SEC Filing | Vertex Pharmaceuticals

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------

VERTEX PHARMACEUTICALS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

MASSACHUSETTS 04-30129
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

------------------------

130 WAVERLY STREET

CAMBRIDGE, MASSACHUSETTS 02139-4242
(617) 577-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOSHUA S. BOGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
VERTEX PHARMACEUTICALS INCORPORATED
130 WAVERLY STREET
CAMBRIDGE, MASSACHUSETTS 02139-4242
(617) 577-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

KENNETH S. BOGER, ESQ. LESLIE E. DAVIS, ESQ.
TIMOTHY B. BANCROFT, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
WARNER & STACKPOLE LLP HIGH STREET TOWER
75 STATE STREET 125 HIGH STREET
BOSTON, MA 02109 BOSTON, MA 02110

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------

Common Stock, par value $.01 per share.......... 2,875,000 shares $48.19 $138,546,250 $41,984
- ----------------------------------------------------------------------------------------------------------------------------
Rights to Purchase Series A Junior
Participating Preferred Stock, par value $.01
per share....................................... (3) (3) (3) None

================================================================================

(1) Includes 375,000 shares of Common Stock which the Underwriters have the
option to purchase from the Registrant to cover over-allotments, if any.

(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, on the
basis of the average of the high and low prices of the Registrant's Common
Stock on February 18, 1997, as reported by Nasdaq.

(3) No separate consideration will be received for the Rights.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

PROSPECTUS (SUBJECT TO COMPLETION)
DATED FEBRUARY 25, 1997

2,500,000 SHARES
VERTEX PHARMACEUTICALS INCORPORATED

COMMON STOCK
------------------------------

All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Vertex Pharmaceuticals Incorporated
("Vertex" or the "Company"). The Common Stock is quoted on the Nasdaq National
Market under the symbol "VRTX." The last sale price of the Common Stock on
February 20, 1997, as reported by the Nasdaq National Market, was $50.25 per
share.
------------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

==================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------

Per Share....................................... $ $ $
Total(3)........................................ $ $ $
============================================================================================

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $500,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 375,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------

The shares of Common Stock are offered by the several Underwriters named
herein when, as and if received and accepted by them, and subject to their right
to reject orders in whole or in part and subject to certain other conditions. It
is expected that delivery of the certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1997.
------------------------------

COWEN & COMPANY

BEAR, STEARNS & CO. INC.

ROBERTSON, STEPHENS & COMPANY

J.P. MORGAN & CO.

, 1997
LOGO
3

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMPANY'S COMMON
STOCK INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934
OR ANY SUCCESSOR RULE OR REGULATION THERETO. SEE "UNDERWRITING."

------------------------

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington D.C. 20549 and at the
Commission's Regional Offices at Seven World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Reports, proxy and information statements and other
information filed electronically by the Company with the Commission are
available at the Commission's World Wide Web site at http://www.sec.gov. Copies
of such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's Common Stock is quoted on the Nasdaq National Market, and
such reports, proxy statements and other information can be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the facilities of the Commission referred to above.

------------------------

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions of documents filed by the Company (File
No. 0-19319) with the Commission are incorporated herein by reference:(a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, excluding Item
8 -- Financial Statements and Supplementary Data; (b) Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, excluding Item 1, Financial
Statements; (c) Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1996 filed with the Commission on May 22, 1996, excluding Item 1 -- Financial
Statements; (d) Quarterly Report on Form 10-Q/A-2 for the quarter ended March
31, 1996 filed with the Commission on July 23, 1996, excluding Item 1 --
Financial Statements; (e) Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, excluding Item 1 -- Financial Statements; (f) Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, excluding Item 1 --
Financial Statements; (g) Current Report on Form 8-K filed with the Commission
on February 25, 1997; (h) the description of the Company's Common Stock which is
contained in its Registration Statement on Form 8-A filed with the Commission on
May 30, 1991; and (i) the description of rights to purchase Series A Junior
Participating Preferred Stock, par value $.01 per share, contained in the
Company's Registration Statement on Form 8-A filed with the Commission on May
30, 1991.

All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document, all
or a portion of which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained or incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

Upon written or oral request, the Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests for such copies
should be directed to Thomas G. Auchincloss, Jr., Vice President of Finance and
Treasurer, Vertex Pharmaceuticals Incorporated, 130 Waverly Street, Cambridge,
Massachusetts 02139-4242, (617) 577-6000.
------------------------

Vertex(R), the Vertex logo and CLEC(R) are registered trademarks and
ChiroCLEC(TM) and PeptiCLEC(TM) are trademarks of Vertex.

Unless the context requires otherwise, "Vertex" or the "Company" refers to
Vertex Pharmaceuticals Incorporated and its subsidiaries.
------------------------

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere or incorporated by reference
in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Investors should consider carefully the information set forth under the heading
"Risk Factors."

THE COMPANY

Vertex is engaged in the discovery, development and commercialization of
novel, small molecule pharmaceuticals for the treatment of diseases for which
there are currently limited or no effective treatments. The Company is a leader
in the use of structure-based drug design, an approach to drug discovery that
integrates advanced biology, biophysics and chemistry in a coordinated and
simultaneous fashion. The Company believes that this integrated approach is
applicable to therapeutic targets in a broad range of diseases. Vertex's goal is
to create a portfolio of highly specific, proprietary, small molecule drugs
based on its knowledge of the atomic structure of proteins involved in the
control of disease processes. The Company's drug candidates for the treatment of
human immunodeficiency virus ("HIV") infection and acquired immune deficiency
syndrome ("AIDS"), cancer multidrug resistance ("MDR") and two genetic
hemoglobin disorders are currently undergoing human clinical trials. In
addition, the Company has research programs aimed at developing orally available
small molecule compounds to treat autoimmune diseases, inflammatory diseases,
neurodegenerative diseases and hepatitis C infection.

The Company currently has products undergoing clinical trials in the
following disease areas:

HIV Infection and AIDS: Vertex is developing orally deliverable antiviral
drugs to treat HIV infection and AIDS. The Company is collaborating with Glaxo
Wellcome plc. ("Glaxo Wellcome") and Kissei Pharmaceutical Co., Ltd. ("Kissei")
in the development of its HIV protease inhibitor, VX-478. In February 1997,
Glaxo Wellcome began a multi-center Phase III clinical trial in the United
States, Canada and Europe to assess the safety and efficacy of VX-478 in
combination with AZT and 3TC. Approximately 290 HIV-positive adults are expected
to enroll in the trial. Glaxo Wellcome plans to begin in the first half of 1997
a multi-center Phase III clinical trial in the United States and Europe to
assess the safety and efficacy of VX-478 in children. In addition, through a
series of clinical studies underway or planned by Glaxo Wellcome, the use of
VX-478 will be assessed in combination with the Glaxo Wellcome anti-HIV agents
AZT, 3TC and 1592U89, as well as with other HIV protease inhibitors. Vertex
expects that Kissei will begin Phase II/III efficacy trials in 1997 in
HIV-positive patients that will be designed based on clinical data from Glaxo
Wellcome. In addition, VX-478 is being evaluated as a single agent through a
collaboration with the AIDS Clinical Trial Group (the "ACTG"), Glaxo Wellcome
and Kissei. In January 1997, Glaxo Wellcome reported preliminary results from
the Phase I/II clinical trial suggesting that VX-478 is well-tolerated and
displays potent antiviral activity. In January 1997, Glaxo Wellcome also
reported preliminary data from the Phase I/II clinical trial suggesting that HIV
in participants in this trial did not develop resistance to VX-478 administered
as a single agent over four weeks of administration.

Cancer MDR: Vertex is developing novel compounds to treat and prevent the
occurrence of drug resistance associated with the failure of cancer chemotherapy
by inhibiting cellular mechanisms responsible for MDR. Certain cellular
mechanisms cause chemotherapeutic drug resistance in a broad range of human
cancers, including in a variety of solid tumors of the liver, breast, ovary,
lung and colon/rectum and in a number of blood cancers. In June 1996, Vertex
commenced a Phase II multi-center clinical trial to assess the safety and
efficacy of the co-administration of VX-710 and doxorubicin in patients with
liver cancer. Vertex plans to initiate in 1997 a Phase II multi-center clinical
trial to assess the safety and efficacy of co-administration of VX-710 and
paclitaxel in patients with breast cancer. The Company is collaborating with
BioChem Therapeutic, Inc. ("BioChem"), a subsidiary of BioChem Pharma
(International) Inc., for the development and commercialization of VX-710 in
Canada. BioChem is planning to initiate in 1997 Phase II clinical trials of
VX-710 in combination with doxorubicin in patients with soft tissue sarcoma and
in combination with paclitaxel in patients with

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ovarian cancer. Preliminary results of an earlier Phase I/II trial suggest that
the VX-710/doxorubicin regimen was well-tolerated and that VX-710 was blocking
the targeted protein implicated in MDR. In April 1996, the Company commenced a
Phase I/II dose-escalating clinical trial with a second MDR inhibitor, VX-853,
an orally administered compound, in combination with doxorubicin in patients
with solid tumors.

Hemoglobin Disorders: Vertex is developing drugs to treat sickle cell
disease and beta thalassemia, inherited blood disorders for which treatment is
currently limited. Vertex is collaborating with Alpha Therapeutic Corporation
("Alpha") and Ravizza Farmaceutici S.p.A. ("Ravizza") on the development of
VX-366. In 1996, Ravizza completed a pilot Phase II trial of VX-366 in Italy in
patients with beta thalassemia.

The Company's most advanced preclinical and research programs are in the
following disease areas:

Autoimmune Diseases: The Company is developing orally available drugs to
treat autoimmune diseases by blocking inosine monophosphate dehydrogenase
("IMPDH"), an enzyme which controls DNA synthesis in lymphocytes. The activation
and proliferation of lymphocytes are associated with a variety of autoimmune
diseases, including asthma, rheumatoid arthritis and systemic lupus, as well as
with transplant rejection. In December 1996, Vertex selected VX-497 as a lead
drug development candidate for autoimmune diseases and began preclinical
development of the compound. Vertex intends to evaluate VX-497 for psoriasis, an
autoimmune disease of the skin, as the first clinical indication for the
compound. The Company plans to initiate clinical trials in 1998 to evaluate the
safety and pharmacokinetics of VX-497 in healthy volunteers.

Inflammation: Vertex is developing novel drugs to treat acute and chronic
inflammatory diseases. The Company is collaborating with Hoechst Marion Roussel
("HMR") for the development of compounds to block interleukin-1 beta converting
enzyme ("ICE"), which mediates the production and release of the inflammatory
cytokine IL-1 beta, as well as the production of gamma interferon. In February
1997, Vertex selected VX-740 as a lead drug development candidate for
inflammatory diseases.

Additional Research Programs: The Company has an ongoing research program
in collaboration with Glaxo Wellcome to develop additional classes of HIV
protease inhibitors. This research is focused on designing compounds with
resistance profiles distinct from VX-478. The Company is also developing
neurophilin compounds to treat neurodegenerative diseases. These compounds have
been shown to stimulate nerve growth in disease models. The Company also is
conducting research to design orally available drugs to act as (i) inhibitors of
Caspase CPP32 for the treatment of neurodegenerative diseases, (ii) inhibitors
of hepatitis C protease for the treatment of hepatitis C infection and (iii)
inhibitors of MAP kinases for the treatment of inflammatory diseases.

The Company believes it has developed a technological advantage in the
process of drug discovery and development due to its ability to integrate a
variety of disciplines and techniques to design synthetic compounds based on the
detailed three dimensional structure of protein targets. The Company also
believes that its structure-based drug design approach improves the chances for
accelerated discovery, optimization and development of novel synthetic compounds
that are specific to the drug target and have desirable pharmacokinetic and
safety profiles.

In addition to the Company's core scientific platform for drug discovery,
the Company has established capabilities in product development, including
preclinical testing and process chemistry. The Company also is manufacturing
through third parties each of its lead compounds for use in preclinical and
clinical trials. The Company's business strategy is to form collaborations with
pharmaceutical companies in programs for which they can provide resources and
access to competencies complementary to Vertex's in-house capabilities.

Vertex has its headquarters and research facilities at 130 Waverly Street,
Cambridge, Massachusetts 02139, and its telephone number is (617) 577-6000. The
Company was incorporated under the laws of the Commonwealth of Massachusetts in
1989.

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THE OFFERING

Common Stock offered......................... 2,500,000 shares
Common Stock to be outstanding after the
offering................................... 23,597,117 shares(1)
Use of proceeds.............................. For research and product development
programs, including clinical trials, and
other general corporate purposes.
Nasdaq National Market symbol................ VRTX

- ---------------
(1) Based on the number of shares of Common Stock outstanding as of December 31,
1996. Does not include 4,032,609 shares of Common Stock reserved for
issuance upon exercise of outstanding options as of December 31, 1996.

SUMMARY CONSOLIDATED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and development revenues........... $ 19,571 $ 22,081 $ 13,341
Interest income..................................................... 3,574 5,453 5,257
-------- -------- --------
Total revenues................................................ 23,145 27,534 18,598
Costs and expenses:
Research and development............................................ 34,761 41,512 35,212
General and administrative.......................................... 5,540 7,069 7,929
License payment..................................................... -- -- 15,000
Interest............................................................ 439 481 462
-------- -------- --------
Total costs and expenses...................................... 40,740 49,062 58,603
-------- -------- --------
Net (loss)............................................................ $(17,595) $(21,528) $(40,005)
======== ======== ========
Net (loss) per common share........................................... $ (1.11) $ (1.25) $ (2.13)
Weighted average number of common shares outstanding.................. 15,818 17,231 18,798

DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $130,359 $249,203
Total assets........................................................................... 143,499 262,343
Obligations under capital leases, excluding current portion............................ 5,617 5,617
Accumulated deficit.................................................................... (96,944) (96,944)
Total stockholders' equity............................................................. 130,826 249,670

- ---------------
(1) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
hereby, assuming a public offering price of $50.25 per share and net
proceeds to the Company of approximately $118,844,000.

This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider the following factors, in
addition to the other information in this Prospectus, in evaluating the Company
and its business before purchasing any shares of the Common Stock offered
hereby.

EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY

The Company was founded in 1989 and has not generated any pharmaceutical
product sales. To achieve profitable operations, the Company, alone or with
others, must successfully develop, clinically test, market and sell its
products. Any products resulting from the Company's product development efforts
are not expected to be available for sale in the near future, if at all.

The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
are found ineffective or cause harmful side effects during preclinical testing
or clinical trials, fail to receive necessary regulatory approvals, are
difficult or uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by proprietary rights
of third parties.

The products that the Company is pursuing will require extensive additional
development, testing and investment, as well as regulatory approvals, prior to
commercialization. No assurance can be given that the Company's product
development efforts will be successful, that required regulatory approvals will
be obtained or that any products, if introduced, will be commercially
successful. Further, the Company has no sales and marketing capabilities, and
even if the Company's products in development are approved for marketing, there
can be no assurance that the Company will be able to develop such capabilities.
In addition, only a limited number of drugs developed through structure-based
drug design have completed clinical trials successfully, been approved by the
U.S. Food and Drug Administration ("FDA") and been marketed. One of the
Company's potential products, VX-478, is an HIV protease inhibitor which is
currently in Phase II clinical trials. The Company and its collaborative
partners recently began Phase III clinical trials. To date, HIV has been shown
to develop resistance to antiviral drugs, including currently marketed HIV
protease inhibitors. There can be no assurance that such disease resistance or
other factors will not limit the efficacy of the Company's HIV protease
inhibitor. The clinical efficacy of the suppression of mechanisms of action of
MDR in chemotherapy in the treatment of cancer is unproven, and, therefore,
there can be no assurance that the Company's MDR compounds in development will
improve the efficacy of chemotherapy. There also can be no assurance that drug
candidates being pursued by the Company will be safe and efficacious, will
receive regulatory approvals or will result in commercially successful products.
If any of the Company's development programs is not successfully completed,
required regulatory approvals are not obtained, or products for which approvals
are obtained are not commercially successful, the Company's business, financial
condition and results of operations would be materially adversely affected. See
"Business -- Product Development and Research Programs."

UNCERTAINTIES RELATED TO CLINICAL TRIALS

Before obtaining required regulatory approvals for the commercial sale of
products under development, the Company must demonstrate through preclinical
studies and clinical trials that such products are safe and efficacious for use
in each target indication. The results of preclinical and initial clinical
trials of products under development by the Company are not necessarily
predictive of results that will be obtained from large-scale clinical testing,
and there can be no assurance that clinical trials of products under development
will demonstrate the safety and efficacy of such products or will result in a
marketable product. The safety and efficacy of a therapeutic product under
development by the Company must be supported by extensive data from clinical
trials. A number of companies have

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suffered significant setbacks in advanced clinical trials, despite promising
results in earlier trials. The Company currently has four product candidates
undergoing clinical trials, VX-478, VX-710, VX-853 and VX-366. In addition, the
Company has a number of products undergoing preclinical development. The data
observed to date is preliminary, and there can be no assurance that the results
of ongoing and future trials will be consistent with results observed in earlier
clinical trials or will be sufficient for approval. The failure to demonstrate
adequately the safety and efficacy of a therapeutic drug under development could
delay or prevent regulatory approval of the product and could have a material
adverse effect on the Company. In addition, the FDA may require additional
clinical trials, which could result in increased costs and significant
development delays.

The administration alone or in combination with other drugs of any product
developed by the Company may produce undesirable side effects in humans. The
occurrence of such side effects could interrupt, delay or halt clinical trials
of such products and could ultimately prevent their approval by the FDA or
foreign regulatory authorities for any or all targeted indications. The Company
or the FDA may suspend or terminate clinical trials at any time if it is
believed that the trial participants are being exposed to unacceptable health
risks. Even after approval by the FDA and foreign regulatory authorities,
products may later exhibit adverse effects that discourage widespread use or
necessitate their withdrawal from the market. There can be no assurance that any
products under development by the Company will be safe when administered to
patients.

The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, the rate of patient accrual. Patient
accrual is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the eligibility
criteria for the trial and the availability of clinical trial material. Delays
in planned patient enrollment in clinical trials may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company. There can be no assurance that if clinical trials are completed the
Company will be able to submit a New Drug Application ("NDA") or that any such
application will be reviewed and approved by the FDA in a timely manner, if at
all. See "Business -- Government Regulation."

DEPENDENCE ON COLLABORATIVE PARTNERS

The Company is engaged in research and development collaborations with
Glaxo Wellcome, HMR, Kissei, Alpha and BioChem pursuant to which these parties
have agreed to fund portions of the Company's research and development programs
and/or to conduct certain research and development relating to specified
products, in exchange for certain technology, product and marketing rights
relating to those products. Some of the Company's current corporate partners
have certain rights to control the planning and execution of product development
and clinical programs, and there can be no assurance that such corporate
partners' rights to control aspects of such programs will not impede the
Company's ability to conduct such programs in accordance with the schedules and
in the manner currently contemplated by the Company for such programs.

If any of the Company's corporate collaborators were to terminate its
relationship with Vertex, it could have a material adverse effect on the
Company's ability to fund related and other programs and to develop, manufacture
and market any products that may have resulted from such collaboration. There
can be no assurance that these collaborations will be completed or successful,
or that the collaborative partners will not pursue alternative means of
developing treatments for the diseases targeted by their collaborative programs
with the Company. Glaxo Wellcome has the right to terminate the research
collaboration under its agreement with the Company without cause at any time
upon twelve months' notice and has the right to terminate the license
arrangements under its agreement with the Company without cause upon twelve
months' notice, provided such notice is not given before the research
collaboration has been terminated. Termination by Glaxo Wellcome of the research
collaboration under its agreement with the Company will relieve Glaxo Wellcome
of its obligation to make further research support payments under the agreement.
Termination by Glaxo Wellcome of the license arrangements under the agreement
will relieve it of its obligation to make further commercialization and
development milestone and royalty payments and will end any license

7
9

granted to Glaxo Wellcome by Vertex. HMR has the right to terminate its
agreement with the Company without cause upon twelve months' notice at any time.
Termination by HMR will relieve HMR of any further payment obligations under its
agreement with the Company. In addition, for a period of one year after any such
termination, HMR retains the right to select one or more compounds for
development and to license such compound or compounds from Vertex, provided HMR
resumes research funding and commercialization milestone payments and makes all
such payments that would otherwise have been due but for such termination. Alpha
has the right to terminate its agreement with the Company without cause upon six
months' notice at any time. Termination will relieve Alpha of any further
payment obligations under its agreement with the Company and will also terminate
any license granted to Alpha by Vertex. BioChem has the right to terminate its
agreement with the Company without cause upon six month's notice at any time
after May 8, 1997. Termination will relieve BioChem of any further payment
obligations under its agreement with the Company and will terminate any license
granted to BioChem thereunder.

The Company may seek additional collaborative arrangements to develop and
commercialize its products in the future. There can be no assurance that the
Company will be able to establish acceptable collaborative arrangements in the
future or that such collaborative arrangements will be successful. In addition,
there can be no assurance that collaborative partners will not pursue
alternative technologies or develop alternative compounds either on their own or
in collaboration with others, including the Company's competitors, as a means
for developing treatments for the diseases targeted by their collaborative
programs with the Company or that disagreements over rights to technology, other
proprietary information or the course of the research and development program
will not occur. Such events could result in the delay or cancellation of
programs or product introduction even if regulatory approvals are obtained. See
"Business -- Corporate Collaborations."

