815
|
|
|
(1)
|
The amounts set forth under the captions “Stock Awards” and “Option
Awards” in the table above represent the grant-date fair value for financial statement reporting purposes of the equity
awards granted during 2018. Our methodology, including underlying estimates and assumptions, for calculating these values
is set forth in Note N to our consolidated financial statements included in our 2018 Annual Report on Form 10-K, filed with
the SEC on February 13, 2019.
|
|
(2)
|
Mr. Sachs elected to defer his quarterly cash retainers, which were paid in deferred stock
units, on each of the quarterly payment dates occurring on the 15
th
of the month following the quarter end in an
amount equal to the dollar value of the cash amount that would have been paid on such date divided by the fair market value
of a share of common stock on each such date. The per share fair market values of our common stock on each of those dates
was $160.89, $180.97, $179.29 and $184.90.
|
2018 Equity Grants
|
Grant
|
|
Date
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Grant-Date
Fair Value
|
|
|
Annual Non-Employee Director Option Grants
|
|
June 1, 2018
|
|
|
3,229
|
|
|
|
$ 152.74
|
|
|
|
$ 200,230
|
|
|
Annual
Non-Employee Director Restricted Stock Unit Grants
|
|
June 1, 2018
|
|
|
1,801
|
|
|
|
N/A
|
|
|
|
$ 275,085
|
|
Outstanding Equity
As of December 31, 2018, our non-employee directors
had outstanding restricted stock units, deferred stock units and stock options to purchase our common stock as follows:
|
Director
|
|
Outstanding
Restricted Stock Units
|
|
Outstanding Deferred
Stock Units
|
|
Exercisable
Options
|
|
Total
Outstanding
Options
|
|
Sangeeta N. Bhatia
|
|
1,801
|
|
—
|
|
17,203
|
|
20,953
|
|
Alan Garber
|
|
3,451
|
|
—
|
|
5,224
|
|
8,549
|
|
Terrence C. Kearney
|
|
1,801
|
|
—
|
|
75,972
|
|
75,972
|
|
Yuchun Lee
|
|
1,801
|
|
—
|
|
98,931
|
|
98,931
|
|
Margaret G. McGlynn
|
|
1,801
|
|
2,188
|
|
65,597
|
|
65,597
|
|
Bruce I. Sachs
|
|
1,801
|
|
9,087
|
|
125,597
|
|
125,597
|
|
Elaine S. Ullian
|
|
1,801
|
|
—
|
|
83,097
|
|
83,097
|
|
William D. Young
|
|
1,801
|
|
—
|
|
85,597
|
|
85,597
|
Non-Employee Director
Stock Ownership Guidelines
We have stock ownership guidelines for our non-employee
directors pursuant to which our non-employee directors should, within five years of becoming subject to the guidelines, achieve
ownership of shares of our common stock with a value equal to at least five times the annual cash retainer.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
25
CORPORATE SOCIAL RESPONSIBILITY
Vertex has grown into a leading global biotechnology
company that repeatedly innovates to bring transformative medicines to people with serious diseases around the world. As we have
grown, so too has our commitment to corporate social responsibility. We are pleased by the recognition we have received, such as
our inclusion on Barron’s 100 Most Sustainable Companies list.
|
Community
|
At Vertex, giving back is in our DNA. In 2018,
Vertex and its employees supported more than 1,100 nonprofit organizations in 13 countries through Vertex Volunteers and The
Vertex Foundation Matching Gift Program. These efforts are part of our 10-year, $500 million corporate giving commitment announced
in 2017.
The Vertex Foundation, a nonprofit 501(c)(3)
foundation established in 2017, is a long-term source of charitable giving. It seeks to improve the lives of people with serious
diseases and in our communities through education, innovation, and health.
Our corporate giving extends and expands our
long-term commitment to patients with serious diseases and our communities, including a focus on science, technology, engineering,
arts and math (STEAM) education. Our collaboration with the Boston Public Schools provides access to our 3,000 square foot Learning
Lab to 1,500 students annually. In 2018, we expanded this commitment and opened a Learning Lab in our research site in San Diego,
reaching 450 students in its first months. In addition, students may participate in mentoring and internship opportunities with
Vertex scientists. We also annually grant full four-year scholarships to the University of Massachusetts and provide 85 scholarships
to people with cystic fibrosis or their family members who are pursuing two-year, four-year or graduate degrees.
We encourage our employees to participate in
community service activities through Vertex Volunteers program. In 2018, we celebrated our 10
th
annual Day of Service
with more than 1,000 employees in 13 countries collectively volunteering over 3,500 hours in their local communities in a single
day. Throughout the year, Vertex Volunteers enables employees to volunteer in their local communities, such as
pro bono
activities
conducted by members of our legal and compliance group and activities arranged through our Employee Resource Networks.
|
Workplace
|
We believe that in an inclusive workforce, each
employee brings diverse perspectives and strengths, and that embracing those strengths and celebrating those differences is essential
to our success and to driving innovation. We are pleased to rank #5 among 1,000 companies in Forbes 2019 Best Employers for
Diversity List. In 2018, for the ninth consecutive year, Vertex ranked in the top 10 of Science Magazine’s Top Employer List,
in addition to other local workplace recognitions.
Five of our ten board members are diverse based
on gender and/or ethnicity. This includes three female board members, and we are pleased to have been recognized by 2020 Women
on Boards, a non-profit organization that is focused on educating corporate stakeholders on the importance of board diversity.
On a global basis, our employees are nearly evenly
split between men and women. In the United States, approximately 30% of our workforce and 39% of new hires are racially/ethnically
diverse. As of the end of 2018, 38% of our global leadership (VP and above) were women and 19% of U.S. leadership were racially/ethnically
diverse.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
26
|
Environment
|
We are committed to limiting our environmental
impacts and to operating our business in a sustainable manner.
Strong local efforts are reducing our environmental
impacts. Vertex is on track to reduce greenhouse gas emissions by 35% by 2020 at our Boston office (over a 2015 baseline). Vertex’s
research facility in Oxford, UK uses 100% renewable energy sources for its electricity and gas. At our research site in San Diego,
we divert 15,000 pounds of cardboard and glass annually through a unique solvent distribution system. In addition, our facilities
in Boston and in San Diego are LEED Gold certified and our office in London achieved a BREEAM rating of excellent.
We promote energy efficiency outside of our buildings,
too. Employees are encouraged to use public transportation to commute to work and we offer a subsidy for them to do so. Approximately
50% of employees in Boston and 86% of employees in London commute using public transportation. In San Diego, our efforts to encourage
more sustainable commuting methods achieved the highest recognition from the San Diego Association of Government’s iCommute
program, one of only 17 companies to achieve the platinum level.
Building on these local sustainability efforts,
we plan to establish global, long-term environmental goals by the end of 2019, including an absolute reduction in greenhouse gas
emissions. We plan to report progress against the goals annually and participate in CDP Climate Change survey beginning in 2020.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
27
|
Item 2
|
Amendment and Restatement of 2013 Stock and Option Plan
|
Our broad-based equity compensation program is
essential to attract, retain and motivate people with the necessary talent and experience and to provide additional incentive to
achieve our short- and long-term business objectives. Accordingly, we are requesting that our shareholders approve an amendment
and restatement of our 2013 Stock and Option Plan, or 2013 Plan, which would increase the number of shares available for issuance
under the 2013 Plan by 5.0 million shares.
On April 9, 2019, our board of directors amended
and restated our 2013 Plan, subject to shareholder approval, to, among other things, increase the number of shares of common stock
authorized for issuance under the 2013 Plan by 5.0 million shares.
Our 2013 Plan utilizes “fungible”
shares, with stock options counting as one share against the total authorized shares and full value awards, such as restricted
stock or restricted stock units, counting as 1.66 shares against the total authorized shares. We adopted this fungible share plan
to provide flexibility in the types of awards we grant under our equity compensation program, while appropriately accounting for
the difference between stock options and full value awards. Over the last several years, we have implemented changes in our equity
compensation program for our employees, executives and our board that have significantly reduced dilution from our employee equity
awards while maintaining a broad-based equity program. We believe that our equity compensation program has been fundamental to
our success over the last several years and that the amendment and restatement of the 2013 Plan, which authorizes the issuance
of additional shares subject to the 2013 Plan, is necessary in order to support our equity compensation program going forward.
Maintenance of Broad-Based Equity Program While Reducing Dilution
Since our inception, we have compensated all
eligible employees using a mix of cash and equity. The broad-based nature of our equity compensation program is an important element
of our overall employee compensation program and reflects our philosophy that it is important for all of our employees to approach
their jobs with a long-term commitment and perspective. Over the last several years, we have modified our equity compensation programs.
These modifications are consistent with modifications other biotechnology companies have made as they matured from development-stage
companies to commercial-stage companies with a strong financial profile. As a result of these changes, we granted, on an absolute
basis, equity awards representing 42% fewer shares of common stock in 2018 as compared to 2012 and reduced our “burn rate”
from 3.6% in 2012 to 1.7% in 2018.
|
|
|
2012
Equity
Awards
|
|
2013
Equity
Awards
|
|
2014
Equity
Awards
|
|
2015
Equity
Awards
|
|
2016
Equity
Awards
|
|
2017
Equity
Awards
|
|
2018
Equity
Awards
|
|
% Change
2012 v 2018
|
|
Total Shares Granted Subject to Equity Awards
|
|
7,525,000
|
|
6,276,000
|
|
5,629,000
|
|
5,035,000
|
|
4,887,000
|
|
4,470,000
|
|
4,391,000
|
|
(42)%
|
|
Gross Burn Rate
(1)
|
|
3.6%
|
|
2.8%
|
|
2.4%
|
|
2.1%
|
|
2.0%
|
|
1.8%
|
|
1.7%
|
|
|
|
Awards Canceled, Forfeited or Expired
|
|
1,644,000
|
|
2,622,000
|
|
1,628,000
|
|
1,573,000
|
|
928,000
|
|
1,107,000
|
|
826,000
|
|
|
|
Net Dilution
|
|
5,881,000
|
|
3,654,000
|
|
4,001,000
|
|
3,462,000
|
|
3,959,000
|
|
3,363,000
|
|
3,565,000
|
|
|
|
Net Burn Rate
|
|
2.8%
|
|
1.6%
|
|
1.7%
|
|
1.4%
|
|
1.6%
|
|
1.3%
|
|
1.4%
|
|
|
|
(1)
|
“Burn rate” is defined as the number of equity awards granted in a
specific year divided by the basic weighted average number of shares outstanding during that year.
|
Key Provisions of our 2013 Plan
The 2013 Plan includes a number of provisions
designed to serve shareholders’ interests and facilitate effective corporate governance, including the following:
|
|
Fungible Shares
: Options granted at fair market value on the grant date,
and any other awards that we may in the future grant at a purchase price of 100% of the fair market value of a share of our
common stock on the date of grant such as stock appreciation rights, count against the number of shares authorized under our
2013 Plan at a rate of one share for each share granted. Any restricted stock units, restricted stock or other “full
value” awards granted under the 2013 Plan count against the number of shares authorized for issuance under our 2013
Plan at a rate of 1.66 shares for each share granted.
|
|
|
No Stock Option Re-pricing/Exchange
: Except in connection with specific corporate transactions
(including stock dividends, stock splits, consolidations, mergers, recapitalizations and reorganizations), the 2013 Plan does
not permit (i) the amendment of stock options or stock appreciation rights granted under the 2013 Plan to provide an exercise
price that is lower than the then-current price per share of such outstanding option or stock appreciation right, (ii) the
cancellation of any outstanding option or stock appreciation right (whether or not granted under the 2013 Plan) and the grant
in substitution therefor of any award under the 2013 Plan covering the same or a different number of shares of common stock
and having an exercise price per share lower than the then-current exercise price per share of the
|
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
28
cancelled option or stock appreciation right
or (iii) the cancellation in exchange for a cash payment of any outstanding option or stock appreciation right with an exercise
price per share above the then-current fair market value of our common stock without shareholder approval.
|
|
No Discounted Stock Options or SARs
: Stock options and stock appreciation
rights cannot be granted with an exercise price less than the fair market value on the date of grant.
|
|
|
No “Evergreen” Provision
: The 2013 Plan does not contain an “evergreen”
or similar provision. The 2013 Plan fixes the number of shares available for future grants and does not provide for any increase
based on increases in the number of outstanding shares of common stock.
|
|
|
No Reload Rights
: Stock options granted under the 2013 Plan do not contain provisions
entitling participants to automatic grants of additional stock options in connection with the exercise of the original option.
|
|
|
Limitation on Re-use of Shares
: Shares that are delivered to, or withheld by, the company
under an award may not be reissued under the 2013 Plan. Shares may be delivered or withheld in connection with the exercise
of stock options or the payment of required withholding taxes.
|
|
|
Limitations on Dividend Payments
: No dividends or dividend equivalents will be paid
with respect to shares subject to stock options or stock appreciation rights unless and until such awards have vested and
been exercised in accordance with their terms. Any dividends or dividend equivalents paid with respect to shares underlying
stock rights other than stock options or stock appreciation rights will be subject to the same vesting terms otherwise applicable
to the award.
|
|
|
Independent Committee
: As it relates to our employees, the 2013 Plan is administered
by the MDCC, which consists of “outside directors” within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, or the Code, “non-employee directors” within the meaning of Rule 16b-3 of the Exchange
Act and “independent directors” as defined by Nasdaq.
|
Existing Plans
As of March 31, 2019, options to purchase (i)
an aggregate of 7,331,667 shares having a weighted-average exercise price of $134.89 per share and a weighted-average term before
expiration of 7.93 years were outstanding under our 2013 Plan, and (ii) an aggregate of 1,370,072 shares having a weighted-average
exercise price of $66.40 per share and a weighted-average term before expiration of 3.84 years were outstanding under our Amended
and Restated 2006 Stock and Option Plan, or 2006 Plan. Also on March 31, 2019, there were outstanding an aggregate of 3,995,866
unvested shares of restricted stock and restricted stock units granted under our 2013 Plan and zero unvested shares of restricted
stock and restricted stock units granted under our 2006 Plan.
We may grant additional awards under our 2013
Plan. We are not able to grant additional awards under our 2006 Plan. As of March 31, 2019, there were 11,670,561 shares remaining
available for award under our 2013 Plan. In addition, any shares of common stock subject to awards outstanding under the 2006 Plan
which expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price
pursuant to a contractual repurchase right, will become available for issuance under the 2013 Plan.
Submission of 2013 Plan
We are submitting the amendment to our
2013 Plan to our shareholders as required under applicable rules of Nasdaq and to ensure (i) favorable federal income tax
treatment under Section 422 of the Code, for any grants of incentive stock options that we may make under our 2013 Plan and
(ii) continued eligibility under Rule 162(m) of the Code, to the extent applicable, for a federal income tax deduction with
respect to compensation earned in respect of certain awards granted under our 2013 Plan prior to December 22, 2017.
Summary of the Amended and
Restated 2013 Stock and Option Plan
A summary of the principal features of our 2013
Plan is set forth below. A copy of our 2013 Plan, as amended and restated and in the form that would become effective upon shareholder
approval of this proposal, is attached to this proxy statement as Appendix A.
Administration and Eligibility for Participation
The 2013 Plan is administered by our board of
directors or any committee to which it delegates all or a part of its administrative responsibilities under the 2013 Plan. Our
board has delegated the administration of the 2013 Plan to the MDCC. Subject to the provisions of the 2013 Plan, our board, or
an authorized committee of our board, determines the persons to whom awards under the 2013 Plan will be granted, the number of
shares to be covered by each award, the exercise price per share and the manner of exercise, the terms and conditions upon which
awards are granted, whether to accelerate the vesting or extend the date of exercise of
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
29
any installment of any award and how to interpret
the provisions of the 2013 Plan. Awards may be granted under the 2013 Plan to our employees, including officers and directors who
are employees, and to our consultants, advisors and non-employee directors. As of March 31, 2019, we and our subsidiaries had approximately
2,600 employees and nine non-employee directors eligible to participate in the 2013 Plan. The number of consultants and advisors
eligible for awards under our 2013 Plan varies from time to time. No participant may be granted awards in any calendar year for
more than 1,000,000 shares, subject to adjustment for stock splits and similar recapitalizations.
Description of Awards
The 2013 Plan provides for the award of stock
options, stock grants, and other stock-based awards. Any restricted stock grants, restricted stock units or other “full value”
awards granted under the 2013 Plan will count against the number of shares authorized for issuance under the 2013 Plan at a rate
of 1.66 shares for each share granted. Shares of common stock reserved for such awards granted under the 2013 Plan that lapse or
are canceled or forfeited are added back to the share reserve at a rate of 1.66 shares for each share that lapses or is canceled
or forfeited. Shares of common stock issued pursuant to restricted stock agreements and restricted stock unit awards may be purchased
by employees for nominal value. If we were to permit shares of common stock to be delivered to us to pay the exercise price of
a stock option or to be withheld to fund the payment of taxes, those shares would not be added back to the share reserve available
for future awards. No option or stock appreciation right may be granted with a term exceeding ten years from the date of grant.
Stock Options
Stock options provide award recipients with the
right, subject to the terms and conditions that are specified in connection with the option grant, to purchase a specified number
of shares of our common stock at a specified exercise price. Stock options granted under the 2013 Plan may be awarded as either
non-qualified stock options or as incentive stock options within the meaning of Section 422 of the Code, referred to as ISOs, however
only employees may receive ISOs. The maximum value of shares of common stock—determined at the time of grant—that may
be subject to ISOs that become exercisable by an employee in any one year is limited to $100,000. Since 2003, we have only granted
non-qualified stock options under our equity plans.
Stock options granted under the 2013 Plan may
not be granted with an exercise price that is less than the fair market value of our common stock on the date of grant, which is
defined under the 2013 Plan as the average of the highest and lowest quoted selling prices on such date. ISOs may not be granted
with an exercise price that is less than 110% of fair market value in the case of employees or officers holding 10% or more of
our voting stock. ISOs granted to an employee or officer holding 10% or more of our voting stock must expire not more than five
years from the date of grant.
Stock options granted under the 2013 Plan can
only be exercised by the option holder and are not transferable except by the laws of descent and distribution or pursuant to domestic
relations orders or Title I of the Employee Retirement Income Security Act or as otherwise determined by the MDCC, provided such
transfer is not for value.
The 2013 Plan provides for stock option grants
to non-employee directors under our director compensation program. In addition to any other stock rights as may be determined by
our board of directors each non-employee director serving in office on June 1 of any year is granted, pursuant to our equity plans,
a fully vested non-qualified option to purchase a specified number of shares determined from time to time by our board.
The 2013 Plan permits the MDCC to determine the
manner of payment of the exercise price of options. Such methods include payment by cash or check, or, at the discretion of the
MDCC, by means of a broker assisted “cashless exercise,” delivery to us of shares of our common stock, any combination
of such methods or any other lawful means approved by the MDCC, other than delivery of a promissory note.
Stock Grants
A stock grant is an award of shares of common
stock. Stock grants may be issued subject to restrictions on transfer and vesting requirements, as determined by the board or an
authorized committee of the board. Vesting requirements may take the form of our lapsing right to repurchase the stock from the
award recipient, based on either continued employment for specified time periods or on the attainment of specified business performance
goals set by our board or the committee of our board. Subject to the transfer restrictions and our repurchase rights, if any, the
grantee will have all rights with respect to unvested shares of common stock issued under a stock grant as are possessed by our
other shareholders, including all voting and dividend rights, provided that dividends, if any, with respect to unvested shares
shall accrue and be payable only upon the vesting of such shares.
Stock-Based Awards
The 2013 Plan provides that the MDCC may grant
other stock-based awards, including restricted stock units, share grants based upon specified conditions, the grant of securities
convertible into shares, or the grant of stock appreciation rights, or phantom stock awards, in each case upon terms and conditions
established by the MDCC.
Performance Awards
Under the 2013 Plan, we have the discretionary
authority to structure one or more awards so that the shares of common stock subject to those particular awards will not vest unless
certain pre-established objective performance goals are achieved, in order to, with respect to awards made before December 22,
2017, qualify such awards as performance-based compensation that will not be subject to the $1,000,000 limitation imposed by Section
162(m) of the Code, to the extent applicable, on the income tax deductibility of the compensation paid to specified executive officers.
Such objective goals may be based on one or more of the following criteria: (i) revenue targets or revenue growth; (ii) achievement
of specified
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
30
milestones in the discovery, development or regulatory
approval of one or more of our drug candidates; (iii) achievement of specified milestones in the commercialization of one or more
of our products; (iv) achievement of specified milestones in the manufacturing of one or more of our products; (v) cost reduction
or other expense control targets; (vi) personal management objectives; (vii) stock price (including, but not limited to, growth
measures); (viii) total shareholder return; (ix) income per share; (x) operating efficiency measures; (xi) operating margin; (xii)
gross margin; (xiii) return measures (including, but not limited to, return on assets, capital, equity or sales); (xiv) net or
total revenue levels; (xv) productivity ratios; (xvi) operating income; (xvii) net operating profit; (xviii) net earnings or net
income (before or after taxes); (xix) cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow
return on capital); (xx) earnings or operating income before interest, taxes, depreciation, amortization and/or stock-based compensation
expense; (xxi) mergers, acquisitions or divestitures objectives; (xxii) market share; (xxiii) customer satisfaction; (xxiv) working
capital targets; (xxv) budget objectives and (xxvi) achievement of other balance sheet or statements of operations objectives.
Each objective performance measure that is a
financial measure may be determined pursuant to generally accepted accounting principles (GAAP) or on a non-GAAP basis. Such objective
performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance of a
peer group of entities, an index or indices or other external measure of the selected performance criteria, and may be absolute
in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective
performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the
avoidance of loss. Such performance measures: (1) may vary by participant and may be different for different awards; (2) may be
particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works
and may cover such performance period as may be specified by us; and (3) shall be set within the time period prescribed by, and
shall otherwise comply with the requirements of, Section 162(m) of the Code, to the extent applicable.
We may specify that such performance measures
shall be adjusted to exclude or provide for appropriate adjustment for one or more of the following items: (A) asset impairments
or write-downs; (B) litigation and governmental investigation expenses and judgments, verdicts or claim settlements; (C) the effect
of changes in tax law, accounting principles or other laws, regulations or provisions affecting reported results; (D) the effect
of exchange rates for non-US dollar denominated net sales or goals based on operating profit, earnings or income; (E) accruals
for reorganization and restructuring programs; (F) any non-GAAP adjustments as described in our earnings releases or in the management’s
discussion and analysis of financial condition and results of operations appearing in our periodic reports; (G) items of income,
gain, loss or expense attributable to the operations of any business acquired by us, any parent or subsidiary or of any joint venture
established by us or any parent or subsidiary; (H) costs and expenses incurred in connection with mergers and acquisitions; (I)
items of income, gain, loss or expense attributable to one or more business operations divested by us, or any parent or subsidiary
or the gain or loss realized upon the sale of any such divested business or the assets thereof; or (J) the effect of any change
in the outstanding shares of common stock effected by reason of a stock split, stock dividend, stock repurchase, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions
to our shareholders other than regular cash dividends.
Notwithstanding any provision of the 2013 Plan,
with respect to any award that is intended to qualify as performance-based compensation, we may adjust downwards, but not upwards,
the number of shares payable pursuant to such award, and we may not waive the achievement of the applicable performance measures
except in the case of the death or disability of the participant or a change in control of our company or as otherwise provided
by the MDCC.
We shall have the power to impose such other
restrictions on performance awards as we may deem necessary or appropriate to ensure that such awards satisfy all requirements
for performance-based compensation.
The foregoing references in this “Performance
Awards” section to Section 162(m) of the Code refer to such Code section as in effect prior to December 22, 2017, including
the regulations thereunder and other applicable Internal Revenue Service guidance, whether promulgated or issued before or after
December 22, 2017.
It is the intent of the Company that the amendment
and restatement of the 2013 Plan not constitute a “material modification” of the Plan or awards granted under it prior
to June 5, 2019 (the effective date of the amendment and restatement of the 2013 Plan), in each case within the meaning of Section
162(m) of the Code. However, there can be no guarantee that awards made before December 22, 2017 under the 2013 Plan will be deductible
as qualified performance-based compensation under Section 162(m) of the Code. In addition, the MDCC has and will continue to have
authority to pay or provide compensation (including under the 2013 Plan) that is not deductible under Section 162(m) of the Code
in order to maintain a competitive compensation program and provide compensation that will attract and retain highly qualified
executives.
Adjustments in the Event of Stock Dividends, Stock Splits, Recapitalizations
or Reorganizations
The number of shares subject to stock rights
and other terms applicable to such rights will be equitably adjusted if we issue a stock dividend, or in the event of a stock split,
recapitalization or reorganization. In addition, in the event of certain consolidations or acquisitions or a sale of substantially
all of our assets, either (i) the MDCC or the entity assuming our obligations under the 2013 Plan shall make appropriate provision
for the continuation of all outstanding stock rights under the 2013 Plan or grant replacement stock rights on an equitable basis
as determined by the MDCC or the relevant entity, or (ii) if there is no assumption or replacement, the vesting of all outstanding
and unvested stock rights under the 2013 Plan will be accelerated and such stock rights will become fully exercisable immediately
prior to such consolidation, acquisition or sale.
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Effective Date, Amendment and Expiration
The 2013 Plan became effective on May 8, 2013
and was previously amended and restated effective as of June 4, 2015, June 8, 2017, May 17, 2018 and October 16, 2018. The amendment
and restatement of our 2013 Plan will be effective, subject to shareholder approval, on June 5, 2019. The 2013 Plan will terminate
on April 12, 2027. Our board of directors may terminate or amend the 2013 Plan at any time, subject to shareholder approval under
certain circumstances as provided in the 2013 Plan. No amendment or termination of the 2013 Plan will adversely and materially
affect the rights provided in any award made under the 2013 Plan prior to the plan amendment or termination. Neither our board
nor the administrator has the authority to reduce the exercise price of any stock option after the date of grant, except in the
case of an equitable adjustment required under the 2013 Plan. No award may be made under the 2013 Plan after the plan expiration
date. Awards made prior to expiration of the 2013 Plan may extend beyond the plan expiration date.
U.S. Federal Income Tax Consequences
The discussion of federal income tax consequences
that follows is based on an analysis of the Code as currently in effect, existing law, judicial decisions and administrative regulations
and rulings, all of which are subject to change, and is applicable to optionees who are U.S. taxpayers.
Non-Qualified Options
Options that are designated as non-qualified
options are not intended to qualify for treatment under Section 422 of the Code. Options otherwise qualifying as ISOs, to the extent
the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar
year exceeds $100,000, also will be treated as options that are not ISOs.
A non-qualified option ordinarily will not result
in income to the optionee or a deduction for us for tax purposes at the time of grant. Instead, the optionee will recognize compensation
income at the time of exercise of a non-qualified option in an amount equal to the excess of the fair market value of the shares
at the time of exercise over the option exercise price. Any compensation income may be subject to withholding taxes, and a deduction
may then be allowable to us in an amount equal to the optionee’s compensation income.
An optionee’s initial basis in shares so
acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income.
Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss.
Incentive Stock Options
ISOs are intended to qualify for treatment under
Section 422 of the Code. An ISO does not result in taxable income to the optionee or a deduction for us at the time it is granted
or exercised, provided that the optionee does not dispose of the shares acquired pursuant to the option either within two years
after the date of grant of the option or within one year after the shares are issued, referred to as the ISO holding period. However,
the difference between the fair market value of the shares on the date of exercise and the option exercise price will be an item
of tax preference that is included in alternative minimum taxable income. Upon disposition of the shares after the expiration of
the ISO holding period, the optionee generally will recognize long-term capital gain or loss based on the difference between the
disposition proceeds and the option exercise price paid for the shares. If the shares are disposed of prior to the expiration of
the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction,
in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option
over the option exercise price. Any additional gain realized on the disposition normally will constitute capital gain. If the amount
realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount
of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares.
Stock Grants
With respect to stock grants that result in the
issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the
grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time
of issuance generally will result in the deferral of the time the grantee will be liable for income taxes with respect to such
issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
With respect to stock grants involving the issuance
of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee generally must
recognize ordinary income equal to the fair market value of the shares received at the time the shares become transferable or are
not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of receipt
of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently
forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the
shares on which the grantee previously paid tax. The grantee must file any such election with the Internal Revenue Service within
30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized
by the grantee.
The granting of awards under the 2013 Plan is
discretionary and we cannot now determine the number or type of awards to be granted in the future to any particular person or
group. For further information on awards to non-employee directors, see the section “Non-Employee Director Compensation Program”
beginning on page 24 of this proxy statement.
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The following table sets forth, as to our named
executive officers and the other individuals and groups indicated, the number of shares of our common stock subject to option grants
made under the 2013 Plan from May 8, 2013 through March 31, 2019.
|
Name
|
|
Position
|
|
Number of Shares
Underlying Options
Granted
|
|
Named Executive Officers
|
|
|
|
|
|
Jeffrey M. Leiden
|
|
Chairman, President & Chief Executive Officer
|
|
889,019
|
|
Stuart A. Arbuckle
|
|
EVP & Chief Commercial Officer
|
|
273,926
|
|
Michael Parini
|
|
EVP & Chief Legal and Administrative Officer
|
|
179,699
|
|
Amit Sachdev
|
|
EVP & Chief Regulatory Officer
|
|
260,552
|
|
Jeff Chodakewitz
|
|
Former EVP & Chief Medical Officer
|
|
216,921
|
|
Thomas Graney
|
|
Former SVP & Chief Financial Officer
|
|
10,436
|
|
Ian F. Smith
|
|
Former EVP & Chief Operating Officer
|
|
255,113
|
|
All executive officers as a group (10 persons)
|
|
|
|
2,405,705
|
|
Director Nominees
|
|
|
|
|
|
Sangeeta N. Bhatia
|
|
|
|
45,597
|
|
Lloyd Carney
|
|
|
|
—
|
|
Terrence C. Kearney
|
|
|
|
55,597
|
|
Yuchun Lee
|
|
|
|
55,597
|
|
Jeffrey M. Leiden
|
|
|
|
889,019
|
|
Bruce I. Sachs
|
|
|
|
60,597
|
|
All non-employee board members, including nominees, as a group (9 persons)
|
|
|
|
427,728
|
|
All employees, including current
officers who are not executive officers, as a group
|
|
|
|
11,513,878
|
On March 29, 2019, the last reported sale price
of our common stock on Nasdaq was $183.95 per share.
Our board of directors recommends
a vote
FOR
the approval of the amendment and restatement of our 2013 stock and option plan, that, among other things, increases
the number of shares authorized for issuance under this plan by 5.0 million shares. The affirmative vote by the holders of a majority
of the votes cast in person or by proxy on this matter is required for the approval of this proposal.
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33
Equity Compensation Plan
Information
As of March 31, 2019, there were 11,670,561 shares
remaining available for award under our 2013 Plan. Under our 2013 Plan, all awards may be granted as full value awards but count
as 1.66 shares for each full value share awarded.
As of March 31, 2019, under our equity plans:
|
|
Stock options covering 8,701,739 shares of our common stock, with a weighted average
exercise price of $124.11 and a weighted average remaining term of 7.28 years, were outstanding; and
|
|
|
unvested restricted stock awards or units covering 3,995,866 shares of our common stock were
outstanding.
|
The following table provides aggregate information
with respect to all of our equity compensation plans in effect as of December 31, 2018. We are required under applicable SEC rules
to disclose in this table the number of shares remaining available for issuance under our equity plans as of December 31, 2018.
