Stock-based Compensation Expense

We recognize share-based payments to employees as compensation expense using the fair value method. The fair value

of restricted stock units, including PSUs, is based on the intrinsic value on the date of grant. The fair value of shares

purchased pursuant to the ESPP and stock options is calculated using the Black-Scholes option pricing model. Stock-based

compensation expense, measured at the grant date based on the fair value of the award, is typically recognized ratably over

the requisite service period.

During the three years ended December 31, 2025, we recognized the following stock-based compensation expense:


	Year ended December 31,
	2025	2024	2023
	(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)	$672.1	$689.1	$563.7
ESPP share issuances	27.0	18.2	15.8
Stock options	1.2	1.8	4.0
Stock-based compensation expense related to inventories	(14.4)	(10.6)	(2.3)
Total stock-based compensation expense included in “Total costs and expenses”	$685.9	$698.5	$581.2

Stock-based compensation expense by line item:
Cost of sales	$11.1	$7.5	$7.5
Research and development expenses	415.4	425.8	354.9
Selling, general and administrative expenses	259.4	265.2	218.8
Total stock-based compensation expense included in “Total costs and expenses”	685.9	698.5	581.2
Income tax effect	(128.6)	(251.6)	(167.5)
Total stock-based compensation expense, net of tax	$557.3	$446.9	$413.7

We capitalize a portion of our stock-based compensation expense to inventories, all of which is attributable to employees

who support the manufacturing of our products.

The following table sets forth our unrecognized stock-based compensation expense as of December 31, 2025, by type of

award and the weighted-average period we expect to recognize the expense:


	As of December 31, 2025
	Unrecognized Expense	Weighted-average Recognition Period
	(in millions)	(in years)
Type of award:
Restricted stock units (including PSUs)	$737.1	1.89
ESPP share issuances	5.2	0.46
Total unrecognized stock-based compensation expense	$742.3

Restricted Stock Units and Performance-based Restricted Stock Units

We award restricted stock units with service conditions, which are generally the vesting periods of the awards.

Our PSUs granted to certain members of senior management are described in Note M, “Common Stock, Preferred Stock

and Equity Plans.” The financial-based PSUs, with a one-year performance period, are expensed ratably over their three-year

vesting period. During the performance period, they are expensed based upon an assessment of the likely level of

achievement. The non-financial based PSUs cliff vest at the end of their performance period, which is approximately three

years. They are expensed on a straight-line basis over the same period based upon an assessment of the likely level of

achievement.

Employee Stock Purchase Plan

The weighted-average fair value of each purchase right granted during 2025, 2024 and 2023 was $113.26, $117.89 and

$90.91, respectively. The following table reflects the weighted-average assumptions used in our Black-Scholes option pricing

model:


	Year ended December 31,
	2025	2024	2023
Expected stock price volatility	31.81%	29.37%	28.52%
Risk-free interest rate	4.02%	4.63%	5.13%
Expected term (in years)	0.74	0.73	0.71
Expected annual dividends	—	—	—

Stock Options

We issued stock options to our non-employee directors with total grant date fair values of $2.0 million or less in each of

the three years ended December 31, 2025.

Historical Timeline

Fiscal Year	Filed
2025	Feb 13, 2026	Showing above
2024	Feb 13, 2025

2023	Feb 15, 2024

2022	Feb 10, 2023

2018	Feb 13, 2019

2017	Feb 15, 2018

About Stock Compensation Disclosures

Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.

Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.

VERTEX PHARMACEUTICALS INC / MA Stock Compensation Disclosure

Historical Timeline

About Stock Compensation Disclosures

Other Available Disclosures