VERTEX PHARMACEUTICALS INC / MA - Annual Report: 2019 (Form 10-K)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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ITEM 1.	BUSINESS

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•	In October 2019, we received approval from the FDA for TRIKAFTA for the treatment of patients with CF 12 years of age and older who have at least one copy of the F508del mutation.

•	In the fourth quarter of 2019, the MAA we submitted for the triple combination of elexacaftor, tezacaftor, and ivacaftor in patients 12 years of age and older was validated by the EMA.

•	A Phase 3 clinical trial evaluating the triple combination of elexacaftor, tezacaftor and ivacaftor in children six to 11 years of age who are F508del homozygous or who have one copy of the F508del mutation and one minimum function mutation is ongoing.

•	In June 2019, we obtained approval for SYMDEKO in the United States for children 6 to 11 years of age.

•	In the fourth quarter of 2019, we submitted an application to the EMA to extend the indication of tezacaftor in combination with ivacaftor to patients 6 to 11 years of age.

•	In January 2019, we obtained approval for ORKAMBI in the European Union for children 2 to 5 years of age.

•	In April 2019, we obtained approval for KALYDECO in the United States for infants 6 to <12 months of age.

•	In December 2019, we obtained approval for KALYDECO in the European Union for infants 6 to <12 months of age.

•	We are evaluating VX-121, an additional next-generation corrector, and VX-561, a potentiator, in Phase 2 clinical development.

•	our collaboration with CRISPR in hemoglobinopathies and other diseases;

•	our establishment of preclinical genetic therapy programs for DMD and DM1, through our acquisition of Exonics; and

•	our establishment of a preclinical program to develop cell-based therapies for type 1 diabetes through our acquisition of Semma.

•	transformative treatments for life-threatening diseases with a high unmet medical need;

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•	targets validated as playing a causal role in the human biology of a disease;

•	innovative approaches to addressing those targets;

•	biological assays and clinical biomarkers that we believe will be predictive of clinical responses; and

•	efficient clinical and regulatory paths to bring new medicines to patients.

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•	Arbor Biotechnologies, Inc. In 2018, we entered into a collaboration with Arbor Biotechnologies, pursuant to which we are focusing on the discovery of novel proteins, including DNA endonucleases, to advance the development of new gene-editing therapies.

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CRISPR Therapeutics AG. In 2015, we entered into a collaboration with CRISPR for the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene-editing technology. We currently are co-developing CTX001 for the treatment of sickle cell disease and beta-thalassemia and, if successful, have agreed to co-commercialize CTX001. In addition, we have exercised options to exclusively license treatments for specific targets, including CF, that were subject to the research program. In 2019, we obtained exclusive worldwide rights to CRISPR’s intellectual property for DMD and DM1 gene-editing products through a new agreement with CRISPR.

•	Kymera Therapeutics, Inc.  In 2019, we entered into a collaboration with Kymera Therapeutics for the research and development of small molecule protein degraders. Under the collaboration, Kymera conducts research activities in multiple targets, and upon designation of a clinical development candidate for a target, we have the option to exclusively license molecules against the target.

•	Moderna Therapeutics, Inc.  In 2016, we entered into a collaboration with Moderna Therapeutics, pursuant to which we are seeking to identify and develop messenger ribonucleic acid, or mRNA, therapeutics for the treatment of CF.

•	Other Arrangements. In 2019, we entered into collaborations with Molecular Templates, Inc. and Ribometrix, Inc. In 2018, we entered into agreements with Genomics plc, Merck KGaA, Darmstadt, Germany, and X-Chem, Inc. in order to support our research and development efforts.

•	Janssen Pharmaceuticals, Inc. In 2014, we entered into an agreement with Janssen. Pursuant to this agreement, Janssen Inc. is developing pimodivir for the treatment of influenza. Janssen is evaluating pimodivir in Phase 3 clinical trials in patients with influenza A infection.

•	Merck KGaA, Darmstadt, Germany. In 2017, we entered into a Strategic Collaboration and License Agreement with Merck KGaA, Darmstadt, Germany, pursuant to which we granted an exclusive worldwide license to research, develop and commercialize four oncology research and development programs.

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•	CF potentiators and correctors and many other related compounds, and the use of those compounds to treat CF.

•	Other pre-clinical and clinical drug candidates and the use of such drug candidates to treat specified diseases.

•	The manufacture, pharmaceutical compositions, related solid forms, formulations, dosing regimens and methods of use of many of the above compounds.