Accordingly, the figures in the table below do not reflect the equity grants made to our employees under our 2013 Stock and Option
Plan, or 2013 Plan, since December 31, 2018.
|
Plan Category
|
|
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Restricted Stock
Units and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding Options
and Rights
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in first column)
|
|
|
Equity Compensation Plans Approved by Shareholders
(1)
|
|
12,026,549
|
(2)
|
111.46
|
(3)
|
15,139,962
|
(4)
|
|
Equity Compensation Plans Not Approved by Shareholders
|
|
—
|
|
—
|
|
—
|
|
|
TOTAL
|
|
12,026,549
|
|
|
|
15,139,962
|
|
|
(1)
|
These plans consist of our 2013 Plan, our 2006 Stock and Option Plan (“2006 Plan”)
and our Employee Stock Purchase Plan. No further shares of common stock will be issued or distributed under the 2006 Stock
and Option Plan.
|
|
|
|
|
(2)
|
Represents the number of underlying shares of common stock associated with outstanding options,
restricted stock units, performance stock units, and deferred stock units granted under stockholder approved plans, as of
December 31, 2018, and includes 6,799,082 options granted under the 2013 Plan, 2,698,193 restricted stock units granted under
the 2013 Plan, 758,866 PSUs (assuming the maximum number of PSUs will be earned) granted under the 2013 Plan, 16,678 deferred
stock units attributable to compensation deferred by non-employee directors participating in the Director Plan and distributable
in the form of shares of common stock under the 2013 Plan (and which are treated as outstanding “stock rights”
under the 2013 Plan), 1,751,821 options granted under the 2006 Plan, and 1,909 restricted stock units granted under the 2006
Plan. Does not include 479,552 shares of restricted stock outstanding as of December 31, 2018.
|
|
|
|
|
(3)
|
Represents the weighted-average exercise price of options outstanding under the 2013 Plan
and 2006 Plan. See note (2) above with respect to restricted stock units, PSUs and deferred stock units (credited under the
Director Plan) outstanding under the 2013 Plan. The weighted-average exercise price does not take these awards into account.
|
|
|
|
|
(4)
|
Represents the number of shares available for future issuance under stockholder approved equity
compensation plans and is comprised of 14,737,360 shares available for future issuance under the 2013 Plan and 402,602 shares
available for future issuance under the Employee Stock Purchase Plan, including shares to be purchased at the end of the current
offering period ending May 15, 2019.
|
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INCORPORATED
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34
|
Item 3
|
Amendment and Restatement of ESPP
|
Our board of directors believes that our employee
stock purchase plan provides an important employee benefit that helps us attract and retain employees and encourage their participation
in and commitment to our business and financial success. We are requesting that our shareholders approve an increase in the number
of authorized shares under our Employee Stock Purchase Plan of 2.0 million shares.
The Vertex Pharmaceuticals Incorporated Employee
Stock Purchase Plan, or ESPP, was adopted by our board of directors in 1992, and has been approved by the shareholders. Under the
ESPP, eligible employees have the right to purchase our common stock through payroll deductions, on a tax-favored basis in compliance
with Section 423 of the Code. As of March 31, 2019, approximately 2,600 employees were eligible to participate in the ESPP and
there were 402,602 shares available for future issuances under the ESPP.
The ESPP does not contain an “evergreen”
provision or similar provision that increases the number of shares available for future grants.
In April 2019, our board of directors amended
our ESPP, subject to shareholder approval, by increasing the number of shares of common stock authorized for issuance under the
ESPP by 2.0 million shares.
Summary of Employee Stock
Purchase Plan
The ESPP is administered by the MDCC, which has
the power to construe and interpret the ESPP and to determine all questions that arise under the ESPP. A copy of the ESPP, as proposed
to be amended, is attached to this proxy statement as Appendix B.
Because participation in the ESPP is voluntary
and employees may withdraw from the ESPP at any time during a purchase period without penalty, the benefits to be received by any
particular person or group are not determinable by us at this time.
Individuals are eligible to participate in the
ESPP if they are employed on an offering date, they are regularly employed by us for more than 20 hours a week and for more than
five months in a calendar year and they do not own five percent or more of our outstanding common stock. If we receive requests
from employees to purchase more than the number of shares available during any offering, the available shares will be allocated
on a pro rata basis to subscribing employees.
An eligible employee authorizes payroll deductions
in an amount not less than 1% nor greater than 15% of his or her “eligible earnings” (i.e., regular base pay, not including
overtime pay, bonuses, employee benefit plans or other additional payments) for each full payroll period in the offering period.
We make two offerings to purchase common stock
under the ESPP each year, one on May 15 and one on November 15. The ESPP provides that each offering period extends either for
twelve months, or, if an employee so elects within the 30-day period prior to the six-month anniversary of the offering date, for
six months. Each twelve-month offering period consists of two six-month purchase periods.
The price at which an employee may purchase common
stock under the ESPP is 85% of the lower of (i) the average of the highest and lowest quoted selling prices of the common stock
on the day an offering period commences, and (ii) the average of the highest and lowest quoted selling prices on the day the purchase
period ends.
If a participating employee voluntarily resigns
or is terminated by us prior to the last day of an offering period, the employee receives a refund of contributions made through
their last date of employment.
Our board of directors may at any time terminate
or amend the ESPP. However, our board may not amend the ESPP if any such amendment would increase the number of shares of common
stock reserved under the ESPP without approval of our shareholders or take such other action that would cause the ESPP to not comply
with Section 423 of the Code.
Summary of U.S. Federal Income Tax Consequences
The following is a summary of some of the material
federal income tax consequences associated with the grant and exercise of awards under the ESPP under current federal tax laws
and certain other tax considerations associated with awards under the ESPP. The summary does not address tax rates or non-U.S.,
state or local tax consequences, nor does it address employment tax or other federal tax consequences except as noted.
The ESPP is intended to qualify as an “employee
stock purchase plan” under Section 423 of the Code. Assuming that the ESPP is and remains so qualified, no taxable income
will be recognized by a participant until the sale or other disposition of the shares purchased under the ESPP.
If shares acquired under the ESPP are disposed
of more than two years after the first day of the applicable offering period and more than one year after the purchase date, or
if the participant dies while holding such shares, the participant (or his or her estate) will recognize ordinary income for the
gain amount up to 15% of the value of the shares at the start of the applicable offering period. Any additional gain, or any loss,
recognized on the disposition will be treated as a long-term capital gain or loss.
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If shares acquired under the ESPP are disposed
of within the two years following the start of the applicable offering period or within one year after the purchase date, the participant
will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the purchase date over
the purchase price. Any additional gain, or any loss, recognized will be treated as a short-term or long-term capital gain or loss
depending on how long the participant had held the shares.
The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized upon a sale
or disposition of shares prior to the expiration of the holding periods described above.
Our board of directors recommends
a vote
FOR
the approval of the amendment of our employee stock purchase plan, that, among other things, increases the number
of shares authorized for issuance under this plan by 2.0 million shares. The affirmative vote by the holders of a majority of the
votes cast in person or by proxy on this matter is required for the approval of this proposal.
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|
Item 4
|
Ratification of the Appointment of Independent Registered
Public Accounting Firm
|
Engagement of Ernst
& Young LLP
Our audit and finance committee is responsible
for the appointment, compensation and oversight of our independent registered public accounting firm. Ernst & Young LLP has
been our independent registered public accounting firm since 2005, and we believe that the selection of Ernst & Young LLP as
our independent registered accounting firm for the year ending December 31, 2019 is in the best interest of our company and our
shareholders.
In determining whether to reappoint our independent
registered public accounting firm, our audit and finance committee undertakes an annual formal evaluation of the independent registered
public accounting firm, during which it considers the quality of its discussions with and the performance of the lead audit partner,
the audit team assigned to our account, the potential impact of changing our independent registered public accounting firm, the
overall strength and reputation of the firm and issues pertaining to auditor independence, including fees that our independent
registered public accounting firm receives for non-audit services.
Each year, our audit and finance committee, together
with management, review the selection of our lead audit partner from Ernst & Young LLP. The review considers several factors,
including sound judgment, industry knowledge and experience managing audits of complex companies with substantial international
operations. After undertaking such review, we decided to retain the same lead audit partner from Ernst & Young LLP for the
2019 audit. In accordance with applicable requirements, we are required to change our lead audit partner every five years.
Representatives of Ernst & Young LLP are expected to attend the
annual meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate
questions from shareholders.
Effect of Vote
We are not required to have shareholders ratify
the selection of Ernst & Young LLP. If our shareholders do not ratify the selection, our audit and finance committee will reconsider
the selection of Ernst & Young LLP for the ensuing year, but may determine that continued retention of Ernst & Young LLP
is in our company’s and our shareholders’ best interests. Even if the appointment is ratified, the audit and finance
committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time
during the year if it determines that such a change would be in our company’s and our shareholders’ best interests.
Independent Registered
Public Accounting Firm Fees
The audit and finance committee works with our
management in order to negotiate appropriate fees with Ernst & Young LLP and is ultimately responsible for approving those
fees. The following is a summary and description of fees for services provided by Ernst & Young LLP in 2018 and 2017.
|
Service
|
|
2018
|
|
2017
|
|
Audit fees
|
|
|
$ 3,433,000
|
|
|
$ 2,818,000
|
|
Audit-related fees
|
|
|
0
|
|
|
24,000
|
|
Tax fees
|
|
|
2,790,000
|
|
|
2,587,000
|
|
All other fees
|
|
|
3,000
|
|
|
3,000
|
|
TOTAL
|
|
|
$ 6,226,000
|
|
|
$ 5,432,000
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
37
“Audit fees”
represented the
aggregate fees for professional services rendered for the audit of our annual consolidated financial statements, and our internal
controls over financial reporting, for the reviews of the consolidated financial statements included in our Form 10-Q filings for
each fiscal quarter, for statutory audits of our international operations and providing consents with respect to registration statements.
“Audit-related fees”
consisted
principally of fees for accounting consultations.
“Tax fees”
consisted of fees
related to tax compliance, worldwide tax planning and tax advice. The tax fees for 2018 and 2017 consisted of:
|
|
tax compliance and preparation fees, including the preparation of original and
amended tax returns and refund claims, and tax payment planning of $1,785,000 and $1,857,000, respectively; and
|
|
|
tax advice and planning fees of $1,005,000 and $730,000, respectively.
|
“All other fees”
consisted
of licensing fees paid to Ernst & Young LLP for access to its proprietary accounting research database.
Audit and Finance
Committee Pre-Approval Policies and Procedures
Our audit and finance committee has established
a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm.
Prior to the engagement of the firm for each year’s audit, management submits to our audit and finance committee for approval
a description of services expected to be rendered during that year for each of the following four categories of services and a
budget for those services in the aggregate.
|
|
Audit services
include audit work performed in the preparation of financial statements,
as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide,
including comfort letters, statutory audits, consents and attestation services.
|
|
|
Audit-related services
are for assurance and related services that traditionally are
performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions,
employee benefit plan audits, special procedures required to meet certain regulatory requirements and consultation regarding
financial accounting and/or reporting standards.
|
|
|
Tax services
include all services performed by the independent registered public accounting
firm’s tax personnel except those services specifically related to the audit of our financial statements, and include
fees in the areas of tax compliance, tax planning and tax advice.
|
|
|
All other fees
are those associated with services not captured in the three preceding
categories.
|
Prior to the engagement of our independent registered
public accounting firm, our audit and finance committee pre-approves these services by category of service. The fees are budgeted
and our audit and finance committee requires the independent registered public accounting firm and management to report actual
fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it
may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the
original pre-approval. In those instances, our audit and finance committee requires that we obtain its specific pre-approval for
these services.
The audit and finance committee may delegate
pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval
decisions to our audit and finance committee at its next scheduled meeting.
All of the services set forth above in the categories
“audit-related fees,” “tax fees” and “all other fees” were pre-approved and none were approved
by our audit and finance committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X, which relates to the approval of a
de minimis
amount of non-audit services after the fact but before completion of the audit.
Our board of directors recommends
that you vote
FOR
ratification of the appointment of Ernst & Young LLP as our independent registered public accounting
firm for the year ending December 31, 2019. The affirmative vote by the holders of a majority of the votes cast in person
or by proxy on this matter is required for the approval of this proposal.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
38
AUDIT AND FINANCE COMMITTEE REPORT
The Audit and Finance Committee of the Board
of Directors (the “Audit Committee”) of Vertex Pharmaceuticals Incorporated (the “Company”), which
consists entirely of directors who meet the independence and experience requirements of the Securities and Exchange Commission
and The Nasdaq Stock Market LLC, has furnished the following report:
The Audit Committee assists the Company’s
Board of Directors in overseeing and monitoring the integrity of the Company’s financial reporting process, compliance with
legal and regulatory requirements related to financial reporting and the quality of internal controls and external audit processes.
The Audit Committee’s roles and responsibilities are set forth in a written charter, which is available on the Company’s
website
www.vrtx.com
under “Investors—Corporate Governance—Governance Documents.” Among its duties,
the Audit Committee is responsible for recommending to the Company’s Board of Directors that the Company’s financial
statements be included in the Company’s Annual Report on Form 10-K. As a basis for that recommendation, the Audit Committee
engaged in the following activities. First, the Audit Committee discussed with Ernst & Young LLP (“Ernst & Young”),
the Company’s independent registered public accounting firm for 2018, those matters that Ernst & Young is required to
communicate to and discuss with the Audit Committee by the Public Company Accounting Oversight Board (United States) Auditing Standard
No. 16,
Communications with Audit Committees
, which included information regarding the scope and results of the audit. These
communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure
process. Second, the Audit Committee discussed with Ernst & Young the firm’s independence, and received from Ernst &
Young the written disclosures and the letter concerning independence as required by Public Company Accounting Oversight Board Ethics
and Independence Rule 3526 (Communication with Audit Committees Concerning Independence). This discussion and disclosure informed
the Audit Committee of Ernst & Young’s relationships with the Company and was designed to assist the Audit Committee
in considering Ernst & Young’s independence. Finally, the Audit Committee reviewed and discussed, with Ernst & Young
and with the Company’s management, the Company’s audited consolidated balance sheet as of December 31, 2018, and the
Company’s consolidated statements of operations, comprehensive income (loss), shareholders’ equity and noncontrolling
interest, and cash flows for the year ended December 31, 2018, including the notes thereto.
Management of the Company is responsible for
the consolidated financial statements and reporting process, including establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness
of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, internal control over financial reporting. The independent registered public
accounting firm is responsible for expressing an opinion on the conformity of these consolidated financial statements with accounting
principles generally accepted in the United States, as well as expressing an opinion on the effectiveness of internal control over
financial reporting.
During 2018, management tested and evaluated
the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404
of the Sarbanes-Oxley Act of 2002 and related regulations. At the conclusion of the process, management provided the Audit Committee
with a report on the effectiveness of the Company’s internal control over financial reporting, which the Audit Committee
reviewed. The Audit Committee also reviewed the report of management contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018 filed with the Securities and Exchange Commission, as well as Ernst & Young’s Reports
of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K. The latter reports
relate to Ernst & Young’s audit of (i) the consolidated financial statements and (ii) the effectiveness of internal
control over financial reporting.
Based on (i) discussions with Ernst & Young
concerning the audit and the consolidated financial statements, (ii) the independence discussions, (iii) discussions with the Company’s
management concerning the consolidated financial statements, and (iv) such other matters deemed relevant and appropriate by the
Audit Committee, the Audit Committee recommended to the Company’s Board of Directors that the consolidated financial statements
be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. This report is provided by
the following independent directors, who comprise the Audit Committee:
Terrence C. Kearney (
Chair
)
Yuchun Lee
Bruce I. Sachs
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
39
|
Item 5
|
Advisory Vote to Approve Named Executive Officer Compensation
|
Our compensation program is designed
to attract, retain and motivate talented and experienced individuals across all areas of our business and to align the interests
of our executive officers with the interests of our shareholders as we seek to create value through the discovery, development
and commercialization of transformative medicines.
In 2018, we received support from 96% of our
shareholders on our say-on-pay proposal. We believe this support is consistent with our shareholders’ understanding of our
business model and the long-term value we are creating. We plan on continuing a high level of engagement with our shareholders
regarding executive compensation.
Our focus is and continues to be maintaining
the strong link between our compensation programs and our ability to continue to develop transformative medicines while delivering
sustained company performance, with approximately 90% of our named executive officer compensation linked to performance. Our board
of directors and MDCC reviewed our compensation programs and made the following key decisions with respect to 2018 compensation:
|
|
We maintained the same compensation program design that we implemented in 2016, which closely
ties pay with performance and has contributed to our short- and long-term successes
|
|
|
The company’s exceptional performance in 2018, as described
in more detail in our
Compensation Discussion and Analysis
beginning on page 44 of this proxy statement, resulted in a
leading rating (a company rating of 148.5 out of a potential 150) for 2018 and annual cash bonuses near the high end of the
range for 2018
|
|
|
Our CEO’s base salary has been unchanged at $1.3 million since
2014 and is aligned with the median CEO base salary of our peer companies. We increased the base salaries of certain of
our other named executive officers by approximately 7% based on a comparative analysis with our industry peer group
|
|
|
We increased our target equity grants by $1.0 million for our CEO and $500,000 for our executive
vice presidents based on a market analysis of our peer group
|
|
|
We continued our utilization of a mix of equity that consists of performance stock units that
vest solely upon achievement of rigorous performance goals, stock options that only have value if our stock price appreciates
and time-vesting restricted stock units that reward stock price appreciation but also serve as a long-term retention tool
|
Our executive compensation program,
including our performance and the compensation earned by our named executive officers, is discussed in greater detail in the
Compensation
Discussion and Analysis
section beginning on page 44 of this proxy statement. Our focus remains on maintaining the strong
link between our compensation programs and our ability to continue to develop transformative medicines while delivering
sustained revenues and earnings growth.
Based upon a vote of shareholders at a previous
annual meeting of shareholders, following our board’s recommendation for an annual advisory vote to approve executive compensation,
we are presenting the following proposal, which gives you as a shareholder the opportunity to endorse or not endorse our 2018 executive
compensation program by voting for or against the following resolution:
RESOLVED, that the shareholders approve,
on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis
section, the Compensation and Equity Tables and the related narrative executive compensation disclosures contained in this proxy
statement.
While the vote on this resolution is advisory
in nature, and therefore will not bind us to take any particular action, our MDCC and board intend to consider carefully the shareholder
vote resulting from the proposal in making future decisions regarding our executive compensation program.
Our board of directors recommends
that you vote
FOR
the approval of the resolution set forth above. The affirmative vote by the holders of a majority of the
votes cast in person or by proxy on this matter is required for the approval of this proposal.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
40
|
Item
6
|
Shareholder Proposal Regarding Drug Pricing
|
We expect the following shareholder
proposal will be presented for consideration at the 2019 annual meeting of shareholders. Our board of directors recommends a vote
AGAINST the shareholder proposal for the reasons set forth following the proposal.
THE SHAREHOLDER PROPOSAL
Trinity Health, 766 Brady Avenue, Apartment 635,
Bronx, NY 10462, the owner of at least $2,000 worth of shares of our common stock as of December 11, 2018, has given notice that
they intend to present for action at the 2019 annual meeting of shareholders the following resolution:
RESOLVED
that shareholders of Vertex
Pharmaceuticals Incorporated (“Vertex”) urge the Management Development and Compensation Committee (the “Committee”)
to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated
into Vertex’s incentive compensation policies, plans and programs (together “arrangements”) for senior executives.
The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or
not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate
public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets
for incentive compensation arrangements.
SUPPORTING STATEMENT
As long-term investors, we believe that senior
executive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that
those arrangements align with company strategy and encourage responsible risk management.
A key risk facing drug companies is the increased
criticism from the public and actions that legislators and regulators are taking regarding pharmaceutical prices. A March 2018
Kaiser Family Foundation poll found that 52% of respondents ranked lower drug prices as a “top priority” for the President
and Congress. The White House released a “Blueprint” for lowering drug prices in May 2018. The NY Times reported that
as of August 2018, twenty-four states have passed 37 bills this year to curb rising prescription drug costs. (https://www.nytimes.com/2018/08/18/us/politics/states-drug-costs.html).
Recent news articles identify pricing pressures
that Vertex is facing. Officials from New York State’s Medicaid program have said that the cystic fibrosis drug Orkambi is
not worth its price, a case “that is being closely watched around the country.” (https://www.nytimes.com/2018/06/24/health/drug-prices-orkambi-new-york-.html)
As part of a two-year dispute between Vertex and the UK’s National Health Service over Orkambi cost-effectiveness, a committee
of the House of Commons has requested to see documents the Company supplied to the government related to price and evidence supporting
the drug’s benefit. (https://pharmaphorum.com/news/vertex-told-to-reveal-cf-drug-price-as-mps-begin).
We are concerned that the incentive compensation
arrangements applicable to Vertex’s senior executives may not encourage them to take actions that result in lower short-term
financial performance even when those actions may be in Vertex’s best long-term financial interests. Vesting for half of
the performance share units Vertex’s named executive officers earn depends on one-year net product revenue goals, and for
2017, revenue growth for two of Vertex’s cystic fibrosis drugs was the most heavily weighted factor in the quantitative portion
of the annual bonus formula. “Increase revenues and manage operating expenses” was another 2017 annual bonus quantitative
factor. (2018 Proxy Statement, at 56-57).
The disclosure we request would allow shareholders
to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating
to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.
YOUR COMPANY’S RESPONSE
Our board of directors recommends a vote AGAINST
the shareholder proposal requesting an annual report on the extent to which risks related to public concern over drug pricing strategies
are integrated into compensation arrangements for senior executives.
We are committed to creating transformative drugs
for patients with serious diseases, and we believe that each of our approved products is an excellent example of the benefit that
we can deliver to patients, providers and families of those affected by CF. Our goal is to ensure access to our medicines, return
value to our shareholders and fuel the development of additional transformative medicines for the future.
KALYDECO, ORKAMBI and SYMDEKO/SYMKEVI are the
only medicines that address the underlying cause of CF and KALYDECO and ORKAMBI have shown broad and sustained systemic benefits
to patients with CF. The price of our products reflects many factors, including the relative benefit it provides to patients, the
substantial time and cost it took to develop, the small number of patients eligible for treatment with each product and our ongoing
commitment to invest in additional medicines for patients with CF and other diseases. The price balances the need for patient access,
while garnering a fair return for our shareholders and ensuring sufficient investment in the discovery and development of future
transformative medicines.
As part of our commitment to providing patients
with access to our medicines, we have a comprehensive product support program that includes financial assistance for eligible patients.
We provide one-on-one support to help patients with health insurance understand and navigate their health plans and the majority
of our patients incur low out of pockets costs. Additionally, we provide co-pay assistance for eligible commercially insured patients
that enroll in our product support program. For patients without health insurance who meet certain income and other eligibility
criteria, we provide products for no charge.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
41
We are in a high risk/high return industry. A
very small percentage of the potential medicines investigated by biotechnology companies make it through the arduous research,
development and regulatory process to be approved for patient use by the FDA, and only a small percentage of these approved medicines
bring in enough revenue to recoup the average cost of development. As a result, the very few drug candidates that receive FDA approval
and become commercially successful must support the entire research and development enterprise. Since our incorporation in 1989,
the vast majority of our expenses have been related to our research and development efforts, with a small portion of our expenses
allocated to sales and marketing. We have spent approximately $12 billion for research and development for drug candidates for
the treatment of CF, as well as several other disease areas, including HCV infection and HIV infection.
With respect to specific disclosure of the risks
intended to be captured in the report requested by the proponent, we believe we have made adequate reference in our periodic reports
under the Securities Exchange Act of 1934, as amended. For example, our annual report on Form 10-K, filed with the SEC on February
13, 2019, includes prominent risk factors referencing these risks, including a risk factor entitled “Government and other
third-party payors seek to contain costs of health care through legislative and other means. If they fail to provide coverage and
adequate reimbursement rates for our products, our revenues will be harmed.”
As such, we believe the proponent’s requested
report will not benefit our shareholders and will divert the time and attention of management and the board from our strategic
initiatives and operations.
For all of the above reasons
our board of directors recommends that you vote
AGAINST
the shareholder proposal regarding annual reporting on the extent
to which risks related to public concern over drug pricing strategies are integrated into compensation arrangements for senior
executives. The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required
for the approval of this proposal.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
42
|
Item 7
|
Shareholder Proposal Regarding Lobbying
|
We expect the following shareholder
proposal will be presented for consideration at the 2019 annual meeting of shareholders. Our board of directors recommends a vote
AGAINST the shareholder proposal for the reasons set forth following the proposal.
THE SHAREHOLDER PROPOSAL
Friends Fiduciary Corporation, 1650 Arch Street,
Suite 1904, Philadelphia, Pennsylvania 19103, an owner of at least $2,000 worth of shares of our common stock as of December 18,
2018 has given notice that it intends to present for action at the 2019 annual meeting of shareholders the following resolution:
WHEREAS,
we believe in full disclosure
of our company’s direct and indirect lobbying activities and expenditures to assess whether Vertex’s lobbying is consistent
with its expressed goals and in the best interests of shareholders.
RESOLVED,
the shareholders of Vertex Pharmaceuticals
Incorporated (“Vertex”) request the preparation of a report, updated annually, disclosing:
|
1.
|
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
|
|
2.
|
Payments by Vertex used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
|
|
3.
|
Vertex’s membership in and payments to any tax-exempt organization that writes and endorses model legislation.
|
|
4.
|
Description of the decision making process and oversight by management and the Board for making payments described in section 2 and 3 above.
|
For purposes of this proposal, a “grassroots
lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation,
(b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with
respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other
organization of which Vertex is a member.
Both “direct and indirect lobbying” and “grassroots
lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant
oversight committees and posted on Vertex’s website.
SUPPORTING STATEMENT
We encourage transparency in the use of
corporate funds to influence legislation and regulation, both directly and indirectly. Vertex spent over $3 million in 2016
and 2017 on federal lobbying (opensecrets.org). This figure does not include lobbying expenditures to influence legislation
in states, where Vertex also lobbies but disclosure is uneven or absent. For example, Vertex had 120 lobbyists in
35 states in 2017 (http://www.followthemoney.org/), and has spent over $310,000 on lobbying in California in 2016-2017.
Vertex’s lobbying has drawn media attention (“Is Big Pharma Getting ‘Patient Advocates’ to Do Its
Lobbying Work?”
The Daily Beast
, April 6, 2018), (“Drugmakers Dramatically Boosted Lobbying Spending in
Trump’s First Quarter,”
Salon
, April 22, 2017).
Vertex is listed as a member of the Biotechnology
Innovation Organization, which spent $18.62 million on lobbying in 2016 and 2017. Vertex does not disclose its trade association
memberships, nor payments and the portions used for lobbying.
Transparent reporting would reveal whether company
assets are being used for objectives contrary to Vertex’s long-term interests. We are concerned that Vertex’s lack
of lobbying disclosures, including lobbying done indirectly by trade associations and other organizations, and any potential negative
publicity for opposing drug price initiatives, may present reputational risks for Vertex.
YOUR COMPANY’S RESPONSE
Our board of directors recommends a vote AGAINST
the shareholder proposal to prepare a report on our policies and activities with respect to lobbying.
We engage with public policymakers, where legal
and appropriate, when we believe it will serve the best interests of our company, our shareholders, employees, patients and other
stakeholders. The associations and coalitions to which we belong perform many valuable functions. Lobbying is not the primary focus
of these entities, but it is an element of their role, and a portion of the dues that we and other members pay to such organizations
may be partially used, in their sole discretion, to engage in certain lobbying activities. We do not direct how these funds are
used. Accordingly, our board believes that additional disclosures regarding payments to these trade associations would not necessarily
present an accurate reflection of our positions on certain public policy issues.
Our board acknowledges the interests of shareholders
in information about our participation in the political process. We routinely provide comprehensive information regarding our lobbying
activities to comply with applicable federal and state disclosure regulations, including filing quarterly reports on our federal
lobbying activity in compliance with the Honest Leadership and Open Government Act of 2007. However, our board believes that the
proposal’s additional detailed reporting obligation would be duplicative of existing disclosures and that it would impose
an unnecessary administrative burden and expense on the company when sufficient disclosure already exists.
For all of the above reasons
our board of directors recommends that you vote
AGAINST
the shareholder proposal regarding a report on lobbying activities.
The affirmative vote by the holders of a majority of the votes cast in person or by proxy on this matter is required for the approval
of this proposal.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
43
COMPENSATION DISCUSSION AND ANALYSIS
Letter from Management Development and
Compensation Committee to Our Shareholders
|
Dear Fellow Shareholder,
The Management Development and Compensation
Committee’s stewardship of Vertex’s compensation programs is guided by Vertex’s mission of developing
transformative medicines for people with serious diseases and by so doing, creating superior value for our shareholders.
Toward that end, we have designed the company’s compensation programs to closely align management’s incentives
with Vertex’s strategic long- and short-term goals and with the interests of Vertex’s shareholders. We believe
that this alignment has contributed to Vertex’s accomplishments over the last several years as it has increased
its revenues significantly each year, built its financial strength, advanced its pipeline and continued to execute its
business strategy. These accomplishments have been recognized by the company’s shareholders and have been reflected
in the increasing value that the company’s shareholders have attributed to the company. Vertex’s market capitalization
has increased by more than 500% from approximately $7 billion in early 2012 to more than $45 billion in early 2019.
We take seriously our role in the governance
of compensation programs and the importance of attracting and retaining critical executive talent as the company continues
to expand and operate in an increasingly complex industry. The success of the company and the execution of Vertex’s
business strategy over the last several years has depended upon the stability and operational excellence of our senior
executive team.
In 2018, Vertex had a remarkable year
as it accelerated the development of our triple-combination regimens for CF, advanced numerous other research and development
programs positioning itself for continued growth and increased revenues, operating income and cash flows. This success
in 2018 reflects both the company’s exceptional execution in 2018 and the overall corporate strategy that the company’s
core management team has championed since 2012.
As a result, our executives received
above-target cash bonuses and payouts on performance stock unit awards based both on one-year business and financial goals
and three-year research and development goals. We believe these outcomes are aligned with our commitment to linking pay
to performance. Looking ahead, we will continue to focus on maintaining the strong link between Vertex’s compensation
programs and its long- and short-term strategic objectives. Central to these objectives and continuing to develop transformative
medicines to treat serious diseases while delivering sustained revenues and earnings growth is our ability to attract
and retain a highly-functioning executive team.
Sincerely,
Bruce I. Sachs
(Chair)
Terrence C. Kearney
Elaine S. Ullian
William D. Young
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
44
Overview
By all measures, 2018 was an extraordinary year
for Vertex as we continued to execute on our strategy of investing in scientific innovation to create transformative medicines
for people with serious diseases. In 2018, we obtained approval for and launched SYMDEKO/SYMKEVI, our third medicine for
CF, and accelerated the development of our triple combination regimens, which we believe will allow us to treat the vast majority
of patients with CF and will provide an improved treatment option to many patients currently taking our medicines. Outside of CF,
we advanced our Phase 2 clinical program in pain, initiated our first clinical trial of a potential medicine for alpha-1 anti-trypsin
deficiency and the first clinical trial for CTX001, which we are co-developing with CRISPR Therapeutics, as a potential treatment
for beta thalassemia and sickle cell disease. Our exceptional performance in 2018 included 40% growth in total product revenues
and increasing cash flows. As we enter 2019, we are on track to deliver more new transformative medicines for patients thereby
increasing revenues, expanding operating income and creating long-term shareholder value.
Financial Performance
Our CF medicines, KALYDECO, ORKAMBI and SYMDEKO/SYMKEVI,
are now transforming the lives of eligible patients around the globe and driving our financial performance.
|
|
Our CF net product revenues increased to $3.04 billion in 2018, up 40% as compared
to 2017
|
|
|
We exceeded our initial CF net product revenue guidance in 2018 by $313 million ($3.04 billion
as compared to the mid-point of our initial guidance of $2.73 billion)
|
|
|
Our GAAP net income increased to $2.1 billion in 2018 from GAAP net income of $263 million
in 2017
|
|
|
Our non-GAAP net income increased to $1.1 billion in 2018, up $564 million, or 114%,
from 2017, driven by our increased net product revenues (a reconciliation of non-GAAP net income is provided in Appendix C)
|
|
|
We increased our net cash position by approximately $1.1 billion in 2018, to approximately
$3.2 billion
|
|
|
In 2019, we expect to further increase CF product revenues by approximately 15% and to continue
generating substantial cash flows
|
|
|
Beyond 2019, our CF net product revenues and operating income are positioned for substantial
further growth if we are successful in obtaining approval for a triple combination regimen
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
45
CF
Pipeline
Advances in our pipeline and our strategic execution
have moved us closer to our goal of delivering highly effective treatments to all patients with CF. In January 2012, KALYDECO was
first approved to treat approximately 1,000 patients with the G551D mutation in the United States. Since then, we have followed
a focused strategy of developing new medicines for CF: expanding the number of patients eligible for our medicines and seeking
improved treatment options for all patients. We believe our triple combination regimens will provide the first treatment for the
underlying cause of CF for patients with the F508del mutation and a mutation that provides minimal function (referred to as F508del/Min
patients) as well as an improved treatment option (greater efficacy) for the vast majority of CF patients currently using our medicines.