RAPID TECHNOLOGICAL CHANGE AND COMPETITION

The Company is engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the human therapeutic applications targeted by Vertex. Further, the Company
believes that interest in the application of structure-based drug design and
related technologies may continue and may accelerate as the technologies become
more widely understood. The Company is aware of efforts by others to develop
products in each of the areas in which the Company has products in development.
For example, Merck & Co., Inc., Abbott Laboratories, Inc. and Hoffmann-La Roche
have HIV protease inhibitors which have been approved by the FDA for marketing,
and Agouron Pharmaceuticals, Inc. has filed an NDA for an HIV protease
inhibitor. The Company is also aware of other companies that have HIV protease
inhibitors in development. There also are a number of competitors that have
products under development for the treatment of MDR in cancer and for the
treatment of hemoglobin disorders. In order for the Company to compete
successfully in these areas, it must demonstrate improved safety, efficacy, ease
of manufacturing and market acceptance over its competitors, who have received
regulatory approval and are currently marketing. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are conducting research to develop technologies and products that
may compete with those under development by the Company. In addition, other
technologies are, or may in the future become, the basis for competing products.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any being
developed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. In addition, there can be no assurance that
the Company's products in development will be able to compete effectively with
products which are currently on the market.

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10

clinical trials of new pharmaceutical products, and in obtaining FDA and other
regulatory approvals of products. Accordingly, certain of the Company's
competitors may succeed in obtaining regulatory approval for products more
rapidly than the Company. If the Company obtains regulatory approval and
commences commercial sales of its products, it will also compete with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which it
currently has no experience. See "Business -- Competition."

MANUFACTURING UNCERTAINTIES; RELIANCE ON THIRD PARTY MANUFACTURERS

The Company's ability to conduct clinical trials and its ability to
commercialize its potential products will depend, in part, on its ability to
manufacture its products on a large scale, either directly or through third
parties, at a competitive cost and in accordance with FDA and other regulatory
requirements. Furthermore, for all of the Company's drugs in development,
completion of clinical trials and submission of an NDA will be subject to the
establishment of a commercial formulation and manufacturing process. As
manufacturing process development and formulation activities are ongoing
throughout the development process, the Company or its collaborators may
encounter difficulties at any time that could result in delays in clinical
trials, regulatory submissions and commercialization of its products, or cause
potential negative financial and competitive consequences. Manufacturing process
development and formulation activities for VX-478 by the Company and Glaxo
Wellcome are continuing while clinical trials are underway. There can be no
assurance that such activities will be completed in a timely and successful
manner, if at all. The failure to complete such activities in a timely and
successful manner could have a material adverse effect on the business,
financial condition or results of operations of the Company.

The Company currently does not have the capacity to manufacture its
potential products and is dependent on third party manufacturers or
collaborative partners for the production of its compounds for preclinical
research and clinical trial purposes. The Company expects to be dependent on
such manufacturers or collaborative partners for some or all commercial
production of any of its compounds that are approved for marketing. In the event
that the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to conduct or
complete clinical trials or, if FDA approval is obtained, commercialize its
products as planned. The Company has no experience in manufacturing
pharmaceutical or other products or in conducting manufacturing testing programs
required to obtain FDA and other regulatory approvals, and there can be no
assurance that the Company will successfully develop such capabilities.

Some of the Company's current corporate partners have certain manufacturing
rights with respect to the Company's products under development, and there can
be no assurance that such corporate partners' manufacturing rights will not
impede the Company's ability to conduct the development programs and
commercialize any resulting products in accordance with the schedules and in the
manner currently contemplated by the Company. See "Business -- Manufacturing."

EXTENSIVE GOVERNMENT REGULATION; UNCERTAINTY OF PRODUCT CLEARANCE AND APPROVAL

The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Satisfaction of these
requirements typically takes several years or longer and may vary substantially
based upon the type, complexity and novelty of the pharmaceutical product. The
Company has had only limited experience in conducting preclinical testing and
human clinical trials. In addition, the Company has not received FDA or other
regulatory approvals for any of its product candidates. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations,
which could delay, limit or prevent regulatory approval. In addition, delays or
rejections may be encountered based on changes in, or additions to, regulatory
policies for drug approval during the period of product development and
regulatory review.

9
11

The effect of government regulation may be to delay or prevent the
commencement of clinical trials or marketing of Company products, if any are
developed and submitted for approval, for a considerable period of time, to
impose costly procedures upon the Company's activities and to provide a
competitive advantage to larger companies or companies more experienced in
regulatory affairs that compete with the Company. There can be no assurance that
FDA or other regulatory approval for clinical trials or marketing of any
products developed by the Company will be granted on a timely basis or at all.
Delay in obtaining or failure to obtain such approvals would adversely affect
the marketing of the Company's products and the Company's liquidity and capital
resources. Moreover, even if approval is granted, such approval may entail
limitations on the indicated uses for which a compound may be marketed. Even if
such regulatory approval is obtained, a marketed drug or compound and its
manufacturer are subject to continual review, and later discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. Failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution. Further, additional
government regulation may be established which could prevent or delay regulatory
approval of the Company's products.

The Company has obtained orphan drug status for VX-366 for the treatment of
beta thalassemia and sickle cell disease and may apply for orphan drug status
for certain indications of MDR in cancer. Orphan drug status may, under present
regulations, entitle the Company to certain marketing exclusivity and tax
benefits. While the marketing exclusivity of an orphan drug would prevent other
sponsors from obtaining approval of the same compound for the same indication,
it would not prevent chemically distinct drugs from being approved for the same
use. There can be no assurance that the Company will receive FDA orphan drug
status for any of its compounds under development for which the Company seeks
that status. Moreover, there can be no assurance that the scope of protection or
the level of exclusivity that is currently afforded by orphan drug status will
remain in effect in the future. See "Business -- Government Regulation."

The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive compounds. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident, the Company could be held
liable for any damages or fines that result, and the liability could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that statutes or regulations,
applicable to the Company's business which impose substantial additional costs
or otherwise materially adversely affect the Company's operations, will not be
adopted.

UNCERTAINTY RELATED TO PATENTS AND PROPRIETARY INFORMATION

The Company's success will depend, in part, on its ability to obtain United
States and foreign patent protection for its products and their uses, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Because of the substantial length of time and expense
associated with bringing new products through development and regulatory
approval to the marketplace, the pharmaceutical industry places considerable
importance on obtaining patents and maintaining trade secret protection for new
technologies, products and processes. Patent protection may not be available,
however, for compounds for use in certain medical indications, without a
demonstration of how to use the compounds and proof in clinical trials that such
compounds may be useful for such target indications. As of February 20, 1997,
the Company had a total of six United States patents and 63 pending United
States patent applications. As of that date, the Company also had a non-
exclusive, worldwide license under certain G.D. Searle & Company ("Searle")
patent applications claiming HIV protease inhibitors. The Company also has been
granted an exclusive license under four United States patents, one of which is
subject to a reissue application. The Company also has filed foreign
counterparts to some of its United States patents and patent applications. There
can be no

10
12

assurance that patents will issue from any of the Company's pending or future
patent applications. There can be no assurance that any issued, licensed,
pending or future patent will not be infringed by the products of others or
provide sufficient protection to exclude others from the Company's present or
future technology or products. The Company has in the past licensed and may in
the future license patent rights from others. There can be no assurance,
however, that such licenses will provide adequate protection for the Company's
products.

Issued United States patents are presumed valid under United States patent
law. No assurance can be given, however, that one or more of the Company's
issued patents will not be declared invalid by a court. Legal standards relating
to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent law or
policy regarding the valid breadth of claims in biopharmaceutical patents or the
effect of prior art on them. Furthermore, no assurance can be given as to the
degree of protection any patents will afford to the Company's technology or as
to the Company's ability to avoid infringing the claims of the patents held by
third parties. Further, there can be no assurance that a license to such patents
would be available on terms acceptable to the Company, if at all. There also can
be no assurance that any patents issued to or licensed by the Company will not
be infringed by others.

In addition to being a potential party to patent infringement litigation,
the Company could become involved in interference proceedings declared by the
United States Patent and Trademark Office. Defense and prosecution of patent
claims, as well as participation in interference proceedings, can be expensive
and time-consuming, even in those instances in which the outcome is favorable to
the Company. If the outcome of any such litigation or proceeding were adverse,
the Company could be subject to significant liabilities to third parties, could
be required to obtain licenses from third parties or could be required to cease
sales of the affected products, any of which could have a material adverse
effect on the Company.

The Company has licensed on an exclusive basis four United States patents
and one United States reissue application from Children's Hospital Medical
Center of Oakland (California) ("Children's Hospital"). Three of these patents
and the reissue application claim the use of compounds, including VX-366, in the
treatment of hemoglobin disorders, including sickle cell disease and beta
thalassemia. Because Children's Hospital did not foreign file the application
corresponding to the reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may
be limited. In addition, there can be no assurance that others will not develop
independently substantially equivalent technology, obtain access to the
Company's know-how or be issued patents which may prevent the sale of the
Company's products or require licensing and the payment of significant fees or
royalties by the Company in order for it to carry on its business. Furthermore,
there can be no assurance that any such license will be available.

The Company's management and scientific personnel have been recruited from
other pharmaceutical and biotechnology companies and academic institutions. In
many cases these individuals are conducting research in similar areas with which
they were involved prior to joining Vertex. As a result, the Company, as well as
these individuals, could be subject to allegations of violation of trade secrets
and similar claims. See "-- Dependence on Collaborative Partners" and
"Business -- Corporate Collaborations" and "-- Patents and Proprietary
Information."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company expects to incur substantially increased research and
development and related supporting expenses as it designs and develops existing
and future compounds and undertakes clinical trials of potential drugs resulting
from such compounds. The Company also expects to incur substantial
administrative and commercialization expenditures in the future and substantial
expenses related to the filing, prosecution, defense and enforcement of patent
and other intellectual property claims. The Company's future capital
requirements will depend on many factors, including the progress of its research
and development programs, the scope and results of preclinical studies and
clinical trials, the

11
13

cost, timing and outcome of regulatory reviews, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the establishment of additional collaborative arrangements and the
cost of manufacturing facilities and of commercialization activities and
arrangements. The Company anticipates that it will finance these substantial
cash needs with the net proceeds of this offering and its existing cash
reserves, together with interest earned thereon, future payments under its
collaborative agreements with Glaxo Wellcome, HMR, Kissei, Alpha and BioChem,
facilities and equipment financing and additional collaborative agreements. To
the extent that funds from these sources are not sufficient to fund the
Company's activities, it will be necessary to raise additional funds through
public offerings or private placements of debt or equity securities or other
methods of financing. Any equity financings could result in dilution to the
Company's then existing stockholders. Any debt financing, if available at all,
may be on terms which, among other things, restrict the Company's ability to pay
dividends (although the Company does not intend to pay dividends for the
foreseeable future). If adequate funds are not available, the Company may be
required to curtail significantly or discontinue one or more of its research,
drug discovery or development programs, including clinical trials, or attempt to
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies or
products in research or development. No assurance can be given that additional
financing will be available on acceptable terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT

Vertex has incurred losses since its inception in January 1989. As of
December 31, 1996, the Company's accumulated deficit was approximately $96.9
million. Losses have resulted principally from costs incurred in research and
development of the Company's compounds in development, including clinical trials
and material manufacturing costs, the Company's other research programs and from
general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated solely from collaborative
arrangements, interest income and research grants. The Company expects to incur
additional significant operating losses in the future and does not expect to
achieve profitability from sales of its products in development for several
years, if ever. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial. There can be no assurance
that the Company will ever achieve product revenues or profitable operations.
Based on the Internal Revenue Code of 1986, as amended, and changes in the
Company's ownership, utilization of net operating loss carryforwards and
research and development credits for federal income tax purposes may be subject
to annual limitations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT

The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third party payors and government
authorities are continuing efforts to contain or reduce the cost of health care.
For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. There can be no
assurance that similar controls will not be implemented in the United States.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, may
result in lower prices for the Company's products. The cost containment measures
that health care providers and third party payors are instituting and any
proposed or future health care reform measures, including any reductions in
government reimbursement programs such as Medicaid and Medicare, could affect
the Company's ability to sell its products and may have a material adverse
effect on the Company.

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14

The success of the Company's products in the United States and other
significant markets will depend, in part, upon the extent to which a consumer
will be able to obtain reimbursement for the cost of such products from
government health administration authorities, third-party payors and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products. Even if a product is approved for
marketing, there can be no assurance that adequate reimbursement will be
available. The Company is unable to predict what additional legislation or
regulation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect the legislation or
regulation would have on the Company's business. Failure to obtain reimbursement
could have a material adverse effect on the Company.

ABSENCE OF SALES AND MARKETING EXPERIENCE

The Company currently has no experience in marketing or selling
pharmaceutical products. The Company must either develop a marketing and sales
force or enter into arrangements with third parties to market and sell any of
its product candidates which are approved by the FDA. In the territories where
the Company retains marketing and co-promotion rights, there can be no assurance
that the Company will successfully develop its own sales and marketing
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations. To
the extent that the Company has or enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by the
Company will be dependent on the efforts of others, and there can be no
assurance that such efforts will be successful.

DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL

The Company is highly dependent upon the efforts of its senior management
and scientific team. The loss of the services of one or more members of the
senior management and scientific team might impede the achievement of the
Company's development objectives. Due to the specialized scientific nature of
the Company's business, the Company is also highly dependent upon its ability to
attract and retain qualified scientific, technical and key management personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain qualified personnel necessary for the
development of its existing business and its expansion into areas and activities
requiring additional expertise, such as clinical testing, government approvals,
production and marketing. See "Management."

PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE

The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
and other products developed by the Company. The use of the Company's products
in clinical trials also exposes the Company to the possibility of product
liability claims and possible adverse publicity. These risks will increase to
the extent the Company's products receive regulatory approval and are
commercialized. The Company maintains product liability insurance for clinical
trials. The Company does not currently have any other product liability
insurance. There can be no assurance that the Company will be able to maintain
its existing insurance or be able to obtain or maintain such additional
insurance as it may need in the future on acceptable terms or that the Company's
existing insurance or any such additional insurance will provide adequate
coverage against potential liabilities.

VOLATILITY OF SHARE PRICE; OPTION GRANTS

Market prices for securities of companies such as Vertex are highly
volatile, and the market for the securities of such companies, including the
Common Stock of the Company, has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of these
particular companies. Factors such as announcements of results of clinical
trials, technological

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15

innovations or new products by Vertex or its competitors, government regulatory
action, public concern as to the safety of products developed by the Company or
others, patent or proprietary rights developments and market conditions for
pharmaceutical and biotechnology stocks, in general, could have a significant
adverse effect on the future market price of the Common Stock.

The Directors and officers of the Company and certain other stockholders
holding in the aggregate approximately 1,162,268 shares of Common Stock have
agreed not to sell their shares within 90 days following the effective date of
the Registration Statement of which this Prospectus is a part. As of December
31, 1996, the Company had outstanding options for the purchase of 4,032,609
shares of Common Stock at exercise prices ranging from $6.48 per share to $37.50
per share. Options for the purchase of 1,624,862 shares of Common Stock were
exercisable as of that date. See "Price Range of Common Stock."

ANTI-TAKEOVER PROVISIONS

The Company's charter provides for staggered terms for the members of the
Board of Directors. The Company's By-laws grant the Directors a right to adjourn
annual meetings of stockholders, and certain provisions of the By-laws may be
amended only with an 80% stockholder vote. Pursuant to the Company's Stockholder
Rights Plan, under an amendment approved by the Board of Directors, but not yet
executed by the rights agent, each share of Common Stock has an associated
preferred share purchase right (a "Right"). The Rights will not trade separately
from the Common Stock until, and are exercisable only upon, the acquisition or
the potential acquisition through tender offer by a person or group of 15% or
more of the outstanding Common Stock. These charter and By-law provisions and
the Company's Stockholder Rights Plan may discourage certain types of
transactions involving an actual or potential change in control of the Company
which might be beneficial to the Company or its stockholders. See "Description
of Capital Stock -- Stockholder Rights Plan."

Shares of any class or series of preferred stock may be issued by the
Company in the future without stockholder approval and upon such terms as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any class or series of preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of discouraging a third party from acquiring a majority of the outstanding
Common Stock of the Company. The Company has no present plans to issue any
shares of any class or series of Preferred Stock.

DILUTION

Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution in net tangible book value per share.
Additional dilution is likely to occur upon exercise of outstanding stock
options. See "Dilution."

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USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated to be approximately $118,844,000
($136,745,000 if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $50.25 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.

The Company intends to use the net proceeds of this offering primarily to
fund research and product development programs, including clinical trials, and
for general corporate purposes. In addition, a portion of the net proceeds may
be used to acquire technology, products or companies that complement the
business of the Company, although no such acquisition transactions are planned
or are being negotiated as of the date of this Prospectus. The actual amounts
and timing of expenditures for each purpose, however, will depend on the
progress of the Company's research and development programs, technological
advances, determinations as to commercial potential of products, the terms of
any collaborative arrangements entered into by the Company for development and
licensing, regulatory approvals and other factors, many of which are beyond the
Company's control.

Pending such uses, the Company intends to invest the net proceeds of this
offering primarily in interest-bearing, investment-grade securities.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "VRTX." The following table sets forth the high and low last sale
prices for the Common Stock as reported on the Nasdaq National Market for the
periods indicated.

HIGH LOW
----- -----

1995
First Quarter...................................................... $16 3/4 $13
Second Quarter..................................................... 16 3/4 12 3/4
Third Quarter...................................................... 23 13 1/2
Fourth Quarter..................................................... 26 1/2 16 1/4

1996
First Quarter...................................................... $29 7/8 $22
Second Quarter..................................................... 38 26
Third Quarter...................................................... 36 1/4 23 1/4
Fourth Quarter..................................................... 40 1/4 28 7/8

1997
First Quarter (through February 20, 1997).......................... $50 1/4 $38 1/4

The last sale price of the Common Stock on February 20, 1997, as reported
on the Nasdaq National Market, was $50.25 per share. As of February 20, 1997,
there were 300 holders of record of the Common Stock.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The Company
intends to retain future earnings, if any, for use in its business.

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect the issuance and sale of the
2,500,000 shares of Common Stock offered hereby, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.

DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)

Obligations under capital leases, excluding current portion........... $ 5,617 $ 5,617
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none
issued(1)........................................................ -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
21,097,117 shares issued and outstanding; 23,597,117 shares
issued and outstanding as adjusted(2)............................ 211 236
Additional paid-in capital.......................................... 227,510 346,329
Equity adjustments.................................................. 49 49
Accumulated deficit................................................. (96,944) (96,944)
--------- ---------
Total stockholders' equity....................................... 130,826 249,670
--------- ---------
Total capitalization........................................ $136,443 $ 255,287
========= =========

- ---------------
(1) Does not reflect shares of Series A Junior Participating Preferred Stock,
$.01 par value per share, issuable upon the exercise of Rights under the
Company's Stockholder Rights Plan.

(2) Excludes an aggregate of 4,032,609 shares of Common Stock reserved for
issuance upon exercise of outstanding options as of December 31, 1996.

DILUTION

The net tangible book value of the Company at December 31, 1996 was
$130,826,000, or $6.20 per share of Common Stock. Without taking into account
changes in net tangible book value after December 31, 1996 other than to give
effect to the sale of the 2,500,000 shares of Common Stock offered hereby, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses, the Company's pro forma net tangible book value at December
31, 1996 would have been $249,670,000 or $10.58 per share. This represents an
immediate dilution in net tangible book value of $39.67 per share to new
investors purchasing shares in the offering and an immediate increase in net
tangible book value of $4.38 per share to existing stockholders. The following
table illustrates the per share dilution.

Public offering price per share............................................. $50.25
Net tangible book value before the offering............................... $6.20
Increase in net tangible book value attributable to this offering......... 4.38
Pro forma net tangible book value after the offering(1)..................... 10.58
------
Dilution to new investors(2)................................................ $39.67
======

- ---------------
(1) Pro forma net tangible book value per share represents the amount of total
tangible assets of the Company less total liabilities, divided by
23,597,117, the number of shares of Common Stock outstanding as of December
31, 1996, after giving effect to the sale of the 2,500,000 shares of Common
Stock offered hereby.

(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the amount of cash paid by a new investor for
a share of Common Stock.

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below for each of the five years
ended December 31, have been derived from the Company's consolidated financial
statements which have been audited by Coopers & Lybrand L.L.P., independent
accountants. Results for a particular period are not necessarily indicative of
the results to be expected for particular future periods. See "Risk
Factors -- History of Operating Losses and Accumulated Deficit." This data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Financial
Statements and related Notes incorporated herein by reference. No dividends were
declared or paid for any of the periods presented.

YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and development
revenues.......................................... $ 3,767 $27,885 $ 19,571 $ 22,081 $ 13,341
Interest income..................................... 1,983 1,409 3,574 5,453 5,257
------- ------- -------- -------- --------
Total revenues............................... 5,750 29,294 23,145 27,534 18,598
Costs and expenses:
Research and development............................ 11,505 23,164 34,761 41,512 35,212
General and administrative.......................... 2,278 3,520 5,540 7,069 7,929
License Payment..................................... -- -- -- -- 15,000
Interest............................................ 453 493 439 481 462
------- ------- -------- -------- --------
Total costs and expenses..................... 14,236 27,177 40,740 49,062 58,603
------- ------- -------- -------- --------
Net (loss) profit before taxes........................ (8,486) 2,117 (17,595) (21,528) (40,005)
Tax provision......................................... -- 80 -- -- --
------- ------- -------- -------- --------
Net (loss) profit..................................... $(8,486) $ 2,037 $(17,595) $(21,528) $(40,005)
======= ======= ======== ======== ========
Net (loss) profit per common share.................... $ (0.70) $ 0.16 $ (1.11) $ (1.25) $ (2.13)
Weighted average number of common shares outstanding.. 12,110 12,451 15,818 17,231 18,798

DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- --------- --------

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $43,701 $52,103 $106,470 $ 86,978 $130,359
Total assets............................... 51,043 60,992 116,175 98,981 143,499
Obligations under capital leases, excluding
current portion.......................... 3,338 4,208 4,729 4,912 5,617
Accumulated deficit........................ (19,853) (17,816) (35,411) (56,939) (96,944)
Total stockholders' equity................. 43,850 49,520 105,478 85,272 130,826

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19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed under Risk
Factors and elsewhere in this Prospectus.

OVERVIEW

The Company is engaged in the discovery, development and commercialization
of novel, small molecule pharmaceuticals for the treatment of major diseases for
which there are currently limited or no effective treatments. The Company is a
leader in the use of structure-based drug design, an approach to drug discovery
that integrates advanced biology, biophysics and chemistry. The Company is
conducting nine significant pharmaceutical research and development programs to
develop pharmaceuticals for the treatment of viral diseases, multidrug
resistance in cancer, hemoglobin disorders, autoimmune diseases, inflammatory
diseases and neurodegenerative disorders. Three of these programs are in the
development phase, and the other six are in the research phase.

To date, the Company has not received any revenues from the sale of
pharmaceutical products and does not expect to receive such revenues, if any, in
the near future. The Company has incurred since its inception, and expects to
incur over the next several years, significant operating losses as a result of
expenditures for its research and development programs. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial.

RESULTS OF OPERATIONS

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

The Company's total revenues decreased to $18,598,000 in 1996 from
$27,534,000 in 1995. In 1996, revenues consisted of $12,013,000 under the
Company's collaborative agreements, $5,257,000 in interest earned on invested
funds and $1,328,000 in government grants and other income. Revenue from
collaborative agreements consisted of $6,289,000 from the Glaxo Wellcome
collaboration, $4,196,000 from the HMR collaboration, $692,000 from the Kissei
collaboration, $225,000 from the Alpha collaboration, $577,000 from the BioChem
collaboration and $34,000 from the Chugai Pharmaceutical Co., Ltd. ("Chugai")
collaboration. The research funding requirements of the Chugai and Kissei
collaborative agreements concluded in 1995, although Kissei continues to have
certain development funding obligations. In 1995, revenues consisted of
$21,587,000 under the Company's collaborative agreements, $5,453,000 in interest
earned on invested funds and $494,000 in government grants and other income.
Revenue from collaborative agreements consisted of $10,053,000 from the Glaxo
Wellcome collaboration, $5,370,000 from the Kissei collaboration, $3,749,000
from the HMR collaboration, $1,915,000 from the Chugai collaboration and
$500,000 from the Alpha collaboration.

The Company's total costs and expenses increased to $58,603,000 in 1996
from $49,062,000 in 1995. The increase in total costs and expenses resulted
principally from the Company's payment of $15,000,000 to obtain a non-exclusive,
world-wide license under certain Searle patent applications claiming HIV
protease inhibitors. Research and development expenses declined to $35,212,000
in 1996 from $41,512,000 in 1995. Although the Company's scientific staffing and
facilities expansion added to expense in 1996, the overall decrease in research
and development expense was due primarily to higher costs incurred in 1995 for
the manufacturing of bulk intermediate drug substance for use in clinical
trials. In addition, general and administrative expenses increased to $7,929,000
in 1996 from $7,069,000 in 1995. The increase in general and administrative
expense principally reflects the impact of personnel additions, the Company's
facilities expansion and an increase in marketing costs including the addition
of marketing and support personnel for the Company's subsidiary Altus Biologics
Inc.

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20

("Altus"). Interest expense decreased to $462,000 in 1996 from $481,000 in 1995
on higher levels of equipment lease financing due to lower blended rates of
interest charged.

The Company recorded a net loss of $40,005,000 or $2.13 per share in 1996
compared to a net loss of $21,528,000 or $1.25 per share in 1995.

Year Ended December 31, 1995 Compared with Year Ended December 31, 1994

The Company's total revenues increased to $27,534,000 in 1995 from
$23,145,000 in 1994. In 1995, revenues consisted of $21,587,000 under the
Company's collaborative agreements, $5,453,000 in interest earned on invested
funds and $494,000 in government grants and other income. Revenue from
collaborative agreements consisted of $10,053,000 from the Glaxo Wellcome
collaboration, $5,370,000 from the Kissei collaboration, $3,749,000 from the HMR
collaboration, $1,915,000 from the Chugai collaboration and $500,000 from the
Alpha collaboration. The research funding requirements of the Chugai and Kissei
collaborative agreements concluded in 1995, although Kissei continues to have
certain development funding obligations. In 1994, revenues consisted of
$19,327,000 from collaborative agreements, $3,574,000 in interest earned on
invested funds and $244,000 in government grants and other income. Revenue in
1994 from collaborative agreements consisted of $5,346,000 from the Glaxo
Wellcome collaboration, $5,498,000 from the Kissei collaboration, $3,514,000
from the HMR collaboration and $4,969,000 from the Chugai collaboration.

The Company's total costs and expenses increased to $49,062,000 in 1995
from $40,740,000 in 1994. Research and development expenses increased 19% to
$41,512,000 in 1995 from $34,761,000 in 1994, due, in part, to the costs
associated with manufacturing drug product for use in ongoing clinical trials of
the Company's drug candidates and, to a lesser extent, increases in the
Company's research staff. General and administrative expenses increased by 28%
to $7,069,000 from $5,540,000 between 1995 and 1994. The increase in general and
administrative expense principally reflects the full year impact of personnel
additions and the opening of an office in the United Kingdom in 1994 to support
the Company's research and business development efforts. Also contributing to
the increase were costs associated with the addition of marketing and support
personnel for Altus. In addition, the Company experienced higher legal fees
associated with its patent activities. Interest expense increased 10% to
$481,000 in 1995 from $439,000 in 1994 as a result of higher levels of equipment
leasing.

The Company recorded a net loss of $21,528,000 or $1.25 per share in 1995
compared to a net loss of $17,595,000 or $1.11 per share in 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations have been funded principally through strategic
collaborative agreements, public offerings and private placements of the
Company's equity securities, equipment lease financing, government grants and
interest income. The Company expects to incur increased research and development
and related supporting expenses and, consequently, continued losses on a
quarterly and annual basis as it continues to develop existing and future
compounds and to conduct clinical trials of potential drugs. The Company also
expects to incur substantial administrative and commercialization expenditures
in the future and additional expenses related to the filing, prosecution,
defense and enforcement of patent and other intellectual property rights.

The Company expects to finance these substantial cash needs with the
proceeds of this offering, its existing cash and investments of approximately
$130.4 million, together with interest earned thereon, future payments under its
existing collaborative agreements and facilities and equipment financing. To the
extent that funds from these sources are not sufficient to fund the Company's
activities, it will be necessary to raise additional funds through public
offerings or private placements of securities or other methods of financing.
There can be no assurance that such financing will be available on acceptable
terms, if at all.

The Company and BioChem are collaborating on the development and
commercialization in Canada of VX-710, the Company's lead multidrug resistance
reversal agent. Under the development

19
21

agreement, BioChem is obligated to pay the Company up to $4.0 million comprised
of an initial licensing fee and payments for development and commercialization
milestones. From the inception of the agreement in May 1996 through the year
ended December 31, 1996, $500,000 has been recognized as revenue. BioChem will
fund development of VX-710 in Canada, including planned Phase II clinical trials
in two different cancer indications. Vertex will supply BioChem clinical and
commercial drug supply needs. In 1996, the Company received additional revenues
related to the sale of clinical trial material to BioChem. BioChem will pay
Vertex a portion of its net sales, which will cover Vertex's cost of supplying
material and will provide a profit to Vertex.

The Company and Alpha are collaborating on the development and
commercialization of VX-366 for the treatment of sickle cell anemia and beta
thalassemia. Under the collaborative agreement, Alpha is obligated to pay the
Company up to $5.0 million comprised of an initial license fee and payments for
development and commercialization milestones. From the inception of the
agreement in October 1995 through the year ended December 31, 1996, $500,000 has
been recognized as revenue. In addition, Alpha is obligated to bear the costs of
development of VX-366 under the collaboration. The Company received additional
revenue related to reimbursements for clinical material during 1996. Alpha has
the right to terminate the agreement without cause upon six months notice at any
time. Termination will relieve Alpha of any further payment obligations under
the agreement and will end the license granted to Alpha by Vertex.

The Company and Glaxo Wellcome are collaborating on the development of
compounds in connection with the Company's HIV Program. Under the collaborative
agreement, Glaxo Wellcome is obligated to pay the Company up to $42.0 million
comprised of a $15.0 million initial license payment paid in 1993, $14.0 million
of product research funding over five years and $13.0 million of development and
commercialization milestone payments. From the inception of the agreement in
December 1993 through the year ended December 31, 1996, $25.0 million has been
recognized as revenue. Glaxo Wellcome is also obligated to pay to Vertex
additional development and commercialization milestone payments for subsequent
drug candidates. In addition, Glaxo Wellcome agreed to bear the costs of
development of drug candidates under the collaboration. The Company has received
additional revenue related to reimbursements for clinical development. Under the
agreement, Glaxo Wellcome is also required to pay Vertex a royalty on sales.
Glaxo Wellcome has the right to terminate the research collaboration without
cause upon twelve months notice given at any time and has the right to terminate
the license arrangements without cause upon twelve months notice given at any
time provided such notice is not given before the research collaboration has
been terminated. Termination by Glaxo Wellcome of the research collaboration
will relieve Glaxo Wellcome of its obligation to make further research support
payments under the agreement. Termination by Glaxo Wellcome of the license
arrangements under the agreement will relieve it of its obligation to make
further commercialization and development milestone and royalty payments and
will end any license granted to Glaxo Wellcome by Vertex thereunder. In June
1996, the Company and Glaxo Wellcome obtained a worldwide, non-exclusive license
under certain Searle patent applications in the area of HIV protease inhibition.
Vertex paid $15.0 million and Glaxo paid $10.0 million to Searle for the
license. The Company also agreed to pay Searle a royalty on sales of VX-478, the
Company's lead HIV compound.

The Company and HMR are collaborating on the development of interleukin-1
beta converting enzyme inhibitors as anti-inflammatory agents. Under the
collaborative agreement, HMR is obligated to pay the Company up to $30.5
million, comprised of $18.5 million of product research funding over five years
and $12.0 million of development and commercialization milestone payments. From
the inception of the agreement in September 1993 through the year ended December
31, 1996, $14.5 million has been recognized as revenue. HMR has the right to
terminate the agreement without cause upon twelve months notice at any time. For
a period of one year after any such termination, HMR retains the right to select
one or more compounds for development and to license such compound or compounds
from Vertex, provided HMR resumes all research funding and commercialization
milestone payments and makes all such payments that would otherwise have been
due but for such

20
22

termination. Otherwise, in the case of such termination, all rights to compounds
developed under the research and license agreements will revert to Vertex.

The Company and Kissei are collaborating on the development of Vertex's
VX-478 protease inhibitor. Under the collaborative agreement, Kissei is
obligated to pay the Company up to $20.0 million, comprised of $9.8 million of
product research funding through 1995, $7.0 million of development milestone and
territory option payments and a $3.2 million equity investment. From the
inception of the agreement in April 1993 through the year ended December 31,
1996, $17.8 million has been received, including $14.6 million recognized as
revenue and $3.2 million as an equity investment. The Company received
additional revenue related to reimbursements for clinical development during
this period. Under the collaboration, Kissei is also required to pay Vertex a
royalty on sales.

In August 1996, the Company completed a public offering of 3,450,000 shares
of its common stock, which included an over-allotment option exercised by the
underwriters for 450,000 shares, at a price to the public of $24.00 per share,
with net proceeds to the Company of approximately $77,515,000. In June 1996,
Glaxo Wellcome purchased 151,792 shares of the Company's Common Stock at a price
of $32.94 per share, with net proceeds to the Company of approximately $5.0
million. In November 1994, the Company sold an additional 1,200,000 shares of
common stock in a private placement to a subsidiary of BB Biotech AG at a price
of $12.50 per share, with net proceeds to the Company of approximately
$15,000,000. In February 1994, the Company sold 3,450,000 shares of Common Stock
in a public offering at a price to the public of $18.00 per share, with net
proceeds to the Company of approximately $58,062,000.

In March 1995, the Company signed a ten-year operating lease for additional
facilities for occupancy in early 1996. The Company has occupied approximately
53,000 square feet of space under this lease and has agreed to occupy
approximately 60,000 square feet in total during the lease period in order to
meet its longer-term expansion needs. The costs to lease and equip these
facilities will be funded, in whole or in part, through existing cash and
investments and through lease financing, which has been made available to the
Company on acceptable terms. During 1995, the Company deposited $2,316,000 with
its bank to collateralize a conditional letter of credit in the name of the
landlord. The letter of credit is redeemable only if the Company defaults on the
lease under specific criteria. These funds are restricted from the Company's
use, although the Company is entitled to all interest earned on the funds. The
Company expects to continue its current practice of leasing most of its capital
equipment, provided such lease financing continues to be available to the
Company on commercially acceptable terms.

The Company's aggregate cash and investments were $130,359,000 at December
31, 1996, an increase of $43,381,000 from December 31, 1995. Cash used by
operations was $40,253,000 in the year ended December 31, 1996. The Company
expended $3,983,000 to acquire property and equipment, principally for research
equipment and facilities. To fund these expenditures, the Company entered into
equipment lease financing in the aggregate amount of $3,727,000. In addition,
the Company repaid $2,187,000 of its lease obligations during 1996. The Company
anticipates that its existing available cash and investments, including the net
proceeds from this offering, will be adequate to satisfy its working capital
requirements for its current and planned operations at least for the next 12
months.

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23

BUSINESS

Vertex is engaged in the discovery, development and commercialization of
novel, small molecule pharmaceuticals for the treatment of diseases for which
there are currently limited or no effective treatments. The Company is a leader
in the use of structure-based drug design, an approach to drug discovery that
integrates advanced biology, biophysics and chemistry in a coordinated and
simultaneous fashion. The Company believes that this integrated approach is
applicable to therapeutic targets in a broad range of diseases. Vertex's goal is
to create a portfolio of highly specific, proprietary, small molecule drugs
based on its knowledge of the atomic structure of proteins involved in the
control of disease processes. The Company's drug candidates for the treatment of
HIV infection and AIDS, MDR in cancer and two genetic hemoglobin disorders are
currently in clinical development. In addition, the Company has preclinical and
research programs aimed at developing orally available small molecule compounds
to treat autoimmune diseases, inflammatory diseases, neurodegenerative diseases
and hepatitis C infection.

STRUCTURE-BASED DRUG DESIGN

Drugs are natural or synthetic compounds that interact with a target
molecule, typically a protein, either to induce or to inhibit that molecule's
function within the human body. Traditionally, pharmaceutical products have been
discovered through the screening of thousands of compounds, either from existing
chemical libraries or from fermentation broths, against a predictive assay for a
particular disease target. The Company believes that traditional pharmaceutical
discovery is an essentially random process which is costly and inefficient.
Advances in biotechnology have led to another method of developing drugs based
on the isolation and production of human recombinant proteins. The Company
believes that this approach also has limitations because the resulting
pharmaceuticals are large molecules that cannot be administered orally, are
difficult to manufacture and have applications which are limited to the disease
state in which the protein is involved.

Vertex is developing pharmaceutical products using a structure-based drug
design approach, which is distinct from the traditional pharmaceutical and
biotechnological approaches. By determining and modeling the three dimensional
atomic structure of a target protein, the Company intends to rationally design
or alter chemical compounds to specifically interact with the targeted protein.
The Company believes that structure-based drug design increases the chances for
the discovery of multiple lead compounds for selected protein targets, including
targets for which traditional drug discovery has met with limited success.
Moreover, the Company believes that the structure-based drug design process may
accelerate optimization of lead compounds, since modification of a lead compound
may be undertaken with knowledge of the relationship between the compound's
structure and its desired therapeutic effect, rather than through
experimentation with randomly generated modifications to that compound.

The Company's approach to structure-based design is an integrated approach
combining efforts in biology, biophysics and chemistry in a coordinated and
simultaneous fashion. To acquire structural information, Vertex applies advanced
biophysical and computational tools, including x-ray crystallography, nuclear
magnetic resonance spectroscopy and high resolution computer modeling. As
structural information is gathered, the Company uses combinatorial,
computational and medicinal chemistry to design and produce novel, highly
specific small molecule compounds that possess the characteristics required for
therapeutic benefit. To arrive at initial lead compounds, the Company may use
traditional approaches, such as screening chemical libraries, natural products
or combinatorial libraries in addition to using known chemical compounds or may
apply direct computational methods (de novo design). Throughout the process, the
Company develops biological assays and proprietary animal models, some of which
employ the latest advances in genomics techniques, in order to analyze the
function of target proteins. Using these tools, the Company optimizes compounds
for potency and pharmaceutical properties, including tolerability and
pharmacokinetics, and manufacturability. The Company selects clinical candidates
from among optimized compounds based on the results of in vitro and in vivo
tests designed to predict the compounds' safety and efficacy.

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24

Vertex expects to employ all of its core technologies from the initial
phases of a program through the entire discovery process. Information generated
through the application of one scientific technique becomes part of the
information base from which further advances may be made by Vertex scientists
using other development techniques. Using its approach to structure-based drug
design, Vertex has demonstrated that it is able to solve atomic structures of
target proteins, generate lead compounds that bind to the target in vitro and
optimize those compounds to produce drug candidates with desirable
pharmaceutical attributes. The Company believes that its integrated
structure-based approach to drug discovery and the applicability of this
approach to a broad range of protein targets provides the Company with
significant competitive advantages in the discovery and development of novel
therapeutics for a variety of diseases.

CORPORATE STRATEGY

Vertex is concentrating on the discovery and development of drugs for the
treatment of viral diseases, multidrug resistance in cancer, hemoglobin
disorders, autoimmune diseases, inflammatory diseases and neurodegenerative
diseases. The Company's research and development strategy is to identify
therapeutic areas in which there is (i) an unmet clinical need, (ii) evidence
that interaction with known protein targets will produce a therapeutic effect
and (iii) evidence that the protein targets will be appropriate for structural
analysis using Vertex's scientific approach. The Company's business strategy is
to form collaborations with pharmaceutical companies in programs for which they
can provide resources and access to competencies complementary to Vertex's
in-house capabilities.

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PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS

The following table outlines the Company's most advanced product
development and research programs.

COMPOUND/PROGRAM INDICATION(S) STATUS(1) COMMERCIAL RIGHTS
- ------------------ ------------- --------- -----------------

VX-478
HIV/AIDS Phase III(2) Glaxo Wellcome/Kissei(3)

HIV Protease
Inhibitors
HIV/AIDS Research Glaxo Wellcome

VX-710
Cancers susceptible to Phase II BioChem/Vertex(4)
MDR

VX-853
Cancers susceptible to Phase I/II Vertex
MDR

VX-366
Sickle cell disease and Phase II Alpha/Ravizza/Vertex(5)
beta thalassemia

VX-497
Autoimmune diseases Preclinical Vertex

VX-740
Inflammatory diseases Preclinical HMR/Vertex(6)

Neurophilins
Neurodegenerative Research Vertex
diseases

Apoptosis
Neurodegenerative Research Vertex
diseases

Hepatitis C
Hepatitis C infection Research Vertex

MAP Kinases
Inflammatory diseases Research Vertex

- ---------------

(1) "Research" includes the discovery or creation of prototype compounds, in
vitro studies of those compounds and preliminary evaluation in animals.
"Preclinical" includes toxicologic assessment of candidate compounds in
animal models and formulation of a product in an appropriate dosage form,
development of chemical processes suitable for production of clinical grade
material, and appropriate pharmacological evaluation. "Phase I" clinical
trials indicates that the compound is being tested in healthy humans for
safety, dose tolerance, absorption, bioavailability, biodistribution,
metabolism, excretion, clinical pharmacology and/or, if possible, early
information on efficacy. "Phase I/II" clinical trials indicates that the
compound is being tested in a limited patient population for safety and
preliminary indications of biological activity in patients with the targeted
disease. "Phase II" clinical trials indicates that the compound is being
tested in a limited patient population to assess the efficacy of the drug
for a specific indication, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects. "Phase III" clinical trials indicates that the compound is
being further evaluated for clinical safety and efficacy in an expanded
patient population at geographically dispersed study sites, to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis for
physician labeling. See "-- Government Regulation."

(2) VX-478 is currently in one Phase III clinical trial in the U.S. and Europe,
with additional Phase III trials planned, and has completed Phase I clinical
trials in Japan.