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•	completion of preclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLP, and other applicable regulations;

•	submission to the FDA of an IND application, which must become effective before clinical trials in the United States may begin;

•	performance of adequate and well-controlled clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed drug for its intended use;

•	submission to the FDA of a New Drug Application, or an NDA;

•	satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product will be produced to assess compliance with GMP; and

•	FDA review and approval of the NDA.

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Phase 1. The drug initially is introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some drug candidates for severe or life-threatening diseases, such as cancer, especially when the drug candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

•	Phase 2. Clinical trials are initiated in a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the drug candidate for specific targeted diseases and to determine dosage tolerance and optimal dosage.

•	Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the drug candidate and provide an adequate basis for regulatory approval and product labeling.

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•	record-keeping requirements;

•	reporting of adverse experiences with the product;

•	providing the FDA with updated safety and efficacy information;

•	drug sampling and distribution requirements;

•	notifying the FDA and gaining its approval of specified manufacturing or labeling changes;

•	complying with certain electronic records and signature requirements; and

•	complying with FDA promotion and advertising requirements.

•	refusal to approve or delay in review of pending applications;

•	withdrawal of an approval or the implementation of limitations on a previously approved indication for use;

•	imposition of a clinical hold, a risk mitigation and evaluation strategy or other safety-related limitations;

•	warning letters or “untitled letters”

•	product seizures;

•	total or partial suspension of production or distribution; or

•	injunctions, fines, disgorgement, refusals of government contracts, or civil or criminal penalties.

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•	that one or more competing therapies may successfully be developed as a treatment for patients with CF;

•	that reimbursement policies of payors and other third parties may make it difficult to obtain reimbursement or reduce the net price we receive for our products;

•	that we may experience manufacturing or supply disruptions for our CF medicines; and

•	that we may experience adverse developments with respect to development or commercialization of our CF medicines and/or CF drug candidates.

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•	prevalence and severity of adverse side effects;

•	lack of reimbursement availability from third-party payors, including governmental entities;

•	lower demonstrated efficacy, safety and/or tolerability compared to alternative treatment methods;

•	lack of cost-effectiveness;

•	a decision to wait for the approval of other therapies in development that have significant perceived advantages over our drug;

•	convenience and ease of administration;

•	other potential advantages of alternative treatment methods; and

•	ineffective sales, marketing and/or distribution support.

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•	the manufacturing processes for genetic and cell-based therapies are typically more complex and challenging than the manufacturing processes required for small molecule drugs, require different systems, equipment and facilities and require different expertise to develop and maintain;

•	there have been a limited number of FDA approvals for genetic therapies to date, the regulatory requirements governing genetic therapies are continuing to evolve and current and future regulatory positions and interpretations could lead to delays with respect to our genetic therapy programs; and

•	our cell-based therapies include approaches involving devices, which are subject to additional regulatory requirements.

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•	offer therapeutic or other improvement over existing competitive therapies;

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•	show the level of safety and efficacy, including the level of statistical significance, required by the FDA or other regulatory authorities for approval of a drug candidate;

•	meet applicable regulatory standards;

•	be capable of being produced in commercial quantities at acceptable costs; or

•	if approved for commercial sale, be successfully marketed as pharmaceutical products.

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•	ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials and the number of clinical trials we must conduct;

•	delays in enrolling volunteers or patients into clinical trials, including as a result of low numbers of patients that meet the eligibility criteria for the trial;

•	a lower than anticipated retention rate of volunteers or patients in clinical trials;

•	the need to repeat clinical trials as a result of inconclusive results, unforeseen complications in testing or clinical investigator error;

•	inadequate supply or deficient quality of drug candidate materials or other materials necessary for the conduct of our clinical trials;

•	unfavorable FDA or foreign regulatory authority inspection and review of a manufacturing facility that supplied clinical trial materials or its relevant manufacturing records or a clinical trial site or records of any clinical or preclinical investigation;

•	unfavorable scientific results from clinical trials;

•	serious and unexpected drug-related side-effects experienced by participants in our clinical trials or by participants in clinical trials being conducted by our competitors to evaluate drug candidates with similar mechanisms of action or structures to drug candidates that we are developing;

•	favorable results in testing of our competitors’ drug candidates, or FDA or foreign regulatory authority approval of our competitors’ drug candidates; or

•	action by the FDA or a foreign regulatory authority to place a clinical hold or partial clinical hold on a trial or compound or deeming the clinical trial conduct as problematic.