CF Medicines
Since the beginning of 2018, we have:
|
|
Obtained approval for SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor) in the United States in early 2018 and in the European Union in late 2018
|
|
|
Successfully launched SYMDEKO in the United States
|
|
|
Obtained regulatory approvals and advanced clinical trials designed to provide younger children access to our CF medicines
|
|
|
Entered into innovative long-term access agreements in ex-U.S markets, including Australia, Denmark, Israel, Luxembourg and Sweden
|
Triple Combinations Regimens
Since the beginning of 2018, we have:
|
|
Accelerated our Phase 3 development program for triple combination regimens
|
|
|
Announced positive data from two Phase 3 clinical trials evaluating the triple combination of VX-659, tezacaftor and ivacaftor in F508del/Min patients and F508del homozygous patients 12 years of age or older
|
|
|
Announced positive data from two Phase 3 clinical trials evaluating the triple combination of VX-445, tezacaftor and ivacaftor in F508del/Min patients and F508del homozygous patients 12 years of age or older
|
|
|
Positioned
ourselves to file for one triple combination regimen — an NDA in the United States in the third quarter of 2019 and an
MAA in the European Union in the fourth quarter of 2019
|
|
|
Initiated a Phase 1 clinical trial to evaluate VX-121, an additional next-generation CFTR corrector
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
46
Non-CF
Pipeline
Over the last decade, we have demonstrated an
ability to serially discover and develop multiple transformative medicines for serious diseases. In 2018, we and our collaborators
continued our serial innovation, advancing promising non-CF programs for important diseases. Specifically, since the beginning
of 2018, we have:
|
|
Initiated a Phase 1 clinical trial for a novel drug candidate for alpha-1 antitrypsin deficiency
|
|
|
Initiated Phase 1/2 clinical trials of CTX001, an investigational gene-editing
treatment that we are evaluating as a potential treatment for beta-thalassemia and sickle cell disease
|
|
|
Obtained clinical proof-of-concept from Phase 2 clinical trials evaluating
VX-150, a selective non-opioid NaV1.8 inhibitor, as a potential treatment for pain
|
|
|
Advanced our research program for focal segmental glomerulosclerosis into
late-stage preclinical development
|
|
|
Janssen Pharmaceuticals, our collaborator, is conducting Phase 3 development
of pimodivir as a potential treatment for influenza
|
|
|
|
|
|
* We are co-developing CTX001 with
CRISPR Therapeutics
|
|
** We have outlicensed
pimodivir to Janssen Pharmaceuticals and M6620 to Merck KGaA
|
Increased
Shareholder Value
Driven by our financial performance and our pipeline
success, our stock price increased by 11% from $149.86 per share to $165.71 per share in from December 31, 2017 to December 31,
2018. In 2018, our total shareholder return was positive 10.6% as compared to negative total shareholder returns for the Nasdaq
Biotechnology Index, or NBI, and the S&P 500 index.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
47
We were pleased with our performance in 2018;
however, the performance of biotechnology companies like ours is best measured over the long term and in comparison with their
peers, rather than in one-year increments and in isolation. The following chart shows our total shareholder return during the 1-year,
3-year and 5-year periods ending December 31, 2018 compared to the NBI and the following members of our peer group: Alexion, Regeneron,
BioMarin, Gilead, Celgene and Biogen. These peers are the companies we consider most similar to our company based on their business
models (see pages 51 and 52).
The following chart shows our total shareholder
return from the beginning of 2012, when KALYDECO was first approved, through February 2019 relative to the S&P 500 and the
NBI.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
48
2018
Compensation Decisions and Pay-for Performance
In 2018, we received support from 96% of our
shareholders on our say-on-pay proposal. We believe this support is consistent with our long-term shareholders’ understanding
of our business model and the long-term value we are creating. Our focus has been and continues to be on maintaining the strong
link between our compensation programs and our ability to continue to develop transformative medicines while delivering sustained
company performance.
Our compensation program is highly performance-based, with approximately 90% of our NEO compensation tied
to performance.
Retention of our talented executives is critical, as their outstanding performance over the last seven years
has led to the advancement of the company and the significant shareholder value that has been created.
In 2018, our board of directors and management
development and compensation committee, or MDCC, reviewed our compensation programs and made the following key decisions:
|
|
Program Design:
We maintained the same compensation program design that
we implemented in 2016, which we believe closely ties pay with performance and has contributed to our short- and long-term
successes.
|
|
|
Base Salary:
Our CEO’s salary has been unchanged at $1.3 million
since 2014 and is aligned with the median CEO base salary of our peer companies. We increased the base salaries of certain
of our other named executive officers by approximately 7% based on a comparative analysis with companies in our peer group.
|
|
|
Annual Cash Bonus:
The company’s exceptional performance in 2018,
as described above, resulted in a leading rating (a company rating of 148.5 out of a potential 150) for 2018 and annual cash
bonuses near the high end of the range for 2018, commensurate with this performance.
|
|
|
Long-Term Equity Program:
|
|
|
–
|
We continued utilization of a mix of equity that consists of performance stock
units that vest solely upon achievement of rigorous performance goals, stock options that only have value if our stock price
appreciates and time-vesting restricted stock units that reward stock price appreciation but also serve as a retention tool.
|
|
|
–
|
We increased our target equity grants by $1.0 million for our CEO and $500,000 for our executive
vice presidents based on a market analysis with companies in our peer group.
|
|
|
–
|
In early 2018, the MDCC established financial and non-financial metrics for the PSUs, with
payouts earned based on achievement of these metrics. 50% of the PSUs were tied to CF net product revenues in 2018, while the
remaining 50% are tied to specific clinical and research milestones over a three-year period.
|
Compensation
Governance Practices
We continue to implement and maintain leading
practices in our compensation program, shareholder outreach and related areas.
|
What
We Do
|
What
We Don’t Do
|
|
Caps on awards
|
No executive perquisites
|
|
Multiple performance factors
|
No supplemental pension benefits for executives
|
|
Range of awards; not all or nothing
|
No single-trigger vesting in connection with a change-in-control for equity awards
|
|
Compensation recoupment (clawback) policy
|
No hedging or pledging or speculative transactions in our securities by directors and executive officers
|
|
Balance of Short- and Long-term Incentives (through annual cash bonuses and equity awards)
|
No re-pricing of equity awards without shareholder approval
|
|
Executive and Non-Employee Director Stock Ownership Guidelines
|
No payment of dividends on unvested performance shares or units
|
|
No gross-ups
|
|
|
Independent compensation consultant
|
|
|
Robust shareholder outreach
|
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
49
Detailed Discussion and Analysis
This section discusses the principles underlying
our policies and decisions with respect to the compensation of our “named executive officers” and all material factors
we believe are relevant to an analysis of these policies and decisions. Our named executive officers (or “NEOs”) for
2018 are listed below. Our NEOs for 2018 include certain former executive officers as required by SEC rules, and the following
discussion includes information relating to the compensation of these former executive officers for the prior fiscal year. However,
general references below to “our NEOs” relate solely to our continuing NEOs and should be interpreted accordingly.
|
Name
|
Position
|
|
Jeffrey M. Leiden
|
Chairman, Chief Executive Officer and President
|
|
Stuart A. Arbuckle
|
Executive Vice President, Chief Commercial Officer
|
|
Michael Parini
|
Executive Vice President and Chief Legal and Administrative Officer
|
|
Amit Sachdev
|
Executive Vice President and Chief Regulatory Officer
|
|
Jeff Chodakewitz
|
Former Executive Vice President, Global Medicines Development and Medical Affairs and Chief Medical Officer
|
|
Thomas Graney
|
Former Senior Vice President and Chief Financial Officer
|
|
Ian F. Smith
|
Former Executive Vice President and Chief Operating Officer and Interim Chief Financial Officer
|
Compensation Philosophy
Our MDCC regularly reviews the elements of the
individual compensation packages for our CEO and executive officers to achieve the following primary objectives:
|
|
attract, retain and motivate talented and experienced individuals across all areas
of our business;
|
|
|
to align the interests of our executive officers with the interests of our
shareholders as we seek to create value through the discovery, development and commercialization of transformative medicines;
and
|
|
|
ensure that the vast majority of compensation is performance-based.
|
Our executive officers have had long and varied
careers and possess experiences and skills that make them extremely valuable members of our executive team and to our company as
a whole. They have been instrumental in building Vertex into the company it is today, with a leadership position in the treatment
of CF, a CF pipeline and non-CF pipeline that have advanced significantly over the last several years, increased revenues, and
an established strong financial profile. All of these factors position Vertex to achieve its strategic objectives in future years.
Our MDCC and our board of directors seek to connect
the achievement of our strategic objectives with our compensation program in a number of ways, including through detailed and measurable
company goals that underlie our annual cash bonuses and the performance goals that are included in our equity awards. Our company
goals involve a mix of goals relating to revenues from our current products, achievement of research and development objectives,
our organizational capability and maintenance of our financial strength. These objectives are selected specifically because they
are considered by our board to be measurable milestones that our company must achieve if it is to maintain its significant revenue
growth and increase profitability. Our MDCC and board expects to continue to seek to balance the use of financial metrics and research
and development goals in order to motivate our executive team to increase revenues and manage operating expenses, while providing
appropriate incentives for our management to continue to make appropriate investments in our business.
In determining compensation, we consider compensation
paid to similar companies as reference points, but do not strictly benchmark or target compensation at any particular level. Rather,
the MDCC retains flexibility to structure compensation based on good governance practices and our objectives of building our company
and creating shareholder value.
Compensation Decision-Making Process
Role of MDCC and Chief Executive Officer in Setting Executive
Compensation
The MDCC has responsibility for overseeing the
design, development and implementation of the compensation program for our chief executive officer and other executive officers.
The MDCC evaluates the performance of our chief executive officer and other executive officers. Our chief executive officer and
our human resources group assist the MDCC in evaluating the performance of our other executive officers, including the named executive
officers other than the chief executive officer. Our chief executive officer does not make any recommendations to the MDCC regarding
his own compensation and does not participate in the portions of MDCC meetings or meetings of the board of directors when his compensation
is discussed and determined.
The members of the MDCC, each of whom is an independent
director, together with the other independent directors, make final compensation decisions for the CEO’s and other executive
officers’ compensation levels based on these assessments.
Role of Compensation Consultant
The MDCC (i) is directly responsible for the
appointment and oversight of its compensation consultants, (ii) has the authority to determine the fees that we pay for services
provided by such compensation consultants and (iii) prior to engaging any compensation consultant, considers applicable factors
potentially affecting the independence of the compensation consultant, including the factors set forth in Nasdaq Marketplace Rule
5605(d)(3).
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
50
Annually, the MDCC has engaged a compensation
consultant to conduct an analysis of all elements of compensation paid to our executive officers, including our NEOs, compared
to similar elements paid to similarly situated executives at companies in our peer group and to provide a written report and presentation
of findings at the meeting of the MDCC that occurs in July each year. In 2018, the MDCC selected Pearl Meyer as its compensation
consultant to conduct and present this analysis to the MDCC.
Pearl Meyer only provides, and is compensated for, advice provided
to us at the direction of the MDCC. The MDCC considered the following information provided to it by Pearl Meyer:
|
|
Pearl Meyer’s policies and procedures designed to prevent conflicts of interest;
|
|
|
that fees paid by us to Pearl Meyer represent less than 1% of Pearl Meyer’s total annual
revenues;
|
|
|
the absence of business and personal relationships between the compensation consultant and
the MDCC or any of our executive officers; and
|
|
|
that Pearl Meyer’s partners, consultants and employees who provide services to the MDCC,
and their immediate family members, do not own shares of our common stock.
|
Based on these, and other factors considered
by the MDCC, the MDCC determined that Pearl Meyer’s work did not raise a conflict of interest.
Use of Peer Group Companies
In order to make judgments about elements of
executive compensation on a competitive basis, the MDCC and our board of directors considers information about the compensation
practices of a representative group of companies with whom we compete for executive talent, or Peer Group. We conduct a detailed
analysis to select companies for this Peer Group on the basis of similarity and complexity of business model. Selecting a peer
group for our company is difficult because of the limited number of companies that are at a similar stage of development and our
level of revenues. As a result, we use a mix of quantitative and qualitative factors in order to establish our peers, including
the following:
|
Factor Considered
|
What We Look For
|
|
Similar industry
|
Biotechnology or pharmaceutical industry
|
|
Importance of medicines to patients and society
|
Transformative medicines for serious diseases; therapeutics for unmet needs
|
|
Recognized focus on innovation
|
Breakthrough Therapy designations, priority review and/or other markers indicating unmet need
|
|
Global operations
|
Significant operations outside the U.S.
|
|
Commercial operations
|
Marketing and selling approved medicines
|
|
Significant R&D investment
|
Greater than $1B or 25% of revenue
|
|
Number of employees
|
Greater than 750 employees
|
|
Market capitalization and significance to broader economy
|
Market cap at least ¼ our size and/or inclusion on S&P 500 or NASDAQ 100
|
|
Labor market competitor
|
Companies we compete with for executive talent
|
|
Companies that use Vertex as a peer
|
Inclusion of Vertex in proxy reported peer group
|
Although we consider revenue as a factor, we
do not emphasize it, as we do not believe it is an adequate reflection of whether companies have a similar business model or complexity
particularly at our stage of maturity. A company with similar revenues may not have global or commercial operations like we have,
or it may focus on generic medicines rather than innovative therapies; either of these factors would result in a different business
model that required a relatively smaller investment in research and development. Moreover, companies with similar revenues may
not focus on innovative therapies such as those designated as Breakthrough Therapies by the FDA, a designation which can expedite
the development and review of medicines that are intended to treat serious conditions where preliminary clinical evidence indicates
that the medicine may demonstrate substantial improvement over available therapy. As a result, we believe the factors listed above
provide a better way to assess similarity versus a reliance on the combination of revenue and industry. We also note that it is
unlikely for companies to align on all the factors listed above, so we look for companies meeting a majority of the criteria although
we place greater weight on companies focused on innovation and importance of medicines to patients and society as we believe these
are the key drivers of our business model. We also focus on market capitalization over revenue because we believe it is a better
indicator of the complexity of a company’s business model in our industry. On a regular basis, we review and revise the list
of companies with the goal of maintaining a group of comparators comprised of at least twelve companies.
As a result of this analysis, and on the basis
of the criteria listed above, the MDCC selected the following comparator companies for 2018, which were the same comparator companies
that were used in 2017.
The Core Peers are the peers we consider most
similar to us in terms of business model.
|
|
2018 Peer Companies
|
|
Core Peers
|
Alexion Pharmaceuticals, Inc.
|
|
Biogen Inc.
|
|
BioMarin Pharmaceutical Inc.
|
|
Celgene Corporation
|
|
Gilead Sciences, Inc.
|
|
Regeneron Pharmaceuticals, Inc.
|
|
Other
Peers
|
Abbvie Inc.
|
|
Alkermes plc
|
|
Amgen Inc.
|
|
Jazz Pharmaceuticals plc
|
|
Incyte Corporation
|
|
Shire plc
|
|
United Therapeutics Corporation
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
51
We believe, based on our discussions with major
shareholders, that the Peer Group identified by our MDCC is consistent with our shareholders’ views of our relevant peers
in the biotechnology industry. In addition, the Peer Group companies have many of the business model characteristics that we seek
in comparator companies as set forth in the following table.
|
Company
|
|
|
|
|
|
|
|
|
|
|
Innovative and Importance of Medicines
|
|
|
|
|
|
|
Information
|
|
R&D Expense
(1)
|
|
Operational Focus
|
|
Orphan/
Unmet
Clinical Need
|
|
Breakthrough
Therapy
Designations
(2)
|
|
Innovative
Drugs in Last
8 Years
(3)
|
|
Uses
Vertex
as Peer
|
|
Market Position
|
|
Company
|
|
Industry
|
|
$
(millions)
|
|
% of
Revenue
|
|
Global
|
|
Commercial
|
|
|
|
|
|
Nasdaq 100
|
|
S&P 500
|
|
AbbVie
|
|
Biotech
|
|
$
|
10,753
|
|
33%
|
|
|
|
|
|
|
|
6
|
|
5
|
|
|
|
|
|
|
|
Alexion
|
|
Biotech
|
|
$
|
1,913
|
|
46%
|
|
|
|
|
|
|
|
1
|
|
3
|
|
|
|
|
|
|
|
Alkermes
|
|
Biotech
|
|
$
|
425
|
|
39%
|
|
|
|
|
|
|
|
0
|
|
1
|
|
|
|
|
|
|
|
Amgen
|
|
Biotech
|
|
$
|
3,737
|
|
16%
|
|
|
|
|
|
|
|
1
|
|
6
|
|
|
|
|
|
|
|
Biogen
|
|
Biotech
|
|
$
|
2,710
|
|
20%
|
|
|
|
|
|
|
|
0
|
|
4
|
|
|
|
|
|
|
|
BioMarin
|
|
Biotech
|
|
$
|
696
|
|
47%
|
|
|
|
|
|
|
|
1
|
|
3
|
|
|
|
|
|
|
|
Celgene
|
|
Biotech
|
|
$
|
5,673
|
|
37%
|
|
|
|
|
|
|
|
0
|
|
4
|
|
|
|
|
|
|
|
Gilead
|
|
Biotech
|
|
$
|
5,018
|
|
23%
|
|
|
|
|
|
|
|
4
|
|
7
|
|
|
|
|
|
|
|
Incyte
|
|
Biotech
|
|
$
|
1,208
|
|
64%
|
|
|
|
|
|
|
|
0
|
|
2
|
|
|
|
|
|
|
|
Jazz
|
|
Pharma
|
|
$
|
428
|
|
23%
|
|
|
|
|
|
|
|
0
|
|
2
|
|
|
|
|
|
|
|
Regeneron
|
|
Biotech
|
|
$
|
2,186
|
|
33%
|
|
|
|
|
|
|
|
3
|
|
5
|
|
|
|
|
|
|
|
Shire
|
|
Biotech
|
|
$
|
1,695
|
|
11%
|
|
|
|
|
|
|
|
0
|
|
5
|
|
|
|
|
|
|
|
United Therapeutics
|
|
Biotech
|
|
$
|
358
|
|
22%
|
|
|
|
|
|
|
|
0
|
|
3
|
|
|
|
|
|
|
|
Vertex
|
|
Biotech
|
|
$
|
1,445
|
|
47%
|
|
|
|
|
|
|
|
7
|
|
4
|
|
|
|
|
|
|
|
(1)
|
R&D Expense (including certain expenses related to intangible assets) and R&D
Expense as a % of Revenue reflect the trailing data for the most recent four quarters as of December 31, 2018 per the
S&P Capital IQ database.
|
|
(2)
|
Per Center for Drug Evaluation and Research (CDER) Breakthrough Therapy Approvals report,
which lists approvals for breakthrough therapy designated drugs.
|
|
(3)
|
Innovative drugs in the last eight years include: VIEKIRA PAK, IMBRUVICA, VENCLEXTA, ORILISSA
and MAVYRET (Abbvie), STRENSIQ, ULTOMIRIS and KANUMA (Alexion), ARISTADA (Alkermes), AIMOVIG, BLINCYTO, XGEVA, PROLIA, KYPROLIS
and PARSABIV (Amgen), TECFIDERA, ALPROLIX, SPINRAZA and ELOCTATE (Biogen), BRINEURA, PALYNZIQ and VIMIZIM (BioMarin), IDHIFA,
POMALYST, ABRAXANE and OTEZLA (Celgene), YESCARTA, SOVALDI, HARVONI, VEMLIDY, CAYSTON, ZYDELIG and BIKTARVY (Gilead), JAKAFI
and OLUMIANT (Incyte), VYXEOS and DEFITELIO (Jazz), DUPIXENT, LIBTAYO, PRALUENT, EYLEA and ZALTRAP (Regeneron), MYDAYIS, TAKHYZRO,
FIRAZYR, NATPARA and GATTEX (Shire) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics).
|
We do not strictly benchmark to a particular
level of compensation relative to compensation levels at the Peer Group companies, but rather make a judgment about where each
executive should fall in comparison with executives with similar responsibilities at the Peer Group companies. We believe this
should mitigate concerns regarding our Peer Group including companies that have significantly higher revenues than our current
revenues. The MDCC looks at Peer Group information to confirm that our compensation levels are competitive with those of the Peer
Group companies and consistent with our compensation philosophy. In addition, the MDCC reviews broader industry specific executive
compensation surveys published by Radford, Mercer SIRS and Willis Towers Watson, but does not make any material compensation decisions
based on any particular company participants in such surveys.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
52
Elements
of Annual Compensation
Our practice is to target total direct
compensation including base salary, annual cash incentives targets, and long-term incentive targets at market competitive
levels depending upon the NEO’s responsibilities, expertise and experience. Our executive compensation program uses a
mix of long-term equity compensation awards in the form of stock options and performance restricted stock unit awards and
time-based restricted stock units to incent and reward those individuals who make the greatest contribution to our company
performance over time. For the NEOs, this means compensation is primarily in the form of equity and directly tied to changes
in shareholder value over time.
Each year we review the balance of elements of
our executive compensation program to ensure that they are appropriately designed in light of our goals to align the program with
our shareholders’ interests, the competitive environment and our business strategy.
Compensation Program
As shown in the following charts, our compensation
program places an emphasis on performance-linked compensation,
with approximately 90% of our NEO compensation tied to performance.
The charts above represent the actual values,
and exclude the compensation of former executive officers.
Performance-Linked Value-Based Program
We have a performance-linked program that is
consistent with programs implemented by our peers and allows us to attract, retain and motivate talented and experienced individuals
across all areas of our business. We focus on performance-linked elements as follows:
|
Compensation Element
|
Performance
Link
|
|
Annual Cash Bonus
|
Annual bonus dependent on company performance factors
and individual performance
|
|
Equity Awards
|
Grant date value of equity awards based on individual
performance
|
|
Performance Stock Unit Awards
|
|
50% of PSUs with range of shares
issued
0% to 200%
of target based on one year financial metric (vesting in installments)
|
|
|
|
50% of PSUs with range of shares
issued
0% to 200%
of target based on three-year non-financial metrics (cliff-vesting)
|
|
Stock Options
|
|
Value of awards increases or decreases
based on increases or decreases in stock price
|
|
|
|
Value of awards tied to potential
increases in share price with
no value to executive unless share price
increases
|
|
Time-Based Restricted Stock
Units
|
|
Value of shares granted based on
individual performance from
0% to 150%
|
|
|
|
Value
of awards increases or decreases based on increases or decreases in stock price
|
More specifically:
|
|
Performance Stock Units.
Our NEOs receive 35% of their annual
target equity compensation in the form of PSUs. The PSUs vest, if at all, based half on financial goals (to date, CF net product
revenue goals over a one-year period) and half on non-financial goals (to date, multiple clinical milestones over a three
year period). The potential shares issuable pursuant to the performance stock unit awards range from 0% to 200% of the target
shares with the number of shares actually issued based on financial and non-financial measures. The MDCC selected revenue
and clinical development milestones because shareholders and analysts rely heavily on these metrics to understand the underlying
condition and the performance of our business. In addition, achievement of these metrics would indicate successful execution
toward our long-term strategic objectives of expanding our CF franchise and diversifying our product portfolio.
|
|
|
Stock Options.
Our NEOs receive 30% of their
annual target equity value in the form of stock options. We use stock option awards because we believe stock options are performance-based
and provide alignment with shareholders as executives are rewarded for corporate performance only if the stock price appreciates.
|
|
|
Time-based Stock Units.
Our NEOs receive
35% of their annual target equity compensation in the form of time-based restricted stock units. We believe that with a majority
of the annual long-term incentive award at risk based on our successful execution of our strategic objectives and on stock
price appreciation, it is important to have a smaller portion of the annual award focused on retaining our key executive talent.
As a result, we believe time-based restricted stock units encourage retention while also providing immediate alignment with
our shareholders.
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
53
Base
Salary
The MDCC recommends base salaries for each of
our executive officers based on multiple factors, including a competitive market analysis on a position-by-position basis. Annually,
the MDCC reviews tables showing a comparison of each executive’s prior year base salary and cash bonus opportunity, measured
at the target level, to salaries and cash bonuses reported for executives with similar responsibilities at comparable companies.
We do not strictly benchmark to a particular level of compensation relative to compensation levels at the Peer Group companies,
but rather make a judgment about where each executive should fall in comparison with executives with similar responsibilities at
the Peer Group companies, taking into account the executive’s general level of experience and capability, the significance
of his or her job responsibilities to the achievement of our business strategy and company goals, and general performance over
time, including demonstration of the values and desirable behaviors under our values into practice program. On the basis of that
information, including compensation at Peer Group companies, and taking into consideration the executive’s base salary for
the previous year, the MDCC recommends an appropriate salary for each executive officer, subject to final approval by our independent
directors. Our current base salaries for our named executive officers approximate the median base salaries for peer counterparts
at companies in our Peer Group.
Dr. Leiden’s base salary has been $1,300,000
since 2014. In 2018, we increased Mr. Arbuckle’s base salary from $700,000 to $750,000 and Mr. Parini’s base salary
from $725,000 to $775,000 after a review of the base salaries of peers and in recognition of their role and contributions to the
company. Dr. Chodakewitz, Mr. Graney and Mr. Smith’s, our former executive officers, base salaries were $618,000, $550,000
and $850,000 respectively.
|
Name
|
|
2019 Base
Salary
|
|
|
Approximate
Peer Ranking
(Percentile)
(1)
|
|
Jeffrey M. Leiden
|
|
$
|
1,300,000
|
|
|
60th
|
|
Stuart A. Arbuckle
|
|
$
|
750,000
|
|
|
40th
|
|
Michael Parini
|
|
$
|
775,000
|
|
|
60th
|
|
Amit Sachdev
|
|
$
|
540,750
|
|
|
>75th
|
|
(1)
|
Peer rankings based on salary information from 2017.
|
Company
and Individual Ratings
The amounts for two of the principal elements
of our executive compensation program - annual cash bonus and annual equity awards - are determined on the basis of annual company
and individual performance ratings.
Overview of Company Performance Rating
& Achievement in 2018
At the beginning of each year, our board of directors,
in consultation with our CEO, establishes company-wide goals for that year. While our performance against these goals is the most
important factor considered by our board in assessing our corporate performance, our board considers additional accomplishments
and shortcomings and may increase or decrease the performance scores (although the company score may not exceed 150). Although
the directors discuss and analyze our performance as a group, each director makes his or her own judgment about specific performance
factors and accomplishment of the goals in reaching a conclusion.
For 2018, the board set company goals and assigned
relative weights that reflected our operational, strategic and financial objectives for the year and the importance of these goals
to our long-term goals of revenue growth and increasing profitability. Our revenue
goals for marketed and approval stage products were designed to incentivize increasing access to our medicines through approvals
of new transformative medicines, label-expansions for our existing medicines and negotiating reimbursement agreements in ex-U.S.
markets and were not set, achieved through or dependent upon, price increases. Our pipeline goals and our budgets were established
with the expectation that we would reinvest the majority of our revenues into research and development for additional transformative
medicines. As a result, our research and development expenses have represented over 70% of our operating expenses over the last
five years. Our 2018 weighted goals and the year-end score achieved by the company and assigned by the board are set forth in the
following table:
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
54
|
Goal(s)
|
|
Maximum
Score
|
|
Actual 2018
Performance Score
|
|
Marketed and Approval-Stage Products
|
|
60
|
|
60
|
|
Achieve
CF net product revenue goals through compliant marketing practices, including U.S. and
ex-U.S. revenue goals
|
|
|
|
|
|
Successfully
launch SYMDEKO through compliant marketing practices
|
|
|
|
|
|
Pipeline Growth
|
|
55
|
|
50.5
|
|
Accelerate pivotal development of triple-combination programs
|
|
|
|
|
|
Obtain approval for SYMDEKO in the U.S. and SYMKEVI in the E.U
|
|
|
|
|
|
Obtain label-expansions in U.S. and E.U. for CF medicines
|
|
|
|
|
|
Advance
non-CF development programs, including Phase 2 clinical trials of VX-150 and Phase 1 clinical trials in multiple diseases
|
|
|
|
|
|
Advance multiple research programs, including CF and non-CF programs
|
|
|
|
|
|
Organizational Development and Capability
|
|
15
|
|
14
|
|
Fill critical positions with superior and diverse talent to support business growth
|
|
|
|
|
|
Improve infrastructure to support expanding business
|
|
|
|
|
|
Continue to ensure a strong compliance mindset and enterprise-wide risk management program
|
|
|
|
|
|
Financial Strength
|
|
20
|
|
20
|
|
Increase cash flows and manage operating expenses
|
|
|
|
|
|
Additional Accomplishments and Shortcomings, Net (see page 56 of this proxy statement)
|
|
|
|
4
|
|
Additional
Accomplishments
|
|
|
|
+7
|
|
Additional
Shortcomings
|
|
|
|
-3
|
|
TOTAL
|
|
150
|
|
148.5
|
Our 2018 company performance score was 148.5
out of a potential of 150. Our 2019 company performance will be evaluated against the broad categories set forth above, with slightly
more emphasis on Pipeline Growth (60 points in 2019 compared to 55 points in 2018) and slightly less on Marketed and Approval-Stage
Products (55 points in 2019 compared to 60 points in 2018). These changes were made to align our annual incentive plan with our
business goals for 2019.
Detailed Discussion of Company
Performance Rating Factors and Achievements
Goals - Marketed and Approval-Stage Products
In 2018, CF net product revenues increased to
$3.04 billion, up 40% as compared to 2017. Our CF net product revenues exceeded the mid-point of our initial CF net product revenue
guidance by $313 million ($3.04 billion actual as compared to the mid-point of our initial guidance of $2.73 billion). We
expect additional increases in CF net product revenues in 2019.
SYMDEKO/SYMKEVI
We obtained approval and began marketing SYMDEKO
in the first quarter of 2018 and obtained approval for SYMKEVI in late 2018. The successful launch of SYMDEKO in the United States,
which resulted in $769 million in SYMDEKO/SYMKEVI net product revenues, was critical to our exceeding our total CF net product
revenue goals.
ORKAMBI
In 2018, we continued to have strong ORKAMBI
net product revenues as the result of label expansions and increased access in ex-U.S. markets. As expected, our total ORKAMBI
net product revenues were slightly lower in 2018 as compared to 2017 due to patients switching from ORKAMBI to SYMDEKO.
KALYDECO
In 2018, our KALYDECO net product revenue reached
$1.0 billion, an increase of 19%, as we continued to expand the number of patients receiving KALYDECO.
For marketed and approval-stage
products goals, our board assigned the company a score of 60 out of 60, due to our exceeding our goals with respect to total CF
net product revenues, including achieving our goals with respect to each of our CF medicines.