(3) Glaxo Wellcome has worldwide rights except for the Far East. Kissei has
rights for the Far East. See "-- Corporate Collaborations -- Glaxo Wellcome
plc." and "-- Kissei Pharmaceutical Co., Ltd."

(4) BioChem has rights for VX-710 in Canada. Vertex retains worldwide rights for
VX-710, except for Canada. See "-- Corporate Collaborations -- BioChem
Therapeutic, Inc."

(5) Alpha has rights for VX-366 for North, Central and South America. Vertex
retains worldwide rights, except for North, Central and South America.
Vertex has an arrangement with Ravizza under which Ravizza is conducting
clinical studies and will share data with the Company and which includes a
framework for negotiation of an agreement for clinical development and
commercialization of compounds in Europe. See "-- Corporate Collaborations
-- Alpha Therapeutic Corporation" and "-- Ravizza Farmaceutici S.p.A."

(6) HMR has rights for any ICE inhibitors developed for Europe, Africa and the
Middle East. Vertex and HMR have joint rights for the Far East. Vertex
retains rights for the Americas and the rest of the world. See "-- Corporate
Collaborations -- Hoechst Marion Roussel."

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26

CLINICAL PROGRAMS

HIV PROGRAM

Overview

Vertex is developing orally deliverable antiviral drugs to treat HIV
infection and AIDS. The Company is collaborating with Glaxo Wellcome plc. and
Kissei Pharmaceutical Co., Ltd. in the development of its most advanced HIV
protease inhibitor, VX-478. Glaxo Wellcome has initiated multi-center Phase III
clinical trials to assess the safety and efficacy of VX-478 in HIV-positive
individuals. The Phase III clinical trials are intended to support the
submission of an NDA for market approval in the United States and equivalent
submissions in Europe and other territories. However, there can be no assurance
that these clinical trials will result in the submission or approval of an NDA
for VX-478.

Background

As of June 1996, approximately 548,000 cases of AIDS had been reported to
the U.S. Centers for Disease Control and Prevention and the current population
of surviving AIDS patients in the U.S. was estimated to be approximately
205,000. The U.S. Centers for Disease Control also estimates that more than
700,000 additional people in the United States are infected with HIV. In 1996,
the World Health Organization reported that approximately 1,500,000 AIDS cases
had been reported worldwide, but it is estimated that the actual total number of
cases was over 8,400,000.

AIDS is caused by infection with HIV. HIV infection causes severe
immunosuppression and, eventually, death by attacking and destroying T-cells,
which coordinate much of the network of normal immune responses. Progression
from HIV infection to AIDS may take many years. Currently, there are two classes
of antiviral drugs approved for the treatment of AIDS, reverse transcriptase
inhibitors and protease inhibitors. AZT, ddI, ddC and 3TC are drugs that act by
inhibiting reverse transcriptase, an enzyme required for viral replication. The
clinical utility of each of these drugs is limited by significant side effects
and by the development of viral resistance. While certain anti-HIV drugs may be
used alone, the clinical utility of these drugs may be improved if these drugs
are administered in combination. Such combination therapy can delay the onset of
viral resistance. Due to the limitations of AZT and other reverse transcriptase
inhibitors, there has been significant interest in developing anti-HIV agents
that work by alternative mechanisms, such as HIV protease inhibitors which act
by blocking another viral enzyme involved in HIV replication. The FDA has
approved for marketing HIV protease inhibitors developed by Merck & Co., Inc.,
Hoffmann-La Roche and Abbott Laboratories, Inc.

The Company believes that the market for protease inhibitors is competitive
and that a protease inhibitor compound's utility may be evaluated based on
several key characteristics. These characteristics include efficacy, convenient
dosing regimen, high bioavailability and pharmacokinetics (i.e., high absorption
into and sustained presence in the bloodstream), the ability to penetrate the
brain and lymph systems from the bloodstream, an acceptable resistance profile,
a favorable side effect profile and practical manufacture.

Clinical Status

Vertex's HIV and AIDS program is focused on the development of a highly
specific protease inhibitor designed to effectively block the replication of HIV
and to possess key competitive characteristics. In February 1997, Glaxo Wellcome
began a multi-center Phase III clinical trial in the United States, Canada and
Europe to evaluate the tolerability, antiviral efficacy, and durability of the
antiviral response of VX-478 in combination with AZT and 3TC. The protocol calls
for VX-478 to be administered orally at a dose of 1200 mg twice daily in
combination with AZT and 3TC. A second group treated with AZT and 3TC will
provide a comparison arm for the clinical trial. Approximately 290 HIV-positive
adults are expected to enroll in the trial. In addition, the Company anticipates
that Glaxo Wellcome will begin in the first half of 1997 a second multi-center
Phase III clinical trial in the United States and Europe to assess the safety
and efficacy of VX-478 in children. There can be no assurance that clinical
trials will result in the submission or approval of an NDA for VX-478 or that

25
27

trials that have not yet begun will commence. See "Risk Factors -- Uncertainties
Related to Clinical Trials" and "-- Manufacturing Uncertainties; Reliance on
Third Party Manufacturers."

In addition to the Phase III trials with AZT and 3TC discussed above,
clinical trials of VX-478 alone and in combination with other anti-HIV agents
are being conducted. In September 1996, Glaxo Wellcome initiated a 12-week
dose-range finding Phase II clinical trial testing the safety and efficacy of
VX-478 in combination with AZT and 3TC. This study has completed enrollment of
approximately 80 participants and the duration of the study has been extended to
24 weeks. In January 1997, Glaxo Wellcome initiated a 24-week Phase II clinical
trial of VX-478 in double protease regimens, pairing VX-478 with saquinavir
(Roche), indinavir (Merck) or nelfinavir (Agouron). Approximately 48 patients
are expected to enroll in the study. Through a collaboration with the ACTG,
Glaxo Wellcome, Kissei and Vertex, a 24-week Phase II clinical trial was
initiated in February 1997 to evaluate the safety and efficacy of VX-478 as a
single agent. A second group treated with VX-478, AZT and 3TC will provide a
comparison for the clinical trial. The trial will be conducted in the United
States at 10 ACTG clinical centers and is expected to enroll approximately 84
HIV-positive individuals. In 1997, Glaxo Wellcome plans to initiate a clinical
trial to assess the use of VX-478 in combination with 1592U89, a new reverse
transcriptase inhibitor in development by Glaxo Wellcome. There can be no
assurance, however, that these clinical trials will commence or proceed as
currently anticipated. See "Risk Factors -- Uncertainties Related to Clinical
Trials" and "-- Dependence on Collaborative Partners."

In January 1997, Glaxo Wellcome reported preliminary results from a
60-patient multi-center Phase I/II clinical trial conducted in the United States
and Europe suggesting that VX-478 is well-tolerated and displays potent
antiviral activity. At the three highest doses of VX-478 administered as a
single agent (900 mg, 1050 mg or 1200 mg twice daily), the median maximal
decrease in viral load ranged from 1.69 to 1.89 logs, indicating potent
antiviral activity. The results indicated that the antiviral activity of VX-478
was dose-dependent, with increasing doses providing better antiviral effect. The
trial also included the administration of VX-478 at a dose of 900 mg (twice
daily) in combination with 1592U89 (300 mg twice daily). For the combination,
five of seven patients had viral loads below the level of detection (<400
copies/ml) at four weeks. The median maximal decrease in viral load in this
combination group was 2.08 logs. Adverse events reported in the trial, such as
rash, nausea and loose stool/diarrhea, were mild and reversible in most cases.
The combination of VX-478 and 1592U89 was well-tolerated, with nausea being the
most commonly reported adverse event in this combination. Of the 60 participants
in the trial, five withdrew based on adverse events. The data from this trial is
preliminary and incomplete. There can be no assurance that these results are
predictive of results that will be obtained in any future clinical trials. See
"Risk Factors -- Uncertainties Related to Clinical Trials."

In January 1997, Glaxo Wellcome also reported preliminary data from the
Phase I/II clinical trial suggesting that resistance did not develop to VX-478
administered as a single agent over the four week time period. The results of
the genotype (sequence) and phenotype (drug sensitivity) analyses of virus
isolated from patients participating in the Phase I/II study (at doses of 300 mg
twice daily; 300 mg three times daily; 900 mg twice daily or 1200 mg twice
daily) indicated that resistance did not appear to develop to VX-478, whether at
the lower doses or at the higher doses, where potent antiviral activity was
observed. There can be no assurance that resistance will not occur when VX-478
is administered for longer periods or in combination with other antiviral
agents. See "Risk Factors -- Early Stage of Development; Technological
Uncertainty."

In 1995, Kissei completed single dose and multi-dose, placebo-controlled,
Phase I clinical trials. Results from these trials reported in May 1996
indicated that VX-478 was well-tolerated, with no significant adverse
experiences or laboratory test abnormalities observed at the doses tested.
Vertex expects that Kissei will initiate Phase II/III efficacy trials in 1997 in
HIV-positive patients that will be designed based on clinical data from Glaxo
Wellcome. There can be no assurance, however, that these clinical trials will
commence or proceed as currently anticipated. See "Risk Factors -- Uncertainties
Related to Clinical Trials," "-- Manufacturing Uncertainties; Reliance on Third
Party Manufacturers" and "-- Dependence on Collaborative Partners."

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In collaboration with Glaxo Wellcome, Vertex also is engaged in research to
develop additional lead classes of HIV protease inhibitors. This research is
focused on designing compounds with resistance profiles distinct from VX-478.

The Company has one issued United States patent, ten United States patent
applications pending, and foreign counterparts to some of those applications,
that claim classes of chemical compounds and/or their uses which include within
their scope the Company's lead drug candidates for treating HIV infection and
AIDS. The issued patent and five of the ten United States patent applications,
have claims that include VX-478 within their literal scope. Vertex recently
received a Notice of Allowance for claims covering the use of VX-478 to treat
AIDS-related central nervous system disorders. In addition, the Company has one
United States patent application that claims processes for preparing synthetic
intermediates useful in the synthesis of a class of compounds that includes
VX-478. The Company also has a non-exclusive, worldwide license under certain
Searle patent applications claiming HIV protease inhibitors. See "Risk
Factors -- Uncertainly Related to Patents and Proprietary Information."

CANCER MULTIDRUG RESISTANCE PROGRAM

Overview

Vertex is developing novel compounds to treat and prevent the occurrence of
drug resistance associated with the failure of cancer chemotherapy by inhibiting
cellular mechanisms believed to be responsible for MDR. Two cellular mechanisms
implicated in MDR are P-glycoprotein, or "MDR1," and multidrug resistance
associated protein, or "MRP." In June 1996, Vertex commenced a Phase II
multi-center clinical trial to assess the safety and efficacy of the
co-administration of VX-710 and doxorubicin in patients with liver cancer. In
1997, Vertex plans to initiate a Phase II multi-center clinical trial to assess
the safety and efficacy of the co-administration of VX-710 and paclitaxel in
patients with breast cancer. Vertex is collaborating with BioChem Therapeutic,
Inc., a subsidiary of Biochem Pharma (International) Inc., for the development
and commercialization of VX-710 in Canada. The Company expects that BioChem will
initiate Phase II clinical trials of VX-710 for two additional cancers in Canada
in 1997. In April 1996, the Company commenced a Phase I/II dose escalating
clinical trial with a second MDR inhibitor, VX-853, an orally-administered
compound in a chemical class distinct from intravenously administered VX-710, in
combination with doxorubicin in patients with solid tumors.

Background

According to the American Cancer Society, there will be an estimated
530,000 new cases of breast, ovarian, lung, liver and colorectal tumors in the
United States in 1997. In addition, the American Cancer Society also estimates
that there will be an estimated 95,000 new patients each year in the United
States afflicted with blood cancers, such as multiple myeloma, acute myeloid
leukemia and non-Hodgkin's lymphoma. The Company believes that a significant
number of these patients may not be effectively treated by chemotherapy because
of MDR.

Multidrug resistance is frequently associated with the failure of
chemotherapy. A major contributing factor to MDR is the presence of molecular
pumps that function to expel toxins out of the cell. MDR occurs when these
pumps, including MDR1 and MRP, expel chemotherapeutic agents from cancer cells,
preventing the sustained delivery of potent levels of the chemotherapeutic
agents required for therapeutic benefit. As a consequence, such resistant tumor
cells cannot be killed efficiently by anticancer drugs such as methotrexate,
doxorubicin, vincristine and paclitaxel. MDR1 has been implicated in MDR in a
variety of cancers including liver cancer, colon cancer, pancreatic cancer,
chronic myelogenous leukemia and certain lung cancers. MRP was recently
identified as another drug efflux pump and is believed responsible for
resistance observed in additional tumor types.

No drug has been approved by the FDA specifically for the treatment of MDR,
however, several compounds are in advanced clinical studies. Certain agents,
such as dex-verapamil and an analog of

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cyclosporin A, have been shown in preliminary human studies to have some
effectiveness in overcoming clinical resistance to certain commonly used
chemotherapeutic agents. The Company believes these drugs may have side effects
that could limit broad use.

Clinical Status

Vertex's lead compound, VX-710, has displayed potent activity in vitro as
an inhibitor of MDR for a number of chemotherapeutic agents in a variety of
tumor types. In June 1996, Vertex initiated a Phase II multi-center clinical
trial to assess the safety and efficacy of the co-administration of VX-710 and
doxorubicin in patients with liver cancer. The comparison arm for the study
involves the administration of doxorubicin alone. Cross-over from the comparison
arm to the study arm is allowed. The clinical trial is expected to enroll up to
70 patients. The Company has recently added additional investigative sites in
order to accelerate enrollment in the trial. In 1997, Vertex plans to initiate a
Phase II multi-center trial to assess the safety and efficacy of the
co-administration of VX-710 and paclitaxel in patients with breast cancer. The
primary efficacy endpoints in both trials will be response rate and time to
disease progression. In addition, BioChem is planning to initiate Phase II
clinical trials of VX-710 in Canada in 1997 in combination with paclitaxel in
patients with ovarian cancer and in combination with doxorubicin in patients
with soft tissue sarcoma. There can be no assurance, however, that clinical
trials will commence or proceed as currently anticipated. See "Risk Factors --
Uncertainties Related to Clinical Trials," "-- Manufacturing Uncertainties;
Reliance on Third Party Manufacturers" and "-- Dependence on Collaborative
Partners."

In April 1996, a principal investigator for the ongoing Phase I/II trial
reported preliminary results for the VX-710/doxorubicin combination. The
findings, based on 22 patients receiving intravenous doses of up to 160
mg/m(2)/hr, suggest that the regimen was well-tolerated, with generally mild and
reversible side effects at the doses tested. The results also showed that the
regimen can be successfully administered to achieve blood levels shown to
reverse MDR in vitro and in preclinical studies. The investigator also reported
that VX-710 did not appear to alter markedly the clearance or half-life of
doxorubicin, which the Company believes will provide future flexibility for
dosage. Investigators used an imaging agent, which is ordinarily expelled from
the liver by MDR1, as a marker for MDR1 inhibition by VX-710. In this trial, the
level of retention of the imaging agent in the liver suggested that VX-710 was
blocking the activity of MDR1.

Vertex's research has identified several proprietary compounds, in addition
to VX-710, that are able to return drug resistant cells to a state of drug
sensitivity in vitro. In November 1995, Vertex scientists reported in vitro MDR
inhibition results for VX-853, an orally administered compound in a chemical
class distinct from VX-710. The research showed that VX-853 potently blocks MDR
mediated by both MDR1 and MRP. In April 1996, the Company commenced a Phase I/II
dose-escalating clinical trial of VX-853 in combination with doxorubicin in
patients with solid tumors.

The Company has one issued United States patent, five United States patent
applications pending and several foreign counterpart applications claiming
VX-710 and other compounds for treating multidrug resistance. Vertex recently
received a Notice of Allowance for claims covering VX-710 and structurally
related compounds. The issued United States patent claims VX-853 and
structurally related compounds. The Company may seek orphan drug status for
certain indications of its MDR compounds.

HEMOGLOBIN DISORDERS PROGRAM

Overview

Vertex is developing VX-366, a drug to treat sickle cell disease and beta
thalassemia, two inherited blood disorders for which there currently are a
limited number of treatments. The Company is collaborating with Alpha
Therapeutic Corporation, a subsidiary of Green Cross Corporation, and Ravizza
Farmaceutici, a subsidiary of BASF, in the development of its hemoglobin
disorder compounds.

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Background

Sickle cell disease affects one in 375 African-Americans and, to a lesser
extent, persons of Eastern Mediterranean, Indian or Saudi Arabian ancestry.
There were an estimated 75,000 sickle cell cases and 10,000 beta thalassemia
cases in the United States and Europe as of 1994.

Sickle cell disease and beta thalassemia are inherited disorders caused by
defects in the gene for adult hemoglobin. These diseases are associated with
life-threatening organ damage, cause chronic and recurrent pain and predispose
affected individuals to severe infection.

There are currently a limited number of treatments for beta thalessemia and
sickle cell disease. Hydroxyurea, an oral compound currently marketed as an
anti-cancer agent, has been shown, in a Phase III study conducted by the
National Institutes of Health, to improve the symptoms of patients with sickle
cell disease. The Company believes, however, that this compound has limitations
due to toxic side effects. Other treatments used to combat symptoms of sickle
cell disease and beta thalassemia include antibiotics, pain killers and blood
transfusions. Several compounds are in clinical development by a number of
companies for the treatment of these diseases.

Clinical Status

Vertex's drug in development for hemoglobin disorders is VX-366. Vertex
acquired VX-366, a butyrate compound, in August 1993 under an exclusive license
from Children's Hospital Medical Center of Oakland. In June 1996, Ravizza
reported results of a four-week Phase II trial in 12 patients with beta
thalassemia, which indicated that VX-366 increased participants' levels of
hemoglobin F, a form of hemoglobin that has been shown to improve symptoms and
extend the life span of individuals with sickle cell disease and beta
thalassemia. In September 1995, Vertex entered into a license agreement with
Alpha for the development and commercialization of VX-366 in North, Central and
South America. There can be no assurance, however, that clinical trials
involving VX-366 will proceed or that future trials will commence. See "Risk
Factors -- Uncertainties Related to Clinical Studies," "-- Manufacturing
Uncertainties; Reliance on Third Party Manufacturers" and "-- Dependence on
Collaborative Partners."

Four United States patents have issued, which are licensed exclusively by
Vertex from Children's Hospital. Three of these patents claim the use of VX-366
in the treatment of hemoglobin disorders, including sickle cell disease and beta
thalassemia. Because Children's Hospital did not foreign file the application
corresponding to that reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may
be limited. Vertex has filed three United States patent applications claiming
various compounds and their use in the treatment of hemoglobin disorders.

PRECLINICAL PROGRAMS

IMPDH PROGRAM

Overview

Vertex is developing novel, orally deliverable immunosuppressive drugs that
it believes could selectively halt the growth of lymphocytes by blocking inosine
monophosphate dehydrogenase ("IMPDH"), an enzyme which controls DNA synthesis in
lymphocytes. In December 1996, Vertex selected VX-497 as a lead drug development
candidate for autoimmune diseases. Vertex currently is conducting preclinical
trials of VX-497 and plans to initiate clinical trials of VX-497 in 1998.

Background

The activation and proliferation of lymphocytes are associated with a
variety of autoimmune diseases, including asthma, psoriasis, rheumatoid
arthritis and systemic lupus, as well as with transplant rejection. Vertex
believes that blocking the enzyme IMPDH with an oral compound designed to
specifically bind to the active site of IMPDH may provide a novel way to inhibit
the progress of

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autoimmune diseases. The Company is aware of only one specific inhibitor of
IMPDH currently on the market in the United States, Hoffmann-La Roche's
mycophenolate mofetil, which is approved for acute kidney transplant rejection.
The Company believes that compound-specific side effects of mycophenolate
mofetil may limit its use for chronic autoimmune disorders.

Preclinical Status

Vertex has identified novel lead classes of IMPDH inhibitors. In December
1996, Vertex selected VX-497 as a lead drug development candidate for autoimmune
diseases. In laboratory tests and in models of autoimmune disease and
transplantation performed to date, VX-497 has been a potent and well-tolerated
immunosuppressive agent. Vertex currently is conducting preclinical trials of
VX-497. The Company plans to initiate clinical trials of VX-497 in 1998. Vertex
intends to evaluate VX-497 for psoriasis, an autoimmune disease of the skin, as
the first clinical indication for the compound. There can be no assurance,
however, that clinical trials will commence or proceed as currently anticipated.
See"Risk Factors -- Early Stages of Development; Technological Uncertainty," "--
Manufacturing Uncertainties; Reliance on Third Party Manufacturers" and " --
Uncertainties Related to Clinical Trials."

The Company has two United States patent applications pending, claiming
inhibitors of IMPDH, including VX-497 and related compounds. The Company has
another United States patent application pending that claims the crystal
structure of IMPDH and the use of that structure to design inhibitors.

INFLAMMATION PROGRAM

Overview

Vertex is developing novel drugs to treat acute and chronic inflammatory
conditions, including pancreatitis, osteoarthritis and rheumatoid arthritis. The
Company is collaborating with Hoechst Marion Roussel in the development of
compounds to block interleukin-1 beta converting enzyme ("ICE"), which mediates
the production and release of the inflammatory cytokine IL-1 beta, as well as
the production of gamma interferon. In February 1997, Vertex selected VX-740 as
a lead drug development candidate for inflammatory diseases.