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•	failure to successfully develop and commercialize the acquired drugs, drug candidates or technologies or to achieve other strategic objectives;

•	delays or inability to progress preclinical programs into clinical development or unfavorable data from clinical trials evaluating the acquired or licensed drug or drug candidates;

•	difficulty in integrating the drugs, drug candidates, technologies, business operations and personnel of an acquired asset or company;

•	disruption of our ongoing business and distraction of our management and employees from daily operations or other opportunities and challenges;

•	the potential loss of key employees of an acquired company;

•	entry into markets in which we have no or limited direct prior experience or where competitors in such markets have stronger market positions;

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potential failure of the due diligence processes to identify significant problems, liabilities or challenges of an acquired company, or acquired or licensed drug, drug candidate or technology, including but not limited to, problems, liabilities or challenges with respect to intellectual property, clinical or non-clinical data, safety, accounting practices, employee, or third party relations and other known and unknown liabilities;

•	liability for activities of the acquired company or licensor before the acquisition or license, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;

•	exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of an acquisition or license, including but not limited to, claims from terminated employees, customers, former equity holders or other third-parties; and

•	difficulties in the integration of the acquired company’s departments, systems, including accounting, human resource and other administrative systems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies.

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Our collaborators may change the focus of their development and commercialization efforts or may have insufficient resources to effectively develop our drug candidates. The ability of some of our products and drug candidates to reach their potential could be limited if collaborators decrease or fail to increase development or commercialization efforts related to those products or drug candidates. Our collaboration agreements provide our collaborators with a level of discretion in determining the amount and timing of efforts and resources that they will apply to these collaborations.

•	Collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration with third parties.

•	Collaborators may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the drugs or drug candidates that are the subject of their collaborations with us.

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Disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of drug candidates, might lead to additional responsibilities for us with respect to drug candidates, or might result in litigation or arbitration. Any such disagreements would divert management attention and resources and be time-consuming and expensive.

•	Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation.

•	Collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability.

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•	Investigations and/or compliance or enforcement actions against a collaborator, which may expose us to indirect liability as a result of our partnership with such collaborator.

•	Our collaboration agreements are subject to termination under various circumstances.

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•	differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;

•	varying reimbursement regimes and difficulties or the inability to obtain reimbursement for our products in foreign countries in a timely manner;

•	differing patient treatment infrastructures, particularly since our business is focused on the treatment of serious diseases that affect relatively smaller numbers of patients and are typically prescribed by specialist physicians;

•	collectibility of accounts receivable;

•	changes in tariffs, trade barriers and regulatory requirements, the risks of which appear to have increased in the current political environment;

•	economic weakness, including recession and inflation, or political instability in particular foreign economies and markets;

•	differing levels of enforcement and/or recognition of contractual and intellectual property rights;

•	complying with local laws and regulations, which are interpreted and enforced differently across jurisdictions and which can change significantly over time;

•	foreign taxes, including withholding of payroll taxes;

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•	foreign currency fluctuations, which could result in reduced revenues or increased operating expenses, and other obligations incident to doing business or operating in another country;

•	workforce uncertainty in countries where labor unrest is more common than in the United States;

•	reliance on third-party vendors and suppliers;

•	import and export licensing requirements, tariffs, and other trade and travel restrictions;

•	global or regional public health emergencies that could affect our operations or business;

•	production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

•	business interruptions resulting from geo-political actions, including war and terrorism.

•	implement and clearly communicate our corporate-wide strategies;

•	enhance our operational and financial infrastructure, including our controls over records and information;

•	enhance our operational, financial and management processes, including our cross-functional decision-making processes and our budget prioritization systems;

•	train and manage our global employee base; and

•	enhance our compliance and legal resources.

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•	the information contained in our quarterly earnings releases, including our net product revenues and operating expenses for completed periods and guidance regarding future periods;

•	announcements of FDA actions with respect to our drugs or our competitors’ drugs, or regulatory filings for our drug candidates or those of our competitors, or announcements of interim or final results of clinical trials or nonclinical studies relating to our drugs, drug candidates or those of our competitors;

•	developments in domestic and international governmental policy or regulation, for example, relating to drug pricing or intellectual property rights;

•	technological innovations or the introduction of new drugs by our competitors;

•	government regulatory action;

•	public concern as to the safety of drugs developed by us or our competitors;

•	developments in patent or other intellectual property rights or announcements relating to these matters;

•	information disclosed by third parties regarding our business or products;

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•	developments relating specifically to other companies and market conditions for pharmaceutical and biotechnology stocks or stocks in general;

•	business development, capital structuring or financing activities; and

•	general worldwide or national economic, political and capital market conditions.