Goals - Pipeline Growth (Late and Early-Stage)
In 2018, we made significant progress that moved
us closer to achieving our goal of delivering highly effective medicines to all patients with CF. Specifically, we:
|
|
Obtained approval for SYMDEKO in first quarter of 2018 and SYMKEVI in the fourth quarter of
2018
|
|
|
Accelerated our Phase 3 development programs for triple combination regimens, which were initiated
in the first half of 2018:
|
|
|
–
|
Obtained positive Phase 3 data from two Phase 3 clinical trials evaluating the
triple combination of VX-659, tezacaftor and ivacaftor in the fourth quarter of 2018
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
55
|
|
–
|
Positioned ourselves to obtain positive Phase 3 data from two clinical trials evaluating the triple combination of VX-445, tezacaftor and ivacaftor in early 2019
|
|
|
–
|
Based on the data from these clinical trials, we are positioned to file an NDA in the United States in the third quarter of 2019 and an MAA in the European Union in the fourth quarter of 2019 for a triple combination regimen
|
|
|
Obtained regulatory approvals and advanced clinical trials designed to provide younger children access to our CF medicines
|
|
|
Advanced additional next-generation correctors into Phase 1 clinical trials
|
Additionally, in 2018, we made significant progress
toward meeting our goal of diversifying our portfolio as we advanced promising programs in a variety of diseases. Specifically,
we:
|
|
Obtained proof-of-concept from Phase 2 clinical trials evaluating VX-150, a selective non-opioid NaV1.8 inhibitor, as a potential treatment for acute and neuropathic pain
|
|
|
Initiated a Phase 1 clinical trial for a novel drug candidate for alpha-1 antitrypsin deficiency
|
|
|
Initiated clinical trials of CTX001, an investigational gene-editing treatment that we are evaluating as a potential treatment for beta-thalassemia and sickle cell disease
|
|
|
Advanced our research program for focal segmental glomerulosclerosis into late-stage preclinical development
|
|
|
Established a collaboration with Arbor Biotechnologies to enhance our ongoing efforts to develop innovative gene-editing therapies for a range of serious diseases
|
While our overall performance with respect to
pipeline goals was excellent, we experienced a delay compared to our goals in connection with incorporating VX-561 (deuterated
ivacaftor) into our CF program and a slight delay in the timing of our approval for SYMKEVI in the European Union.
On the basis of the accomplishments
in advancing our research and development programs and, in particular, the acceleration of our Phase 3 development of triple
combination regimens and the advancement of multiple non-CF programs our board assigned the company a score of 50.5 out of 55 for
our pipeline growth goal.
Goals - Organizational Development and Capability
Talent and expertise
Strengthened our organizational capabilities
by attracting, developing and retaining the key talent necessary to operate our business, including filling 11 of 12 critical hires
with superior and diverse talent.
Systems and Infrastructure
Continued improvement of infrastructure to support
an increasingly complex organization, including enhancing policies, software platforms and business processes. Successfully completed
transition to new research facility in San Diego.
Compliance
Continued to promote effective governance, communication
and training to support our company-wide compliance and risk management programs.
To reflect the improvements to
our organizational structure, processes and systems achieved in 2018, our board assigned the company a score of 14 out of 15 for
our organizational development and capability goals.
Goals - Financial Strength
We exceeded all of our financial goals in 2018.
Our combined R&D and SG&A expenses for 2018 were within the guidance we provided at the beginning of 2018. Our operating
income increased by 415% as compared to 2017. Our increased cash flows were achieved while managing our operating expenses allowing
us to strengthen our balance sheet and end 2018 with cash, cash equivalents and marketable securities of $3.2 billion.
As a result of our success in
increasing our financial strength by managing our operating expenses and increasing cash flows, our board assigned the company
a score of 20 out of 20 for our financial strength goals.
Additional Factors (accomplishments and/or
shortcomings)
In connection with determining our 2018 company
rating, our board of directors made positive and negative adjustments based on factors not anticipated when the company’s
original goals for 2018 were established. The positive adjustments were primarily related to our success in commercializing our
CF medicines, obtaining orphan drug designations for SYMKEVI and our triple combination regimens in the European Union and the
exceptional performance of our research organization. These additional accomplishments were partially offset by delays we experienced
in our CRISPR program as a result of a clinical hold that was placed on the program in early 2018 and released in the fourth quarter
of 2018 and delays in obtaining reimbursement for ORKAMBI in ex-U.S. markets. Overall, the board of directors increased our company
rating by seven points for positive additional accomplishments, which was offset by a three point downward adjustment related to
additional negative factors, which resulted in an overall positive net four point adjustment.
2018 Individual Performance
Ratings – Overview
The MDCC evaluates executives’ individual
performance on a “results-based, values-tempered” basis, which takes into account not only “what” was accomplished,
but “how” it was accomplished. The results-based component evaluates the executive officer’s performance in his
or her individual role and as a leader of our company in achieving our objectives. The possible individual results-based performance
ratings are “not building,” “building,” “strong” or “leading.” The values-tempered
component of the individual evaluations builds upon our company core values: “uncompromising commitment to patients;”
“innovation is our lifeblood;” “fearless pursuit of excellence” and “we wins” and are based
on whether the decisions made by the executives were consistent with these values and what is in the
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
56
best interests of the company in the long term.
Under our values into practice program, we expect all employees to demonstrate our company core values in all aspects of job performance.
We further expect that our executives will be stewards of our core values, and the performance ratings assigned to them incorporate
our board’s assessment of the strength of their leadership with respect to, and demonstration of, values-based behavior.
This evaluation results in ratings of “not demonstrating,” “living the values” or “exemplary demonstration.”
The possible individual performance ratings under this program are as set forth in the following table:
The 2018 results-based rating recommendation
for each NEO, other than our CEO, is the combined result of the MDCC members’ own observations and a review of the executive’s
role in the accomplishment of the corporate goals and recommendations, the latter of which is provided to the MDCC by our chief
executive officer and is made on the basis of his independent assessment of each executive officer’s performance. The MDCC
and Dr. Leiden discussed each recommendation at length, on both an individual and comparative basis. Upon completion of these discussions,
the MDCC finalized its recommendation for the results-based rating for each executive. The final recommendations took into account
Dr. Leiden’s recommendations, the opinions of MDCC members (based on the executive’s contributions and the MDCC members’
interactions with the executive), as well as other factors. The MDCC gave Dr. Leiden’s recommendations greater weight when
determining the values-based rating than when determining the results-based rating, as the values-based rating is pertinent to
the executive’s daily interactions in carrying out his or her duties. Furthermore, the MDCC believes that, in his role as
CEO, Dr. Leiden had greater visibility than the MDCC members into the quality of these interactions. Taking into account all
of the factors raised in the discussion and the assigned individual performance rating, the MDCC assigns an individual performance
factor for each NEO within the ranges set forth above. While the individual ratings are not 100% objective, we view them as critical
factors indicative of management success and crucial to achieving the more objective goals discussed above. The results-based and
values-based evaluations for our CEO are based on a similar assessment of individual performance by our MDCC and independent directors.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
57
2018 Actual Individual Ratings For Named Executive
Officers
|
Dr. Jeffrey Leiden
|
|
2018 Rating:
|
|
Leading Exemplary
|
|
|
Chairman, President and CEO
|
|
2019 Salary:
|
|
$
|
1,300,000
|
|
|
|
|
2018 Bonus:
|
|
$
|
3,440,151
|
|
|
|
|
LTI Equity Grants (Feb 2019):
|
|
$
|
15,240,000
|
|
On the basis of the MDCC’s recommendation,
our independent directors rated Dr. Leiden’s overall performance for 2018 as “leading exemplary,” with an individual
performance factor of 148.5%. The performance rating for Dr. Leiden combined a “leading” results-based rating with
an “exemplary demonstration” values-based rating. The rating derived principally from his leadership of our executive
team as we executed our strategy for 2018, which included:
|
|
Leadership in executing our corporate strategy, which for the last eight years has maintained its focus on developing transformative medicines for serious diseases, and achieving our business goals
|
|
|
The advancement of our CF programs, in particular the acceleration of our triple combination programs to position us for the expected filing of an NDA in the third quarter of 2019 and an MAA in the fourth quarter of 2019
|
|
|
The advancement of our non-CF clinical development pipeline, including advancing Phase 2 clinical development of VX-150 and initiating the first clinical trials for CTX001
|
|
|
The excellent performance of our internal research organization in advancing multiple programs, including in cystic fibrosis, alpha-1 anti-trypsin deficiency and focal segmental glomerulosclerosis
|
|
|
The over-achievement of our financial goals including significantly increasing CF net product revenues, significantly strengthening our balance sheet, expanding our operating margins, and increasing operating income
|
|
|
Significantly expanding the company’s expertise in various therapeutic modalities through internal research, recruiting and collaborations
|
|
|
Recruiting, mentoring and developing our outstanding senior leadership team
|
|
|
Enhancing Vertex’s corporate reputation through, among other activities, patient engagement, corporate giving and diversity and inclusion initiatives
|
|
|
Coordinating, as the chair of our board, clear, open and constructive communication between our board and management regarding key business and strategic issues
|
|
|
Exhibiting outstanding personal and leadership qualities and embodying Vertex’s core values in enabling the successful stewardship of our company over the last year
|
|
Stuart A. Arbuckle
|
|
2018 Rating:
|
|
Leading Exemplary
|
|
|
EVP, Chief Commercial Officer
|
|
2019 Salary:
|
|
$
|
750,000
|
|
|
|
|
2018 Bonus:
|
|
$
|
824,175
|
|
|
|
|
LTI Equity Grants (Feb 2019):
|
|
$
|
5,250,000
|
|
The MDCC recommended and the board adopted an overall rating of “leading
exemplary” for Mr. Arbuckle based on a results-based rating of “leading” and a values-based rating of “exemplary
demonstration” with an individual performance factor of 148%. Mr. Arbuckle’s rating derived from his leadership
of the commercial organization, including the following:
|
|
The exceptional performance of our commercial organization, which delivered CF net product revenues of $3.04 Billion in 2018, up 40% compared to 2017
|
|
|
The successful U.S. launch of SYMDEKO for patients 12 years of age and older in 2018, which had a significant effect on our overall financial performance in 2018
|
|
|
Successful launches of KALYDECO for patients 12 to 24 months of age and ORKAMBI for patients two to five years of age
|
|
|
Leading successful reimbursement discussions that provided access to patients eligible for our approved medicines in a number of Ex-U.S. markets, including Australia, Denmark, Israel, Luxembourg and Sweden
|
|
|
The successful launch of ORKAMBI in Australia
|
|
|
Leading the successful transition of our international leadership team as we continued to expand our international operations
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
58
|
Michael Parini
|
|
2018 Rating:
|
|
Leading
|
|
|
EVP, Chief Legal and Administrative Officer
|
|
2019 Salary:
|
|
$
|
775,000
|
|
|
|
|
2018 Bonus:
|
|
$
|
834,384
|
|
|
|
|
LTI Equity Grants (Feb 2019):
|
|
$
|
4,375,000
|
|
The MDCC recommended and the board adopted an
overall rating of “leading” for Mr. Parini based on a results-based rating of “strong” and a values-based
rating of “exemplary demonstration” with an individual performance factor of 145%. Mr. Parini’s rating derived
from his leadership of the legal, compliance, human resources, corporate communications and quality groups with respect to the
following:
|
|
Leading a highly successful year for the legal department, supporting key business development, regulatory and reimbursement initiatives
|
|
|
Expanding and enhancing our human resources function
|
|
|
Spearheading our recruiting efforts, which resulted in us filling 11 of 12 critical positions
|
|
|
Leading the successful communication of numerous key clinical and regulatory milestones
|
|
|
Leading several important corporate initiatives, including the establishment of The Vertex Foundation and the advancement of our diversity and inclusion efforts
|
|
Amit Sachdev
|
|
2018 Rating:
|
|
Leading Exemplary
|
|
|
EVP, Chief Regulatory Officer
|
|
2019 Salary:
|
|
$
|
540,750
|
|
|
|
|
2018 Bonus:
|
|
$
|
602,261
|
|
|
|
|
LTI Equity Grants (Feb 2019):
|
|
$
|
5,250,000
|
|
The MDCC recommended and the board adopted an
overall rating of “leading exemplary” for Mr. Sachdev based on a results-based rating of “leading” and
a values-based rating of “exemplary demonstration” with an individual performance factor of 150%. Mr. Sachdev’s
rating derived principally from his leadership of the regulatory and governmental affairs organizations with respect to the following:
|
|
Building and leading the global regulatory group as they efficiently and successfully obtained multiple approvals for our medicines in U.S. and ex-U.S. markets, including:
|
|
|
–
|
SYMDEKO for patients 12 years of age and older in the United States;
|
|
|
–
|
SYMKEVI for patients 12 years of age and older in the European Union
|
|
|
–
|
KALYDECO for patients 12 to 24 months of age
|
|
|
–
|
ORKAMBI for patients 2 years to 5 years of age
|
|
|
Supporting the advancement of multiple development programs, including the triple combination regimens for CF and obtaining the release of the clinical hold on CTX001 allowing us to initiate the clinical trials in the United States
|
|
|
Obtaining multiple regulatory designations, including Orphan Drug Designation in the European Union for multiple CF treatment regimens and Breakthrough Drug Designation in the United States for VX-150 in pain
|
Former
Executive Officers
Dr. Chodakewitz served
as our Chief Medical Officer and Executive Vice President, Global Medicines Development and Medical Affairs through March 31, 2018,
and remained as a senior advisor to the company through his retirement in February 2019. He received a leading rating for his 2018
performance, which included leading the development organization during the first part of the year and enabling a smooth transition
for Dr. Reshma Kewalramani, who became our Chief Medical Officer and Executive Vice President, Global Medicines Development and
Medical Affairs in April 2018. He received a bonus of $550,638 and an equity grant with a fair market value of $4,375,000 in February
2019.
Mr. Graney served as our Senior Vice President
and Chief Financial Officer until December 13, 2018 and remained as an employee through February 2019. He received a bonus of $367,538
and did not receive an equity grant in February 2019.
Mr. Smith served as our Executive Vice President and Chief Operating Officer
until January 23, 2019 and our interim Chief Financial Officer from December 13, 2018 through January 23, 2019. We terminated Mr.
Smith’s employment as a result of personal behavior that violated our code of conduct and values. This termination was unrelated
to our financial and business performance. Mr. Smith did not receive a bonus or an equity award for 2018 performance.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
59
Annual Cash Bonus
The cash bonus for each executive (referred to
in the
Summary Compensation Table
on page 65 of this proxy statement as “Non-Equity Incentive Plan Compensation”)
is calculated by multiplying the executive officer’s target bonus by both the company performance factor and the individual
performance factor, in accordance with the following formula in 2018:
|
Target Cash Bonus
|
×
|
Performance Factors
|
=
|
Cash Bonus
|
|
Base Salary
|
×
|
Individual
Incentive Target
(expressed as
a percentage
of base salary)
|
×
|
Company Performance
Factor
(expressed as a
percentage of the
target bonus)
|
×
|
Individual Performance
Factor
(expressed as a
percentage of the
target bonus)
|
=
|
Annual
Cash
Bonus
Award
|
|
|
|
45%- 120%
based on role
|
|
0%- 150%
|
|
0-150%
|
|
|
The individual incentive targets were
established, and are reviewed annually, by the MDCC based on available data about Peer Group company compensation. Dr.
Leiden’s individual incentive target of 120% has remained unchanged since 2012. The individual incentive target for
each other current NEO is 50% and was unchanged during 2018. The resulting target annual bonuses approximate the median
target annual bonuses for comparable executives at peer companies.
Company performance factors are determined annually and range from
0% to 150%. The possible individual ratings and corresponding individual performance factor ranges for our executive officers in
2018 are set forth in the table below:
|
Individual Rating
|
Individual
Performance Factor
|
|
Not Building
|
0%
|
|
Building
|
50%-80%
|
|
Strong
|
80%-120%
|
|
Leading
|
120%-150%
|
|
Leading/Exemplary
|
140%-150%
|
On the basis of the factors described above,
our independent directors approved, upon the MDCC’s recommendation, individual performance factors and annual bonus awards
for each of the NEOs on account of 2018 performance, as set forth in the table below.
|
Name
|
|
2018
Target
Bonus
|
|
Company
Performance
Factor
|
|
Individual
Performance
Factor
|
|
|
|
2018
Performance
Cash Bonus
|
|
Jeffrey M. Leiden
|
|
$
|
1,560,000
|
|
|
x
|
148.5%
|
|
|
x
|
148.5%
|
|
=
|
|
$
|
3,440,151
|
|
Stuart A. Arbuckle
|
|
$
|
375,000
|
|
|
x
|
148.5%
|
|
|
x
|
148%
|
|
=
|
|
$
|
824,175
|
|
Michael Parini
|
|
$
|
387,500
|
|
|
x
|
148.5%
|
|
|
x
|
145%
|
|
=
|
|
$
|
834,384
|
|
Amit Sachdev
|
|
$
|
270,375
|
|
|
x
|
148.5%
|
|
|
x
|
150%
|
|
=
|
|
$
|
602,261
|
|
Jeffrey Chodakewitz
|
|
$
|
309,000
|
|
|
x
|
148.5%
|
|
|
x
|
120%
|
|
=
|
|
$
|
550,638
|
|
Thomas Graney
|
|
$
|
247,500
|
|
|
x
|
148.5%
|
|
|
x
|
100%
|
|
=
|
|
$
|
367,538
|
|
Ian F. Smith
|
|
$
|
637,500
|
|
|
x
|
148.5%
|
|
|
x
|
—%
|
|
=
|
|
$
|
—
|
Annual Equity Awards
Value-Based Guidelines for Annual NEO Equity
Grants
Under our program, our NEOs were eligible for awards with the following
target values based on 2018 performance:
|
|
|
|
Not Building
|
|
|
Building
|
|
|
Strong
|
|
|
Leading
|
|
|
Leading/Exemplary
|
|
|
|
CEO
|
|
|
$
|
—
|
|
|
$
|
6,000,000
|
|
|
$
|
12,000,000
|
|
|
$
|
13,620,000
|
|
|
$
|
15,240,000
|
|
|
|
EVP
|
|
|
$
|
—
|
|
|
$
|
1,750,000
|
|
|
$
|
3,500,000
|
|
|
$
|
4,375,000
|
|
|
$
|
5,250,000
|
|
During 2018, the MDCC increased our target value
for annual equity grants by $1.0 million for our CEO and $500,000 for each of our executive vice presidents based on a market analysis.
The number of shares subject to the time-vested restricted stock units and performance stock units is based on the fair value of
our common stock on the date of grant. The number of shares subject to the stock options is based on an estimate of the fair value
of the stock options pursuant to the Black-Scholes option pricing model based on information available as of the grant date.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
60
February 2019 Grants Based on 2018 Performance
In February 2019, our independent directors approved,
upon the MDCC’s recommendation, individual performance factors and equity awards for 2018 performance for each of the NEOs,
as set forth in the table below.
|
Name
|
|
Individual
Performance
Rating
|
|
Performance-
Based RSU
(35%)
|
|
|
Options
(30%)
|
|
|
Time-based
RSU
(35%)
|
|
|
Total Equity
Value
|
|
|
Jeffrey M. Leiden
|
|
Leading Exemplary
|
|
$
|
5,334,000
|
|
|
$
|
4,572,000
|
|
|
$
|
5,334,000
|
|
|
$
|
15,240,000
|
|
|
Stuart A. Arbuckle
|
|
Leading Exemplary
|
|
$
|
1,837,500
|
|
|
$
|
1,575,000
|
|
|
$
|
1,837,500
|
|
|
$
|
5,250,000
|
|
|
Michael Parini
|
|
Leading
|
|
$
|
1,531,250
|
|
|
$
|
1,312,500
|
|
|
$
|
1,531,250
|
|
|
$
|
4,375,000
|
|
|
Amit Sachdev
|
|
Leading Exemplary
|
|
$
|
1,837,500
|
|
|
$
|
1,575,000
|
|
|
$
|
1,837,500
|
|
|
$
|
5,250,000
|
|
|
Jeffrey Chodakewitz
|
|
Leading
|
|
$
|
1,531,250
|
|
|
$
|
1,312,500
|
|
|
$
|
1,531,250
|
|
|
$
|
4,375,000
|
|
|
(1)
|
Estimates for value of equity-based awards
granted in February 2019 for 2018 performance are based on our methodology for determining the grant-date fair value, including
underlying assumptions for calculating these values as set forth in Note N to our consolidated financial statements included
in our 2018 Annual Report on Form 10-K and are subject to adjustment. Mr. Smith and Mr. Graney did not receive equity awards
in 2019.
|
Performance Units Company Target and Results
Table
We have granted one-year financial-based performance
restricted stock unit awards and three-year non-financial based restricted stock unit awards each year since 2016.
The final performance multipliers for our 2018
financial-based performance restricted stock unit awards were determined by the MDCC and applied to the target units granted to
determine the actual units earned and eligible to vest with a payout of 200% in February 2019. The following chart shows the pre-established
financial goals and the actual results for the financial-based performance restricted stock unit awards granted in 2018:
|
Award Year
|
|
Company Goal
|
|
Threshold
|
|
Target
|
|
Max
|
|
Results
|
|
Payout
|
|
2018
|
|
2018 CF Net Product Revenues
|
|
$ 2.65 billion
|
|
$ 2.73 to $2.75 billion
|
|
|
$ 2.85 billion
|
|
|
$ 3.04 billion
|
|
|
200.0%
|
Consistent with our philosophy of aligning compensation
with performance:
|
|
In 2018, a year in
which we substantially exceeded our CF net product revenue expectations and exceeded the high end of our CF net product
revenues guidance by nearly $200 million, the payout on our one-year financial PSU awards achieved the maximum level. The performance goals for the 2016 non-financial
based performance restricted stock unit awards were established in February 2016 and our performance against these goals was determined
in the first quarter of 2019. There were three non-financial goals and achievement of one goal would have resulted in a 50% payout,
achievement of two goals would have resulted in a 100% payout and achievement of three goals resulted in a payout of 200%.
|
|
Award Year
|
|
|
Company Goal
|
|
|
Results
|
|
2016
|
|
|
CF Portfolio - Initiation of Phase 2B clinical trial for a next-generation corrector
|
|
|
Achieved
|
|
|
|
|
Initiation of a non-CFTR modulator pivotal clinical trial including outlicensed compounds
|
|
|
Achieved
|
|
|
|
|
Initiation of first-in-human clinical trials for at least 3 new drug candidates
|
|
|
Achieved
|
The performance multiples for the 2017 and 2018
non-financial based performance restricted stock awards will be determined in the first quarter of 2020 and 2021, respectively,
based on performance over the relevant three-year performance period. The non-financial goals contained in our three-year performance
restricted stock unit awards for 2017 and 2018 are not disclosed for competitive reasons and because the relevant performance periods
are ongoing.
Other
Compensation Arrangements
Benefits
Our executives are eligible to participate in
all of our benefit plans and programs on the terms made generally available to our employees, including medical insurance, dental
insurance, payment of life insurance premiums, disability coverage, equity programs, including a career employment/retirement provision
and participation in our employee stock purchase plan and eligibility for matching contributions, subject to an annual $25,000
limit, to qualified charitable organizations pursuant to the Vertex Foundation Matching Gift Program. We have a defined contribution—a
401(k)—plan, in which our NEOs are eligible to participate. We make matching contributions to the 401(k) plan. The formula
for determining the amount of our matching contributions is the same for our NEOs as for our other employees (and are subject to
the same statutory maximum), but the actual contributions made to the accounts of our NEOs generally are at the top end of the
range, due to the executives’ higher salaries and correspondingly higher cash contribution levels. Other than the retirement
provision under our equity program available to all employees, we do not provide any retirement benefits to our executive officers.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
61
Employment Agreements and Post-Termination Compensation
and Benefits
The initial compensation terms for newly hired
members of our executive team are the result of negotiations between us, in consultation with the MDCC and our board of directors,
and the executive being hired. In general, each newly hired executive team member enters into an employment agreement and a change
of control agreement and is awarded a stock option grant and/or a restricted stock unit award, and in some cases a cash sign-on
bonus, reimbursement of moving expenses, and other benefits. We also enter into employment and change of control agreements with
executives who are promoted to our executive team, on the basis of standard terms and conditions that have been recommended by
our MDCC and approved by our board for such circumstances. We have entered into agreements providing for severance and change of
control payments with each of the members of our executive team, including all of the NEOs, because we believe that they are a
fair and effective way to allow our executives to maintain focus on our business in the face of market and other volatility in
our industry.
In general, each employment arrangement provides
for cash severance and continuation of certain employee benefits in the event that an executive’s employment is terminated
by us without cause or is terminated by the executive for good reason. We use a “double trigger” with respect to benefits
that are to be provided in connection with a change of control. A change of control does not itself trigger benefits; rather, benefits
are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive
for good reason, during a specified period before or after a change of control. We believe a “double trigger” benefit
maximizes shareholder value because it prevents a windfall to executives in the event of a change of control in which the executive
retains significant responsibility as defined in his or her individual agreement, while still providing our executives appropriate
incentives to cooperate in negotiating any change of control that may put their jobs at risk.
We offer a company-wide program that provides
for accelerated vesting of equity awards held by qualified retirement-eligible participants. All of the equity awards granted since
2014 to our employees, including our NEOs, contain a retirement vesting provision, under which a “qualified” participant
who experiences a termination of service other than for cause will receive accelerated vesting of an additional number of shares
underlying the award, equal to the sum of (x) 50% plus 10% for each year of service in excess of five full years of service multiplied
by (y) the number of unvested shares subject to the award. A “qualified” participant is a participant who is at least
age 55 and has completed at least five full years of service or whose age plus full years of service is 65 or greater and who, has completed a mandatory transitional period of employment with the company following
notice of his or her planned termination of service.
In addition to the benefits that only accrue
in connection with a change of control, our agreements with our executive officers provide benefits if we terminate their employment
with us without cause or they terminate their employment with us for good reason, as such terms are defined in the applicable agreement
with the executive officer. A further discussion of the terms and projected payments under each our agreements with our named executive
officers is set forth below under the heading
Employment Contracts and Change of Control Arrangements
.
Tax Considerations
We would like our compensation program to be
reasonably cost and tax effective. To the extent consistent with our other goals, we seek to preserve corporate tax deductions,
while maintaining the flexibility to approve compensation arrangements that we believe are in the best interests of the company
and our shareholders. The approach does not always result in full tax deductibility.
Compensation
Practices
Equity Grant Practices
The exercise price for each stock option awarded
to our executive officers under our equity compensation program is equal to the fair market value of our common stock on the date
of grant, which under our equity plans is the average of the high and low price for our common stock on the date of grant. Our
board of directors generally grants annual equity awards to named executive officers at a board meeting scheduled in advance for
early February. Scheduling decisions are made without regard to anticipated earnings or other major announcements by the company.
Newly hired employees, including executive officers,
are sometimes granted options and/or restricted stock units effective on the first day of employment, with the options having an
exercise price set at the average of the high and low price for our common stock on the employment start date. The employees’
start dates are scheduled without regard to anticipated earnings or other major announcements by the company.
In the past, the MDCC has recommended that our
board make an additional, off-cycle equity award to an executive officer or group of officers in order to achieve one or more of
the objectives of our executive compensation program. Supplemental grants have been made on an ad hoc basis, when warranted in
the judgment of the MDCC and our board. We did not make any supplemental grants of equity compensation in 2018.
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
62
Compensation Recoupment (“Clawback”)
Policy
We have adopted a recoupment or clawback policy
providing that, if our board of directors determines that an executive officer engaged in fraud or intentional misconduct that
resulted in an incorrect determination that an incentive compensation performance goal had been achieved, the board may take appropriate
action to recover from such executive officer any compensation that resulted from such determination. The board may require repayment
for any bonus, equity or incentive compensation awarded to an executive officer who engaged in the fraud or intentional misconduct
to the extent it was based on such incorrect determination.
Stock Ownership Guidelines
We have stock ownership guidelines for our chief
executive officer and NEOs and guidelines for our non-employee directors, as discussed in
Non-Employee Director Stock Ownership
Guidelines
on page 25 of this proxy statement. The guidelines for our CEO and Executive Vice Presidents are set forth in the
following table:
|
Employee
|
|
Minimum Shareholding Requirement
|
|
Chief Executive Officer
|
|
6X base salary or 150,000 shares of our common stock
|
|
Executive Vice Presidents
|
|
4X base salary
|
Individual holdings, and holdings of immediate
family members, of (a) common stock, (b) unvested restricted stock units and (c) shares held through our 401(k) plan count toward
meeting these guidelines. Our chief executive officer and our executive vice presidents currently satisfy the individual
holding requirements.
Anti-Hedging and Pledging
Policy
We prohibit all of our directors and employees,
including our named executive officers, from (i) short selling or hedging our securities, (ii) purchasing or selling derivative
securities based on our securities and (iii) pledging our securities.
Risk Mitigation
Our MDCC reviews the risks and rewards associated
with our compensation programs. The programs are designed with features that mitigate risk without diminishing the incentive nature
of the compensation. We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking
over the short term and the long term. Our MDCC regularly evaluates the risks involved with our compensation programs and does
not believe that any of our compensation programs create risks that are reasonably likely to have a material adverse effect on
our company.
We believe that our annual cash bonus and long-term
equity compensation programs, which account for most of our executive officers’ compensation, contain appropriate risk mitigation
factors, as summarized below:
|
What We
Do
|
|
What We
Don’t Do
|
|
Caps on awards
|
|
No executive perquisites
|
|
Multiple performance factors
|
|
No supplemental pension benefits for executives
|
|
Range of awards; not all or nothing
|
|
No single-trigger vesting in connection with a change-in-control for equity awards
|
|
Compensation recoupment (clawback) policy
|
|
No hedging or pledging or speculative transactions in our securities by directors and executive
officers
|
|
Balance of short- and long-term incentives (through annual cash bonuses and equity awards)
|
|
No re-pricing of equity awards without shareholder approval
|
|
Executive and Non-Employee Director Stock Ownership Guidelines
|
|
No payment of dividends on unvested performance shares or units
|
|
No gross-ups
|
|
|
|
Independent compensation consultant
|
|
|
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
63
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
The Management Development and Compensation Committee
has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and its
discussions with management, the Management Development and Compensation Committee recommended to Vertex’s Board of Directors
that the Compensation Discussion and Analysis be included in Vertex’s proxy statement for its 2019 annual meeting of shareholders
and incorporated by reference into Vertex’s Annual Report on Form 10-K for the year ended December 31, 2018. This report
is provided by the following directors who comprise the Management Development and Compensation Committee:
Bruce I. Sachs (Chair)
Terrence C. Kearney
Elaine S. Ullian
William D. Young
VERTEX PHARMACEUTICALS
INCORPORATED
-
2019 Proxy Statement
64
COMPENSATION AND EQUITY TABLES
Summary
Compensation Table
The following table provides summary information
concerning compensation each of our NEOs for 2018, 2017 and 2016.