Background

Elevation of IL-1 beta levels has been correlated to a number of acute and
chronic inflammatory diseases such as asthma, inflammatory bowel disease,
osteoarthritis, pancreatitis and rheumatoid arthritis. There are approximately
2,500,000 cases of rheumatoid arthritis in the United States alone. ICE was
first characterized in late 1991 and represents a novel target for
anti-inflammatory drug discovery. Although several companies are pursuing ICE as
a drug target, Vertex is not aware of any company with an ICE-inhibiting
compound in clinical development, and there currently are no IL-1 beta
inhibitors approved for marketing.

Preclinical Status

Vertex and HMR have designed potential small molecule inhibitors of ICE
that could be used for the treatment of both acute and chronic inflammatory
disorders such as asthma, inflammatory bowel disease, osteoarthritis,
pancreatitis and rheumatoid arthritis. In February 1997, Vertex selected VX-740
as a lead drug development candidate for inflammatory diseases.

Vertex scientists recently discovered that ICE plays a key role in the
production of gamma interferon, a key immunoregulator that modulates antigen
presentation, T-cell activation, and cell adhesion. This research was published
in the January 10, 1997 issue of the journal Science. Based on the discovery of
a new role for ICE in the production of gamma interferon, Vertex plans to
investigate ICE inhibitors for additional therapeutic uses such as in metastatic
cancer, diabetes and sepsis. See "Risk Factors -- Early Stages of Development;
Technological Uncertainty," "-- Manufacturing Uncertainties; Reliance on Third
Party Manufacturers" and " -- Uncertainties Related to Clinical Trials."

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The Company has fourteen patent applications pending in the United States
and several foreign counterpart patent applications claiming inhibitors of ICE.
Vertex recently received a Notice of Allowance in one of those applications. The
Company has three patent applications pending in the United States and several
foreign counterpart applications claiming the crystal structure of ICE and
derivatives thereof and various uses of those structures.

RESEARCH PROGRAMS

Neurophilins

Vertex has designed novel, orally deliverable, small molecule compounds
that have the potential to be developed as drugs to treat neurodegenerative
diseases, including stroke, peripheral neuropathies and Parkinson's disease and
Alzheimer's disease. Vertex has conducted laboratory experiments the results of
which suggest that certain of its compounds stimulate nerve growth. In 1996,
Vertex reported results in a rat model of peripheral nerve injury. The
neurophilin compound accelerated the onset of foot movement and walking compared
to the control. In addition, the compound produced a 50 percent increase in the
average size of nerve cells in the injured area as compared to the control
animals. Vertex has identified several promising lead compounds and plans to
test those compounds in additional models of nerve growth.

The Company has five United States patent applications claiming the use of
certain of its immunosuppressive compounds and certain of its multidrug
resistance compounds for nerve growth applications. The Company also has one
issued United States patent and nine United States patent applications pending
that claim compounds useful in nerve growth applications.

Caspases (Apoptosis)

The goal of Vertex's caspases program is to discover and develop drugs
useful for treating neurodegenerative disorders such as Alzheimer's disease and
Parkinson's disease as well as for the prevention of tissue damage resulting
from myocardial and cerebral ischemia.

Vertex is conducting research to design novel drugs for apoptosis
(programmed cell death) for neurodegenerative diseases and other
neurodegenerative conditions. This drug discovery effort is based on the
Company's knowledge of ICE and its homologues, the caspases. Vertex has gained a
detailed understanding of apoptotic pathways using biological, genomic, and
structural data from ICE homologues. Vertex has solved the X-ray structure of
CPP32, a caspase believed to be important in neuronal apoptosis, and is using
structural information to design small molecule lead compounds that selectively
block CPP32 and other caspases.

The Company has one United States patent application claiming a protein
involved in apoptosis.

Hepatitis C Protease

The Company is conducting discovery research to design orally deliverable
drugs to inhibit hepatitis C protease, an enzyme generally believed to be
essential for replication of the hepatitis C virus ("HCV"). Discovered in 1989,
HCV causes chronic inflammation in the liver. In a majority of patients, HCV
establishes a chronic infection that can persist for decades and eventually lead
to cirrhosis, liver failure and liver cancer. HCV infection represents a
significant medical problem worldwide for which there is inadequate or no
therapy for a majority of patients. Sources at the U.S. Centers for Disease
Control and Prevention recently estimated that approximately 3.9 million
Americans, or more than one percent of the population, may be infected with HCV.
Currently, there is no vaccine available to prevent hepatitis C infection. In
addition, the only drug approved for the treatment of hepatitis C, interferon
alpha, provides long-term therapeutic benefit to less than 25 percent of
patients treated.

In 1996, Vertex solved the structure of the hepatitis C protease, using
X-ray crystallography. Vertex is utilizing a variety of advanced techniques, as
well as its experience with HIV protease inhibitors, to design inhibitors of HCV
protease enzyme.

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Vertex has one United States patent application pending claiming inhibitors
of HCV protease. Vertex also has one United States patent application pending
claiming the crystal structure of HCV protease and the use of that structure to
design inhibitors. Vertex has an additional United States patent application
claiming methods of identifying HCV protease inhibitors.

MAP Kinases

Vertex is conducting research to design novel anti-inflammatory drugs based
on small molecule inhibitors of MAP kinases. MAP kinases regulate both
interleukin-1 and tumor necrosis factor, hormones involved in inflammation and
programmed cell death. In 1996, Vertex solved the structure of p38 MAP kinase
using X-ray crystallography. Vertex is conducting research to solve additional
related MAP kinases. Together with the structural information now available,
Vertex is using structure-directed high throughput screening to identify novel
lead inhibitors of p38 MAP kinase.

Vertex has one United States patent application pending claiming inhibitors
of p38 MAP Kinase.

CORPORATE COLLABORATIONS

Vertex has entered into corporate collaborations with pharmaceutical
companies that provide financial and other resources, including capabilities in
research, development and sales and marketing, to support the Company's research
and development programs. To date, the Company has entered into the following
major corporate collaborations.

Glaxo Wellcome plc.

Vertex and Glaxo Wellcome are collaborating on the development of Vertex's
HIV protease inhibitors. Under the collaborative agreement, which commenced in
December 1993, Glaxo Wellcome is obligated to pay Vertex up to $42.0 million,
comprised of a $15.0 million initial license payment paid in December 1993,
$14.0 million of product research funding over five years and $13.0 million of
development and commercialization milestone payments for an initial drug
candidate. From the inception of the agreement in December 1993 through December
31, 1996, Vertex has recognized as revenue $25.0 million. Glaxo Wellcome is also
obligated to pay to Vertex additional development and commercialization
milestone payments for subsequent drug candidates. In addition, Glaxo Wellcome
is required to bear the costs of development in its territory under the
collaboration. Glaxo Wellcome has exclusive rights to develop and commercialize
Vertex HIV protease inhibitors in all parts of the world except the Far East and
will pay Vertex a royalty on sales. Vertex has retained certain bulk drug
manufacturing rights and certain co-promotion rights in the territories licensed
to Glaxo Wellcome. See "-- HIV Program."

Glaxo Wellcome has the right to terminate the research collaboration under
its agreement with the Company without cause upon twelve months' notice given at
any time and has the right to terminate the license arrangements under its
agreement with the Company without cause upon twelve months' notice, provided
such notice is not given before the research collaboration has been terminated.
Termination by Glaxo Wellcome of the research collaboration under its agreement
with the Company will relieve Glaxo Wellcome of its obligation to make further
research support payments under the agreement. Termination by Glaxo Wellcome of
the license arrangements under the agreement will relieve Glaxo Wellcome of its
obligation to make further commercialization and development milestone and
royalty payments, and will end any license granted to Glaxo Wellcome by Vertex
thereunder, and could have a material adverse effect on the Company's business
and result of operations. See "Risk Factors -- Dependence on Collaborative
Partners."

In June 1996, Vertex and Glaxo Wellcome obtained a non-exclusive, worldwide
license under certain Searle patent applications claiming HIV protease
inhibitors to permit Vertex and Glaxo Wellcome to develop, manufacture and
market VX-478 free of the risk of intellectual property claims by Searle. Vertex
and Glaxo Wellcome paid Searle $15.0 million and $10.0 million, respectively,
for the license. In addition, the terms of the license require Vertex to pay
Searle a royalty on sales. In

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connection with this transaction, Glaxo Wellcome purchased 151,792 shares of the
Company's Common Stock at a price of $32.94 per share, with net proceeds to the
Company of approximately $5.0 million.

Kissei Pharmaceutical Co., Ltd.

Vertex and Kissei are collaborating on the development of Vertex's VX-478
HIV protease inhibitor. Under the collaborative agreement, which commenced in
April 1993, Kissei is obligated to pay to Vertex up to $20.0 million, comprised
of $9.8 million of product research funding over three years, $7.0 million of
development and commercialization milestone payments and a $3.2 million equity
investment. From the inception of the agreement in April 1993 through December
31, 1996, $17.8 million has been received, including $14.6 million recognized as
revenue and $3.2 million as an equity investment. The Company has received the
full amount of research funding specified under the agreement. Kissei has
exclusive rights to develop and commercialize VX-478 in Japan, the People's
Republic of China and several other countries in the Far East and will pay
Vertex a royalty on sales. Vertex will manufacture bulk product for Kissei. See
"-- HIV Program."

Hoechst Marion Roussel

Vertex and HMR are collaborating on the development of ICE inhibitors as
anti-inflammatory agents. Under the collaborative agreement, which commenced in
September 1993, HMR is obligated to pay to Vertex up to $30.5 million, comprised
of $18.5 million of product research funding over five years and $12.0 million
of development and commercialization milestone payments. From the inception of
the agreement in September 1993 through December 31, 1996, $14.5 million has
been recognized as revenue. HMR has exclusive rights to develop and market drugs
resulting from the collaborative effort in Europe, Africa and the Middle East,
and Vertex has exclusive development and marketing rights in the rest of the
world, except the Far East, where Vertex shares those rights with HMR. HMR is
obligated to pay a royalty to Vertex on any sales made in Europe, and Vertex is
obligated to pay a royalty to HMR on any sales made in the United States or the
rest of the Americas. Each party will have the option to co-promote products in
the other party's exclusive territory. Vertex and HMR will each have rights to
develop and market the drugs in Far Eastern countries including Japan.

HMR has the right to terminate the agreement at any time without cause upon
twelve months' notice. For a period of one year after any such termination, HMR
retains the right to select one or more compounds for development and to license
such compound or compounds from Vertex, provided HMR resumes research funding
and commercialization milestone payments and makes all such payments that would
otherwise have been due but for such termination. See "-- Inflammation Program."

BioChem Therapeutic, Inc.

The Company and BioChem are collaborating on the development and
commercialization of VX-710, the Company's lead compound in its cancer multidrug
resistance program. Under the collaborative agreement, which commenced in May
1996, BioChem is obligated to pay the Company up to $4.0 million comprised of an
initial license payment of $500,000 and development and commercialization
milestone payments. BioChem also is obligated to bear the costs of development
of VX-710 in Canada. BioChem has exclusive rights to develop and commercialize
VX-710 in Canada. The Company will supply BioChem's requirements of bulk and
finished forms of VX-710. BioChem will make payments to the Company for those
materials based on sales of products by BioChem, which will cover Vertex's cost
of supplying materials and will provide a profit to Vertex.

BioChem has the right to terminate the agreement without cause upon six
months' notice at any time after May 8, 1997. Termination will relieve BioChem
of any further payment obligations and will end any license granted to BioChem
by Vertex under the agreement. See "-- Cancer Multidrug Resistance Program."

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Alpha Therapeutic Corporation

Vertex and Alpha are collaborating on the development and commercialization
of VX-366 for the treatment of sickle cell disease and beta thalassemia. Under
the collaborative agreement, which commenced in October 1995, Alpha has agreed
to pay Vertex up to $5.0 million comprised of an initial license payment and
development and commercialization milestone payments. From the inception of the
agreement in October 1995 through December 31, 1996, $500,000 has been
recognized as revenue. In addition, Alpha is obligated to pay the costs of
development of VX-366 under the collaboration. Alpha has exclusive rights to
develop and commercialize VX-366 in North, Central and South America. Vertex
retains rights in the rest of the world and retains all manufacturing rights
worldwide. Alpha will pay Vertex a royalty based on commercial product sales and
will purchase from Vertex its requirements for drug product.

Alpha has the right to terminate the agreement without cause upon six
months' notice at any time. Termination will relieve Alpha of any further
payment obligations under the agreement and will end any license granted to
Alpha by Vertex thereunder. See "-- Hemoglobin Disorders Program."

Ravizza Farmaceutici S.p.A.

Vertex and Ravizza are collaborating to conduct clinical trials with VX-366
for beta thalassemia and sickle cell disease. Under the collaboration, which
commenced in September 1994, Vertex and Ravizza will share data generated in
their respective clinical trial programs. Ravizza has completed a Phase II
clinical trial of VX-366 in Italy in patients with beta thalassemia. In
addition, the arrangement creates a framework for negotiation of an agreement
for clinical development and commercialization of VX-366 in Europe. There can be
no assurance, however, that the parties will enter into any such agreement. See
"-- Hemoglobin Disorders Program."

ALTUS BIOLOGICS INC.

Altus Biologics Inc. is a subsidiary of Vertex established in January 1993
to develop, manufacture and sell a class of industrial catalysts based on a
novel and proprietary technology for stabilizing proteins. Altus' initial
products use the Company's CLEC technology to produce cross-linked enzyme
crystals.

Although enzymes are among nature's most efficient catalysts, their
large-scale commercial use has been limited by their instability and general
incompatibility with many industrial chemical processes. As a result of
experiments conducted by Altus and several commercial partners and prospective
customers, the Company believes that CLEC products have properties that overcome
many of these limitations and make them superior to conventional catalysts and
enzymes in certain commercial and industrial processes. The Company believes
that CLEC products can be used as catalysts in the manufacture of
pharmaceuticals, fine chemicals, foods and sweeteners, among other things.

Since mid-1994, Altus has launched nine commercial catalyst products in two
product families: ChiroCLEC, for the preparation of optically pure
pharmaceuticals and specialty chemicals, and PeptiCLEC, for use in peptide
coupling reactions. Altus expects to launch additional products in 1997.
Approximately 215 companies worldwide have purchased CLEC products for
feasibility testing. Altus recently entered into a research and development
collaboration with Ciba-Geigy Limited for the development of CLEC technology for
commercial use in detergents.

Altus is conducting research and development aimed at expanding the uses of
its CLEC technology to such applications as nerve gas detoxification,
detergenting and anti-oxidants for cosmetics. Some of this research is supported
by grants from U.S. government agencies including the National Institutes of
Health, National Science Foundation and the Department of Defense.

The Company has ten United States patent applications and several foreign
counterpart applications and patents relating to its CLEC technology. The
Company recently received a Notice of Allowance in one of these applications.

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PATENTS AND PROPRIETARY INFORMATION

The Company has rights in certain patents and pending patent applications
that relate to compounds it is developing and methods of using such compounds.
The Company actively seeks, when appropriate, protection for its products and
proprietary information by means of United States and foreign patents,
trademarks and contractual arrangements. In addition, the Company relies upon
trade secrets and contractual arrangements to protect certain of its proprietary
information and products.

As of February 20, 1997, the Company had a total of six United States
patents and 63 United States pending patent applications. The Company also has
an exclusive license under four United States patents, one of which is subject
to a reissue application and a non-exclusive, worldwide license under certain
Searle patent applications claiming HIV protease inhibitors. Three of the
licensed patents and the reissue application claim the use of compounds,
including VX-366, for treating hemoglobin disorders, including sickle cell
disease and beta thalassemia. The Company has one issued United States patent
and ten United States patent applications claiming antiviral compounds, and/or
their uses, for treating HIV infection and AIDS. The issued patent and five of
the ten applications have claims that include VX-478, the Company's lead drug
candidate, within their literal scope. Vertex recently received a Notice of
Allowance for claims covering the use of VX-478 to treat AIDS-related central
nervous system disorders. Another of the Company's United States patent
applications claims processes for preparing synthetic intermediates useful in
the synthesis of a class of compounds that includes VX-478. The Company's
non-exclusive, worldwide license permits Vertex to develop, manufacture and
market VX-478 free of intellectual property claims by Searle. The Company has
one issued United States patent and five United States patent applications
claiming VX-710 and other compounds for treating multidrug resistance. Vertex
recently received a Notice of Allowance for claims covering VX-710 and
structurally related compounds. The issued patent claims VX-853 and structurally
related compounds. The Company has two United States patent applications
pending, claiming inhibitors of IMPDH, including VX-497 and related compounds.
The Company has another United States patent application pending that claims the
crystal structure of IMPDH and the use of that structure to design inhibitors.
The Company has fourteen United States patent applications pending claiming
inhibitors of ICE. Vertex recently received a Notice of Allowance in one of
those applications. The Company has three patent applications pending in the
United States claiming the crystal structure of ICE and derivatives thereof and
various uses of those structures. The Company has five United States patent
applications pending claiming the use of certain of its immunosuppressive
compounds and certain of its multidrug resistance compounds for nerve growth
applications. The Company also has one issued United States patent and nine
patent applications pending that claim compounds useful in nerve growth
application. The Company has three United States patents and four United States
patent applications claiming specific immunosuppressive compounds. Vertex
recently received a Notice of Allowance in two of those four applications. The
Company has one United States patent application claiming a protein involved in
apoptosis. The Company has one United States patent application pending claiming
inhibitors of p38 MAP kinase. The Company also has one United States patent
application pending claiming inhibitors of HCV protease. The Company has one
United States patent application pending claiming the crystal structure of HCV
protease and the use of that structure to design inhibitors. The Company has ten
United States patent applications claiming CLEC technology. The Company recently
received a Notice of Allowance in one of these applications. The Company has one
United States patent claiming a novel device useful in pharmaceutical research.
The Company also has filed international and foreign counterparts based on
several of its United States patents and patent applications.

There can be no assurance that any patents will issue from any of the
Company's patent applications or, even if patents issue or have issued, that the
claims thereof will provide the Company with any significant protection against
competitive products or otherwise be valuable commercially. Legal standards
relating to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent policy
regarding the breadth of claims allowed in biopharmaceutical patents. No
assurance can be given as to the Company's ability to avoid infringing, and thus
having to negotiate a license under, any patents issued to others, or that a

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license to such patents would be available on commercially acceptable terms, if
at all. Further, there can be no assurance that any patents issued to or
licensed by the Company will not be infringed by the products of others, which
may require the Company to engage in patent infringement litigation. In addition
to being a party to patent infringement litigation, the Company could be
required to participate in interference proceedings declared by the United
States Patent and Trademark Office. Defense or prosecution of patent
infringement litigation, as well as participation in interference proceedings,
can be expensive and time consuming, even in those instances in which the
outcome is favorable to the Company. If the outcome of any such litigation or
proceeding were adverse, the Company could be subject to significant liabilities
to third parties, could be required to obtain licenses from third parties or
could be required to cease sales of the affected products, any of which could
have a material adverse effect on the Company. See "Risk Factors -- Uncertainty
Related to Patents and Proprietary Information."

The Company has licensed on an exclusive basis four United States patents
and one United States issue application from Children's Hospital. Three of these
patents and the reissue application claim the use of compounds, including
VX-366, in the treatment of hemoglobin disorders, including sickle cell disease
and beta thalassemia. Because Children's Hospital did not foreign file the
application corresponding to the reissue application within one year of filing
its corresponding United States application, the Company's foreign patent rights
may be limited. In addition, there can be no assurance that others will not
develop independently substantially equivalent technology, obtain access to the
Company's know-how or be issued patents which may prevent the sale of Company
products or require licensing and the payment of significant fees or royalties
by the Company in order for it to carry on its business. Furthermore, there can
be no assurance that any such license will be available.

Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of key scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by employees, consultants, advisors and collaborators. There can be no
assurance that these agreements will effectively prevent disclosure of the
Company's confidential information or will provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure.
Furthermore, in the absence of patent protection, the Company's business may be
adversely affected by competitors who independently develop substantially
equivalent technology. See "-- Corporate Collaborations," and "Risk
Factors -- Dependence on Collaborative Partners" and "-- Uncertainty Relating to
Patents and Proprietary Information."

MANUFACTURING

The Company relies on third party manufacturers to produce its compounds
for preclinical and clinical purposes and may do so for commercial production of
any compounds that are approved for marketing. The Company has established a
quality assurance program, including a set of standard operating procedures,
intended to ensure that third party manufacturers under contract produce the
Company's compounds in accordance with the FDA's current Good Manufacturing
Practices ("cGMP") and other applicable regulations. See "-- Government
Regulation."

The Company believes that all of its existing compounds can be produced
using established manufacturing methods, primarily through standard techniques
of pharmaceutical synthesis. The Company currently does not have the capacity to
manufacture its potential products, is dependent on third party manufacturers or
collaborative partners for the production of its compounds for preclinical
research and clinical trial purposes and expects to be dependent on such
manufacturers or collaborative partners for some or all commercial production of
any of its compounds that are approved for marketing. The Company believes that
it will be able to continue to negotiate such arrangements on commercially
reasonable terms and that it will not be necessary for it to develop internal
manufacturing capability in order to successfully commercialize its products. In
the event that

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the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to
commercialize its products as planned. The Company's objective is to maintain
flexibility in deciding whether to develop internal manufacturing capabilities
for certain of its potential products. The Company has no experience in
manufacturing pharmaceutical or other products or in conducting manufacturing
testing programs required to obtain FDA and other regulatory approvals, and
there can be no assurance that the Company will develop such capabilities
successfully.