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•	our expectations regarding the amount of, timing of and trends with respect to our revenues, costs and expenses and other gains and losses, including those related to our net product revenues;

•	our expectations regarding the timing and structure of clinical trials of our drugs and drug candidates, the expected timing of our receipt of data from our ongoing and planned clinical trials and regulatory authority filings and submissions for our drugs or drug candidates;

•	our ability to obtain reimbursement for our medicines in ex-U.S. markets and our ability to otherwise successfully market our medicines or any drug candidates for which we obtain regulatory approval;

•	the data that will be generated by ongoing and planned clinical trials and the ability to use that data to advance compounds, continue development or support regulatory filings;

•	our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates for further investigation, clinical trials or potential use as a treatment;

•	our plan to continue investing in our research and development programs and our strategy to develop our drug candidates, alone or with third party-collaborators;

•	the establishment, development and maintenance of collaborative relationships;

•	potential business development activities;

•	potential fluctuations in foreign currency exchange rates;

•	our ability to use our research programs to identify and develop new drug candidates to address serious diseases and significant unmet medical needs; and

•	our liquidity and our expectations regarding the possibility of raising additional capital.

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ITEM 1B.	UNRESOLVED STAFF COMMENTS

ITEM 2.	PROPERTIES

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	MINE SAFETY DISCLOSURES

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ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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(1)

Consists of 142,835 shares repurchased pursuant to our 2019 Share Repurchase Program (described in footnote 2 below) at an average price of $168.02 per share and 1,434 restricted shares repurchased for $0.01 per share from our employees pursuant to our equity plans. While we have restricted shares that are continuing to vest under our equity plans that are subject to repurchase rights upon termination of service, we have transitioned our equity program to granting restricted stock units. Unvested restricted stock units are forfeited upon termination of service and do not result in an issuer repurchase that would be reflected in this table.

(2)

Under our 2019 Share Repurchase Program, we are authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may be made pursuant to Rule 10b5-1 plans or other means as determined by our management and in accordance with the requirements of the Securities and Exchange Commission. The approximate dollar value of shares that may yet be repurchased is based solely on shares that may be repurchased under the share repurchase program and excludes any shares that may be repurchased under our employee equity programs.

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ITEM 6.	SELECTED FINANCIAL DATA

(1)	Total costs and expenses included (i) in 2017, an intangible asset impairment charges of $255.3 million, and (ii) in 2019, 2018 and 2017, collaborative license and asset acquisition expenses of $318.3 million, $111.9 million and $168.7 million, respectively. See Note B, “Collaborative Arrangements.”

(2)

In 2018, we released the valuation allowance on the majority of our net operating losses and other deferred tax assets resulting in a benefit from income taxes of $1.56 billion in the fourth quarter of 2018 and we recorded a $1.50 billion deferred tax asset on our consolidated balance sheet as of December 31, 2018. In 2019, we began recording a provision for income taxes on our pre-tax income approximating statutory rates. See Note P, “Income Taxes.” In 2017, we recorded a benefit from income taxes related to the impairment of intangible assets. See Note K, “Intangible Assets and Goodwill.”

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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•	Arbor Biotechnologies, Inc., or Arbor, pursuant to which we are collaborating on the discovery of novel proteins, including DNA endonucleases, to advance the development of new gene-editing therapies.

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•	CRISPR, pursuant to which we have been collaborating since 2015 on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene-editing technology. In 2019, we obtained the exclusive worldwide rights to CRISPR’s intellectual property for DMD and DM1 gene-editing products through a new agreement with CRISPR.

•	Kymera Therapeutics, or Kymera, pursuant to which we are looking to advance small molecule protein degraders against multiple targets.

•	Molecular Templates, Inc., pursuant to which we are collaborating on the discovery and development of novel targeted conditioning regimens to enhance the hematopoietic stem cell transplant process.

•	Janssen Pharmaceuticals, Inc., or Janssen, which is evaluating pimodivir in Phase 3 clinical trials for the treatment of influenza; and

•	Merck KGaA, Darmstadt, Germany, which licensed oncology research and development programs from us in early 2017.