Name and
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
(1)
|
|
|
Option
Awards
(1)
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
Jeffrey M. Leiden
|
|
|
2018
|
|
|
$
|
1,300,000
|
|
|
$
|
—
|
|
|
$
|
9,800,288
|
|
|
$
|
4,243,973
|
|
|
$
|
3,440,151
|
|
|
$
|
14,735
|
|
|
$
|
18,799,147
|
|
|
Chairman, President & CEO
|
|
|
2017
|
|
|
$
|
1,300,000
|
|
|
$
|
—
|
|
|
$
|
8,750,114
|
|
|
$
|
3,700,877
|
|
|
$
|
3,463,200
|
|
|
$
|
13,110
|
|
|
$
|
17,227,301
|
|
|
|
|
|
2016
|
|
|
$
|
1,300,000
|
|
|
$
|
—
|
|
|
$
|
9,800,076
|
|
|
$
|
4,060,397
|
|
|
$
|
2,246,400
|
|
|
$
|
12,885
|
|
|
$
|
17,419,758
|
|
|
Stuart A. Arbuckle
|
|
|
2018
|
|
|
$
|
721,923
|
|
|
$
|
—
|
|
|
$
|
2,625,244
|
|
|
$
|
1,136,785
|
|
|
$
|
824,175
|
|
|
$
|
38,965
|
|
|
$
|
5,347,092
|
|
|
EVP & Chief Commercial Officer
|
|
|
2017
|
|
|
$
|
700,000
|
|
|
$
|
—
|
|
|
$
|
2,100,013
|
|
|
$
|
888,210
|
|
|
$
|
699,300
|
|
|
$
|
13,110
|
|
|
$
|
4,400,633
|
|
|
|
|
|
2016
|
|
|
$
|
672,885
|
|
|
$
|
—
|
|
|
$
|
3,150,148
|
|
|
$
|
1,305,144
|
|
|
$
|
420,000
|
|
|
$
|
12,885
|
|
|
$
|
5,561,062
|
|
|
Michael Parini
|
|
|
2018
|
|
|
$
|
746,923
|
|
|
$
|
—
|
|
|
$
|
2,625,244
|
|
|
$
|
1,136,785
|
|
|
$
|
834,384
|
|
|
$
|
29,000
|
|
|
$
|
5,372,336
|
|
|
EVP & Chief Legal and
|
|
|
2017
|
|
|
$
|
694,519
|
|
|
$
|
—
|
|
|
$
|
3,150,020
|
|
|
$
|
1,332,316
|
|
|
$
|
788,655
|
|
|
$
|
13,110
|
|
|
$
|
5,978,620
|
|
|
Administrative Officer
|
|
|
2016
|
|
|
$
|
517,846
|
|
|
$
|
250,000
|
|
|
$
|
1,689,672
|
|
|
$
|
4,731,100
|
|
|
$
|
499,867
|
|
|
$
|
41,779
|
|
|
$
|
7,730,264
|
|
|
Amit Sachdev
|
|
|
2018
|
|
|
$
|
540,750
|
|
|
$
|
—
|
|
|
$
|
3,150,448
|
|
|
$
|
1,364,130
|
|
|
$
|
602,261
|
|
|
$
|
20,672
|
|
|
$
|
5,678,261
|
|
|
EVP & Chief Regulatory Officer
|
|
|
2017
|
|
|
$
|
540,750
|
|
|
$
|
—
|
|
|
$
|
2,625,016
|
|
|
$
|
1,110,263
|
|
|
$
|
600,233
|
|
|
$
|
10,001
|
|
|
$
|
4,886,263
|
|
|
|
|
|
2016
|
|
|
$
|
540,750
|
|
|
$
|
—
|
|
|
$
|
3,150,148
|
|
|
$
|
1,305,144
|
|
|
$
|
438,007
|
|
|
$
|
960
|
|
|
$
|
5,435,009
|
|
|
Jeffrey Chodakewitz
(2)
|
|
|
2018
|
|
|
$
|
618,000
|
|
|
$
|
—
|
|
|
$
|
3,150,448
|
|
|
$
|
1,364,130
|
|
|
$
|
550,638
|
|
|
$
|
13,780
|
|
|
$
|
5,696,996
|
|
|
Former EVP & Chief Medical Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Graney
(2)(3)
|
|
|
2018
|
|
|
$
|
550,000
|
|
|
$
|
—
|
|
|
$
|
1,400,130
|
|
|
$
|
606,332
|
|
|
$
|
367,538
|
|
|
$
|
13,685
|
|
|
$
|
2,937,685
|
|
|
Former SVP & Chief Financial Officer
|
|
|
2017
|
|
|
$
|
154,423
|
|
|
$
|
150,000
|
|
|
$
|
1,500,140
|
|
|
$
|
—
|
|
|
$
|
110,392
|
|
|
$
|
12,445
|
|
|
$
|
1,927,400
|
|
|
Ian F. Smith
(3)
|
|
|
2018
|
|
|
$
|
850,000
|
|
|
$
|
—
|
|
|
$
|
2,625,244
|
|
|
$
|
1,136,785
|
|
|
$
|
—
|
|
|
$
|
14,105
|
|
|
$
|
4,626,134
|
|
|
Former EVP & Chief Operating
|
|
|
2017
|
|
|
$
|
848,077
|
|
|
$
|
—
|
|
|
$
|
2,625,016
|
|
|
$
|
1,110,263
|
|
|
$
|
1,339,770
|
|
|
$
|
13,110
|
|
|
$
|
5,936,236
|
|
|
and Interim Chief Financial Officer
|
|
|
2016
|
|
|
$
|
750,000
|
|
|
$
|
—
|
|
|
$
|
3,150,148
|
|
|
$
|
1,305,144
|
|
|
$
|
562,500
|
|
|
$
|
12,885
|
|
|
$
|
5,780,677
|
|
|
(1)
|
Pursuant to applicable SEC rules
the grant-date fair values of the equity awards granted in February 2018 for 2017 performance are included in 2018 compensation.
Equity awards granted in February 2019 to Dr. Leiden, Mr. Arbuckle, Mr. Parini, Mr. Sachdev and Mr. Chodakewitz for 2018 performance
are not reflected in the Summary Compensation Table above and the value of those awards for our 2019 named executive officers will be reflected in the Summary Compensation Table for next year’s proxy.
|
|
(2)
|
Dr. Chodakewitz was one of our executive vice
presidents during 2016 and 2017, but was not a named executive officer. Mr. Graney was an employee from the third quarter
of 2017 through the first quarter of 2019.
|
|
(3)
|
Mr. Graney and Mr. Smith did not receive equity
awards in 2019.
|
Bonus
Pursuant to applicable SEC rules, the annual
cash bonuses earned by our named executive officers are set forth under the caption “Non-Equity Incentive Plan Compensation.”
Other bonuses, such as sign-on bonuses, are listed separately under the caption “Bonus.”
Stock Awards and Options Awards
The amounts set forth under the captions
“Stock Awards” and “Option Awards” in the table above represent the grant-date fair value of awards granted
during the applicable fiscal year. Our methodology for determining the grant-date fair value, including underlying estimates and
assumptions for calculating these values, is set forth in Note N to our consolidated financial statements included in our
2018 Annual Report on Form 10-K filed with the SEC on February 13, 2019.
The “Stock Awards” for 2018 consist
of performance stock unit, or PSU, awards and time-vested restricted stock unit awards granted in February 2018. The “Stock
Awards” for 2017 consist of PSU awards and time-vested restricted stock unit awards granted in February 2017 and a sign-on
equity grant for Mr. Graney in September 2017. The “Stock Awards” for 2016 consist of PSU awards and time-vested restricted
stock unit awards granted in February 2016 and a sign-on equity grant for Mr. Parini in January 2016.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
65
Non-Equity Incentive Plan Compensation—Annual
Cash Bonus
The amounts set forth under the caption “Non-Equity
Incentive Plan Compensation” in the table above represent annual cash bonuses for 2018, 2017 and 2016 performance, each of
which was paid in the first quarter of the subsequent year. The cash bonus awards to the named executive officers for 2018 performance
were determined as follows:
|
Name
|
|
Base Salary
|
|
|
Individual
Incentive
Target
|
|
|
|
2018
Target
Bonus
|
|
Company
Performance
Factor
|
|
Individual
Performance
Factor
|
|
|
|
2018
Performance
Cash Bonus
|
|
|
Jeffrey M. Leiden
|
|
$
|
1,300,000
|
|
|
x
|
120%
|
|
=
|
|
$
|
1,560,000
|
|
x
|
148.5%
|
|
x
|
148.5%
|
|
=
|
|
$
|
3,440,151
|
|
|
Stuart A. Arbuckle
|
|
$
|
750,000
|
|
|
x
|
50%
|
|
=
|
|
$
|
375,000
|
|
x
|
148.5%
|
|
x
|
148%
|
|
=
|
|
$
|
824,175
|
|
|
Michael Parini
|
|
$
|
775,000
|
|
|
x
|
50%
|
|
=
|
|
$
|
387,500
|
|
x
|
148.5%
|
|
x
|
145%
|
|
=
|
|
$
|
834,384
|
|
|
Amit Sachdev
|
|
$
|
540,750
|
|
|
x
|
50%
|
|
=
|
|
$
|
270,375
|
|
x
|
148.5%
|
|
x
|
150%
|
|
=
|
|
$
|
602,261
|
|
|
Jeffery Chodakewitz
|
|
$
|
618,000
|
|
|
x
|
50%
|
|
=
|
|
$
|
309,000
|
|
x
|
148.5%
|
|
x
|
120%
|
|
=
|
|
$
|
550,638
|
|
|
Thomas Graney
|
|
$
|
550,000
|
|
|
x
|
45%
|
|
=
|
|
$
|
247,500
|
|
x
|
148.5%
|
|
x
|
100%
|
|
=
|
|
$
|
367,538
|
|
|
Ian F. Smith
|
|
$
|
850,000
|
|
|
x
|
75%
|
|
=
|
|
$
|
637,500
|
|
x
|
148.5%
|
|
x
|
—%
|
|
=
|
|
$
|
—
|
|
All Other Compensation
The amounts set forth under the caption “All Other Compensation”
in the table for 2018 consist of:
|
Name
|
|
401(k)
Match
|
|
|
Life Insurance
Premiums
|
|
|
Matching Gift
Program
|
|
|
Total
|
|
|
Jeffrey M. Leiden
|
|
$
|
12,375
|
|
|
$
|
2,360
|
|
|
$
|
—
|
|
|
$
|
14,735
|
|
|
Stuart A. Arbuckle
|
|
$
|
12,375
|
|
|
$
|
1,590
|
|
|
$
|
25,000
|
|
|
$
|
38,965
|
|
|
Michael Parini
|
|
$
|
12,375
|
|
|
$
|
1,625
|
|
|
$
|
15,000
|
|
|
$
|
29,000
|
|
|
Amit Sachdev
|
|
$
|
12,375
|
|
|
$
|
1,297
|
|
|
$
|
7,000
|
|
|
$
|
20,672
|
|
|
Jeffery Chodakewitz
|
|
$
|
12,375
|
|
|
$
|
1,405
|
|
|
$
|
—
|
|
|
$
|
13,780
|
|
|
Thomas Graney
|
|
$
|
12,375
|
|
|
$
|
1,310
|
|
|
$
|
—
|
|
|
$
|
13,685
|
|
|
Ian F. Smith
|
|
$
|
12,375
|
|
|
$
|
1,730
|
|
|
$
|
—
|
|
|
$
|
14,105
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
66
Grants of Plan-Based
Awards During 2018
The following table provides information
with respect to grants of awards to each of our named executive officers during 2018. Pursuant to SEC rules, (i) the threshold,
target and maximum amounts payable pursuant to our 2018 annual cash bonus program are set forth in columns under “Estimated
Possible Payouts under Non-Equity Incentive Plan Awards”, (ii) the threshold, target and maximum number of shares that could
vest pursuant to PSUs granted in 2018 are set forth in columns under “Estimated Future Payouts under Equity Incentive Plan
Awards”, (iii) the number of shares granted pursuant to other restricted stock unit awards in 2018 is set forth under “All
Other Stock Awards: Number of Shares of Stock or Units” and (iv) the number of shares subject to option awards granted in
2018 is set forth under “All Other Option Awards: Number of Securities Underlying Options”.
|
|
|
|
|
|
Estimated Possible
Payouts
Under Non-Equity Incentive
Plan Awards
|
|
|
Estimated Future
Payouts
Under Equity Incentive Plan
Awards (shares)
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
|
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
|
Exercise
or Base
Price of
Option
|
|
|
Closing
Price of
Stock on
|
|
|
Grant-Date
Fair Value
of Stock
and Option
|
|
|
Name
|
|
|
Grant Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
Units
(#)
|
|
|
Options
(#)
|
|
|
Awards
($/Sh)
|
|
|
Grant Date
($/Sh)
|
|
|
Awards
($)
|
|
|
Jeffrey
M. Leiden
|
|
|
|
|
|
$
|
0
|
|
|
$
|
1,560,000
|
|
|
$
|
3,510,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
15,749
|
|
|
|
31,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,450,072
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
15,749
|
|
|
|
31,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,450,072
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,900,144
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,046
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
4,243,973
|
|
|
Stuart A. Arbuckle
|
|
|
|
|
|
$
|
0
|
|
|
$
|
375,000
|
|
|
$
|
843,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312,544
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,566
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
1,136,785
|
|
|
Michael Parini
|
|
|
|
|
|
$
|
0
|
|
|
$
|
387,500
|
|
|
$
|
871,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312,544
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,566
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
1,136,785
|
|
|
Amit
Sachdev
|
|
|
|
|
|
$
|
0
|
|
|
$
|
270,375
|
|
|
$
|
608,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,063
|
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,651
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,063
|
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,651
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,575,146
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,479
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
1,364,130
|
|
|
Jeffrey Chodakewitz
|
|
|
|
|
|
$
|
0
|
|
|
$
|
309,000
|
|
|
$
|
695,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,063
|
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,651
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,063
|
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,651
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,575,146
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,479
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
1,364,130
|
|
|
Thomas
Graney
|
|
|
|
|
|
$
|
0
|
|
|
$
|
247,500
|
|
|
$
|
556,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
2,250
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,033
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
2,250
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,033
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
700,065
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,436
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
606,332
|
|
|
Ian F. Smith
|
|
|
|
|
|
$
|
0
|
|
|
$
|
637,500
|
|
|
$
|
1,434,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,219
|
|
|
|
8,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,350
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,312,544
|
|
|
|
|
|
2/6/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,566
|
|
|
$
|
155.57
|
|
|
$
|
159.27
|
|
|
$
|
1,136,785
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
67
Annual Cash Bonus.
The
amounts in the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” column represent the minimum threshold,
target and maximum amounts that our named executive officers were eligible for pursuant to our 2018 annual cash bonus program.
Actual amounts paid to each of the named executive officers under this program for 2018 performance are set forth in the
Summary
Compensation Table
above.
PSU.
The amounts in
the “Estimated Future Payouts Under Equity Incentive Plan Awards” column represent the minimum threshold, target and
maximum amounts that could vest pursuant to PSUs granted in 2018. These awards vest if, and only if, performance objectives are
achieved, as described in the footnotes to the table
Outstanding Equity Awards at Fiscal Year-End for 2018
below.
Time-Based Restricted Stock Units.
The amounts in the “All Other Stock Awards: Number of Shares of Stock or Units” column represent the number
of time-based restricted stock units, which vest annual over three years, granted to the named executive officers in 2018. The
number of time-based restricted stock units to these named executive officers were made in February 2018 on account of the executives’
performances in 2017.
Options.
In accordance
with our stock and option plans, the exercise prices for the stock options granted to our named executive officers during 2018
were equal to the average of the high and the low prices of our common stock on the grant date. As a result, in 2018, the exercise
prices of options granted to our named executive officers were lower than the grant-date closing price for the February 6, 2018
grants. In the future, we expect that options will continue to be granted with exercise prices equal to the average of the high
and low prices of our common stock on the grant date, and that as a result the exercise prices are likely to be different from
the closing price of our common stock on the grant date. Each stock option set forth in the table above was granted subject to
vesting in 16 quarterly installments during the first four years of its ten-year term.
Narrative Disclosure to Summary Compensation
Table and Grants of Plan-Based Awards Table
Each NEO has entered into an employment agreement
with the company, which provides the executives the right to participate in all of the company’s compensation and benefits
plans and equity programs, as described in
Compensation Discussion & Analysis
.
Option Exercises
and Stock Vested for 2018
The following table sets forth the value
realized by our named executive officers from options to purchase common stock exercised by the named executive officers during
2018 and shares of stock that vested during 2018. The value realized per share for options is based on the difference between the
exercise price and the fair market value of the shares of common stock on the date the options were exercised. The value realized
on vesting of stock awards is based on the fair market value of the shares of common stock on the vesting date.
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on
Exercise
|
|
|
Value Realized
on Exercise
|
|
|
Number of Shares
Acquired on
Vesting
|
|
|
Value Realized
on Vesting
|
|
|
Jeffrey M. Leiden
|
|
|
206,063
|
|
|
$
|
19,140,830
|
|
|
|
57,616
|
|
|
$
|
8,666,360
|
|
|
Stuart A. Arbuckle
|
|
|
66,303
|
|
|
$
|
4,453,708
|
|
|
|
15,773
|
|
|
$
|
2,372,498
|
|
|
Michael Parini
|
|
|
64,570
|
|
|
$
|
3,282,042
|
|
|
|
15,586
|
|
|
$
|
2,400,095
|
|
|
Amit Sachdev
|
|
|
113,545
|
|
|
$
|
9,019,823
|
|
|
|
17,796
|
|
|
$
|
2,676,797
|
|
|
Jeffery Chodakewitz
|
|
|
68,651
|
|
|
$
|
4,162,882
|
|
|
|
16,867
|
|
|
$
|
2,575,379
|
|
|
Thomas Graney
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,392
|
|
|
$
|
458,331
|
|
|
Ian F. Smith
|
|
|
101,143
|
|
|
$
|
5,159,315
|
|
|
|
17,796
|
|
|
$
|
2,676,797
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
68
Outstanding
Equity Awards at Fiscal Year-End for 2018
The following table provides information
with respect to outstanding equity awards held by each of our named executive officers on December 31, 2018, based on the
closing price of $165.71 per share of our common stock on December 31, 2018:
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)
(1)
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)
(1)
|
|
|
Option
Exercise
Price
(per share)
|
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock
That
Have Not
Vested
(shares)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares)
|
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested
|
|
|
Jeffrey M. Leiden
|
|
|
Restricted
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,250
|
(2)
|
|
$
|
5,344,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,939
|
(3)
|
|
$
|
2,972,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,712
|
(4)
|
|
$
|
5,586,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,498
|
(5)
|
|
$
|
5,219,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,964
|
(6)
|
|
$
|
988,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,712
|
(7)
|
|
$
|
5,586,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,908
|
(8)
|
|
$
|
4,458,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,749
|
(9)
|
|
$
|
2,609,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,283
|
(10)
|
|
$
|
4,189,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,749
|
(11)
|
|
$
|
2,609,767
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,000
|
|
|
0
|
|
|
$
|
77.31
|
|
|
|
2/4/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,303
|
|
|
58,247
|
|
|
$
|
86.52
|
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,752
|
|
|
33,524
|
|
|
$
|
91.05
|
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,500
|
|
|
0
|
|
|
$
|
96.87
|
|
|
|
7/14/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,687
|
|
|
13,313
|
|
|
$
|
109.14
|
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,531
|
|
|
19,969
|
|
|
$
|
131.89
|
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,696
|
|
|
59,350
|
|
|
$
|
155.57
|
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Arbuckle
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,350
|
(2)
|
|
$
|
1,715,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,767
|
(3)
|
|
$
|
955,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,091
|
(4)
|
|
$
|
1,340,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
(5)
|
|
$
|
1,398,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,917
|
(6)
|
|
$
|
317,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,092
|
(7)
|
|
$
|
1,340,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,649
|
(8)
|
|
$
|
1,433,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(9)
|
|
$
|
699,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,068
|
(10)
|
|
$
|
1,005,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(11)
|
|
$
|
699,130
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
13,980
|
|
|
$
|
86.52
|
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
10,776
|
|
|
$
|
91.05
|
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
4,250
|
|
|
$
|
109.14
|
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
6,375
|
|
|
$
|
131.89
|
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,668
|
|
|
15,898
|
|
|
$
|
155.57
|
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Parini
|
|
|
Restricted
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,900
|
(12)
|
|
$
|
1,143,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,136
|
(4)
|
|
$
|
2,011,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
(5)
|
|
$
|
1,398,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,136
|
(7)
|
|
$
|
2,011,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(9)
|
|
$
|
699,130
|
|
|
|
|
|
|
|
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
69
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)
(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)
(1)
|
|
|
Option
Exercise
Price
(per share)
|
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock
That
Have Not
Vested
(shares)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares)
|
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,102
|
(10)
|
|
$
|
1,508,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(11)
|
|
$
|
699,130
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
20,969
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
14,875
|
|
|
$
|
90.29
|
|
|
7/11/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
21,250
|
|
|
$
|
122.45
|
|
|
1/3/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,668
|
|
|
|
15,898
|
|
|
$
|
155.57
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amit Sachdev
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,625
|
(2)
|
|
$
|
1,429,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,767
|
(3)
|
|
$
|
955,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,114
|
(4)
|
|
$
|
1,675,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,125
|
(5)
|
|
$
|
1,677,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,917
|
(6)
|
|
$
|
317,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,114
|
(7)
|
|
$
|
1,675,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,649
|
(8)
|
|
$
|
1,433,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,063
|
(9)
|
|
$
|
838,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(10)
|
|
$
|
1,256,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,063
|
(11)
|
|
$
|
838,990
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
17,475
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
10,776
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,906
|
|
|
|
3,594
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,625
|
|
|
|
6,375
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,402
|
|
|
|
19,077
|
|
|
$
|
155.57
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chodakewitz
|
|
|
Restricted
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,625
|
(2)
|
|
$
|
1,429,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,806
|
(3)
|
|
$
|
796,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,091
|
(4)
|
|
$
|
1,340,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,125
|
(5)
|
|
$
|
1,677,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,598
|
(6)
|
|
$
|
264,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,092
|
(7)
|
|
$
|
1,340,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,208
|
(8)
|
|
$
|
1,194,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,063
|
(9)
|
|
$
|
838,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,068
|
(10)
|
|
$
|
1,005,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,063
|
(11)
|
|
$
|
838,990
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
13,980
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
8,980
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
3,594
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
6,375
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,402
|
|
|
|
19,077
|
|
|
$
|
155.57
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Graney
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,783
|
(13)
|
|
$
|
792,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
(5)
|
|
$
|
745,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based
RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250
|
(9)
|
|
$
|
372,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250
|
(11)
|
|
$
|
372,848
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,956
|
|
|
|
8,480
|
|
|
$
|
155.57
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
70
|
|
|
Option Awards
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(shares)
(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(shares)
(1)
|
|
|
Option
Exercise
Price
(per share)
|
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock
That
Have Not
Vested
(shares)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not Vested
(shares)
|
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units
or Other Rights
That Have Not
Vested
|
|
|
Ian F. Smith
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,350
|
(2)
|
|
$
|
1,715,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,767
|
(3)
|
|
$
|
955,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,114
|
(4)
|
|
$
|
1,675,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
(5)
|
|
$
|
1,398,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,917
|
(6)
|
|
$
|
317,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,114
|
(7)
|
|
$
|
1,675,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,649
|
(8)
|
|
$
|
1,433,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(9)
|
|
$
|
699,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
(10)
|
|
$
|
1,256,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219
|
(11)
|
|
$
|
699,130
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,883
|
|
|
|
17,475
|
|
|
$
|
86.52
|
|
|
2/2/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,310
|
|
|
|
10,776
|
|
|
$
|
91.05
|
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
0
|
|
|
$
|
96.87
|
|
|
7/14/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500
|
|
|
|
4,250
|
|
|
$
|
109.14
|
|
|
2/2/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250
|
|
|
|
6,375
|
|
|
$
|
131.89
|
|
|
7/20/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,668
|
|
|
|
15,898
|
|
|
$
|
155.57
|
|
|
2/5/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unvested stock options vest in 16 quarterly installments during the first four years
of their ten-year terms. The option expiration dates listed above reflect the final expiration date for each of the listed
options. If the named executive officer’s service with us is terminated, the options would expire, subject to certain
exceptions, 90 days after the termination of service.
|
|
(2)
|
Each of these restricted stock awards vested on February 3, 2019, the fourth anniversary of grant.
|
|
(3)
|
These time-based restricted stock unit awards vested in three annual installments. The shares
listed on the table above represent the final installment, which vested on February 10, 2019.
|
|
(4)
|
These time-based restricted stock unit awards vest in three annual installments. The shares listed
on the table above represent the second and third annual installments, which vested on February 10, 2019 and will vest on
February 10, 2020, respectively.
|
|
(5)
|
These time-based restricted stock unit awards vest in three annual installments. The shares listed
on the table above represent the three annual installments, which vested on February 17, 2019, and vests in two remaining
annual installments on February 17, 2020 and 2021.
|
|
(6)
|
This performance stock unit award was based on the achievement of one-year financial performance
metrics tied to our net product revenue for medicines for the treatment of cystic fibrosis during 2016. In February 2017,
our MDCC certified as to the level of performance at 66.5% of the number of target shares with the earned shares vesting in
annual installments on February 10, 2017, 2018 and 2019. The shares listed on the table above represent the final installment
of earned shares, which vested on February 10, 2019.
|
|
(7)
|
This performance stock unit award was based on the achievement of one-year financial performance
metrics tied to our net product revenue for medicines for the treatment of cystic fibrosis during 2017. In February 2018,
our MDCC certified as to the level of performance at 200% of the number of target shares with the earned shares vesting in
annual installments on February 10, 2018, 2019 and 2020. The shares listed on the table above represent the second and third
installments of earned shares, which vested on February 10, 2019 and will vest on February 10, 2020, respectively.
|
|
(8)
|
This performance stock unit award is based on the achievement of three-year non-financial performance
metrics. The awards provide for multiple clinical and research milestones, with a payout range of zero to 200%. In February
2019, our MDCC certified as to the level of performance at 200% of the number of target shares. The earned shares vested on
February 10, 2019.
|
|
(9)
|
This performance stock unit award was based on the achievement of one-year financial performance
metrics tied to our net product revenue for medicines for the treatment of cystic fibrosis during 2018, with vesting of the
earned shares in three equal installments on each of February 17, 2019, 2020 and 2021. In February 2019, our MDCC certified
as to the level of performance at 200% of the number of target shares.
|
|
(10)
|
This performance stock unit award is based on the achievement of three-year non-financial performance
metrics. The awards provide for multiple clinical and research milestones, with a payout range of zero to 200%. The specific
clinical and research milestones are not disclosed for competitive reasons. Performance against these goals will be certified
by our MDCC in early 2020.
|
|
(11)
|
This performance stock unit award is based on the achievement of three-year non-financial performance
metrics. The awards provide for multiple clinical and research milestones, with a payout range of zero to 200%. The specific
clinical and research milestones are not disclosed for competitive reasons. Performance against these goals will be certified
by our MDCC in early 2021.
|
|
(12)
|
This restricted stock award comprises a sign-on equity award granted to Mr. Parini and vested
as to one half of the shares set forth on the table above on January 4, 2019, with the remaining installment vesting on January
4, 2020.
|
|
(13)
|
These time-based restricted stock unit awards comprise a sign-on equity award granted to Mr.
Graney; the restricted stock unit awards set forth in the table terminated prior to the vesting of any additional shares.
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
71
SUMMARY OF TERMINATION AND CHANGE
OF CONTROL BENEFITS
The amounts shown in the following table
are calculated based on the amounts that would have been payable by us had the listed named executive officer experienced an employment
termination on December 31, 2018.
|
|
|
Voluntary
Termination or
Retirement/
Termination
for Cause
|
|
|
Separate From a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
With Good Reason
|
|
|
In Connection With a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
for Good Reason
|
|
|
Disability
|
|
|
Death
|
|
Jeffrey M. Leiden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
4,420,000
|
|
|
$
|
10,111,400
|
|
|
$
|
1,560,000
|
|
|
$
|
1,560,000
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
40,733
|
|
|
|
40,733
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
8,231,183
|
|
|
|
9,145,759
|
|
|
|
6,082,615
|
|
|
|
9,145,759
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
35,609,024
|
|
|
|
39,565,582
|
|
|
|
32,201,430
|
|
|
|
39,565,582
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
48,300,940
|
|
|
$
|
58,863,474
|
|
|
$
|
39,844,045
|
|
|
$
|
50,271,341
|
|
Stuart A. Arbuckle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
1,125,000
|
|
|
$
|
1,500,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
27,155
|
|
|
|
27,155
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
2,528,843
|
|
|
|
161,206
|
|
|
|
2,528,843
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
—
|
|
|
|
10,905,209
|
|
|
|
2,796,356
|
|
|
|
10,905,209
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
1,152,155
|
|
|
$
|
14,961,207
|
|
|
$
|
2,957,562
|
|
|
$
|
13,434,052
|
|
Michael Parini
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
1,162,500
|
|
|
$
|
1,550,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
27,155
|
|
|
|
27,155
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
3,862,888
|
|
|
|
161,206
|
|
|
|
3,862,888
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
—
|
|
|
|
9,470,161
|
|
|
|
2,796,356
|
|
|
|
9,470,161
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
1,189,655
|
|
|
$
|
14,910,204
|
|
|
$
|
2,957,562
|
|
|
$
|
13,333,049
|
|
Amit Sachdev
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
811,125
|
|
|
$
|
1,081,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
26,906
|
|
|
|
26,906
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
2,235,244
|
|
|
|
2,800,737
|
|
|
|
193,441
|
|
|
|
2,800,737
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
10,562,313
|
|
|
|
12,100,476
|
|
|
|
3,355,793
|
|
|
|
12,100,476
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
13,635,588
|
|
|
$
|
16,009,619
|
|
|
$
|
3,549,234
|
|
|
$
|
14,901,213
|
|
Jeffrey Chodakewitz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
927,000
|
|
|
$
|
1,236,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
27,155
|
|
|
|
27,155
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
2,389,879
|
|
|
|
193,441
|
|
|
|
2,389,879
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
—
|
|
|
|
10,727,900
|
|
|
|
3,355,793
|
|
|
|
10,727,900
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
954,155
|
|
|
$
|
14,380,934
|
|
|
$
|
3,549,234
|
|
|
$
|
13,117,779
|
|
Thomas Graney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
797,500
|
|
|
$
|
1,045,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
27,155
|
|
|
|
27,155
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
—
|
|
|
|
85,987
|
|
|
|
85,987
|
|
|
|
85,987
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock
Units
|
|
|
—
|
|
|
|
—
|
|
|
|
2,283,981
|
|
|
|
1,491,390
|
|
|
|
2,283,981
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
824,655
|
|
|
$
|
3,442,123
|
|
|
$
|
1,577,377
|
|
|
$
|
2,369,968
|
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
72
|
|
|
Voluntary
Termination or
Retirement/
Termination
for Cause
|
|
|
Separate From a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
With Good Reason
|
|
|
In Connection With a
Change of Control
Involuntary Termination
Other Than for Cause/
Termination by Executive
for Good Reason
|
|
|
Disability
|
|
|
Death
|
|
Ian F. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Benefits
|
|
$
|
—
|
|
|
$
|
2,125,000
|
|
|
$
|
2,125,000
|
|
|
$
|
1,381,250
|
|
|
$
|
1,381,250
|
|
Continuation of Employee Benefits
|
|
|
—
|
|
|
|
27,155
|
|
|
|
27,155
|
|
|
|
—
|
|
|
|
—
|
|
Accelerated Vesting of Stock Options
|
|
|
—
|
|
|
|
2,257,475
|
|
|
|
2,805,612
|
|
|
|
1,875,847
|
|
|
|
2,805,612
|
|
Accelerated Vesting of Restricted Stock and Restricted Stock Units
|
|
|
—
|
|
|
|
10,987,349
|
|
|
|
11,826,888
|
|
|
|
10,111,870
|
|
|
|
11,826,888
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
15,396,979
|
|
|
$
|
16,784,655
|
|
|
$
|
13,368,967
|
|
|
$
|
16,013,750
|
The amounts in the table above do not include
any life insurance payments or disability insurance payments that the executive or the executive’s estate may receive under
existing insurance policies. The assumptions underlying the calculations in the table include:
|
|
The
value of each share subject to an option to purchase common stock that would be accelerated
or continue to vest in the circumstances described below under
Employment Contracts
and Change of Control Arrangements
equals $165.71 per share (the closing price on
the last trading day of 2018), minus the exercise price per share.
|
|
|
The
value of each share of restricted stock for which our repurchase right would lapse or
restricted stock unit that would be accelerated or continue to vest, in each case in
the circumstances described below, equals $165.71 per share (the closing price on the
last trading day of 2018).
|
|
|
Appropriate
provision for the continuation of all then-outstanding options would be made in connection
with a change of control.
|
|
|
Our
board of directors would elect not to pay a pro rata portion of an executive’s
target bonus for the year of termination in cases where the executive’s employment
is terminated voluntarily by the executive (for any reason, including retirement) or
for cause, under our policy that cash bonuses are payable only to employees who are otherwise
eligible and who remain employed by us on the date of bonus payment, typically in February
of the next year.
|
|
|
Our
board of directors would have assigned the same 2018 individual and company performance
ratings on December 31, 2018 as they assigned in the first quarter of 2019.
|
|
|
As
of December 31, 2018, Dr. Leiden would not have received any benefits if he voluntarily
retired. Under his amended and restated employment agreement and equity agreements, Dr.