Since the Company's potential products are at an early stage of
development, the Company will need to improve or modify its existing
manufacturing processes and capabilities to produce commercial quantities of any
drug product economically. The Company cannot quantify the time or expense that
may ultimately be required to improve or modify its existing process
technologies, but it is possible that such time or expense could be substantial.

The production of Vertex's compounds is based in part on technology that
the Company believes to be proprietary. Vertex may license this technology to
contract manufacturers to enable them to manufacture compounds for the Company.
There can be no assurance that such manufacturers will abide by any limitations
or confidentiality restrictions in licenses with Vertex. In addition, any such
manufacturer may develop process technology related to the manufacture of
Vertex's compounds that such manufacturer owns either independently or jointly
with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.

Some of the Company's current corporate partners have certain manufacturing
rights with respect to the Company's products under development, and there can
be no assurance that such corporate partners' rights will not impede the
Company's ability to conduct the development programs and commercialize any
resulting products in accordance with the schedules and in the manner currently
contemplated by the Company. See "Risk Factors -- Manufacturing Uncertainties;
Reliance on Third Party Manufacturers."

COMPETITION

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Many of the Company's competitors have substantially greater financial,
technical and human resources than those of the Company. In addition, many of
the Company's competitors have significantly greater experience than the Company
in conducting preclinical testing and human clinical trials of new
pharmaceutical products, and in obtaining FDA and other regulatory approvals of
products. Accordingly, certain of the Company's competitors may succeed in
obtaining regulatory approval for products more rapidly than the Company. If the
Company obtains regulatory approval and commences commercial sales of its
products, it will also compete with respect to manufacturing efficiency and
sales and marketing capabilities, areas in which it currently has no experience.
See "Risk Factors -- Rapid Technological Change and Competition."

PHARMACEUTICAL PRICING AND REIMBURSEMENT

The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third party payors and government
authorities are continuing efforts to contain or reduce the cost of health care.
For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. There can be no
assurance that similar controls will not be implemented in the United States.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, may
result in lower prices for the Company's products. The cost containment measures
that health care providers and third party payors are instituting and any
proposed or future health care reform measures, including any reductions in
Government reimbursement programs such as Medicaid and Medicare, could affect
the Company's ability to sell its products and may have a material adverse
effect on the Company.

GOVERNMENT REGULATION

The Company's development, manufacture and potential sale of therapeutics
are subject to extensive regulation by United States and foreign governmental
authorities. In particular, pharmaceutical products are subject to rigorous
preclinical and clinical testing and to other approval requirements by the FDA
in the United States under the Food, Drug and Cosmetic Act and by comparable
agencies in most foreign countries.

As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a drug candidate is tested in
an animal model. The results of the studies are submitted to the FDA as a part
of the IND, which is filed to comply with FDA regulations prior to commencement
of human clinical testing. For other diseases for which no appropriately
predictive animal model exists, no such results can be filed. For several of the
Company's drug candidates, no appropriately predictive model exists. As a
result, no in vivo evidence of efficacy would be available until such compounds
progress to human clinical trials.

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40

Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the drug into healthy human subjects prior to
introduction into patients, the compound will be tested for safety, dosage
tolerance, absorption, bioavailability, biodistribution, metabolism, excretion,
clinical pharmacology and, if possible, for early information on effectiveness.
Phase II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the drug for a specific indication, to
determine dose tolerance and the optimal dose range and to gather additional
information relating to safety and potential adverse effects. Phase III trials
are undertaken to further evaluate clinical safety and efficacy in an expanded
patient population at geographically dispersed study sites, to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis for
physician labeling. Each trial is conducted in accordance with certain standards
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be evaluated by an independent Institutional Review Board ("IRB") at the
institution at which the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.

Data from preclinical testing and clinical trials are submitted to the FDA
in an NDA for marketing approval. The process of completing clinical testing and
obtaining FDA approval for a new drug is likely to take a number of years and
require the expenditure of substantial resources. Preparing an NDA involves
considerable data collection, verification, analysis and expense, and there can
be no assurance that approval will be granted on a timely basis, if at all. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform to the FDA's cGMP regulations, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, also are subject to inspections by or under the authority
of the FDA and by or under the authority of other federal, state or local
agencies.

Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process, labeling or manufacturing facilities, an NDA supplement may be required
to be submitted to the FDA.

The Orphan Drug Act provides incentives to drug manufacturers to develop
and manufacture drugs for the treatment of diseases or conditions that affect
fewer than 200,000 individuals in the United States. Orphan drug status can also
be sought for diseases or conditions that affect more than 200,000 individuals
in the United States if the sponsor does not realistically anticipate its
product becoming profitable from sales in the United States. Under the Orphan
Drug Act, a manufacturer of a designated orphan product can seek tax benefits,
and the holder of the first FDA approval of a designated orphan product will be
granted a seven-year period of marketing exclusivity for that product for the
orphan indication. While the marketing exclusivity of an orphan drug would
prevent other sponsors from obtaining approval of the same compound for the same
indication, it would not prevent other types of drugs from being approved for
the same use. The Company has obtained orphan drug status for VX-366 for the
treatment of beta thalessemia and sickle cell disease and, in the future, may
apply for orphan drug status for certain indications of MDR in cancer.

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Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
sponsor may be granted marketing exclusivity for a period of time following FDA
approval of certain drug applications if FDA approval is received before the
expiration of the patent's original term. This marketing exclusivity would
prevent a third party from obtaining FDA approval for a similar or identical
drug through an Abbreviated New Drug Application ("ANDA"), which is the
application form typically used by manufacturers seeking approval of a generic
drug. The statute also allows a patent owner to extend the term of the patent
for a period equal to one-half the period of time elapsed between the filing of
an IND and the filing of the corresponding NDA plus the period of time between
the filing of the NDA and FDA approval. The Company intends to seek the benefits
of this statute, but there can be no assurance that the Company will be able to
obtain any such benefits.

Whether or not FDA approval has been obtained, approval of a drug product
by regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.

In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations. See "Risk Factors -- Extensive Government
Regulation."

HUMAN RESOURCES

As of December 31, 1996, Vertex had 178 full-time employees, including 136
in research and development, 23 in laboratory support services and 19 in general
and administrative functions, and three part-time employees. The Company's
scientific staff members (58 of whom hold Ph.D. and/or M.D. degrees) have
diversified experience and expertise in molecular and cell biology,
biochemistry, animal pharmacology, synthetic organic chemistry, protein x-ray
crystallography, protein nuclear magnetic resonance spectroscopy, computational
chemistry, biophysical chemistry, medicinal chemistry, clinical pharmacology and
clinical medicine. In addition, the Company's Altus subsidiary had 19 full-time
employees as of December 31, 1996. The Company's employees are not covered by a
collective bargaining agreement, and the Company considers its relations with
its employees to be good.

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SCIENTIFIC ADVISORY BOARD

The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. The Scientific Advisory
Board also evaluates the Company's research programs, recommends personnel to
the Company and advises the Company on technological matters. The members of the
Scientific Advisory Board, which is chaired by Dr. Vicki L. Sato, are:

Vicki L. Sato, Ph.D. ............. Senior Vice President of Research and Development
and Chief Scientific Officer, Vertex
Pharmaceuticals Incorporated.
Steven J. Burakoff, M.D. ......... Chair, Department of Pediatric Oncology, Dana-
Farber Cancer Institute; Professor of Pediatrics,
Harvard Medical School.
Eugene H. Cordes, Ph.D. .......... Professor of Pharmacy and Chemistry, University
of Michigan at Ann Arbor.
Jerome E. Groopman, M.D. ......... Chief of the Division of Experimental Medicine,
Beth Israel Deaconess Medical Center; Recanti
Chair in Immunology and Professor of Medicine,
Harvard Medical School.
Stephen C. Harrison, Ph.D. ....... Professor of Biochemistry and Molecular Biology,
Harvard University; Investigator, Howard Hughes
Medical Institute; Professor of Biological
Chemistry and Molecular Pharmacology and
Professor of Pediatrics, Harvard Medical School.
Jeremy R. Knowles, D. Phil. ...... Dean of the Faculty of Arts and Sciences, Harvard
University; Amory Houghten Professor of Chemistry
and Biochemistry, Harvard University.
Robert T. Schooley, M.D. ......... Head, Infectious Disease Division, University of
Colorado Health Sciences Center; Professor of
Medicine, University of Colorado.

Other than Dr. Sato, none of the members of the Scientific Advisory Board
is employed by the Company, and members may have other commitments to or
consulting or advisory contracts with their employers or other entities that may
conflict or compete with their obligations to the Company. Accordingly, such
persons are expected to devote only a small portion of their time to the
Company. In addition to its Scientific Advisory Board, Vertex has established
consulting relationships with a number of scientific and medical experts who
advise the Company on a project-specific basis.

FACILITIES

The Company leases an aggregate of approximately 110,000 square feet of
laboratory and office space in five adjacent facilities at 40 Allston Street,
625 Putnam Avenue, 618 Putnam Avenue, 240 Sidney Street and 130 Waverly Street
in Cambridge, Massachusetts. The lease to the 40 Allston Street, 618 Putnam
Avenue and 240 Sidney Street facilities will expire in December 2003. The lease
to the 625 Putnam Avenue facility expires in December 1998, subject to an
option, at the Company's election, to extend the term through December 2000. The
lease to the 130 Waverly Street facility will expire in December 2005. The
Company has occupied approximately 53,000 square feet of space under this lease,
with approximately 7,000 square feet of additional space available for
expansion. The Company believes its facilities are adequate for its current
needs. The Company believes it can obtain additional space on commercially
reasonable terms.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names, ages and positions held by the directors and executive officers
of the Company are as follows:

NAME AGE POSITION
- ---------------------------------------- --- -------------------------------------------

Joshua S. Boger, Ph.D................... 45 President and Chief Executive Officer,
Director
Richard H. Aldrich...................... 42 Senior Vice President and Chief Business
Officer
Vicki L. Sato, Ph.D..................... 48 Senior Vice President of Research and
Development and Chief Scientific Officer;
Chair of the Scientific Advisory Board
Iain P. M. Buchanan..................... 43 Vice President of European Operations;
Managing Director of Vertex Pharmaceuticals
(Europe) Limited
Thomas G. Auchincloss, Jr............... 35 Vice President of Finance and Treasurer
Benno C. Schmidt........................ 84 Chairman of the Board
Barry M. Bloom, Ph.D.(1)(3)............. 68 Director
Roger W. Brimblecombe, Ph.D., D.Sc.(1).. 67 Director
Donald R. Conklin(2)(3)................. 56 Director
William W. Helman IV(2)................. 38 Director
Charles A. Sanders, M.D................. 65 Director

- ---------------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

(3) Member of the Nominating Committee

The Board of Directors is divided into three classes, as nearly equal in
number as possible. At each annual meeting of stockholders, the successors to
the class of directors whose term expires at the meeting will be elected to hold
office for a term continuing until the annual meeting held in the third year
following the year of their election and until their successors are duly elected
and qualified. All executive officers are elected annually by the Board of
Directors to serve in their respective capacities until their successors are
elected and qualified or until their earlier resignation or removal.

Dr. Boger is a founder of the Company and was its President and Chief
Scientific Officer from its inception in 1989 until May 1992, when he became
President and Chief Executive Officer. Dr. Boger has been a director since the
Company's inception. Prior to founding the Company in 1989, Dr. Boger held the
position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research
Laboratories in Rahway, New Jersey, where he headed both the Department of
Medicinal Chemistry of Immunology & Inflammation and the Department of
Biophysical Chemistry. Dr. Boger is also a Director of Millennium
Pharmaceuticals, Inc. Dr. Boger holds a B.A. in chemistry and philosophy from
Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard
University.

Mr. Aldrich served as Vice President of Business Development of the Company
from June 1989 to May 1992, when he became Vice President and Chief Business
Officer. In December 1993, Mr. Aldrich was promoted to Senior Vice President and
Chief Business Officer. He joined Vertex from Integrated Genetics, where he
headed that company's business development group. Previously, he served as
Program Executive at Biogen, Inc., where he coordinated worldwide commercial
development of several biopharmaceuticals, and as Licensing Manager at Biogen
S.A. in Geneva, Switzerland, where he

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managed European and Far Eastern licensing. Mr. Aldrich previously worked at the
Boston Consulting Group, an international management consulting firm. Mr.
Aldrich received a B.S. degree from Boston College and an M.B.A. from the Amos
Tuck School of Business, Dartmouth College.

Dr. Sato joined Vertex in September 1992 as Vice President of Research and
was appointed Senior Vice President of Research and Development in September
1994. Previously, she was Vice President, Research and a member of the
Scientific Board of Biogen, Inc. As research head at Biogen, she directed
research programs in the fields of inflammation, immunology, AIDS therapy and
cardiovascular therapy from early research into advanced product development.
Dr. Sato received an A.B. in biology from Radcliffe College and A.M. and Ph.D.
degrees from Harvard University. Following postdoctoral work in chemistry and
immunology at the University of California at Berkeley and Stanford Medical
School, she was appointed to the faculty of Harvard University in the Department
of Biology.

Mr. Buchanan joined the Company in April 1994 from Cilag AG, a subsidiary
of Johnson & Johnson based in Zug, Switzerland, where he served as its Regional
Licensing Director since 1987. He previously held the position of Marketing
Director of Biogen, Inc. in Switzerland. Prior to Biogen, Mr. Buchanan served in
Product Management at Merck Sharp & Dohme (UK) Limited. Mr. Buchanan holds a
B.Sc. from the University of St. Andrews, Scotland.

Mr. Auchincloss joined the Company in October 1994 after serving as an
investment banker at Bear, Stearns & Co. Inc. since 1988, most recently as
Associate Director of the Corporate Finance Department. Prior to Bear Stearns,
Mr. Auchincloss was a financial analyst for PaineWebber, Inc. Mr. Auchincloss
holds a B.S. from Babson College and an M.B.A. from The Wharton School,
University of Pennsylvania.

Mr. Schmidt has served as a member of the Board of Directors since April
1989 and as Chairman of the Board since 1991. He is a General Partner of J.H.
Whitney & Co., a New York City-based venture capital firm. He is Honorary
Co-Chairman of the Board of Memorial Sloan Kettering Cancer Center, senior
member of the Institute of Medicine of the National Academy of Sciences and
trustee of the General Motors Cancer Research Foundation. He has served as
Chairman of the President's Cancer Panel under three United States Presidents.
He is currently Chairman Emeritus of Freeport-McMoRan Copper & Gold, Inc. and
Director Emeritus of Freeport-McMoRan Inc. and McMoRan Oil & Gas Co.

Dr. Bloom has served as a member of the Board of Directors since February
1994. Dr. Bloom was formerly with Pfizer Inc., as Executive Vice President of
Research and Development from 1992 to 1993, as Senior Vice President from 1990
to 1992, as Vice President from 1971 to 1990 and as a director since 1973. Dr.
Bloom is also a Director of Incyte Pharmaceuticals Inc., Neurogen Corporation,
Southern New England Telecommunications Corp., Cubist Pharmaceuticals, Inc. and
Catalytica Fine Chemicals.

Dr. Brimblecombe has served as a member of the Board of Directors since
March 1993. Dr. Brimblecombe is currently Chairman of Vanguard Medica Ltd.,
Surrey, UK. Previously, he spent seventeen years at Smith Kline & French, most
recently as Vice President, Collaborative Research and Development and Compound
Acquisition (Worldwide), and as Chairman of Smith Kline & French Research Ltd.
Prior to joining Smith Kline & French, he held positions in the UK National
Health Service, Medical Research Council and Scientific Civil Service. Dr.
Brimblecombe is also a director of Intercardia, Inc., Ontogeny, Inc. and several
companies located in the United Kingdom.

Mr. Conklin has served as a member of the Board of Directors since February
1994. Mr. Conklin was Executive Vice President of Schering-Plough from 1986 to
1996. He was President of Schering-Plough HealthCare Products from 1994 through
1996. From 1986 to 1994, he was President of Schering-Plough Pharmaceuticals.
Mr. Conklin is also a director of Cytotherapeutics, Inc. and BioTransplant Inc.

Mr. Helman has served as a member of the Board of Directors since April
1989. Mr. Helman is a General Partner of Greylock Equity Limited Partnership,
Greylock Limited Partnership and Greylock Capital Limited Partnership, an
original investor in the Company. He is a director of Millennium
Pharmaceuticals, Inc. and several private companies.

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Dr. Sanders joined the Board of Directors in December 1996. Dr. Sanders
retired in 1995 as Chairman and Chief Executive Officer of Glaxo Inc. From 1989
to 1995 he was a member of the Board of Glaxo plc. From 1981 to 1989, Dr.
Sanders held a number of posts at the Squibb Corporation, including that of Vice
Chairman. Prior to that he was General Director of Massachusetts General
Hospital. He has served on the Boards of Merrill Lynch and Co., Reynolds Metals
Co. and Molton International Inc. Currently he is a member of the Board of
Staffmark, Inc. and Magainin Pharmaceuticals.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01 par
value.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to any prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering, when issued and paid for, will be,
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.

As of December 31, 1996, there were 21,097,117 shares of Common Stock
outstanding. Based upon the number of shares of Common Stock outstanding as of
that date, and giving effect to the issuance of the 2,500,000 shares of Common
Stock offered by the Company hereby (assuming that the Underwriters'
over-allotment option is not exercised), there will be 23,597,117 shares of
Common Stock outstanding upon the completion of this offering.

OPTIONS

As of December 31, 1996, the Company had outstanding options for the
purchase of 4,032,609 shares of Common Stock at exercise prices ranging from
$6.48 per share to $37.50 per share. Options for the purchase of 1,624,862
shares were exercisable as of that date.

STOCKHOLDER RIGHTS PLAN

Pursuant to the Company's Stockholder Rights Plan, under an amendment
approved by the Board of Directors, but not yet executed by the rights agent,
each share of Common Stock has an associated preferred share purchase right (a
"Right"). Each Right entitles the holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, $.01
par value (the "Junior Preferred Shares"), of the Company at a price of $270 per
one one-hundredth of a Junior Preferred Share, subject to adjustment (the
"Purchase Price"). The Rights are not exercisable until after the acquisition by
a person or group of 15% or more of the outstanding Common Stock (an "Acquiring
Person") or after the announcement of an intention to make or commencement of a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
Common Stock (the earlier of such dates being called the "Distribution Date").
Until a Right is exercised, the holder thereof will have no rights as a

44
46

stockholder of the Company. Until the Distribution Date (or earlier redemption
or expiration of the Rights), the Rights will be transferred with and only with
the Common Stock.

In the event that any person or group becomes an Acquiring Person, each
holder of a Right, other than Rights beneficially owned by the Acquiring Person,
will thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the Purchase Price, and in the
event that the Company is acquired in a business combination transaction or 50%
or more of its assets are sold, each holder of a Right will thereafter have the
right to receive upon exercise that number of shares of common stock of the
acquiring company which at the time of the transaction will have a market value
of two times the Purchase Price.

At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Stock, the Board of Directors of the Company may cause the Rights (other than
Rights owned by such person or group) to be exchanged, in whole or in part, for
Common Stock or Junior Preferred Shares, at an exchange rate of one share of
Common Stock per Right or one one-hundredth of a Junior Preferred Share per
Right.

At any time prior to the acquisition by a person or group of beneficial
ownership of 15% or more of the outstanding Common Stock or the potential
acquisition through tender offer by a person or group of 15% or more of the
outstanding Common Stock, the Board of Directors of the Company may redeem the
Rights in whole at a price of $.01 per Right.

The Rights have certain anti-takeover effects, in that they will cause
substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors.

45
47

UNDERWRITING

Subject to the terms of and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, Bear, Stearns & Co. Inc., Robertson, Stephens & Company LLC and
J.P. Morgan Securities Inc. have severally agreed to purchase from the Company
the following respective numbers of shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:

NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
--------------------------------------------------------------------- ------------

Cowen & Company......................................................
Bear, Stearns & Co. Inc. ............................................
Robertson, Stephens & Company LLC....................................
J.P. Morgan Securities Inc...........................................

------------
Total...................................................... 2,500,000
===========

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.

The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,500,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,500,000 shares are being offered.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, as amended.

The Company, its directors, executive officers and certain of its
stockholders, holding in the aggregate approximately 1,162,268 shares of Common
Stock outstanding prior to this offering, have entered into agreements providing
that, for a period of 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, they will not, without the prior
written consent of Cowen & Company, offer for sale, sell or otherwise dispose of
(or enter into any transaction which is designed to, or could reasonably be
expected to, result in the disposition by any person of) any shares of Common
Stock or securities convertible or exchangeable for shares of Common Stock, or
sell or grant options, rights or warrants with respect to any shares of Common
Stock.

46
48

In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 or any successor rule or regulation thereto. Passive market
making consists of displaying bids on the Nasdaq National Market limited by the
prices of independent market makers and effecting purchases limited by such
prices and in response to order flow. Net purchases by a passive market maker on
each day are limited in amount to a specified percentage of the passive market
maker's average daily trading volume in Common Stock during a specified prior
period and must be discontinued when such limit is reached. Passive market
making may stabilize the market price of Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.