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•	significant expected operating expenses to conduct research and development activities and to operate our organization; and

•	substantial facility and capital lease obligations, including leases for two buildings in Boston, Massachusetts that continue through 2028.

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We have entered into certain collaboration agreements with third parties that include the funding of certain research, development and commercialization efforts with the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets, and we may enter into additional business development transactions, including acquisitions, collaborations and equity investments, that require additional capital.

•	We have reached an agreement with the French government and will repay a portion of the amounts we have collected under the ORKAMBI early access programs in France to the French government in 2020 based on the difference between the invoiced amount and the final amount for ORKAMBI distributed through these programs as reflected in the structure of the agreement with the French government.

•	To the extent we borrow amounts under the credit agreement we entered into in 2019, we would be required to repay any outstanding principal amounts in 2024.

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•	CFF: We pay royalties, which are included in cost of sales, to CFF on sales of our CF products.

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Research and Development Milestones: The majority of our in-license agreements and our acquisitions have milestone and royalty payments payable by us upon the successful achievement of pre-established developmental, regulatory and/or commercial targets or net sales. Contingent payments under these agreements become due and payable only upon achievement of certain milestones and are not included in the contractual obligations table above.

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•	revenue recognition;

•	acquisitions, including intangible assets, goodwill and contingent consideration; and

•	income taxes.

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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ITEM 9A.	CONTROLS AND PROCEDURES

•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

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ITEM 9B.	OTHER INFORMATION

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ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

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ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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†	Confidential portions of this document have been redacted according to the applicable rules.

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A.	Nature of Business and Accounting Policies

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B.	Collaborative Arrangements

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C.	Acquisitions

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D.	Earnings Per Share

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E.	Fair Value Measurements

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F.	Marketable Securities and Equity Investments

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G.	Accumulated Other Comprehensive Income (Loss)

H.	Hedging

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I.	Inventories

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J.	Property and Equipment

K.	Intangible Assets and Goodwill

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L.	Additional Balance Sheet Detail

M.	Leases

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N.	Common Stock, Preferred Stock and Equity Plans

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O.	Stock-based Compensation Expense

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•	Expected stock price volatility: Expected stock price volatility is calculated using the trailing one month average of daily implied volatilities prior to the grant date. Implied volatility is based on options to purchase the Company’s stock with remaining terms of greater than one year that are regularly traded in the market.

•	Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

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Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The Company uses historical data to estimate employee exercise and post-vest termination behavior. The Company believes that all groups of employees exhibit similar exercise and post-vest termination behavior and therefore does not stratify employees into multiple groups in determining the expected term of options.

•	Expected annual dividends: The estimate for annual dividends is $0.00 because the Company has not historically paid, and does not intend for the foreseeable future to pay, a dividend.

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P.	Income Taxes

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Q.	Commitments and Contingencies

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R.	Segment Information

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S.	Quarterly Financial Data (unaudited)

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1.	In the fourth quarter of 2019, the Company updated its transaction price and recognized net product revenues of $155.8 million related to prior period ORKAMBI sales upon reaching a reimbursement agreement with the French government for ORKAMBI, including ORKAMBI distributed through early access programs. See Note A, “Nature of Business and Accounting Policies.”

2.	In the third quarter of 2019, the Company incurred research and development expenses of $175.0 million related to its CRISPR DMD/DM1 Agreement. In the fourth quarter of 2018, the Company incurred research and development expenses of $95.0 million to related license agreements with Merck KGaA, Darmstadt, Germany, and Arbor. See Note B, “Collaborative Arrangements.”

3.	In 2019 and 2018, “Other income (expense), net” was primarily related to changes in the fair value of the Company’s equity investment in CRISPR. See Note F, “Marketable Securities and Equity Investments.”

4.	In the fourth quarter of 2018, the Company released the valuation allowance on the majority of its NOLs and other deferred tax assets as of December 31, 2018 resulting in a benefit from income taxes of $1.56 billion. Starting in 2019, the Company began recording a provision for income taxes approximating statutory rates on its pre-tax income. See Note P, “Income Taxes.”

5.	In 2018, the Company had a noncontrolling interest in BioAxone, which it consolidated as a VIE until December 31, 2018. Following the deconsolidation of BioAxone as of December 31, 2018, the Company did not have a noncontrolling interest in any entities in 2019. See Note B, “Collaborative Arrangements.”