Leiden is entitled to receive certain additional benefits at the end of the term of his
employment agreement in March 2020.
|
|
|
Dr.
Chodakewitz retired on March 2, 2019. As of December 31, 2018, he was not eligible for
any benefits upon retirement. In February 2019, he became eligible for a company-wide
program that provides employees 55 years of age or older whose age plus years of service
equal at least 65 with partial or full acceleration of their equity awards. As a result,
50% of Dr. Chodakewitz’s then-outstanding equity awards vested on March 2, 2019.
|
|
|
In
February 2019, Mr. Graney’s employment with us ended and he did not receive any
severance benefits.
|
|
|
In
January 2019, Mr. Smith’s employment with us was terminated as a result of personal
behavior that violated our code of conduct and values. This termination was unrelated
to our financial and business performance. Mr. Smith did not receive a cash bonus for
2018 performance or any equity awards in 2019. Upon termination of his employment, Mr.
Smith received the minimum amounts that were provided for pursuant to his employment
contract: cash payments equal to $1.5 million, 18 months of acceleration of his outstanding
equity and continuation of employee benefits for up to 12 months.
|
The actual amounts that the named executive
officers could receive in the future as a result of a termination of employment would likely differ materially from the amounts
set forth above as a result of, among other things, changes in our stock price, changes in the officers’ base salary, target
bonus amounts and actual bonus amounts, and the vesting and grants of additional equity awards.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
73
EMPLOYMENT CONTRACTS
AND CHANGE OF CONTROL ARRANGEMENTS
Executive Severance
Arrangements
We have entered into agreements and maintain
plans that require us to provide to our named executive officers cash compensation, benefits and/or acceleration of the vesting
of equity awards in the event of termination of employment or service as a director under specified circumstances. In addition
to the agreements described below, outstanding options granted under our stock and option plans provide that, in the event of certain
changes of control, either appropriate provision for the continuation of all then-outstanding options must be made, or the vesting
of those options will be accelerated and they will become fully exercisable immediately prior to such change of control. As described
below, the benefits that are to be provided in connection with a change of control are subject to a “double trigger.”
A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated
by us other than for cause, death or disability or by the executive for good reason during a specified period before or after a
change of control. The following descriptions are qualified in the entirety by the agreements with the executive officers, which
have been filed with the SEC.
In addition to the benefits described below,
under programs applicable to all employees, if a named executive officer dies while an employee, his estate and/or beneficiaries
would receive full acceleration of all outstanding equity awards, and if a named executive officer’s employment is terminated
due to disability the executive officer would receive full acceleration of equity grants made in 2018 and 2019. None of our current
employment agreements provide for a so-called Section 4999 excise tax “gross-up,” and we have a policy against providing
so-called Section 4999 excise tax “gross-up” in the future.
Jeffrey M. Leiden
The terms and conditions of Dr. Leiden’s
employment are governed by a written employment contract, which was amended and restated in November 2016, and expires on March
31, 2020. Dr. Leiden’s employment agreement provides that he is entitled to receive compensation as determined by our board
of directors and is eligible to receive the benefits generally made available to our executives. In addition, Dr. Leiden has agreed
not to engage in specified competitive activities for 18 months after his employment with us terminates.
If (i) Dr. Leiden’s employment is terminated
by us without cause or (ii) he terminates his employment for good reason, he would be entitled to receive, subject to limited exceptions:
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Severance Payment:
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A)
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100% of the sum of his (i) base salary at the time of termination and (ii) target bonus for the
year in which his employment is terminated
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B)
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A pro-rated bonus for the year in which the termination occurs based on his target bonus for the year in which the termination
occurs
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Equity:
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Outstanding options and restricted stock units unvested on the termination date would receive partial vesting based on his years of service as an employee or non-employee director. This percentage is currently 90% and increases by 10% of each full year of service. Options would remain exercisable for a ten year term.
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Employee Benefits:
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Continuation of certain employee benefits for up to 18 months
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If (i) Dr. Leiden’s employment is terminated
by us without cause or (ii) he terminates his employment for good reason, in each case, within two years after a change of control
of Vertex, he would instead be entitled to receive:
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Severance Payment:
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A)
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299% of the sum of his (i) base salary at the time of termination and (ii) target bonus for the
year in which his employment is terminated
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B)
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A pro-rated bonus for the year in which the termination occurs
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Equity:
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Full vesting of all outstanding options and restricted stock unit awards.
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Employee Benefits:
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Continuation of certain employee benefits for up to 18 months
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Severance payments to Dr. Leiden in connection
with a change of control may be reduced to increase their value to Dr. Leiden if such payments would be subject to an excise tax
under Section 4999 of the Code.
If Dr. Leiden’s employment is terminated
as a result of disability, for equity awards not covered by the company-wide equity program described above, he would be entitled
to receive:
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a
pro-rated bonus for the year of employment termination;
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vesting
of options that would have vested during the 12 months following employment termination;
and
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for
each RSU award, vesting of all shares that would have vested in the 12 months following
the employment termination (using target or earned shares, as applicable, for performance-based
awards), or, in the case of certain performance-based RSU awards, vesting of target shares
pro-rata over time on a daily basis from the date of grant through the date of employment
termination.
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If Dr. Leiden dies while he is an employee,
his estate and/or beneficiaries would receive a pro-rated bonus for the year of employment termination, as well as the full acceleration
of his equity awards provided under our company-wide program.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
74
Dr. Leiden is eligible for a company-wide
program that provides, for eligible employees, upon a voluntary termination with 12 months’ notice (including as a result
of the expiration of the term of his employment agreement), additional vesting of outstanding equity based on years of service
as an employee and non-employee director. Under his employment agreement and equity awards, Dr. Leiden currently would receive
vesting of 90% of the unvested shares and this percentage will increase by 10% for each full year of service.
Amit Sachdev
Employment Agreement
The terms and conditions of Mr. Sachdev’s
employment are governed by a written employment contract, which was amended and restated in February 2013. His employment agreement
provides that he is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits
generally made available to our executives. In addition, Mr. Sachdev has agreed not to engage in specified competitive activities
for a period of one year after the termination of his employment with us.
Under his employment agreement and equity
agreements, if (i) Mr. Sachdev’s employment is terminated without cause or (ii) he terminates his employment with us for
good reason within 30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions,
he would be entitled to receive:
|
Severance Payment:
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The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated
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Options:
|
Vesting of outstanding options that otherwise would have vested in the 18 months following termination
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Restricted Stock Units:
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Vesting in full of each outstanding RSU award that would have otherwise vested in the 18 months following the termination (using
target or earned shares, as applicable, for performance-based awards) or, in the case of certain performance-based RSU awards,
vesting of target shares pro rata over time on a daily basis from the date of grant through the date that is 18 months following the
termination
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Employee Benefits:
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Continuation of certain employee benefits for up to 12 months
|
Change of Control Agreement
We have a change of control agreement with
Mr. Sachdev, which was amended and restated in February 2013. Under this agreement and his equity agreements, if we terminate Mr.
Sachdev’s employment without cause within the 90 days prior to or the 12 months after a change of control or he terminates
his employment within 30 days of an event giving rise to a right to terminate for good reason, subject to notice and cure provisions,
and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, he would be entitled to
receive:
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Severance Payment:
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A)
|
The sum of his (i) base salary at the time of termination and (ii) target bonus for the year
in which his employment is terminated
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B)
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A pro rata portion of his target bonus for the year in which the termination occurs
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Options:
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Full vesting of all outstanding options
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Restricted Stock Units:
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Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based awards)
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Employee Benefits:
|
Continuation of certain employee benefits for up to 12 months
|
Severance payments to Mr. Sachdev in connection
with a change of control may be reduced to increase their value to Mr. Sachdev if such payments would be subject to an excise tax
under Section 4999 of the Code.
Agreements with Mr. Arbuckle
and Mr. Parini
Employment Agreements
The terms and conditions of Mr. Arbuckle’s
and Mr. Parini’s employment are governed by written employment contracts that were entered into at the time the respective
officers joined our company. Each of these officer’s employment agreement provides that he is entitled to receive compensation
as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In
addition, each officer has agreed not to engage in specified competitive activities for a period of one year after the termination
of his employment with us.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
75
Under each employment agreement, (i) if the
officer’s employment is terminated without cause or (ii) the officer terminates his employment with us for good reason within
30 days of the event giving rise to his right to terminate for good reason, subject to notice and cure provisions, he would be
entitled to receive:
|
Severance Payment:
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The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is terminated
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Employee Benefits:
|
Continuation of certain employee benefits for up to 12 months
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Change of Control Agreements
We have a change of control agreement with
each of Mr. Arbuckle and Mr. Parini that were entered into at the time the respective officer joined our company. Under this agreement
and the executive’s equity agreements, if we terminate the employment of the officer without cause on a date within the 90
days prior to or the 12 months after a change of control or any of these individuals terminates his employment within 30 days of
an event giving rise to a right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a
date within the 90 days prior to or the 12 months after a change of control, he would be entitled to receive:
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Severance Payment:
|
A)
|
The sum of his (i) base salary at the time of termination and (ii) target bonus for the year in which his employment is
terminated
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B)
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A pro rata portion of his target bonus for the year in which the termination occurs
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Options:
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Full vesting of all outstanding options
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Restricted Stock Units:
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Vesting in full of all outstanding RSU awards (using target or earned shares, as applicable, for performance-based
awards)
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Employee Benefits:
|
Continuation of certain employee benefits for up to 12 months
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Severance payments to the officer in connection
with a change of control may be reduced to increase their value to the applicable officer if such payments would be subject to
an excise tax under Section 4999 of the Code.
Former Executive Officers
Mr. Chodakewitz received the benefits described
under the table captioned “Summary of Termination and Change of Control Benefits” when he retired in the first quarter
of 2019. Mr. Smith received the benefits described under the table captioned “Summary of Termination and Change of Control
Benefits” when his employment with us was terminated in the first quarter of 2019. Mr. Graney did not receive any benefits
when his employment with us ended in the first quarter of 2019.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
76
PAY RATIO
CEO Pay Ratio
The overall structure of our compensation
and benefits programs are broadly similar across our organization, including a broad-based equity program pursuant to which all
full-time employees receive equity, with differences reflecting the level of responsibility of the employees.
In 2018:
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|
The
ratio of our CEO total compensation for Dr. Leiden to our median employee’s total
compensation was 81:1.
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Dr.
Leiden’s total compensation equaled $18.8 million
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The
total annual compensation for Vertex’s median employee equaled $232,178
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Our population and compensation structure
in 2018 were not modified in a way in which we believe would be reasonably likely to significantly impact our pay ratio disclosure.
As such, we are using the same methodology used to identify our median employee that we used in 2017, as described below. However,
the median employee identified in 2017 was promoted during 2018, and as such, as permitted by SEC rules, for purposes of the pay
ratio analysis, we are using a substantially similarly paid employee to the median identified in 2017.
Methodology
Our measure of compensation for the median
employee was consistently applied and includes:
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Base
salary (including any local allowances)
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Incentive
pay (including cash bonuses, sales incentives and other variable pay programs)
|
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Grant
date fair value of equity awards
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Any
other cash awards or payments
|
We included all Vertex employees on October
1, 2017 located in five countries for the purposes of determining the median employee, which represented 95% of our employees globally
(2,208 of our 2,323 global employees). As of October 1, 2017, we had 1,882 U.S. employees. We excluded 115 employees from 13 countries
(Canada, France, Italy, Netherlands, Spain, Ireland, Sweden, Austria, Brazil, Denmark, Greece, Belgium, Portugal and Poland) under
the SEC’s de
minimis
exception.
We used the following material assumptions
in applying our methodology:
|
|
Annualized
Pay.
Base pay was annualized for employees who worked a partial year.
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|
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Reasonable
Estimates.
Variable pay programs are a significant component of our pay for performance
philosophy. Reasonable estimates were used for employees whose participation in our annual
cash incentives/bonuses and long-term incentives/ equity awards were limited by their
date of hire; provided that (i) no estimate was used for annual cash incentives/bonuses
if an employee received any form of cash award upon hire and (ii) no estimate was used
for long-term incentives/equity awards if an employee received an equity award upon hire.
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|
|
Foreign
Exchange Rates
. Foreign currencies were converted into U.S. dollars using the average
monthly rates for the 12 month measurement period.
|
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information
regarding beneficial ownership of our common stock as of April 10, 2019, by:
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|
each
shareholder known by us to be the beneficial owner of more than 5% of our common stock
on that date;
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each
of our directors;
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each
named executive officer; and
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all
directors and executive officers as a group.
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|
Name
and Address
|
|
Shares Beneficially
Owned
(1)
|
|
Percentage of
Total
(2)
|
|
|
T. Rowe Price Associates, Inc.
(3)
|
|
|
25,749,411
|
|
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10.0%
|
|
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100 E. Pratt Street
|
|
|
|
|
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|
|
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Baltimore, Maryland 21202
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|
|
|
|
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FMR LLC
(4)
|
|
|
20,948,014
|
|
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8.2%
|
|
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245 Summer Street
|
|
|
|
|
|
|
|
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Boston, Massachusetts 02210
|
|
|
|
|
|
|
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BlackRock, Inc.
(5)
|
|
|
19,607,810
|
|
|
7.6%
|
|
|
55 East 52nd Street
|
|
|
|
|
|
|
|
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New York, New York 10055
|
|
|
|
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|
|
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The Vanguard Group
(6)
|
|
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19,389,191
|
|
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7.6%
|
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100 Vanguard Blvd.
|
|
|
|
|
|
|
|
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Malvern, Pennsylvania 19355
|
|
|
|
|
|
|
|
|
Sangeeta N. Bhatia
(7)
|
|
|
25,832
|
|
|
*
|
|
|
Lloyd Carney
(7)
|
|
|
—
|
|
|
*
|
|
|
Alan Garber
(7)
|
|
|
8,789
|
|
|
*
|
|
|
Terrence C. Kearney
(7)
|
|
|
84,402
|
|
|
*
|
|
|
Yuchun Lee
(7)
|
|
|
105,579
|
|
|
*
|
|
|
Jeffrey M. Leiden
(7)
|
|
|
807,596
|
|
|
*
|
|
|
Margaret G. McGlynn
(7)
|
|
|
73,710
|
|
|
*
|
|
|
Bruce I. Sachs
(7)
|
|
|
147,938
|
|
|
*
|
|
|
Elaine S. Ullian
(7)
|
|
|
95,292
|
|
|
*
|
|
|
William D. Young
(7)
|
|
|
92,527
|
|
|
*
|
|
|
Stuart A. Arbuckle
(7)
|
|
|
23,373
|
|
|
*
|
|
|
Michael Parini
(7)
|
|
|
15,903
|
|
|
*
|
|
|
Amit Sachdev
(7)
|
|
|
122,220
|
|
|
*
|
|
|
Jeffery Chodakewitz
(7)
|
|
|
27,227
|
|
|
*
|
|
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Thomas Graney
(7)
|
|
|
7,524
|
|
|
*
|
|
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Ian F. Smith
|
|
|
—
|
|
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*
|
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All directors and executive officers as a group (19 persons)
(7)
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1,704,186
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0.7%
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*
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Less than 1%
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(1)
|
Beneficial ownership of shares for purposes of this proxy statement is determined in accordance with applicable SEC rules
and includes shares of common stock as to which a person has or shares voting power and/or investment power, including dispositive
power. The persons and entities named in the table have sole voting and investment power with respect to all shares shown
as beneficially owned by them, except as noted below. Information with respect to persons other than directors and executive
officers is based solely upon Schedules 13G and amendments thereto filed with the SEC in the first quarter of 2019.
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(2)
|
Percentage ownership is based on 256,333,284 shares of our common stock outstanding on April 10, 2019.
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(3)
|
Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly affiliated
with T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. has sole voting power with respect to 9,150,628 of the
shares.
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(4)
|
Reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its
subsidiaries and affiliates, and other companies. FMR LLC has sole voting power with respect to 3,110,379 of the shares.
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(5)
|
Reflects the securities beneficially owned by clients of one or more investment advisers directly or indirectly owned
by BlackRock, Inc. BlackRock, Inc. has sole voting power with respect to 17,365,876 of the shares.
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(6)
|
Includes 234,931 shares beneficially owned by Vanguard Fiduciary Trust Company and 207,104 shares held by Vanguard Investments
Australia, Ltd., each of which are wholly-owned subsidiaries of The Vanguard Group, Inc. The Vanguard Group, Inc. has sole
voting power with respect to 314,635 of the shares and sole dispositive power with respect to 19,023,724 of the shares.
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VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
78
|
(7)
|
Includes shares that may be acquired upon the exercise of options exercisable within 60 days after
April 10, 2019, unvested shares of restricted stock as of April 10, 2019, unvested restricted stock units vesting within 60
days of April 10, 2019 and deferred stock units as of April 10, 2019 issued pursuant to our Non-Employee Director Deferred
Compensation Plan, as follows:
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Stock Options
Exercisable
Within 60 Days of
April 10, 2019
|
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Unvested Shares of
Restricted Stock
Awards as of
April 10, 2019
|
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Unvested Restricted
Units Vesting
Within 60 Days of April
10, 2019
|
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|
Deferred Stock
Units as of
April 10, 2019
|
|
Sangeeta N. Bhatia
|
|
|
20,953
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
—
|
|
Lloyd Carney
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Alan Garber
|
|
|
5,889
|
|
|
|
—
|
|
|
|
2,351
|
|
|
|
—
|
|
Terrence C. Kearney
|
|
|
75,972
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
—
|
|
Yuchun Lee
|
|
|
98,931
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
—
|
|
Jeffrey M. Leiden
|
|
|
805,116
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Margaret G. McGlynn
|
|
|
65,597
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
2,188
|
|
Bruce I. Sachs
|
|
|
125,597
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
9,330
|
|
Elaine S. Ullian
|
|
|
83,097
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
—
|
|
William D. Young
|
|
|
85,597
|
|
|
|
—
|
|
|
|
1,801
|
|
|
|
—
|
|
Stuart A. Arbuckle
|
|
|
13,511
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Michael Parini
|
|
|
12,453
|
|
|
|
3,450
|
|
|
|
—
|
|
|
|
—
|
|
Amit Sachdev
|
|
|
102,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Jeffery Chodakewitz
|
|
|
27,227
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Thomas Graney
|
|
|
2,609
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All directors and executive officers as a group (19 persons)
|
|
|
1,575,161
|
|
|
|
3,450
|
|
|
|
14,958
|
|
|
|
11,518
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires
directors, officers and persons who are beneficial owners of more than 10% of our common stock to file with the SEC reports of
their ownership of our securities and of changes in that ownership. To our knowledge, based upon a review of copies of reports
filed with the SEC with respect to the fiscal year ended December 31, 2018 and written representations by our directors and officers
that no other reports were required with respect to their transactions, all reports required to be filed under Section 16(a) by
our directors and officers and persons who were beneficial owners of more than 10% of our common stock were timely filed.
VERTEX PHARMACEUTICALS
INCORPORATED
- 2019 Proxy Statement
79
OTHER INFORMATION
Other Matters
The 2019 annual meeting of shareholders is called
for the purposes set forth in the notice. Our board of directors does not know of any other matters to be considered by the shareholders
at the 2019 annual meeting other than the matters described in the notice. However, the enclosed proxy confers discretionary authority
on the persons named in the proxy card with respect to matters that may properly come before the annual meeting and that are not
known to our board at the date this proxy statement was printed. It is the intention of the persons named in the proxy card to
vote in accordance with their best judgment on any such matter.
Shareholder Proposals for the 2020 Annual Meeting
and Nominations for Director
In order to be considered for inclusion in the
proxy statement for our 2020 annual meeting of shareholders, shareholder proposals must be received by us no later than December
31, 2019. If we do not receive notice of a matter to be considered for presentation at the 2020 annual meeting of shareholders
by March 15, 2020, our proxy holders will have the right to exercise discretionary voting authority with respect to the proposal
without including information regarding the proposal in our proxy materials. Proposals should be sent to the attention of our corporate
secretary at our offices at 50 Northern Avenue, Boston, Massachusetts 02210.
If a shareholder wishes to nominate a candidate
for election to our board of directors at the 2020 annual meeting of shareholders, but is not eligible or does not elect to have
such candidate included in the proxy statement for our 2020 annual meeting of shareholders, such nomination may be submitted to
our corporate secretary no later than March 7, 2020, and must include:
|
|
the name and address of the shareholder who intends to make the nomination and
of the person or persons to be nominated;
|
|
|
a representation that the shareholder is a holder of record of our stock entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in
the notice;
|
|
|
a description of all arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder;
|
|
|
the other information regarding each nominee proposed by the shareholder that would be required
to be included in a proxy statement filed pursuant to the proxy rules of the SEC; and
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|
|
the consent of each nominee to serve on our board of directors if so elected.
|
If a shareholder wishes to nominate a candidate
for election to our board at the 2020 annual meeting of shareholders, and is eligible and elects to have such candidate included
in the proxy statement for our 2020 annual meeting of shareholders pursuant to our proxy access by-law, such nomination must be
submitted to our corporate secretary no later than March 7, 2020 and must include, in addition to the information set forth above
for other shareholder nominees, the information set forth in Section 8(e) of Article II of our by-laws.
Shareholder Communications to the Board
Generally, shareholders who have questions or
concerns should contact our investor relations department at (617) 341-6100. However, any shareholder who wishes to address questions
regarding our business directly with our board of directors, or any individual director, should direct his or her questions, in
writing, in care of our corporate secretary, to our offices at 50 Northern Avenue, Boston, Massachusetts 02210. Under procedures
approved by our board, including a majority of our independent directors, all substantive communications shall be reviewed by our
corporate secretary and forwarded or reported to the chair of the corporate governance and nominating committee, the independent
directors and/or our full board, as deemed appropriate, with the exception of those communications relating to ordinary or routine
business affairs, personal grievances or matters as to which we tend to receive repetitive or duplicative communications.
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Householding of Annual Meeting Materials
Some banks, brokers and other nominee record
holders may be participating in the practice of “householding” proxy statements and annual reports. This means that
only one copy of our proxy statement and annual report may have been sent to multiple shareholders in your household. We will promptly
deliver a separate copy of these documents to you if you write or call our corporate secretary at the following address or phone
number: 50 Northern Avenue, Boston, Massachusetts 02210, telephone (617) 341-6100. If you want to receive separate copies of the
annual report and proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy
for your household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address
and phone number.
Solicitation
We will bear the cost of soliciting proxies,
including expenses in connection with preparing and mailing this proxy statement. We have retained MacKenzie Partners, Inc. to
assist in the solicitation of proxies at an estimated cost of approximately $20,000. Proxies also may be solicited by our directors
and employees by mail, by telephone, in person or otherwise. Employees will not receive additional compensation for solicitation
efforts. In addition, we will request banks, brokers and other custodians, nominees and fiduciaries to forward proxy material to
the beneficial owners of common stock and to obtain voting instructions from the beneficial owners. We will reimburse those firms
for their reasonable expenses in forwarding proxy materials and obtaining voting instructions.
Availability of Materials
Our Annual Report on Form 10-K for the fiscal
year ended December 31, 2018 has been filed with the SEC and provides additional information about us. It is available on the internet
at www.vrtx.com and is available in paper form (other than exhibits thereto) to beneficial owners of our common stock without charge
upon written request to Investor Relations, 50 Northern Avenue, Boston, Massachusetts 02210. In addition, it is available to holders
of record of our common stock at www.envisionreports.com/vrtx and to beneficial holders of our common stock at www.edocumentview.com/vrtx.
Forward Looking Statements
This proxy statement contains forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding
our medicines, statements with respect to potential regulatory approval of our drug candidates and expected clinical development
plans and timing, as well as statements with respect to Vertex’s potential future financial performance. While we believe
the forward-looking statements contained in this proxy statement are accurate, these forward-looking statements represent our beliefs
only as of the date of this proxy statement and there are a number of factors that could cause actual events or results to differ
materially from those indicated by such forward-looking statements, including risks listed under Risk Factors in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2018 and available through the company’s website at www.vrtx.com. We
disclaim any obligation to update the information contained in this proxy statement as new information becomes available.
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FREQUENTLY ASKED QUESTIONS REGARDING THE
ANNUAL MEETING
What
is the Purpose of the Annual Meeting?
At the annual meeting, shareholders will act
upon the matters outlined in the Notice of Annual Meeting of Shareholders. These include:
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The election of directors;
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The approval of the amendment and restatement of our 2013 Stock and Option Plan to, among other things, increase the number of shares available under the plan by 5.0 million shares;
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The approval of the amendment and restatement of our 2013 Employee Stock Purchase Plan to, among other things, increase the number of shares available under the plan by 2.0 million shares;
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The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm;
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The approval, on an advisory basis, of the compensation program for our named executive officers;
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A shareholder proposal requesting annual reporting on the integration of risks related to drug pricing into our executive compensation program; and
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A shareholder proposal requesting that we prepare a report on our policies and activities with respect to lobbying.
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Management, members of our board and representatives
of Ernst & Young LLP are expected to attend the annual meeting and be available to respond to questions from shareholders.
What is a Proxy?
It is your legal designation of another person
to vote the stock you own in the manner you direct. That other person is called a proxy. If you designate someone as your proxy
in a written document, that document also is called a proxy or a proxy card. The board of directors has designated Jeffrey M. Leiden,
Michael Parini and Sabrina Yohai to serve as proxies at the annual meeting.
What is a Proxy Statement?
It is a document that provides certain information
about a company and matters to be voted upon at a meeting of shareholders. The rules of the SEC and other applicable laws require
us to give you, as a shareholder, the information in this proxy statement and certain other information when we are soliciting
your vote.
What is the Difference
between a Shareholder of Record and a Shareholder Who Holds Stock in Street Name?
Shareholders of Record.
If your shares
are registered in your name with our transfer agent, Computershare, you are a shareholder of record with respect to those shares,
and these proxy materials were sent directly to you by Computershare.
Street Name Holders.
If you hold your shares in an
account at a bank or broker, then you are the beneficial owner of shares held in “street name.” The proxy materials
were forwarded to you by your bank or broker, who is considered the shareholder of record for purposes of voting at the annual
meeting. As a beneficial owner, you have the right to direct your bank or broker how to vote the shares held in your account.
How Many Shares Must
be Represented in Order to Hold the Annual Meeting?
In order for us to conduct the annual meeting,
holders of a majority of the shares entitled to vote as of the close of business on the record date must be present in person or
by proxy. This constitutes a quorum. If you are a shareholder of record, your shares are counted as present if you properly return
a proxy card or voting instruction form by mail or if you attend the annual meeting and vote in person. If you are the beneficial
owner of shares held in “street name,” you must follow the instructions of your bank or broker in order to direct them
how to vote the shares held in your account. Abstentions and broker non-votes will be counted as present for purposes of establishing
a quorum. If a quorum is not present, we will adjourn the annual meeting until a quorum is obtained.
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How Can I Vote at the
Annual Meeting if I Own Shares in Street Name?
If you are a street name holder, you may not
vote your shares at the annual meeting unless you obtain a legal proxy from your bank or broker. A legal proxy is a bank’s
or broker’s authorization for you to vote the shares it holds in its name on your behalf.
What is the Record Date
and What Does it Mean?
The record date for the annual meeting is April
10, 2019 and was established by our board of directors. On the record date, there were 256,333,284 shares of our common stock
outstanding, each of which is entitled to one vote on each matter properly brought before the annual meeting. Owners of record
of common stock at the close of business on the record date are entitled to:
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receive notice of the annual meeting; and
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vote at the annual meeting and any adjournment or postponement of the annual meeting.
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If I Submit a Proxy,
May I Later Revoke it and/or Change my Vote?
Shareholders may revoke a proxy and/or change
their vote prior to the completion of voting at the annual meeting by:
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signing another proxy card with a later date and delivering it to our corporate secretary
at 50 Northern Avenue, Boston, Massachusetts 02210, before the annual meeting; or
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voting at the annual meeting, if you are a shareholder of record or hold your shares in street
name and have obtained a legal proxy from your bank or broker.
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What if I do not Specify
a Choice for a Matter when Returning a Proxy?
Shareholders should specify their choice for
each matter following the directions described on their proxy card. If no specific instructions are given, proxies that are signed
and returned will be voted:
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FOR the election of all director nominees;
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FOR the amendment and restatement of our 2013 Stock and Option plan to, among other things, increase the number of shares available for issuance by 5.0 million shares;
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FOR the amendment and restatement of our Employee Stock Purchase Plan to, among other things, increase the number of shares available for issuance by 2.0 million shares;
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FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2019;
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FOR our compensation program for our named executive officers;
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AGAINST the shareholder proposal requesting annual reporting on the integration of risks related to drug pricing into our executive compensation program; and
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AGAINST the shareholder proposal requesting that we prepare a report on our policies and activities with respect to lobbying.
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Are My Shares Voted if
I do not Provide a Proxy?
If you are a shareholder of record and do not
provide a proxy, you must attend the annual meeting in order to vote. If you hold shares through an account with a bank or broker,
your shares may be voted by the bank or broker if you do not provide voting instructions. Banks and brokers have the authority
under applicable rules to vote shares on routine matters for which their customers do not provide voting instructions. The ratification
of Ernst & Young LLP as our independent registered public accounting firm is considered a routine matter. Each of the
other proposals, including the election of directors, the approval of the amendment and restatement of our 2013 Stock and Option
Plan, the approval of the amendment and restatement of our Employee Stock Purchase Plan, the advisory vote with respect to our
executive compensation program and the two shareholder proposals are not considered routine, and banks and brokers cannot vote
shares without instruction on those matters. Shares that banks and brokers are not authorized to vote on those matters are counted
as “broker non-votes” and will have no effect on the results of those votes (other than for Item 2, where “broker
non-votes” will have the same effect as votes against the proposal)
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What Vote is Required
to Approve Each Proposal and How are Votes Counted?
Item 1: Election of Directors
To be elected, the number of votes cast “FOR”
a director nominee in an uncontested election must exceed the number of votes cast “AGAINST” that nominee. Abstentions
are not counted for purposes of electing directors. Our Corporate Governance Principles contain procedures to be followed in the
event that one or more directors do not receive a majority of the votes cast “FOR” his or her election.
Item 2: Approval of the Amendment and Restatement
of our 2013 Stock and Option Plan
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Item 3: Approval of the Amendment and Restatement
of our Employee Stock Purchase Plan.
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Item 4: Ratification of the Appointment
of Independent Registered Public Accounting Firm
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Item 5: Advisory Vote to Approve Named
Executive Officer Compensation
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Item 6: Shareholder Proposal Requesting
Annual Reporting on the Integration of Risks Related to Drug Pricing in our Executive
Compensation
Program
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Item 7: Shareholder Proposal Requesting
that we Prepare a Report on our Policies and Activities With Respect to Lobbying
To be approved, this proposal must receive an
affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the
votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Where Can I Find More
Information About My Voting Rights as a Shareholder?
The SEC has an informational website that provides
shareholders with general information about how to cast their vote and why voting should be an important consideration for shareholders.
You may access that website at sec.gov/spotlight/proxymatters.shtml.
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Appendix A
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Amended and Restated 2013 Stock and Option Plan
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Unless otherwise specified or unless the context
otherwise requires, the following terms, as used in this Vertex Pharmaceuticals Incorporated Amended and Restated 2013 Stock and
Option Plan, have the following meanings:
Accounting Rules
means Financial Accounting
Standards Board Accounting Standards Codification Topic 718, or any successor provision.
Administrator
means the Board of Directors
and/or a committee of the Board of Directors to which the Board of Directors has delegated power to act on its behalf in administering
this Plan in whole or in part.
Affiliate
means a corporation that, for
purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors
means the Board of
Directors of the Company.
Code
means the United States Internal
Revenue Code of 1986, as amended.
Common Stock
means shares of the Company’s
common stock, $.01 par value.
Company
means Vertex Pharmaceuticals
Incorporated, a Massachusetts corporation.