In connection with this offering, the Underwriters may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Company's Common Stock at levels above those which might otherwise prevail
in the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid, or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the Company's Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in
connection with the offering. A penalty bid means an arrangement that permits
Cowen & Company to reclaim a selling concession from a syndicate member in
connection with the offering when shares of the Company's Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

LEGAL OPINIONS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Warner & Stackpole LLP, Boston, Massachusetts. Kenneth S.
Boger, a partner of Warner & Stackpole LLP, is an Assistant Clerk of the Company
and a brother of Joshua Boger, Ph.D, the President of the Company. Warner &
Stackpole LLP provides significant legal services to the Company. Mr. Boger and
one of his partners are co-trustees of a trust for the benefit of Dr. Boger's
children which owns Common Stock of the Company. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP.

EXPERTS

The consolidated balance sheets as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996 are
incorporated by reference in this Prospectus and have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

47
49

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.

------------------------------

TABLE OF CONTENTS

PAGE
-----

Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 15
Price Range of Common Stock........... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 18
Business.............................. 22
Management............................ 42
Description of Capital Stock.......... 44
Underwriting.......................... 46
Legal Opinions........................ 47
Experts............................... 47

======================================================

2,500,000 SHARES

VERTEX PHARMACEUTICALS

INCORPORATED

LOGO

COMMON STOCK

------------------------------

PROSPECTUS

------------------------------

COWEN & COMPANY

BEAR, STEARNS & CO. INC.

ROBERTSON, STEPHENS & COMPANY

J.P. MORGAN & CO.

, 1997
======================================================
50

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses, other than underwriting
discount, payable by the Registrant in connection with the issuance and
distribution of the securities being registered hereby. All of such expenses,
except the Securities and Exchange Commission filing fee, the National
Association of Securities Dealers, Inc. filing fee and the Nasdaq Additional
Listing fee are estimated.

Securities and Exchange Commission filing fee........................... $ 41,984
National Association of Securities Dealers, Inc. filing fee............. 14,355
Nasdaq Additional Listing Fee........................................... 17,500
Legal fees and expenses................................................. 150,000
Accounting fees and expenses............................................ 85,000
Printing and engraving expenses......................................... 120,000
Blue sky qualification fees and expenses................................ 15,000
Miscellaneous........................................................... 56,161
--------
Total......................................................... $500,000
========

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Part D of Article 6 of the Restated Articles of Organization of the
Registrant provides that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Such paragraph provides further, however, that, to
the extent provided by applicable law, it will not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
distributions made in violation of the Registrant's Restated Articles of
Organization or which are made when the Registrant is insolvent or which renders
it insolvent, (iv) for loans made to officers or directors of the Registrant
which are not repaid if the director has voted for such loans and they have not
been approved or ratified as loans reasonably expected to benefit the
Registrant, by a majority of directors who are not recipients of such loans or
the holders of a majority of voting shares, which holders are not recipients of
such loans, and (v) for any transactions from which the director derived an
improper personal benefit.

Article V of the Registrant's By-laws provides that the Registrant shall
indemnify each of its directors and officers (including persons who serve at the
Registrant's request as a director, officer or trustee of another organization
in which the Registrant has any interest, direct or indirect, as a stockholder,
creditor or otherwise or who serve at the Registrant's request in any capacity
with respect to any employee benefit plan) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties and counsel fees reasonably incurred by such director or officer
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such director or officer may be
involved or with which such person may be threatened, while in office or
thereafter, by reason of such person's being or having been such a director,
officer or trustee, except with respect to any matter as to which such director
or officer shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that such director's or officer's action was
in the best interest of the Registrant or, to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.

As to any matter disposed of by a compromise payment by any such person,
pursuant to a consent decree or otherwise, Article V of the Registrant's By-laws
provides that no indemnification shall be

II-1
51

provided to such person for such payment or for any other expenses unless such
compromise has been approved as in the best interest of the Registrant, after
notice that it involves such indemnification (i) by a disinterested majority of
the directors then in office, (ii) by a majority of the disinterested directors
then in office, provided there has been obtained an opinion in writing of
independent legal counsel to the effect that such director or officer appears to
have acted in good faith in the reasonable belief that such person's action was
in the best interest of the Registrant, or (iii) by the holders of a majority of
the outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer.

Article V of the Registrant's By-laws provides that expenses, including
counsel fees, reasonably incurred by any director or officer in connection with
the defense or disposition of any such action, suit or other proceeding may be
paid from time to time by the Registrant at the discretion of a majority of the
disinterested directors then in office, in advance of the final disposition
thereof, upon receipt of an undertaking by such director or officer to repay the
Registrant the amounts so paid if it is ultimately determined that
indemnification for such expenses is not authorized under Article V of the
By-laws, which undertaking may be accepted by the Registrant without reference
to the financial ability of such director or officer to make repayment.

Article V of the Registrant's By-laws gives the Board of Directors of the
Registrant the power to authorize the purchase and maintenance of insurance, in
such amounts as the Board of Directors may from time to time deem appropriate,
on behalf of any person who is or was a director, officer or agent of the
Registrant, or who is or was serving at the request of the Registrant as a
director, officer or agent of another organization in which the Registrant has
any interest, direct or indirect, as a shareholder, creditor or otherwise, or
with respect to any employee benefit plan, against any liability incurred by
such person in any such capacity, or arising out of such person's status as such
agent, whether or not such person is entitled to indemnification by the
Registrant pursuant to Article V or otherwise and whether or not the Registrant
would have the power to indemnify the person against such liability.

Section 13(b)(1 1/2) of the Massachusetts Business Corporation Law, Chapter
156B of the General Laws of Massachusetts (the "MBCL") authorizes the
provisions, described above, contained in Part D of Article 6 of the Restated
Articles of Organization of the Registrant.

Section 67 of the MBCL authorizes the provisions, described above,
contained in Article V of the By-laws of the Registrant.

Section 65 of the MBCL provides that performance by a director, officer or
incorporator of such person's duties in good faith and in a manner such person
reasonably believes to be in the best interest of the corporation, and with such
care as an ordinary prudent person in a like position would use under similar
circumstances, shall be a complete defense to any claim asserted against such
director, officer or incorporator, except as otherwise expressly provided by
statute, by reason of such person's being or having been a director, officer or
incorporator of the corporation.

Pursuant to Section 6(b) of the Underwriting Agreement, the Underwriters
have agreed to indemnify each director of the Registrant, each officer of the
Registrant who has signed the Registration Statement and any person who controls
the Registrant within the meaning of the Securities Act against certain
liabilities, including liabilities under the Securities Act.

II-2
52

ITEM 16. EXHIBITS

1 -- Form of Underwriting Agreement (filed herewith).
4.1* -- Specimen stock certificate.
4.2* -- Stockholder Rights Plan.
4.3 -- Form of Amendment to the Stockholder Rights Plan (filed herewith).
4.4* -- Series A Convertible Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated April 20, 1989.
4.5* -- Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated June 22, 1990.
4.6* -- Series C Convertible Preferred Stock Purchase Agreement between the
Registrant and the party named therein, dated September 21, 1990.
5 -- Opinion of Warner & Stackpole LLP (filed herewith).
23.1 -- Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 -- Consent of Warner & Stackpole LLP (included in Exhibit 5).
24 -- Power of Attorney (included in the signature page hereto).

- ---------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated herein by
reference.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described under
Item 14 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by its is against public policy as express in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant undertakes that: (i) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared effective and
(ii) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-3
53

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on February
25, 1997.

VERTEX PHARMACEUTICALS INCORPORATED

/S/ JOSHUA S. BOGER
By:.................................
JOSHUA S. BOGER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
Joshua S. Boger, Thomas G. Auchincloss, Jr. and Hans D. Van Houte, and each of
them with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments to this Registration Statement (including post-effective
amendments and amendments thereto) and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.

SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ --------------------

/s/ JOSHUA S. BOGER President, Chief Executive February 25, 1997
........................................ Officer and Director
JOSHUA S. BOGER (Principal Executive
Officer)

/s/ THOMAS G. AUCHINCLOSS, JR. Vice President of Finance and February 25, 1997
........................................ Treasurer (Principal
THOMAS G. AUCHINCLOSS, JR. Financial Officer)
/s/ HANS D. VAN HOUTE Controller (Principal February 25, 1997
........................................ Accounting Officer)
HANS D. VAN HOUTE

/s/ BARRY M. BLOOM Director February 25, 1997
........................................
BARRY M. BLOOM

/s/ ROGER W. BRIMBLECOMBE Director February 25, 1997
........................................
ROGER W. BRIMBLECOMBE

/s/ DONALD R. CONKLIN Director February 25, 1997
........................................
DONALD R. CONKLIN

II-4
54
EXHIBIT INDEX

1 -- Form of Underwriting Agreement.
4.1* -- Specimen stock certificate.
4.2* -- Stockholder Rights Plan.
4.3 -- Form of Amendment to the Stockholder Rights Plan (filed herewith).
4.4* -- Series A Convertible Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated April 20, 1989.
4.5* -- Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated June 22, 1990.
4.6* -- Series C Convertible Preferred Stock Purchase Agreement between the
Registrant and the party named therein, dated September 21, 1990.
5 -- Opinion of Warner & Stackpole LLP (filed herewith).
23.1 -- Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 -- Consent of Warner & Stackpole LLP (included in Exhibit 5).
24 -- Power of Attorney (included in the signature page filed herewith).

- ---------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated herein by
reference.

   1


                                                                           DRAFT
                                                                           -----

                                2,500,000 Shares

                       VERTEX PHARMACEUTICALS INCORPORATED

                                  Common Stock
                                ($.01 Par Value)

                             UNDERWRITING AGREEMENT
                             ----------------------

                                                                 March  __, 1997

COWEN & COMPANY
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
J.P. MORGAN SECURITIES INC.
As Representatives of the several Underwriters
c/o Cowen & Company
One Financial Square
New York, New York 10005


Ladies and Gentlemen:

      1. INTRODUCTORY. Vertex Pharmaceuticals Incorporated, a Massachusetts
corporation (the "Company"), proposes to sell, pursuant to the terms of this
Agreement, to the several underwriters named in SCHEDULE A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of 2,500,000 shares of
Common Stock, $.01 par value (the "Common Stock"), of the Company. The aggregate
of 2,500,000 shares so proposed to be sold is hereinafter referred to as the
"Firm Stock." The Company also proposes to sell to the Underwriters, upon the
terms and conditions set forth in Section 3 hereof, up to an additional 375,000
shares of Common Stock (the "Optional Stock"). The Firm Stock and the Optional
Stock are hereinafter collectively referred to as the "Stock." Cowen & Company
("Cowen"), Bear, Stearns & Co. Inc. ("Bear, Stearns"), Robertson, Stephens &
Company LLC ("Robertson") and J.P. Morgan Securities Inc. ("J.P. Morgan") are
acting as representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives."

      2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents 
and warrants to, and agrees with, the several Underwriters that:

             (a) A registration statement on Form S-3 (File No. 333-_____) in
the form in which it became or becomes effective and also in such form as it may
be when any post-effective amendment thereto shall become effective with respect
to the Stock, including any preeffective prospectuses included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, 





   2


copies of which have heretofore been delivered to you, and, to the extent
applicable, were identical to the electronically transmitted copies thereof
filed with the Commission pursuant to the Commission's Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been filed with
the Commission under the Securities Act; one or more amendments to such
registration statement, including in each case an amended preeffective
prospectus, copies of which amendments have heretofore been delivered to you,
and, to the extent applicable, were identical to the electronically transmitted
copies thereof filed with the Commission pursuant to the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T, have been so prepared and filed. If it is
contemplated, at the time this Agreement is executed, that a post-effective
amendment to the registration statement will be filed and must be declared
effective before the offering of the Stock may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. The term "Registration Statement" as used in
this Agreement shall also include any registration statement relating to the
Stock that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, or, (A) if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Securities Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented by
the addition of the Rule 430A information contained in the prospectus filed with
the Commission pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered pursuant to
Rule 434 under the Securities Act, then (i) the term "Prospectus" as used in
this Agreement means the "prospectus subject to completion" (as such term is
defined in Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in the form of
prospectus delivered pursuant to Rule 434(b)(2) under the Securities Act or (b)
the information contained in the term sheets described in Rule 434(b)(3) under
the Securities Act, and (ii) the date of such prospectuses shall be deemed to be
the date of the term sheets. The term "Preeffective Prospectus" as used in this
Agreement means the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the Registration
Statement with the Commission, and as such prospectus shall have been amended
from time to time prior to the date of the Prospectus. Any reference herein to
any Preeffective Prospectus or the prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Form S-3
under the Securities Act, as of the date of such Preeffective Prospectus or
Prospectus, as the case may be, and any reference to any amendment or supplement
to any Preeffective Prospectus or the Prospectus shall be deemed to refer to and
include any documents filed after such date under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and so incorporated by reference. For
purposes of this Agreement, all references to the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of
the foregoing, shall be deemed to include the respective copies thereof filed
with the Commission pursuant to EDGAR.




                                      -2-
   3


            (b) The Company owns or controls, directly or indirectly, only the
following corporations, associations or other entities: Altus Biologics Inc.,
Vertex Pharmaceuticals Securities Corporation and Versal Technologies, Inc.
(hereinafter referred to collectively as the "Subsidiaries"). Each of the
Subsidiaries have been duly incorporated and are validly existing as
corporations in good standing (or the legal equivalent) under the laws of their
respective jurisdictions of incorporation, have full corporate power and
authority to own or lease their properties and conduct their businesses as
described in the Registration Statement and as being conducted and are duly
qualified or licensed to transact business in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by them requires such qualification (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, operations, financial conditions, income or business prospects of
the Company and the Subsidiaries, taken as a whole, as presently being
conducted). All of the outstanding shares of capital stock of the Subsidiaries
have been duly authorized and validly issued, are fully paid and non-assessable,
and are owned by the Company free and clear of all liens, encumbrances and
security interests, and, except for (i) Altus Biologics Inc., as to which
options to purchase __% of the common stock of Altus Biologics Inc., calculated
on a fully-diluted basis have been issued and (ii) Versal Technologies, Inc., as
to which options to purchase __% of the common stock of Versal Technologies,
Inc., calculated on a fully-diluted basis have been issued, no outstanding
options, warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into shares of capital
stock or ownership interests in the Subsidiaries are outstanding.

            (c) The Company and the Subsidiaries now hold, and at the First
Closing Date (as hereinafter defined) will hold, all material licenses,
certificates and permits from state, Federal, and other regulatory authorities
that are necessary for the conduct of their respective businesses as they are
presently conducted, except where the failure to hold such licenses,
certificates and permits would not have a material adverse effect on the
business, properties, operations, financial conditions, income or business
prospects of the Company and the Subsidiaries, taken as a whole; neither the
Company nor any of the Subsidiaries is in violation of its respective corporate
charter or by-laws, or in default in the performance or observance of any
provision of any obligation, agreement, covenant, or condition contained in a
bond, debenture, note, or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture, or other material agreement
or instrument to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries or any of their respective
properties may be bound, or is in violation of any law, order, rule, regulation,
writ, injunction, or decree of any government, governmental instrumentality, or
court, domestic or foreign, except where such violation would not have a
material adverse effect on the business, properties, operations, financial
conditions, income or business prospects of the Company and the Subsidiaries,
taken as a whole, as presently being conducted.

            (d) Except as disclosed in the Prospectus, the Company and the
Subsidiaries own, or possess adequate rights to use, all patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, trade names and copyrights described
or referred to in the Prospectus or owned or used by them or 





                                      -3-
   4


which are necessary for the conduct of their respective businesses as they are
presently or proposed to be conducted, except where the failure to own or
possess, such patents, patent rights, inventions, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks service
marks, trade names and copyrights would not have a material adverse effect on
the business, properties, operations, financial condition or income of the
Company and the Subsidiaries, taken as a whole. Except as disclosed in the
Prospectus, neither the Company nor any of the Subsidiaries has received notice
of infringement of or conflict with asserted rights of others with respect to
any patents, patent rights, inventions, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks,
tradenames or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely affect the
business, properties, operations, financial condition, income or business
prospects of the Company and the Subsidiaries, taken as a whole, as presently
being conducted or as proposed to be conducted.

            (e) This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement enforceable against the
Company in accordance with its terms; the execution, delivery and performance of
this Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement, or
other evidence of indebtedness, lease, contract or other agreement or instrument
to which the Company or any of the Subsidiaries is a party or by which the
property of the Company or any of the Subsidiaries is bound, (ii) the corporate
charter or by-laws of the Company or any of the Subsidiaries, respectively, or
(iii) any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or of any of the
Subsidiaries or over the properties of the Company or any of the Subsidiaries;
and no consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Company of the
transactions herein contemplated, except such as may be required under the
Securities Act or under applicable state securities laws.

            (f) Except as set forth in the Prospectus, there is not now, and as
of or prior to the First Closing Date there will not be, any action, suit or
proceeding, at law or in equity, against the Company by a private litigant, by
any Federal, state, or other commission, board or agency, or any proceedings
before any administrative agency pending or, to the knowledge of the Company,
threatened, wherein any unfavorable decision, ruling or finding could adversely
affect the business, properties, operations, financial condition, income or
business prospects of the Company and the Subsidiaries, taken as a whole, as
presently being conducted, or prevent consummation of the transactions
contemplated hereby.

            (g) The capitalization of the Company as of December 31, 1996 is as
set forth under the caption "Capitalization" in the Registration Statement and
the Prospectus, and the Common Stock conforms to the description thereof set
forth under the caption "Description of Capital Stock" in the Registration
Statement and the Prospectus. The outstanding shares of Common Stock of the
Company have been duly authorized and validly issued and are fully-paid and
non-assessable. The Stock has been duly and validly authorized, and when issued
and paid 





                                      -4-
   5


for on the First Closing Date and the Option Closing Date (each as hereinafter
defined) will be duly and validly issued, fully paid and non-assessable; there
are no preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of the Stock; and there are no
outstanding options, warrants or other rights, granted to or by the Company to
purchase shares of Common Stock or other securities of the Company other than
and described in the Prospectus, except for options for shares of Common Stock
granted after December 31, 1996, and, to the knowledge of the Company, no person
is a beneficial owner of five (5%) percent or more of the Common Stock of the
Company as of ________, ____ except as set forth in the Company's definitive
proxy statement for its 1996 annual meeting of stockholders. No holders of
shares of Common Stock or other securities of the Company has the right (other
than a right which has been waived) to have any securities owned by such holder
included in the Registration Statement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Shares as contemplated herein. A registration statement
relating to the Common Stock has been declared effective by the Commission
pursuant to the Exchange Act and the Common Stock is duly registered thereunder.
The Stock has been approved for designation on the National Association of
Securities Dealers, Inc. Automated Quotations/National Market ("Nasdaq National
Market"), subject to notice of issuance or sale of the Stock, as the case may
be. The Company knows of no reason or set of facts which is likely to result in
the termination of inclusion of such Stock in the Nasdaq National Market or the
inability of the Stock to continue to be included in the Nasdaq National Market.

            (h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, operations, financial condition,
income or business prospects of the Company and the Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, neither the Company nor the Subsidiaries have
entered into any material transaction not referred to in the Registration
Statement and the Prospectus.

            (i) The Commission has not issued an order preventing or suspending
the use of any Preeffective Prospectus or the Prospectus, nor has it instituted
proceedings for that purpose and each Preeffective Prospectus, at the time of
filing thereof, did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement, the Preeffective
Prospectus and the Prospectus comply, and on the First Closing Date and the
Option Closing Date the Prospectus will comply, in all material respects with
the provisions of the Securities Act and the rules and regulations of the
Commission thereunder. There are no contracts or documents of the Company or of
any of the Subsidiaries which would be required to be filed as exhibits to the
Registration Statement by the Securities Act or by the rules and regulations of
the Commission which have not been filed as exhibits to the Registration
Statement or incorporated by reference therein. On the Effective Date and at all
times subsequent thereto up to and including the First Closing Date and the
Option Closing Date, neither the Registration Statement nor any amendment
thereto, and neither the Preeffective Prospectus or the Prospectus, nor any
supplement thereto, contains or will contain any untrue statement of a






                                      -5-
   6

material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; provided, however, that none of the representations and warranties
in this subsection (i) shall apply to statements in or omissions from the
Registration Statement, the Preeffective Prospectus or the Prospectus made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for use in the
preparation thereof.

            (j) The financial statements of the Company, together with related
notes thereto as included or incorporated by reference in the Registration
Statement, the Preeffective Prospectus and the Prospectus, present fairly the
financial position and the results of operations of the Company, at the
indicated dates and for the indicated periods. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have been made.
The summary and selected financial data included in the Registration Statement
and the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements incorporated by
reference therein.

            (k) The Company and the Subsidiaries have good and marketable title
to all the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described subject to no
liens, mortgages, pledges, charges or encumbrances of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming to the
description thereof set forth in the Registration Statement.

            (l) All material leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the Subsidiaries
is bound, are in full force and effect or have expired or terminated in
accordance with their terms or have been superseded by leases, contracts or
agreements referred to in the Registration Statement or subsequently filed as
exhibits to the Registration Statement.

            (m) The documents which are incorporated by reference in the
Registration Statement, the Preeffective Prospectus and the Prospectus or from
which information is so incorporated by reference, when they became effective or
were filed with the Commission, as the case may be, complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, and any documents so filed
and incorporated by reference subsequent to the Effective Date shall, when they
are filed with the Commission, conform in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder.