Disability
means a disability entitling
the Participant to benefits under the Company’s long-term disability program, as in effect from time to time. With regard
to any payment considered to be nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, that
is payable upon a Termination of Service due to Disability, to avoid the imposition of an additional tax, interest or penalty under
Section 409A of the Code, no amount will be payable unless such Disability constitutes a disability or becoming disabled within
the meaning of Section 1.409A-3(i)(4) of the Treasury Regulations.
Employee
means an employee of the Company
or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or
of an Affiliate), who is designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.
Exchange Act
means the Securities Exchange
Act of 1934, as amended.
Fair Market Value
of a share of Common
Stock on a particular date shall be the mean between the highest and lowest quoted selling prices on such date (the “valuation
date”) on the securities market where the Common Stock is traded, or if there were no sales on the valuation date, on the
next preceding date within a reasonable period (as determined in the sole discretion of the Administrator) on which there were
sales. If there were no sales in such a market within a reasonable period, the Fair Market Value shall be as determined in good
faith by the Administrator in its sole discretion. The Fair Market Value as determined in this paragraph shall be rounded down
to the next lower whole cent if the foregoing calculation results in fractional cents.
Full Value Award
means any Stock Grant
or Stock-Based Award other than Options and Stock Appreciation Rights.
ISO
means an option entitling the holder
to acquire Shares upon payment of the exercise price that is intended to qualify as an incentive stock option under Section 422
of the Code.
Non-Employee Director
means a member of
the Board of Directors who is not an employee of the Company or any Affiliate.
Non-Qualified Option
means an option entitling
the holder to acquire Shares upon payment of the exercise price that is not an ISO.
Option means an ISO or Non-Qualified Option.
Participant
means an Employee, Non-Employee
Director, consultant or advisor of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As
used herein, “Participant” shall include “Participant’s Survivors” and a Participant’s permitted
transferees where the context requires.
Participant’s Survivors
means a
deceased Participant’s legal representatives and/or any person or persons who acquires the Participant’s rights to
a Stock Right by will or by the laws of descent and distribution.
Plan
means this Vertex Pharmaceuticals
Incorporated Amended and Restated 2013 Stock and Option Plan, as amended from time to time.
Restricted Stock Units
means an unfunded
and unsecured promise, denominated in shares of Common Stock, to deliver Common Stock or cash measured by the value of Common Stock
in the future, subject to the satisfaction of specified performance or other vesting conditions.
Shares
means shares of the Common Stock
as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed
or for which they are exchanged within the provisions of the Plan.
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Stock Agreement
means an agreement between
the Company and a Participant delivered pursuant to the Plan with respect to a Stock Right, in such form as the Administrator shall
approve.
Stock Appreciation Right
means a right
entitling the holder upon exercise to receive an amount (payable in cash or in shares of Common Stock of equivalent value) equal
to the excess of the Fair Market Value of the shares of Common Stock subject to the right over the base value (i.e., the exercise
price) from which appreciation under the Stock Appreciation Right is to be measured.
Stock-Based Award
means Restricted Stock
Units, Stock Appreciation Rights or any other grant by the Company under the Plan of an equity award, equity-based award or other
award that is convertible into Common Stock that is not an Option or Stock Grant.
Stock Grant
means a grant by the Company
of Shares under the Plan that may or may not be subject to restrictions requiring that the Shares underlying the Stock Grant be
redelivered or offered for sale to the Company if specified service or performance-based conditions are not satisfied.
Stock Right
means an Option (including
an ISO or a Non-Qualified Stock Option), Stock Grant, or Stock-Based Award.
Substitute Stock Rights
means Stock Rights
issued under the Plan in substitution for equity awards of an acquired company that are converted, replaced or adjusted in connection
with the acquisition.
Termination of Service
means that a Participant
ceases to be an Employee, Non-Employee Director, consultant or advisor with the Company and its Affiliates (for any reason other
than death). A change in a Participant’s form of service (e.g., from Employee to Non-Employee Director, consultant or advisor)
shall not be a Termination of Service hereunder. Notwithstanding the foregoing, in construing the provisions applicable to any
Stock Right relating to the payment of “nonqualified deferred compensation” (subject to Section 409A of the Code) upon
a termination or cessation of employment or service, references to termination or cessation of employment or service, separation
from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as
that term is defined in Section 1.409A-1(h) of the Treasury Regulations, after giving effect to the presumptions contained therein)
from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service
recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations.
The Plan is intended to encourage ownership of
Shares by Employees, Non-Employee Directors and certain consultants and advisors to the Company in order to attract such persons,
to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote
the success of the Company or of an Affiliate. The Plan provides for the granting of Stock Rights to Employees, Non-Employee Directors,
consultants and advisors of the Company.
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3.
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SHARES SUBJECT TO THE PLAN
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The number of Shares subject to this Plan as
to which Stock Rights may be granted from time to time shall be equal to the sum of:
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a.
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40,875,861 shares of Common Stock; and
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b.
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the number of shares subject to awards granted under the Company’s Amended and Restated
2006 Stock and Option Plan (the
“2006 Plan”
) which expire, terminate or are otherwise surrendered, cancelled,
forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject,
however, in the case of ISOs, to any limitations under the Code),
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or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization
or similar transaction in accordance with Section 17 of this Plan. Subject to Section 17 of this Plan, and the provisions of the
second paragraph of this Section 3, the number of Shares remaining subject to this Plan shall be reduced by (i) one Share for each
Share subject to a Stock Right granted under this Plan that is not a Full Value Award and (ii) 1.66 Shares for each Share (each,
a “Full-Value Award Share”) subject to a Stock Right granted under this Plan that is a Full Value Award.
If an Option granted hereunder ceases to be outstanding,
in whole or in part (other than by exercise), or if the Company shall reacquire (at no more than its original issuance price) any
Shares issued pursuant to a Stock Grant, or if any Stock Right expires or is forfeited, cancelled or otherwise terminated or results
in any Shares not being issued, the unissued Shares that were subject to such Stock Right shall again be available for issuance
from time to time pursuant to this Plan; provided, however, that, the following Shares may not again be made available
for issuance under the Plan: (i) Shares that are not issued or delivered because they are applied to the payment of the exercise
or purchase price of any Stock Right or to satisfy the tax withholding requirements with respect to any Stock Right, (ii) the full
number of Shares underlying any Stock Appreciation Right any portion of which is settled in Shares (and not only the number of
Shares delivered in settlement of the Stock Right) and (iii) any Shares that have been repurchased by the Company using proceeds
directly attributable to the exercise of Options. To the extent that Shares are returned to the Plan pursuant to this Section 3,
(i) 1.66 Shares, for each Full Value Award Share granted under this Plan, and (ii) one Share, for all other Shares (including Shares
returned from the 2006 Plan in accordance with clause (b) above), shall again be available for issuance from time to time pursuant
to this Plan.
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The maximum number of Shares that may be issued
in satisfaction of ISOs is 27,875,861 Shares.
The Administrator may grant Substitute Stock
Rights under the Plan. To the extent consistent with the requirements of Section 422 of the Code and the regulations thereunder
(if applicable) and other applicable legal requirements (including applicable stock exchange requirements), Common Stock issued
under Substitute Stock Rights will be in addition to and will not reduce the number of Shares available for Stock Rights under
the Plan set forth in this Section 3, but, notwithstanding anything in this Section 3 to the contrary, if any Substitute Stock
Right is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company without
the issuance of Common Stock, the Shares previously subject to such Stock Right will not be available for future grants under the
Plan. The Administrator will determine the extent to which the terms and conditions of the Plan apply to Substitute Stock Rights,
if at all, provided, however, that Substitute Stock Rights will not be subject to the last sentence of Section 6.1 or the per-Participant
annual limits on grants of Stock Rights described in Section 13 below.
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4.
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ADMINISTRATION OF THE PLAN
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The Administrator shall administer the Plan.
Subject to the provisions of the Plan, the Administrator is authorized to:
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a.
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Interpret the provisions of the Plan and of any Stock Right or Stock Agreement and to make all rules and determinations that it deems necessary or desirable for the administration of the Plan;
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b.
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Determine which Employees, Non-Employee Directors, consultants and advisors of the Company and its Affiliates shall be granted Stock Rights;
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c.
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Determine the number of Shares and exercise price for which a Stock Right shall be granted;
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d.
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Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;
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e.
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In its discretion, accelerate:
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(i)
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the date of exercise of any installment of any Option; or
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(ii)
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the date or dates of vesting of Shares, or lapsing of Company repurchase rights with respect to any Shares, under any Stock Rights; and
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f.
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In its discretion, extend the period during which an Option may be exercised (but not beyond the earlier of the expiration date of the Option and the 10
th
anniversary of the date the Option was granted);
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provided, however, that all such interpretations,
rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status under Section 422
of the Code of those Options which are designated as ISOs (unless the holder of any such Option otherwise agrees). Subject to the
foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted
under it shall be final.
The Administrator may employ attorneys, consultants,
accountants or other persons, and the Administrator, the Company and its officers and directors shall be entitled to rely upon
the advice, opinions or valuations of such persons. All actions taken and all interpretations and determinations made by the Administrator
in good faith shall be final and binding upon the Company, all Participants, and all other interested persons. Neither the Administrator,
nor the Company, nor any person acting on behalf of the Administrator or the Company shall be personally liable for any action,
determination, or interpretation made in good faith with respect to this Plan or grants hereunder or for any acceleration of income
or additional tax (including interest and penalties) asserted by reason of the failure of a Stock Right to satisfy the requirements
of Section 422 of the Code, Section 409A of the Code or by reason of Section 4999 of the Code, or otherwise with respect to a Stock
Right. Each member of the Administrator shall be indemnified and held harmless by the Company against any cost or expense (including
counsel fees) reasonably incurred by him or her or any liability (including any sum paid in settlement of a claim with the approval
of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member’s
own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the members of the Administrator
may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of shareholders or disinterested directors,
or otherwise.
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5.
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ELIGIBILITY FOR PARTICIPATION
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The Administrator shall, in its sole discretion,
select the individuals to be the Participants in the Plan; provided, however, that each Participant must be an Employee, Non-Employee
Director, consultant or advisor of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing,
the Administrator may authorize the grant of a Stock Right to a person not then an Employee, Non-Employee Director, consultant
or advisor of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall not
be effective until such person becomes eligible to be a Participant. ISOs may be granted only to Employees. The granting of any
Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in other
grants of Stock Rights.
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6.
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TERMS AND CONDITIONS OF OPTIONS
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6.1
General
. Each Option shall be set
forth in writing in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company,
by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with
the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation,
subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. Each Stock Agreement shall state
the exercise price (per share) of the Shares covered by each Option, the number of Shares to which it pertains, the date or dates
on which it first is exercisable and the date after which it may no longer be exercised (subject to Sections 11 and 12 of this
Plan). Options may vest or become exercisable in installments over a period of time, or upon the achievement of certain conditions
or the attainment of stated goals or events. The exercise price per share of Shares covered by an Option (including both ISOs and
Non-Qualified Options) shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock
on the date of grant.
6.2
ISOs
. Each Option intended to be an
ISO shall be issued only to an Employee. In addition to the provisions set forth in Section 6.1, ISOs shall be subject to
the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate
but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:
6.2.1
ISO Exercise Price
. In addition to the limitation set forth in Section 6.1, the exercise price per share of the Shares
covered by each ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in Section 424(d)
of the Code, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate
shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.
6.2.2
Term of ISO.
Each ISO shall
expire not more than ten (10) years from the date of grant; provided, however, that an ISO granted to a Participant
who owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code, more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company or an Affiliate shall expire not more than five
(5) years from the date of grant.
6.2.3
Annual Limit on Incentive Stock Options
. To
the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market
Value (determined as of the time of grant) of the Shares with respect to which ISOs granted under this Plan and any other plan
of the Company or its Affiliate become exercisable for the first time by a Participant during any calendar year shall not exceed
the aggregate threshold for ISOs established by the Code ($100,000 as of January 1, 2018). To the extent that any Option exceeds
this limit, it shall constitute a Non-Qualified Option.
6.3
Non-Employee Directors’ Options.
Each
Non-Employee Director, upon first being elected or appointed to the Board of Directors, shall, in addition to any other Stock Rights
as may be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be
established for such Option grants from time to time by the Board of Directors. In addition, unless otherwise determined by the
Board of Directors, on June 1 of each year, each Non-Employee Director shall, in addition to any other Stock Rights as may
be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be established
for such Option grants from time to time by the Board of Directors. If a Non-Employee Director ceases to be any of an Employee,
Non-Employee Director, consultant or advisor of the Company, Options granted under this Section 6.3 shall remain exercisable
to the extent such Options are exercisable on the date of such Termination of Service, for their full term, and the provisions
of Sections 11 and 12 below shall not apply to any such Options.
6.4
Term of Options.
No Option will
be granted with a term in excess of ten (10) years.
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7.
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TERMS AND CONDITIONS OF STOCK GRANTS
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Each Stock Grant shall be set forth in a Stock
Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The
Stock Agreement shall be in the form approved by the Administrator, with such changes and modifications to such form as the Administrator,
in its discretion, shall approve with respect to any particular Participant or Participants. The Stock Agreement shall contain
terms and conditions that the Administrator determines to be appropriate. Each Stock Agreement shall state the number of Shares
to which the Stock Grant pertains and the terms of any right of the Company to reacquire the Shares subject to the Stock Grant,
including the time and events upon which such rights shall accrue and the purchase price therefor, and any restrictions on the
transferability of such Shares.
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8.
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TERMS AND CONDITIONS OF STOCK-BASED
AWARDS
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The Administrator shall have the right to grant
Stock-Based Awards having such terms and conditions as the Administrator may determine, including, without limitation, the grant
of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of Stock Appreciation Rights
or Restricted Stock Units. The principal terms of each Stock-Based Award shall be set forth in a Stock Agreement, duly executed
by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Agreement shall be
in a form approved by the Administrator and shall contain terms and conditions that the Administrator determines to be appropriate.
No Stock Appreciation Right will be granted with a term in excess of ten (10) years. The base value (i.e., exercise price) of any
Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock
on the date of grant.
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9.
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EXERCISE OF OPTIONS AND STOCK APPRECIATION RIGHTS AND ISSUANCE OF SHARES
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Options and Stock Appreciation Rights (or any part or
installment thereof) shall be exercised by delivery to the Company, or its designee, of a notice of exercise in any form (which
may be electronic) approved by the Company, together, in the case of an Option, with provision for payment of the full purchase
price in accordance with this Section for the Shares as to which the Option is being exercised, and upon compliance with
any other condition(s) set forth in the Stock Agreement. Payment of the exercise price for the Shares as to which such Option
is being exercised shall be made (a) in cash or by check acceptable to the Administrator, or (b) at the discretion of
the Administrator, (i) through delivery of shares of Common Stock not subject to any restriction under any plan and having
a Fair Market Value equal as of the date of exercise to the exercise price of the Option, (ii) in accordance with a cashless
exercise program established with a securities brokerage firm, and approved by the Company, (iii) by any other means (excluding,
however, delivery of a promissory note of the Participant) that the Administrator determines to be consistent with the purpose
of this Plan and applicable law, or (iv) by any combination of the foregoing. Notwithstanding the foregoing, the Administrator
shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.
Subject to the last paragraph of Section 13, if on the
date the term of a Non-Qualified Option expires or on the last date such Non-Qualified Option is exercisable in accordance with
Section 11 or Section 12, the Fair Market Value of a share of Common Stock exceeds the exercise price per share of the Non-Qualified
Option, then the Non-Qualified Option shall automatically be exercised with respect to all then vested Shares underlying such
Non-Qualified Option and, upon such automatic exercise, such Non-Qualified Option shall immediately terminate. Payment of the
exercise price for the Shares as to which such Non-Qualified Option is being exercised and all tax withholding requirements shall
be satisfied by a “net exercise,” as a result of which the Participant shall receive (i) the number of shares
underlying the portion of the Non-Qualified Option so being exercised, less (ii) such whole number of shares (rounded
up to the nearest share) that is equal to (A) the aggregate exercise price for the portion of the Non-Qualified Option
that is so being exercised plus the amount of all applicable tax withholdings associated with such exercise divided
by (B) the Fair Market Value of a share of Common Stock on the date of exercise. For the avoidance of doubt, this paragraph
shall not apply to any Non-Qualified Stock Options that were granted to “covered employees” (within the meaning of
Section 162(m) of the Code) or to the Company’s Chief Financial Officer, in each case, that were outstanding on November
2, 2017.
Following the exercise of an Option or Stock Appreciation
Right, and, in the case of an Option, the payment of the exercise price, in each case in accordance with this Section 9, and the
satisfaction of any tax withholding as contemplated by Section 21, the Company shall, as soon as is reasonably practicable, deliver
the Shares as to which such Option or Stock Appreciation Right was exercised to the Participant (or to the Participant’s
Survivors, as the case may be). It is expressly understood that the Company may delay the delivery of the Shares in order to comply
with any law or regulation that requires the Company to take any action with respect to the Shares prior to their issuance. The
Shares shall, upon delivery, be fully paid, non-assessable Shares.
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10.
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ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS
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By its terms, a Stock Right granted to a Participant
shall not be transferable by the Participant other than by will or by the laws of descent and distribution or pursuant to a domestic
relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder
or as approved by the Administrator in its discretion and set forth in the applicable Stock Agreement; provided, however,
that the Administrator shall not approve any transfer of a Stock Right for consideration. Except as provided in the preceding
sentence or as otherwise permitted under a Stock Agreement, a Stock Right shall be exercisable, during the Participant’s
lifetime only by such Participant (or by his or her legal representative), and shall not be assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder
contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and
void.
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11.
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EFFECT ON STOCK RIGHTS OF TERMINATION OF SERVICE
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11.1 Except as otherwise provided in the applicable
Stock Agreement or as otherwise provided in Section 12, all Options and Stock Appreciation Rights held by a Participant, if any,
immediately prior to the Participant’s Termination of Service, to the extent then exercisable, will remain exercisable for
ninety (90) days after the date of the Participant’s Termination of Service, unless otherwise provided in the applicable
Stock Agreement, but in no event after the expiration of the term of the Stock Right.
11.2 The provisions of this Section, and not the provisions
of Section 12, shall apply to a Participant who subsequently dies after the Termination of Service. In the event of the death
of a Participant within ninety (90) days after the Participant’s Termination of Service, all Options and Stock Appreciation
Rights held by the Participant, if any, immediately prior to such death, to the extent then exercisable, will remain exercisable
for one (1) year after the date of the Participant’s death, but in no event after the expiration of the term of the
Stock Right.
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11.3 Absence from work with the Company or an Affiliate because of temporary
disability or a leave of absence for any purpose, shall not, during the period of any such absence in accordance with Company
policies, be deemed, by virtue of such absence alone, a Termination of Service, except as the Administrator may otherwise expressly
provide or except as otherwise provided by law.
11.4 Except as required by law or as set forth in a Participant’s Stock
Agreement and, in the case of any Stock Right that constitutes “non-qualified deferred compensation” subject to Section
409A of the Code, only to the extent consistent with Section 409A of the Code, Stock Rights granted under the Plan shall not be
affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant
continues to be an Employee, Non-Employee Director, consultant or advisor of the Company or any Affiliate.
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12.
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EFFECT ON STOCK RIGHTS OF DEATH OR DISABILITY WHILE AN EMPLOYEE, DIRECTOR, CONSULTANT OR ADVISOR
|
Except as otherwise provided in a Participant’s Stock Agreement, in
the event (a) of the death of a Participant while the Participant is an Employee, Non-Employee Director, consultant or advisor
of the Company or of an Affiliate, or (b) that a Participant’s employment or service with the Company or an Affiliate is
terminated by the Company due to his or her Disability, then in the case of each of clauses (a) and (b), (i) vesting of all unvested
Shares subject to outstanding Stock Rights (other than ISOs) shall be accelerated and (ii) all Non-Qualified Options and Stock
Appreciation Rights held by the Participant, if any, immediately prior to such death or termination due to Disability, to the
extent then exercisable, will remain exercisable for a period of one (1) year after the date of death or Termination of Service
by the Company due to Disability, as applicable, of the Participant but in no event after the date of expiration of the term of
the Stock Right. Notwithstanding the foregoing, clause (b) above shall not apply to any Stock Rights that were granted to “covered
employees” (within the meaning of Section 162(m) of the Code) or to the Company’s Chief Financial Officer, in each
case, that were outstanding on November 2, 2017.
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13.
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ANNUAL LIMITS ON STOCK RIGHTS; PERFORMANCE AWARDS
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13.1
Annual Limits.
Notwithstanding anything in this Plan to
the contrary, no Participant shall be granted Stock Rights under this Plan in any calendar year for more than an aggregate of
1,000,000 Shares (subject to adjustment pursuant to Section 17 to the extent consistent with Section 162(m) of
the Code). For purposes of the foregoing limitation, each Share subject to a Stock Right shall be counted as one Share of Common
Stock (including each Share subject to a Full-Value Award). To the extent applicable, the foregoing provisions will be construed
in a manner consistent with Section 162(m) of the Code, including, without limitation, where applicable, the rules under Section
162(m) of the Code pertaining to permissible deferrals of exempt awards.
13.2
Performance Awards.
Stock Grants and Stock-Based Awards may be
made subject to the achievement of performance goals pursuant to this Section 13.2 (“Performance Awards”). Grants
of Performance Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code (“Performance-Based
Compensation”) shall be made only by a “Committee” comprised solely of two or more directors eligible to serve
on a committee making awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
For any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee shall specify that the
degree of granting, vesting and/or payout of the Performance Award shall be based on the relative or absolute attainment of one
or any combination of the following objective performance measures: (i) revenue targets or revenue growth targets, (ii) achievement
of specified milestones in the discovery, development or regulatory approval of one or more of the Company’s drug candidates,
(iii) achievement of specified milestones in the commercialization of one or more of the Company’s products, (iv) achievement
of specified milestones in the manufacturing of one or more of the Company’s products, (v) cost reduction or other
expense control targets, (vi) personal management objectives, (vii) stock price targets (including, but not limited
to, growth measures), (viii) total shareholder return, (ix) income per share, (x) operating efficiency measures,
(xi) operating margin, (xii) gross margin, (xiii) return measures (including, but not limited to, return on assets,
capital, equity or sales), (xiv) net or total revenue levels, (xv) productivity ratios, (xvi) operating income,
(xvii) net operating profit, (xviii) net earnings or net income (before or after taxes), (xix) cash flow (including,
but not limited to, operating cash flow, free cash flow and cash flow return on capital), (xx) earnings or operating income
before interest, taxes, depreciation, amortization and/or stock-based compensation expense, (xxi) mergers, acquisitions or
divestitures objectives, (xxii) market share, (xxiii) customer satisfaction, (xxiv) working capital targets, (xxv) budget
objectives and (xxvi) achievement of other balance sheet or statement of operations objectives.
Each objective performance measure that is a financial measure may be determined
pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP basis, as determined by the Committee.
Such objective performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance
of a peer group of entities, an index or indices or other external measure of the selected performance criteria and may be absolute
in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective
performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the
avoidance of loss.
The Committee may specify that such performance measures shall be adjusted
to exclude or provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs;
(B) litigation and governmental investigation expenses and judgments, verdicts or claim settlements; (C) the effect
of changes in tax law, accounting principles or other laws, regulations or provisions affecting reported results; (D) the
effect of exchange rates for non-U.S. dollar denominated net sales or goals based on operating profit, earnings or income; (E) accruals
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90
for reorganization and restructuring programs; (F) any non-GAAP adjustments
as described in the Company’s earnings releases or in the management’s discussion and analysis of financial condition
and results of operations appearing in the Company’s periodic reports; (G) items of income, gain, loss or expense attributable
to the operations of any business acquired by the Company or any parent or subsidiary or of any joint venture established by the
Company or any parent or subsidiary; (H) costs and expenses incurred in connection with mergers and acquisitions; (I) items
of income, gain, loss or expense attributable to one or more business operations divested by the Company or any parent or subsidiary
or the gain or loss realized upon the sale of any such divested business or the assets thereof; or (J) the effect of any
change in the outstanding shares of Common Stock effected by reason of a stock split, stock dividend, stock repurchase, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any
distributions to the Company’s shareholders other than regular cash dividends.
Such performance measures: (1) may vary by Participant and may be different
for different Stock Rights; (2) may be particular to a Participant or the department, branch, line of business, subsidiary or
other unit in which a Participant works and may cover such performance period as may be specified by the Committee; and (3) shall
be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m)
of the Code.
With respect to any Performance Award that is intended to qualify as Performance-Based
Compensation, the Committee may adjust downwards, but not upwards, the number of shares payable pursuant to such Performance Award,
and the Committee may not waive the achievement of the applicable performance measures except in the case of the death or disability
of the Participant or a change in control of the Company or as otherwise determined by the Committee.
The Committee shall have the power to impose such other restrictions on Performance
Awards as it may deem necessary or appropriate to ensure that such Performance Awards satisfy all requirements for Performance-Based
Compensation.
Notwithstanding anything to the contrary in the Plan, except as otherwise
determined by the Administrator or as permitted by Internal Revenue Service guidance, the provisions of this 13.2 that relate
to Performance-Based Compensation shall not apply to Stock Rights granted on or after May 17, 2018 (the “May Amendment
Date”), provided, however, that the terms of this Section 13.2 and the terms of the Plan, as in effect on November
2, 2017, which were those same terms in effect as of immediately prior to the May Amendment Date, shall continue to govern the
terms of any Performance Awards and Stock Options granted prior to the May Amendment Date. It is the intent of the Company that
the amendment and restatement of the Plan on the May Amendment Date not constitute a “material modification” of the
Plan or Stock Rights granted under it prior to the May Amendment Date within the meaning of Section 162(m) of the Code (and any
Internal Revenue Service guidance issued thereunder) and the Plan shall be interpreted in accordance with the foregoing intent.
In furtherance of the foregoing, the terms of the Plan, as amended and restated as of the May Amendment Date, shall only apply
to Stock Rights granted after the May Amendment Date. Other than with respect to the second sentence of this paragraph, references
to “Section 162(m) of the Code” in this Section 13 shall refer to Section 162(m) of the Code as in effect prior to
December 22, 2017, including the regulations thereunder and other applicable Internal Revenue Service guidance, whether promulgated
or issued before or after December 22, 2017.
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14.
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RIGHTS AS A SHAREHOLDER
|
No Participant to whom a Stock Right (other than a Stock Grant) has been
granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except as to Shares actually
issued under the Plan.
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15.
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EMPLOYMENT OR OTHER RELATIONSHIP
|
Nothing in this Plan or any Stock Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, or to prevent a Participant
from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period of time. The loss of existing or potential profit from
a Stock Right will not constitute an element of damages in the event of a termination of employment or service for any reason,
even if the termination is in violation of an obligation of the Company or any Affiliate.
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16.
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DISSOLUTION OR
LIQUIDATION OF THE COMPANY
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Upon the dissolution or liquidation of the Company (other than in connection
with a transaction subject to the provisions of Section 17.2), all Stock Rights granted under this Plan which as of such
date have not been exercised will terminate and become null and void; provided, however, that if the rights of a Participant
or a Participant’s Survivors have not otherwise terminated and expired, the Participant or Participant’s Survivors
will have the right immediately prior to such dissolution or liquidation to exercise any Stock Right to the extent that such Stock
Right is exercisable as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation
of the Company, any outstanding Stock Rights shall immediately terminate unless otherwise determined by the Administrator or specifically
provided in the applicable Stock Agreement.
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Upon the occurrence of any of the following events, a Participant’s
rights with respect to any outstanding Stock Right shall be adjusted as hereinafter provided, unless otherwise specifically provided
in the Stock Agreement or in any employment agreement between a Participant and the Company or an Affiliate:
17.1
Stock Dividends
and Stock Splits.
If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares
of Common Stock subject to or deliverable upon the vesting or exercise of a Stock Right shall be appropriately increased or decreased,
and appropriate adjustments shall be made in the purchase or exercise price per Share to reflect such event. The number of Shares
subject to the limitation in Section 13.1 shall also be adjusted upon the occurrence of such events.
17.2
Consolidations or Mergers.
In the event of a consolidation
or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company’s
outstanding stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of
the sale or transfer of substantially all the Company’s assets (any of the foregoing, an “Acquisition”), all
then outstanding Stock Rights (excluding any Shares subject to Stock Grants as to which all Company repurchase rights shall have
lapsed) shall terminate unless assumed pursuant to clause (i) below; provided that either (i) the Administrator shall
provide for the surviving or acquiring entity or an affiliate thereof to assume the outstanding Stock Rights or grant replacement
Stock Rights in lieu thereof, any such replacement to be upon an equitable basis as determined by the Administrator, or (ii) if
there is no such assumption or substitution, all outstanding Stock Rights shall become immediately and fully exercisable and all
Company repurchase rights with respect to Stock Rights shall lapse, in each case immediately prior to the Acquisition, notwithstanding
any restrictions or vesting conditions set forth therein.
17.3
Recapitalization or Reorganization.
In the event of a recapitalization
or reorganization of the Company (other than a transaction described in Section 17.2 above) pursuant to which securities
of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon
exercising a Stock Right shall be entitled to receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Stock Right immediately prior to such recapitalization or reorganization.
17.4
Adjustments to Shares, Stock Grants and Stock-Based Awards
. Upon
the happening of any of the events described in Sections 17.1, 17.2 or 17.3, or other change in the Company’s capital structure
that constitutes an equity restructuring within the meaning of the Accounting Rules, the maximum number of Shares specified in
Section 3, the number of Shares subject to the limits in Section 13.1, any exercise price per Share of any Stock Right, any outstanding
Stock-Based Award and the Shares subject to any Stock Grant, vested or unvested, shall be appropriately adjusted by the Administrator
to reflect such events. The Administrator may also make adjustments of the type described above to take into account distributions
to stockholders other than those provided for in Sections 17.1, 17.2 or 17.3, or any other event, if the Administrator determines
that adjustments are appropriate to avoid distortion in the operation of the Plan. The Administrator shall determine the specific
adjustments to be made under this Section 17.4. References in the Plan to Shares will be construed to include any stock or
securities resulting from an adjustment pursuant to this Section 17.4.
17.5
Modification of ISOs.
Notwithstanding the foregoing, any
adjustments made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made only after the Administrator determines
whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424(h) of
the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Administrator determines that such
adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments,
unless the holder of an ISO specifically consents in writing to such adjustment be made and such writing indicates that the holder
has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the
ISO.
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18.
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ISSUANCES OF
SECURITIES
|
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to Stock Rights. Except as expressly provided herein,
no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company.
No fractional share shall be issued under the Plan and the person exercising
any Stock Right shall receive from the Company cash in lieu of any such fractional share equal to the Fair Market Value thereof.
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The Administrator may provide for the payment of amounts (on terms and subject
to conditions established by the Administrator, including providing for the reinvestment of such amounts in the form of additional
Stock Rights) in lieu of cash dividends or other cash distributions with respect to Common Stock subject to a Stock Right whether
or not the holder of such Stock Right is otherwise entitled to share in the actual dividend or distribution in respect of such
Stock Right; provided, however, that notwithstanding anything to the contrary in the Plan (a) any dividends or dividend
equivalents relating to a Stock Right (other than an Option or Stock Appreciation Right) that, at the dividend payment date, remains
subject to a risk of forfeiture (whether service-based or performance-based) shall be subject to the same risk of forfeiture as
applies to the underlying Stock Right and (b) except as contemplated by Section 17, no dividends or dividend equivalents shall
be payable with respect to Options or Stock Appreciation Rights unless and until such Options or Stock Appreciation Rights have
vested and been exercised in accordance with their terms.
The delivery, vesting and retention of Shares, cash or other property under
a Stock Right are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the
Stock Right. The Administrator shall prescribe such rules for the withholding of taxes with respect to any Stock Right as it deems
necessary. The Administrator may withhold from the Participant’s compensation or require that the Participant advance cash
to the Company or an Affiliate the amount of such withholding and may hold back Shares from a Stock Right or permit a Participant
to tender previously owned Shares in satisfaction of tax withholding requirements (but not in excess of the maximum withholding
amount consistent with the award being subject to equity accounting treatment under the Accounting Rules). For purposes hereof,
the Fair Market Value of any shares withheld for purposes of payroll withholding shall be determined in the manner provided in
Section 1 above, as of the most recent practicable date prior to the date of grant, vesting, exercise or the date of a Disqualifying
Disposition. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant
may be required to pay the difference in cash to the Company or the Affiliate employer.
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22.
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NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
|
Each Employee who receives an ISO must agree to notify the Company in writing
immediately after the Employee makes a “Disqualifying Disposition” of any Shares acquired pursuant to the exercise
of an ISO. A Disqualifying Disposition is any disposition (as defined in Section 424(c) of the Code) of such Shares
before the later of (a) two years from the date the Employee was granted the ISO, or (b) one year after the date the
Employee acquired Shares by exercising the ISO. If the Employee has died before such Shares are sold, the notice provisions of
this Section 22 shall not apply.
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23.
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EFFECTIVE DATE; TERMINATION OF THE PLAN
|
This Plan was amended and restated by the Board on April 13, 2017 and April
2, 2018, in each case subject to the approval of the Plan by the shareholders of the Company, and was further amended and restated
on October 16, 2018. The Plan, as amended and restated hereby, shall be effective as of June 5, 2019. The Plan will terminate
on April 12, 2027. The Plan also may be terminated at an earlier date by vote of the Board of Directors. Termination of this Plan
will not affect any Stock Rights granted or Stock Agreements executed prior to the effective date of such termination.
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24.
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AMENDMENT OF THE PLAN; AMENDMENT OF
STOCK RIGHTS
|
The Plan may be amended by the Board of Directors or the Administrator, including,
without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights
to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may
be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable
upon exercise of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national
securities exchange or quotation in any national automated quotation system of securities dealers. Any amendments to the Plan
will be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code)
or applicable stock exchange requirements, as determined by the Administrator. No modification or amendment of the Plan shall
adversely and materially affect a Participant’s rights under a Stock Right previously granted to the Participant, without
such Participant’s consent.
In its discretion, the Administrator may amend any term or condition of any
outstanding Stock Right, provided: (i) such term or condition is not prohibited by the Plan; (ii) if the amendment is
materially adverse to the Participant, such amendment shall be made only with the consent of the Participant or the Participant’s
Survivors, as the case may be; and (iii) any such amendment of any ISO shall be made only after the
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Administrator determines whether such amendment would constitute a “modification”
of any Stock Right which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse
tax consequences for the holder of such ISO (in which case, the Participant’s or Participant’s Survivors’ consent
to such amendment shall be required). Notwithstanding the foregoing, unless such action is approved by the Company’s shareholders,
the Company may not (except for adjustments permitted under Section 17 of this Plan) (1) amend any outstanding Option or
Stock Appreciation Right granted under the Plan to provide an exercise price per share that is lower than the then-current exercise
price per share of such outstanding Option or Stock Appreciation Right; (2) cancel any outstanding Option or Stock Appreciation
Right (whether or not granted under the Plan) and grant in substitution therefor new Stock Rights under the Plan covering the
same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise
price per share of the cancelled option or Stock Appreciation Right; or (3) cancel in exchange for a cash payment any outstanding
Option or Stock Appreciation Right with an exercise price per share above the then-current Fair Market Value.
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25.
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RECOVERY OF COMPENSATION
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The Administrator may provide in any case that outstanding Stock Rights (whether
or not vested or exercisable) and the proceeds from the exercise or disposition of Stock Rights or Common Stock acquired under
Stock Rights will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant
to whom the Stock Right was granted violates (i) a non-competition, non-solicitation, confidentiality or other restrictive covenant
by which he or she is bound, or (ii) any Company policy applicable to the Participant that provides for forfeiture or disgorgement
with respect to incentive compensation that includes Stock Rights under the Plan. In addition, the Administrator may require forfeiture
and disgorgement to the Company of outstanding Stock Rights and the proceeds from the exercise or disposition of Stock Rights
or Common Stock acquired under Stock Rights, with interest and other related earnings, to the extent required by law or applicable
stock exchange listing standards, including, without limitation, Section 10D of the Exchange Act, and any applicable Company policy.
Each Participant, by accepting or being deemed to have accepted a Stock Right under the Plan, agrees to cooperate fully with the
Administrator, and to cause any and all permitted transferees of the Participant to cooperate fully with the Administrator, to
effectuate any forfeiture or disgorgement required hereunder. Neither the Administrator nor the Company nor any other person,
other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences
to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 25.
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26.
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COMPLIANCE WITH SECTION 409A OF THE
CODE
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Without limiting the generality of Section 4 hereof, each Stock Right will
contain such terms as the Administrator determines and will be construed and administered, such that the Stock Right either qualifies
for an exemption from the requirements of Section 409A of the Code or satisfies such requirements.
Notwithstanding Section 24 hereof or any other provision of this Plan or
any Stock Agreement to the contrary, the Administrator may unilaterally amend, modify or terminate the Plan or any outstanding
Stock Right, including but not limited to changing the form of the Stock Right, if the Administrator determines that such amendment,
modification or termination is necessary or advisable to avoid the imposition of an additional tax, interest or penalty under
Section 409A of the Code. To the extent that a provision of this Plan is amended to provide for the accelerated payment or settlement
of a Stock Right, no such amendment will be given effect if it would result in the imposition of an additional tax, interest or
penalty under Section 409A of the Code.
If a Participant is deemed on the date of the Participant’s Termination
of Service to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code, then,
with regard to any payment that is considered nonqualified deferred compensation under Section 409A of the Code, to the extent
applicable, payable on account of a “separation from service”, such payment will be made or provided on the date that
is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service”
and (ii) the date of the Participant’s death (the “Delay Period”). Upon the expiration of the Delay Period,
all payments delayed pursuant to this Section 26 (whether they would have otherwise been payable in a single lump sum or in installments
in the absence of such delay) will be paid on the first business day following the expiration of the Delay Period in a lump sum
and any remaining payments due under the Stock Right will be paid in accordance with the normal payment dates specified for them
in the applicable Stock Agreement.
For purposes of Section 409A of the Code, each payment made under this Plan
will be treated as a separate payment.
With regard to any payment considered to be nonqualified deferred compensation
under Section 409A of the Code, to the extent applicable, that is payable upon a change in control of the Company or other similar
event, to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code, no amount will be payable
unless such change in control constitutes a “change in control event” within the meaning of Section 1.409A-3(i)(5)
of the Treasury Regulations.
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PHARMACEUTICALS INCORPORATED
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27.
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AUTHORIZATION OF SUB-PLANS
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The Board of Directors may from time to time establish one or more sub-plans
under the Plan for purposes of satisfying applicable securities, tax or other laws of various jurisdictions. The Board of Directors
shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board of Director’s
discretion under the Plan as the Board of Directors deems necessary or desirable or (ii) such additional terms and conditions
not otherwise inconsistent with the Plan as the Board of Directors shall deem necessary or desirable. All supplements adopted
by the Board of Directors shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within
the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction
that is not the subject of such supplement.
This Plan, Stock Rights under the Plan and all claims or disputes arising
out of or based upon the Plan or Stock Rights under the Plan or relating to the subject matter hereof or thereof shall be construed
and enforced in accordance with the laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict
of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
By accepting or being deemed to have accepted a Stock Right under the Plan,
each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state
courts located within the geographic boundaries of the United States District Court for the District of Massachusetts for the
purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Stock Right; (b) agree not to commence
any suit, action or other proceeding arising out of or based upon the Plan or a Stock Right, except in the federal and state courts
located within the geographic boundaries of the United States District Court for the District of Massachusetts; and (c) waive,
and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he
or she is not subject personally to the jurisdiction of the above-named courts that his or her property is exempt or immune from
attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that the Plan or a Stock Right or the subject matter thereof may not be enforced in or by
such court.
By accepting or being deemed to have accepted a Stock Right under the Plan,
to the maximum extent permitted by applicable law, each Participant waives any right to a trial by jury in any action, proceeding
or counterclaim concerning any rights under the Plan and any Stock Right, or under any amendment, waiver, consent, instrument,
document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such
action, proceedings or counterclaim will be tried before a court and not before a jury. By accepting or being deemed to have accepted
a Stock Right under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented,
expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the
foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability
of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Stock Right made hereunder
to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes
to binding arbitration as a condition of receiving a Stock Right hereunder.
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Appendix B
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Vertex Pharmaceuticals Incorporated
Employee Stock Purchase Plan
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(as amended and restated as of June 5, 2019)
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ARTICLE
I
Purpose and Definitions
Section 1.1.
Purpose
. The purpose of the Vertex Pharmaceuticals Incorporated
Employee Stock Purchase Plan is to provide eligible employees with an opportunity to purchase shares of Common Stock in the Company
through payroll deductions, thereby encouraging employees to share in the economic growth and success of the Company through stock
ownership.
Section 1.2.
Definitions
. Whenever used in the Plan, unless the context
clearly indicates otherwise, the following terms shall have the following meanings:
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(a)
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“BOARD OF DIRECTORS” means the Board of Directors of
the Company.
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(b)
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“CODE” means the Internal Revenue Code of 1986, as the same may be
amended from time to time, and references thereto shall include the valid Treasury regulations issued thereunder.
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(c)
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“COMMITTEE” means the Management Development and Compensation Committee
of the Board of Directors or such other committee of the Board of Directors designated by the Board of Directors to administer
the Company’s equity compensation plans.
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(d)
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“COMMON STOCK” means shares of the $.01 par value common stock of
the Company and any other stock or securities resulting from the adjustment thereof or substitution therefor as described
in Section 3.4.
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(e)
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“COMPANY” means Vertex Pharmaceuticals Incorporated or any successor
by merger, purchase, or otherwise.
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(f)
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“COMPENSATION” means the cash compensation received by an Employee
for services, including pre-tax employee compensation made to the Company’s 401(k) savings plan, but not including overtime
or bonuses.
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(g)
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“EFFECTIVE DATE” means July 1, 1992.
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(h)
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“ELECTION” means an election by a Participant to terminate his or
her participation in an Offering Period following the purchase of shares of Common Stock in accordance with Article V on the
first Purchase Date of such Offering Period, which election shall be made within such Offering Period and on or prior to such
first Purchase Date and shall be on a form furnished by the Company for such purpose and shall be made by having such Participant
complete, sign and file such form with the Company in the manner prescribed by the Company; provided that if the Fair Market
Value of the Common Stock on the first day of the applicable Offering Period is greater than the Fair Market Value of the
Common Stock on the first Purchase Date of such Offering Period each Participant in such Offering Period shall automatically (i) be deemed to have completed, signed and filed an Election and (ii) be enrolled in the Offering Period commencing on the
Offering Date immediately following such first Purchase Date, with the Participant’s payroll deductions for such Offering
Period determined by reference to the last payroll deduction authorization properly submitted by the Participant to the Company
in accordance with the Plan.
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(i)
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“EMPLOYEE” means any person who receives a regular stated compensation
from the Company or a Subsidiary other than a pension, severance pay, retainer, or fee under contract.
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(j)
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“FAIR MARKET VALUE” of a share of Common Stock on a particular date
shall be the average of the highest and lowest quoted selling prices on such date (the “valuation date”) on the
securities market where the Common Stock of the Company is traded, or if there were no sales on the valuation date, on the
immediately preceding date within a reasonable period (as determined in the sole discretion of the Committee) on which there
were sales. In the event that there were no sales in such a market within a reasonable period, the fair market value shall
be as determined in good faith by the Committee in its sole discretion. The Fair Market Value as determined in this paragraph
shall be rounded down to the next lower whole cent if the foregoing calculation results in fractional cents.
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(k)
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“OFFERING” means the offering of shares of Common Stock to Participants
pursuant to this Plan.
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(l)
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“OFFERING DATE” means each May 15 and November 15. If any
such date shall fall other than on a business day, then the Offering Date shall be the next succeeding business day.
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(m)
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“OFFERING PERIOD” means either (i) the period from an Offering
Date through the second Purchase Date following such Offering Date or (ii) if a Participant validly exercises (or is
deemed to validly exercise) an Election, the period from an Offering Date through the first Purchase Date following such Offering
Date.
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(n)
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“PARTICIPANT” means an Employee who has elected to participate in
the Plan in accordance with and subject to the terms of the Plan and any procedures established by the Committee.
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(o)
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“PURCHASE DATE” means each May 14 and November 14.
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(p)
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“PLAN” means the Vertex Pharmaceuticals Incorporated Employee Stock
Purchase Plan, an “employee stock purchase plan” within the meaning of Section 423(b) of the Code, together
with any and all amendments thereto.
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(q)
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“STOCK PURCHASE ACCOUNT,” with respect to a Participant,
means the account established on the books and records of the Company or a Subsidiary for such Participant representing the
payroll deductions credited to such account in accordance with the provisions of the Plan.
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(r)
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“SUBSIDIARY” means any corporation, fifty percent (50%) or more of
the total combined voting power of all classes of stock of which is beneficially owned, directly or indirectly, by the Company.
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ARTICLE II
Participation
Section 2.1.
Participation Requirements.
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(a)
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COMMENCEMENT OF PARTICIPATION. Subject to Section 2.2 and Section 3.2(b),
each person who becomes an Employee after the Effective Date may elect to become a Participant in the Plan, in accordance
with and subject to the terms of the Plan and any procedures established by the Committee, on any Offering Date following
the date on which such person becomes an Employee.
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(b)
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ELIGIBILITY OF FORMER PARTICIPANTS. If a person terminates employment with the
Company after becoming a Participant and subsequently resumes being an Employee of the Company, such person will again become
eligible to participate on the Offering Date next following the date such person resumed being an Employee of the Company.
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Section 2.2.
Exclusions.
Notwithstanding any provision of the Plan to the contrary, in no event shall the following persons be eligible to participate
in the Plan:
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(a)
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Any Employee whose customary employment is twenty (20) hours
or less per week;
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(b)
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Any Employee whose customary employment is for not more than five (5) months
in any calendar year; or
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(c)
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Any Employee who, immediately after the beginning of an Offering Period, owns
(or under Section 423(b)(3) of the Code would be deemed to own) stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any Subsidiary.
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ARTICLE III
Offering of Common Stock
Section 3.1.
Reservation of Common Stock
. The Board of Directors shall
reserve 1,748,660 shares of Common Stock for issuance under the Plan after March 17, 2004, subject to adjustment in
accordance with Section 3.4, provided that no more than 248,660 of such shares shall be issued prior to May 15, 2004.
On May 13, 2008, the Board of Directors shall reserve an additional 2,000,000 shares of Common Stock for issuance under the Plan.
On May 16, 2012, the Board of Directors shall reserve an additional 2,500,000 shares of Common Stock for issuance under the Plan.
On June 5, 2019, the Board of Directors shall reserve an additional 2,000,000 shares of Common Stock for issuance under the Plan.
Section 3.2.
Offering of Common Stock.
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(a)
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General
. Subject to Sections 3.2(b) and 3.2(c), each
Participant in the Plan on an Offering Date shall be entitled to purchase shares of Common Stock on each Purchase Date within
the Offering Period that begins with such Offering Date with the amounts deducted from such Participant’s Compensation
during such Offering Period pursuant to Article IV, provided, however, that a Participant shall not participate in more
than one Offering Period simultaneously. The purchase price for such shares of Common Stock shall be determined under Section 3.3.
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(b)
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Limitations
. Notwithstanding Section 3.2(a), no Participant may purchase
shares of Common Stock under the Plan and under all other Code Section 423 employee stock purchase plans of the Company and
its Subsidiaries, if any, at a rate in excess of $25,000 in fair market value of such shares (measured as of the relevant
Offering Date) for each calendar year during which rights to purchase shares of Common Stock under the Plan are outstanding
at any time. This paragraph is intended to be consistent with the limitation of Code section 423(b) (8) and shall be
interpreted accordingly.
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(c)
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Maximum
. Notwithstanding Section 3.2(a), and subject to adjustment pursuant
to Section 3.4, the maximum aggregate number of shares of Common Stock that may be purchased by any Participant on any Purchase
Date is 2,500 shares.
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Section 3.3.
Determination of
Purchase Price for Offered Common Stock.
The purchase price per share of the shares of Common Stock to be acquired by a
Participant on a Purchase Date pursuant to an Offering shall be equal to eighty-five percent (85%) of the lesser of:
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(a)
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the Fair Market Value of a share of Common Stock on the Offering
Date for such Offering Period; or
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(b)
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the Fair Market Value of a share of Common Stock on such Purchase Date;
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provided, however, in no event shall the purchase price be less than the
par value of a share of Common Stock.
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Section 3.4.
Effect of Certain
Transactions.
The number of shares of Common Stock reserved for the Plan pursuant to Section 3.1, the maximum number
of shares of Common Stock offered pursuant to Sections 3.2(b) and 3.2(c), and the determination under Section 3.3
of the purchase price per share of the shares of Common Stock offered to Participants pursuant to an Offering shall be
appropriately adjusted to reflect any increase or decrease in the number of issued shares of Common Stock resulting from a
stock split, a consolidation of shares, the payment of a stock dividend, or any other capital adjustment affecting the number
of issued shares of Common Stock. In the event that the outstanding shares of Common Stock shall be changed into or exchanged
for a different number or kind of shares of stock or other securities of the Company or another corporation, whether through
reorganization, recapitalization, merger, consolidation, or otherwise, then there shall be substituted for each share of
Common Stock reserved for issuance under the Plan but not yet purchased by Participants, the number and kind of shares of
stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share
shall be exchanged. In the event of (i) a consolidation, merger or similar transaction or series of related
transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which
results in the acquisition of all or substantially all of the then-outstanding shares of Common Stock by a single person or
entity or by a group of persons and/or entities acting in concert; (ii) sale or transfer of all or substantially all
of the Company’s assets; (iii) dissolution or liquidation of the Company; or (iv) a “change in control
event” as that term is defined in the regulations under Section 409A of the Code (any of the foregoing events in
(i)-(iv), a “Corporate Transaction”), the Committee may, in its discretion, (i) if the Company is merged with or
acquired by another corporation, provide that each outstanding entitlement to purchase shares of Common Stock held by a
Participant pursuant to Section 3.2 (each, an “Option”) will be assumed or exchanged for a substitute Option
granted by the acquiror or successor corporation or by a parent or subsidiary of the acquiror or successor corporation, (ii)
cancel each outstanding Option and return the balances in Participants’ Stock Purchase Accounts to the Participants, or
(iii) pursuant to Article VII, provide that the Purchase Date for the Offering Period of the Option will occur on or before
the date of the proposed Corporate Transaction.
ARTICLE IV
Payroll Deductions
Section 4.1.
Payroll Deduction Elections
. Any Employee eligible to
participate in the Plan may become a Participant and elect to have the Company deduct from the Compensation payable to such Participant
during each Offering Period any amount between one percent (1%) and fifteen percent (15%) of such Participant’s Compensation,
in whole multiples of one percent (1%). Such election shall be made during the thirty day period preceding the Offering Period
to which it first relates. Such election shall become effective as of the first day of such Participant’s first pay period
that begins on or after the first day of such Offering Period and shall remain effective for each successive pay period and for
each subsequent Offering until changed or terminated pursuant to this Article IV. The percentage deduction specified by the
Participant will be deducted from each payment of Compensation made to the Participant.
Section 4.2.
Election to Increase or Decrease Payroll Deductions
.
Subject to Section 4.4, a Participant who has a payroll deduction election in effect under Section 4.1 may prospectively
increase or decrease, during an Offering Period, the percentage amount of the deductions being made by the Company from such Participant’s
Compensation (including a decrease to zero) by delivering to the Company written direction to make such change. Such change shall
become effective as soon as practicable after the Company’s receipt of such written direction and shall remain in effect
until changed or terminated pursuant to this Article IV. A Participant shall be permitted to increase or decrease the percentage
amount of the deductions being made from such Participant’s Compensation only once during each of the portions of an Offering
Period that ends on a Purchase Date; provided, however, a Participant may terminate the deductions being made from such Participant’s
Compensation at any time during such Offering Period. If a Participant terminates deductions, such Participant cannot resume deductions
during that Offering Period.
A Participant who makes a hardship withdrawal from a retirement savings plan
sponsored or maintained by the Company or its Subsidiaries qualifying under Code section 401(k) (a “401(k) Plan”)
shall be deemed to have terminated his or her payroll deduction election as of the date of such hardship withdrawal, shall cease
to be a Participant as of such date, and the entire amount remaining to the credit of such Participant in such Participant’s
Stock Purchase Account shall be refunded to such Participant, without interest, as soon as administratively practicable thereafter.
To the extent the Company relies on the safe harbor provided by Section 1.401(k)-1(d)(3)(iv)(E)(2) of the Treasury Regulations,
a Participant who has made a hardship withdrawal from a 401(k) Plan shall not be permitted to participate in the Plan until the
first Offering Period that begins at least six (6) months after the date of the hardship withdrawal.
Section 4.3.
Termination of Election Upon Termination of Employment
.
The termination of employment of a Participant for any reason shall automatically terminate the Participant’s participation
in the Plan and the entire amount remaining to the credit of such Participant in such Participant’s Stock Purchase Account
shall be refunded to such Participant, without interest, as soon as administratively practicable thereafter.
Section 4.4.
Form of Elections
. Except as otherwise permitted by the
Company, any election by a Participant regarding participation in or withdrawal from the Plan or deductions from Compensation
pursuant to this Article IV shall be on a form furnished by the Company for such purpose and shall be made by having such
Participant file such form with the Company in the time and manner prescribed from time to time by the Company.
Section 4.5.
Taxes
. Payroll deductions shall be made on an after-tax
basis. The Company shall have the right, as a condition of exercise, to make such provision as it deems necessary to satisfy its
obligations to withhold federal, state and local income or other taxes incurred by reason of the purchase or disposition of shares
of Common Stock under the Plan. The Company in its discretion may, to the extent permitted by law, satisfy its withholding obligations
by deduction from any payment of any kind due to the Participant or by withholding shares of Common Stock purchased under the
Plan (but not in excess of the minimum statutory amounts or such greater amounts that, in the discretion of the Company, would
not results in adverse accounting consequences to the Company). By electing to participate in the Plan, each Participant agrees
to provide such information about any transfer of any shares of Common Stock acquired under the Plan as may be requested by the
Company or any Subsidiary in order to assist it in complying with applicable tax laws.
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ARTICLE V
Stock Purchase Accounts and Purchase of Common Stock
Section 5.1.
Stock Purchase Accounts
. A Stock Purchase Account shall
be established and maintained on the books and records of the Company for each Participant. Amounts deducted from a Participant’s
Compensation pursuant to Article IV shall be credited to such Participant’s Stock Purchase Account. No interest or
other increment shall accrue or be payable to any Participant with respect to any amounts credited to such Stock Purchase Accounts.
All amounts credited to such Stock Purchase Accounts shall be withdrawn, paid, or applied toward the purchase of shares of Common
Stock pursuant to the provisions of this Article V.
Section 5.2.
Purchase of Common Stock
.
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(a)
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General
. As of each Purchase Date, the amount to the credit
of a Participant in such Participant’s Stock Purchase Account shall be used to purchase from the Company on such Participant’s
behalf the largest number of whole shares of Common Stock which can be purchased at the price determined under Section 3.3
with the amount then credited to such Participant’s Stock Purchase Account, subject to the limitations set forth in
Article III on the maximum number of shares of Common Stock such Participant may purchase. As of such date, such Participant’s
Stock Purchase Account shall be charged with the aggregate purchase price of the shares of Common Stock purchased on such
Participant’s behalf. No brokerage or other fees are to be charged upon a purchase. Stock transfer taxes, if any, shall
be paid by the Company. The remaining balance attributable to any fractional shares, if any, credited to such Participant’s
Stock Purchase Account shall be carried forward and used to purchase shares of Common Stock on the next succeeding Purchase
Date; provided that any excess balance remaining in a Participant’s Stock Purchase Account after the application of
the limitations or maximums in Section 3.2 shall be refunded to the Participant without interest as soon as is administratively
practicable.
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(b)
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Issuance of Common Stock
. The shares of Common Stock purchased for a Participant
as of a Purchase Date shall be deemed to have been issued by the Company for all purposes as of the close of business on such
date. Prior to such date, none of the rights and privileges of a stockholder of the Company shall exist with respect to such
shares of Common Stock. As soon as practical, the Company shall deliver to the Participant’s account maintained by the
broker engaged by the Company to administer the Company equity program, the number of shares of Common Stock purchased for
such Participant and the aggregate number of shares of Common Stock held on behalf of such Participant under the Plan.
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(c)
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Insufficient Common Stock Available
. If, as of any Purchase Date, the
aggregate amounts in Stock Purchase Accounts available for the purchase of shares of Common Stock pursuant to Section 5.2(a)
would purchase a number of shares of Common Stock in excess of the number of shares of Common Stock then available for purchase
under Section 3.1 of the Plan, (i) the number of shares of Common Stock which would otherwise be purchased for each Participant
on such date shall be reduced proportionately to the extent necessary to eliminate such excess, (ii) the remaining balance
to the credit of each Participant in each such Participant’s Stock Purchase Accounts shall be refunded to each such
Participant without interest as soon as administratively practicable, and (iii) the Plan shall terminate automatically
upon the refund of the remaining balance in such Stock Purchase Accounts.
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Section 5.3.
Withdrawal from Plan Prior to Purchase of Common Stock
.
In the event (i) a Participant elects in writing for any reason to withdraw from the Plan during an Offering Period or (ii) a
Participant’s employment with the Company terminates for any reason prior to the end of an Offering Period, the entire amount
remaining to the credit of such Participant in such Participant’s Stock Purchase Account shall be refunded to such Participant
(or, if such Participant is deceased, to such Participant’s beneficiary) without interest as soon as administratively practicable
after such withdrawal or termination of employment (as the case may be).
ARTICLE VI
Committee
Section 6.1.
Powers of the Committee
. The Committee shall administer
the Plan. The Committee shall have all powers necessary to enable it to carry out its duties under the Plan properly. Not in limitation
of the foregoing, the Committee shall have the authority to determine eligibility under the Plan, to designate Subsidiaries as
eligible to participate in the Plan, to interpret the Plan, to prescribe forms, rules and procedures under the Plan, to adopt,
amend, rescind, administer, and interpret such forms, rules and procedures and otherwise to do all things necessary or advisable
to carry out the terms of the Plan. To the extent permitted by applicable law, the Committee in its discretion may delegate any
or all of its powers under the Plan to one or more officers or employees of the Company.. The decision of the Committee upon all
matters within the scope of its authority shall be final and conclusive on all persons, except to the extent otherwise provided
by law.
Section 6.2.
Indemnification of the Committee
. The Company agrees
to indemnify and hold harmless the members of the Committee against any liabilities, loss, costs, or damage that they may incur
in acting as such members and to assume the defense of any and allocations, suits, or proceedings against the members of the Committee,
to the extent permitted by applicable law.
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ARTICLE VII
Amendment and Termination
Section 7.1.
Amendment of the Plan
. The Company expressly reserves
the right, at any time and from time to time, to amend in whole or in part any of the terms and provisions of the Plan; provided,
however, no amendment may without the approval of the shareholders of the Company increase the number of shares of Common Stock
reserved under the Plan.
Section 7.2.
Termination of Plan
. The Company expressly reserves the
right, at any time and for whatever reason it may deem appropriate, to suspend or terminate the Plan. The Plan shall continue
in effect until terminated pursuant to (i) the preceding sentence or (ii) Section 5.2(c). Upon any termination of the Plan,
the entire amount credited to the Stock Purchase Account of each Participant shall be refunded to each such Participant without
interest as soon as is administratively practicable.
Section 7.3.
Procedure for Amendment or Termination
. Any amendment
to the Plan or termination of the Plan may be retroactive to the extent not prohibited by applicable law. Any amendment to the
Plan or termination of the Plan shall be made by the Company by resolution of the Board of Directors (subject to Section 7.1)
and shall not require the approval or consent of any Participant or beneficiary in order to be effective.
ARTICLE VIII
Miscellaneous
Section 8.1.
Transferability of Rights
. Rights under the Plan are
exercisable during a Participant’s lifetime only by the Participant and such rights may not be sold, pledged, assigned or
transferred in any manner.
Section 8.2.
No Employment Rights
. Participation in the Plan shall
not give any employee of the Company or any Subsidiary any right to remain employed or, upon termination of employment, any right
or interest in the Plan, except as expressly provided herein.
Section 8.3.
Compliance with Law
. No shares of Common Stock shall
be issued under the Plan prior to compliance by the Company to the satisfaction of its counsel with any applicable laws.
Section 8.4.
Construction
. Article, Section, and paragraph headings
have been inserted in the Plan for convenience of reference only and are to be ignored in any construction of the provisions hereof.
If any provision of the Plan shall be invalid or unenforceable, the remaining provisions shall nevertheless be valid, enforceable,
and fully effective. It is the intent that the Plan shall at all times constitute an “employee stock purchase plan”
within the meaning of Section 423(b) of the Code, and the Plan shall be construed, and interpreted to remain such. The Plan
shall be construed, administered, regulated, and governed by the laws of the United States to the extent applicable, and to the
extent such laws are not applicable, by the laws of The Commonwealth of Massachusetts. Without limiting the foregoing, all Participants
for an Offering Period shall have the same rights and privileges with respect to their rights to acquire shares of Common Stock
under the Plan for such period, subject to the express terms hereof.
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
100
|
Appendix C
|
Non-GAAP Financial Measures
|
In this proxy, our financial results and financial guidance are provided
in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures.
In particular, we include non-GAAP net income, which excludes (i) stock-based compensation expense, (ii) revenues and expenses
related to business development transactions including collaboration agreements and asset acquisitions, (iii) revenues and expenses
related to consolidated variable interest entities, including asset impairment charges and the effects of the deconsolidation
of variable interest entities in 2017 and 2018 and (iv) other adjustments, including gains or losses related to the fair value
of the company’s strategic investments. The company’s non-GAAP net income also exclude from its provision for or benefit
from income taxes (i) the estimated tax impact related to its non-GAAP adjustments to pre-tax net income described above as well
as (ii) non-operating tax adjustments, which are not associated with our normal, recurring operations and include the release
of our valuation allowance on the majority of our net operating losses and other deferred tax assets in the fourth quarter of
2018. These results are provided as a complement to results provided in accordance with GAAP because management believes these
non-GAAP financial measures help indicate underlying trends in our business, are important in comparing current results with prior
period results and provide additional information regarding our financial position. Management also uses these non-GAAP financial
measures to establish budgets and operational goals that are communicated internally and externally and to manage the company’s
business and to evaluate its performance. The company adjusts, where appropriate, for both revenues and expenses in order to reflect
the company’s operations. A reconciliation of the GAAP net income to non-GAAP net income is included below.
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
GAAP net income (loss) attributable to Vertex
|
|
$
|
2,096,896
|
|
|
$
|
263,484
|
|
|
$
|
(112,052
|
)
|
|
Stock-based compensation expense
|
|
|
325,047
|
|
|
|
290,736
|
|
|
|
237,705
|
|
|
Collaborative and transaction revenues and expenses
|
|
|
134,447
|
|
|
|
(76,607
|
)
|
|
|
87,850
|
|
|
Other adjustments
|
|
|
2,005
|
|
|
|
16,947
|
|
|
|
(2,306
|
)
|
|
Total non-GAAP adjustments to pre-tax net income attributable to Vertex
|
|
|
461,499
|
|
|
|
231,076
|
|
|
|
323,249
|
|
|
Non-operating tax adjustments
|
|
|
(1,499,588
|
)
|
|
|
—
|
|
|
|
—
|
|
|
NON-GAAP
NET INCOME ATTRIBUTABLE TO VERTEX
|
|
$
|
1,058,807
|
|
|
$
|
494,560
|
|
|
$
|
211,197
|
|
VERTEX
PHARMACEUTICALS INCORPORATED
-
2019 Proxy Statement
101
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