            (n) The Company and each of the Subsidiaries have filed all Federal,
state and foreign tax returns which have been required to be filed (or have
obtained any required extensions in connection therewith) and have paid all
taxes indicated by said returns and all 







                                      -6-
   7


assessments received by them to the extent that such taxes have become due and
are not being contested in good faith, except where the failure to file such
returns would not have a material adverse effect on the business, properties,
operations, financial condition, income or business prospects of the Company and
the Subsidiaries, taken as a whole. The Company has no knowledge of any tax
deficiency which has been or might be asserted against it which would materially
and adversely affect the business or properties of the Company or any of its
Subsidiaries. To the knowledge of the Company, all tax liabilities are
adequately provided for on the books of the Company or its Subsidiaries.

            (o) Each approval, consent, order, authorization, designation,
declaration, or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated has been obtained or made and is in full force and effect, except
such steps as may be required by the National Association of Securities Dealers,
Inc. (herein called the "NASD") or as may be necessary to qualify the Stock for
public offering by the Underwriters under state securities laws or filing
requirements under Rule 424(b) or Rule 430A.

            (p) To the Company's knowledge, Coopers & Lybrand L.L.P., who have
certified certain of the financial statements included or incorporated by
reference in the Registration Statement, are independent public accountants as
required by the Securities Act and the rules and regulations thereunder.

            (q) The Company and its Subsidiaries are not, and do not intend to
conduct their business in a manner in which any of them would become, an
"investment company" as defined in Section 3(a) of the Investment Company Act of
1940, as amended ("Investment Company Act").

            (r) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.

            (s) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company,
or which caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any security of the Company.




                                      -7-
   8


            (t) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive, key
employee or significant group of employees of the Company or any subsidiary
plans to terminate his or her employment with the Company or any such subsidiary
or (B) any such executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreement that
would be violated by the present or proposed business activities of the Company
and its subsidiaries. Neither the Company nor any subsidiary has or expects to
have any liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), to which the Company or any
subsidiary makes or ever has made a contribution and in which any employee of
the Company or any subsidiary is or has ever been a participant. With respect to
such plans, the Company and each subsidiary are in compliance in all material
respects with all applicable provisions of ERISA.

            (u) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged or propose
to engage after giving effect to the transactions described in the Prospectus;
and neither the Company nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries considered as a
whole.

            (v) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.

            (w) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

            (x) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any of its Subsidiaries
has made any payment of funds of the Company or any of its Subsidiaries or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.






                                      -8-
   9



            (y) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company as to the matters covered
thereby.

            (z) The Company and the Subsidiaries are in all material respects in
compliance with, and conduct their businesses in conformity with, all applicable
federal, state, local and foreign laws, rules and regulations or any court or
governmental agency or body, including without limitation those of the FDA; to
the knowledge of the Company, otherwise than as set forth in the Registration
Statement and the Prospectus, no prospective change in any of such federal or
state laws, rules or regulations has been adopted which, when made effective,
would have a material adverse effect on the operations of the Company and its
subsidiaries.

      3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS - CLOSING DATES.
The Company agrees to sell to the Underwriters the Firm Stock, and on the basis
of the representations, warranties, covenants and agreements herein contained,
but subject to the terms and conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase the Firm Stock from the Company,
the number of shares of Firm Stock to be purchased by each Underwriter being set
opposite its name in SCHEDULE A, subject to adjustment in accordance with
Section 12 hereof.

      The purchase price per share to be paid by the Underwriters to the Company
will be $_____ per share (the "Purchase Price").

      The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 noon, Boston time, on the second full business day preceding the First
Closing Date (as defined below) or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Cowen may
designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of the Company, all at the offices
of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
MA 02110. The time and date of the delivery and closing shall be at 10:00 A.M.,
Boston time, on _________, 1997, in accordance with Rule 15c6-1 of the Exchange
Act. The time and date of such payment and delivery are herein referred to as
the "First Closing Date." The First Closing Date and the location of delivery
of, and the form of payment for, the Firm Stock may be varied by agreement
between the Company and Cowen. The First Closing Date may be postponed pursuant
to the provisions of Section 12.

      The Company shall make the certificates for the Firm Stock available to
the Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., Boston time, on the business day preceding the First Closing Date at
the offices of Cowen & Company, Financial Square, New York, New York 10005.




                                      -9-
   10


      It is understood that Cowen, Bear, Stearns, Robertson or J.P. Morgan,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company on behalf of any
Underwriter or Underwriters, for the Stock to be purchased by such Underwriter
or Underwriters. Any such payment by Cowen, Robertson or Bear, Stearns, shall
not relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.

      The several Underwriters agree to make a public offering of the Firm Stock
at the public offering price as soon after the effectiveness of the Registration
Statement as in their judgment is advisable. The Representatives shall promptly
advise the Company of the making of the initial public offering.

      For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase an aggregate of
up to 375,000 additional shares of Common Stock. The price per share to be paid
for the Optional Stock shall be the Purchase Price. The option granted hereby
may be exercised as to all or any part of the Optional Stock at any time, and
from time to time, not more than thirty (30) days subsequent to the effective
date of this Agreement. No Optional Stock shall be sold and delivered unless the
Firm Stock previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be surrendered
and terminated at any time upon notice by the Underwriters to the Company.

      The option granted hereby may be exercised by the Underwriters by giving
written notice from Cowen to the Company setting forth the number of shares of
the Optional Stock to be purchased by them and the date and time for delivery of
and payment for the Optional Stock. Each date and time for delivery of and
payment for the Optional Stock (which may be the First Closing Date, but not
earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates".) All purchases of the Optional Stock from the
Company shall be made on a pro rata basis. The Optional Stock shall be purchased
for the account of each Underwriter in the same proportion as the number of
shares of Firm Stock set forth opposite such Underwriter's name in SCHEDULE A
hereto bears to the total number of shares of Firm Stock (subject to adjustment
by the Underwriters to eliminate odd lots). Upon exercise of the option by the
Underwriters, the Company agrees to sell to the Underwriters the number of
shares of Optional Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly and subject to the terms and
conditions herein set forth, to purchase the number of such shares determined as
aforesaid.

      The Company will deliver the Optional Stock to the Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company given at
or prior to 12:00 Noon, Boston Time, on the second full business day preceding
the Option Closing Date or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Cowen may 






                                      -10-
   11

designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine), against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of the Company all at the offices
of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110. The Company shall make the certificates for the Optional
Stock available to the Underwriters for examination not later than 10:00 A.M.,
Boston Time, on the business day preceding the Option Closing Date at the
offices of Cowen & Company, One Financial Square, New York, New York 10005. The
Option Closing Date and the location of delivery of, and the form of payment
for, the Optional Stock may be varied by agreement between the Company and
Cowen. The Optional Closing Date may be postponed pursuant to the provisions of
Section 12.

      4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and 
agrees with the several Underwriters that:

            (a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A, use its best efforts to cause
the Registration Statement to become effective, (ii) if the Company and the
Representatives have determined to proceed pursuant to Rule 430A, use its best
efforts to comply with the provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best
efforts to comply with all the applicable provisions thereof.

            (b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceedings for that purpose, (iv) the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction or any action by the NASD suspending or
terminating the inclusion of the Stock in the Nasdaq National Market, or (v) the
receipt by the Company of notice of the initiation or threat of any proceedings
for such purpose. The Company will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be issued,
to obtain the withdrawal thereof at the earliest possible moment.

            (c) The Company will (i) on or before the First Closing Date,
deliver to each of you a signed copy of the Registration Statement as originally
filed and each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a signed copy
of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously furnished
to you), (ii) deliver to each of you additional conformed copies of each of the
foregoing (but without exhibits), (iii) deliver to each of you, at such office
or offices you may designate, as many copies of the Prospectus as you may
reasonably request, and (iv) thereafter from time to time during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise





                                      -11-
   12


send to each of you as many additional copies of the Prospectus and as many
copies of any supplement to the Prospectus and of any amended Prospectus, filed
by the Company with the Commission, as you may reasonably request for the
purposes contemplated by the Securities Act. The foregoing delivery requirements
shall include any document filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus. To the extent applicable, the
copies of the Registration Statement and each amendment thereto (including all
exhibits filed therewith), any Preliminary Prospectus or Prospectus (in each
case, as amended or supplemented) furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

            (d) If at any time during the period in which a Prospectus is
required by law to be delivered by any Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, (i) to file under
the Exchange Act any document which would be deemed to be incorporated by
reference in the Prospectus in order to comply with the Securities Act or the
Exchange Act, or (ii) to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the time
it is delivered to a purchaser of the Stock, the Company will forthwith prepare
and file with the Commission (x) a document to effect such compliance, or (y) a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.

            (e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your approval after reasonable notice thereof, such
approval not to be unreasonably withheld or delayed, a copy of any
post-effective amendment to the Registration Statement proposed to be filed or a
copy of any document proposed to be filed under the Exchange Act before the
termination of the offering of the Shares by the Underwriters if such document
would be deemed to be incorporated by reference into the Registration Statement
or Prospectus.

            (f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the Securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a Prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified or to take any action which
would subject it to taxation as doing business in a jurisdiction where it is not
now doing business. The Company 








                                      -12-
   13


will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period (not in excess of 180 days after the commencement of the
public offering of the Stock by the Underwriters) as you may reasonably request
for distribution of the Stock.

            (g) During a period of two years commencing with the date hereof,
the Company will furnish to the Underwriters copies of all periodic and special
reports furnished to stockholders of the Company and of all information,
documents and reports filed with the Commission. The Company will deliver to the
Underwriters similar information with respect to any significant subsidiaries,
if any, as that term is defined in the rules and regulations of the Commission,
which are not consolidated in the Company's financial statements. To the extent
applicable, the copies of the Registration Statement and each amendment thereto
(including all exhibits filed therewith), any Preliminary Prospectus or
Prospectus (in each case, as amended or supplemented) furnished to the
Underwriters will be identical tot he electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

            (h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the "effective date of
the registration statement" (as defined in Rule 158(c) under the Securities
Act), the Company will make generally available to its security holders in the
manner contemplated by Rule 158(b) under the Securities Act an earning statement
in accordance with Section 11(a) of the Securities Act and the rules and
regulations thereunder.

            (i) The Company agrees that, without the prior written consent of
Cowen & Company on behalf of the Representatives and the Underwriters, the
Company will not sell, offer, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for or warrants to purchase Common Stock for a period of 90
days after the effective date of the Registration Statement, other than (i) the
Stock to be sold to the Underwriters pursuant to this Agreement, (ii) shares of
Common Stock issued upon the exercise of options granted under the Company's
199__ Stock Option Plan (the "Option Plan") or upon the exercise of warrants
previously issued, and (iii) options to purchase Common Stock granted under the
Option Plan and (iv) shares of Common Stock issued under the Company's Employee
Stock Purchase Plan. For purposes of this Section 6(k) a sale, offer, option or
disposition shall be deemed to include any sale to an institution which can,
following such sale, sell Common Stock to the public in reliance on Rule 144A,
but shall not include a sale, offer, option or disposition under circumstance
where the holder may not, for a period of at least 90 days after the
commencement of the public offering of the Stock by the Underwriters, sell the
shares of Common Stock acquired by the holder to the public.

            (j) The Company agrees that, without the prior written consent of
Cowen on behalf of the Representatives and the Underwriters, the Company will
not register under the Securities Act for a period of 90 days after the
commencement of the public offering of the Stock by the Underwriters any shares
of Common Stock issuable upon exercise of options granted under the Option Plan
or any other benefit plans.






                                      -13-
   14


            (k) The Company shall cause each officer and director of the Company
that has not furnished to you such a letter or letters prior to the date of this
Agreement to furnish to you, on the date of this Agreement, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters, pursuant to
which each such person shall agree not to offer for sale, sell, distribute or
otherwise dispose of any shares of Common Stock during the 90 days following the
Effective Date, except with the prior written consent of Cowen.

            (l) The Company will use the net proceeds received by it from the
sale of the Stock being sold by it in the manner specified in the Prospectus.

      5. PAYMENT OF EXPENSES. (a) The Company agrees to pay all costs and
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the NASD of the
Registration Statement, any Preeffective Prospectus and the Prospectus
(including, without limitation the fees and expenses of the Company's
accountants and counsel), (ii) the furnishing to the Underwriters of copies of
any Preeffective Prospectus and of the several documents required by Section
4(c) to be so furnished, (iii) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in Section 4(d), (iv)
the furnishing to the Underwriters of the reports and information referred to
Section 4(g), (v) the printing, issuance of stock certificates, including the
transfer agent's fees, (vi) the reproduction of this Agreement and related
documents delivered to the Underwriters and (vii) the costs of listing the Stock
on the Nasdaq National Market.

            (b) The Company agrees to reimburse you for blue sky fees and
related disbursements (including costs of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Stock under the state securities or blue sky laws and for fees
and related disbursements (including legal fees not to exceed $12,000 and
disbursements of counsel) in connection with such filings as may be required by
the NASD.

      6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise, and the Company agrees to reimburse each such Underwriter and
controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceedings which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement made by the
Company in Section 2 hereof, or (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (including
the Prospectus as part thereof and any document filed under the Exchange Act and
incorporated by reference therein) or any post-effective amendment 






                                      -14-
   15


thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preeffective Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with Commission any
amendment thereof or supplement thereto, including any document filed under the
Exchange Act and incorporated by reference therein), or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iv) any untrue statement or alleged untrue statement
of a material fact contained in any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Stock under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, provided, however,
that (i) the indemnity agreement of the Company contained in this Section 6(a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter expressly for use in any Preeffective Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement thereto, or any
Blue Sky Application and (ii) the indemnity agreement contained in this Section
6(a) with respect to any Preeffective Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Stock a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material fact
contained in such Preeffective Prospectus was corrected in the Prospectus (or
the Prospectus was amended or supplemented) unless such failure is the result of
noncompliance by the Company with Section 6(c) thereof.

      The indemnity agreement of the Company contained in this Section 6(a) and
the representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.

            (b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, and each
person (including each partner or officer thereof), if any, who controls the
Company within the meaning of Section 15 of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, to which
such indemnified parties or any of them may become subject under the Securities
Act, the Exchange Act, or the common law or otherwise and to reimburse each of
them for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in 





                                      -15-
   16


connection with any investigation or inquiry of, or other proceedings which may
be brought against, the respective indemnified parties, in each case arising out
of or based upon (i) any untrue statement of alleged untrue statement of a
material fact contained in the Registration Statement (including the Prospectus
as a part thereof), or any post-effective amendment thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preeffective Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
necessary in order to make the statement therein, in the light of circumstances
under which they were made, not misleading, or (iii) any Blue Sky Application,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case only if such statement or omission was made in reliance upon and in
conformity with information furnished in writing as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter expressly for use in any Preeffective Prospectus, the Registration
Statement, the Prospectus, or any such amendment or supplement thereto, or any
Blue Sky Application.

      The indemnity agreement of each Underwriter contained in this Section 6(b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.

            (c) Each party indemnified under the provisions of Section 6(a) or
6(b) agrees that, upon the service of a summons or other initial legal process
upon it in any action or suit instituted against it or upon its receipt of
written notification of the commencement of any investigation or inquiry of, or
proceedings against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the "Notice") of which service or notification to
the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceedings to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission to notify such indemnifying party or parties of any
such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceedings against, or investigation or inquiry
of, any indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the "Notice of Defense") to the indemnified party, to
assume (alone or in conjunction with any other indemnifying party or parties)
the entire defense of such action, suit, investigation, inquiry or proceedings,
in which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying party or
parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying





                                      -16-
   17


party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceedings or that
there may be legal defenses available to such indemnified party or parties
different from or in addition to those available to the indemnifying party or
parties, then counsel for the indemnified party or parties shall be entitled to
conduct the defense to the extent reasonably determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and (ii)
in any event, the indemnified party or parties shall be entitled to have counsel
chosen by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice or Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
Section 6(a) through 6(c) for any legal or other expenses subsequently incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceedings, except that (A) the
indemnifying party or parties shall bear the legal and other expenses incurred
in connection with the conduct of the defense as referred to in clause (i) of
the provision to the preceding sentence, and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceedings.

            (d) Notwithstanding the above, in no event shall the indemnifying
parties be responsible for fees and expenses of more than one counsel for all
indemnified parties in connection with one action (or separate but similar or
related actions) arising out of the same general allegations or circumstances.

            (e) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b) above although applicable in accordance with its terms, then each
such indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Sections 6(a) or
6(b) above (i) in such proportion as is appropriate to reflect the relative
benefits received by each indemnifying party from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Stock (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, as set
forth in the table on the cover page of this Prospectus, bear to the aggregate
public offering price of the Stock. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative 




                                      -17-
   18



intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.

      The parties agree that it would not be just and equitable if contributions
pursuant to this Section 6(e) were to be determined by pro-rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this Section 6(e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
the first sentence of this Section 6(e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim
which is the subject of this Section 6(e). Notwithstanding the provisions of
this Section 6(e), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Stock
purchased by such Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(g) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 6(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

      Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contributions
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought of any
obligation it may have hereunder or otherwise (except as specifically provided
in Section 6(c) hereof).

            (f) No indemnifying party will, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceedings in
respect of which indemnification may be sought hereunder (whether or not such
indemnifying party or any person who controls such indemnifying party within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless the indemnifying party
uses its reasonable efforts to insure that such settlement, compromise or
consent includes an unconditional release of such indemnified party and each
such controlling person from all liability arising out of such claim, action,
suit or proceedings.

      7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.

      8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated





                                      -18-
   19



herein) as of the date hereof and at and as of each of the Closing Dates,
respectively, of the representations and warranties made herein by the Company,
to compliance at and as of each of the Closing Dates, respectively, by the
Company with its covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to each of the Closing Dates, and to the
following additional conditions:

            (a) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, shall be threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of the
Representatives. If the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, such
filing shall have been made in the manner and within the time period required by
Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may be.

            (b) The Representatives shall have been satisfied that there shall
not have occurred any change, on a consolidated basis, prior to each of the
Closing Dates in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital stock,
short-term or long-term debt of the Company and its subsidiaries considered as a
whole, such that (i) the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact which, in
the opinion of the Representatives, is material, or omits to state a fact which,
in the opinion of the Representatives, is required to be stated therein or is
necessary to make the statements therein not misleading, or (ii) it is
unpracticable in the reasonable judgment of the Representatives to proceed with
the public offering or purchase the Stock as contemplated hereby.

            (c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is material
and adverse to the Company or which affects or may affect the Company's ability
to perform its obligations under this Agreement shall have been instituted or
threatened and there shall have occurred no material adverse development in any
existing such action, suit or proceeding.

            (d) At the time of execution of this Agreement, the Representatives
shall have received from Coopers & Lybrand L.L.P., independent certified public
accountants, a letter, dated the date hereof, in form and substance satisfactory
to the Underwriters.

            (e) The Representatives shall have received from Coopers & Lybrand
L.L.P., independent certified public accountants, letters, dated as of each of
the Closing Dates, respectively, to the effect that such accountants reaffirm,
as of each such Closing Date, and as though made on such Closing Date, the
statements made in the letter furnished by such accountants pursuant to
paragraph (d) of this Section 8.




                                      -19-
   20


            (f) The Representatives shall have received from Warner & Stackpole
LLP, counsel for the Company, opinions, dated as of each of the Closing Dates,
respectively, to the effect set forth in EXHIBIT I hereto.

            (g) The Representatives shall have received from Fish & Neave,
patent counsel for the Company, opinions, dated as of each of the Closing Dates,
respectively, to the effect set forth in EXHIBIT II hereto.

            (h) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, their opinion or opinions dated,
respectively, the Closing Dates with respect to the incorporation of the
Company, the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as it may reasonably request, and the
Company shall have furnished to such counsel such documents as they may request
for the purpose of enabling them to pass upon such matters.

            (i) The Representatives shall have received certificates, dated as
of each of the Closing Dates, respectively, of the chief executive officer or
the President and the chief financial or accounting officer of the Company to
the effect that:

                              (i) No stop order suspending the effectiveness of
            the Registration Statement has been issued, and, to the best of the
            knowledge of the signers, no proceedings for that purpose have been
            instituted or are pending or contemplated under the Securities Act;

                              (ii) Neither any Preeffective Prospectus, as of
            its date, nor the Registration Statement nor the Prospectus, nor any
            amendment or supplement thereto, as of the time when the
            Registration Statement became effective and at all times subsequent
            thereto up to the delivery of such certificate, included any untrue
            statement of a material fact or omitted to state any material fact
            required to be stated therein or necessary to make the statements
            therein, in light of the circumstances under which they were made,
            not misleading;

                              (iii) Subsequent to the respective dates as of
            which information is given in the Registration Statement and the
            Prospectus, and except as set forth or contemplated in the
            Prospectus, neither the Company nor any of its subsidiaries has
            incurred any material liabilities or obligations, direct or
            contingent, nor entered into any material transactions, in each case
            not in the ordinary course of business, or any change in the capital
            stock (except pursuant to its stock option plans), short-term or
            long-term debt of the Company and its subsidiaries considered as a
            whole;

                              (iv) The representations and warranties of the
            Company in this Agreement are true and correct at and as of each of
            the Closing Dates, respectively, and the Company has complied with
            all the agreements and 







                                      -20-
   21



            performed or satisfied all the conditions on its part to be
            performed or satisfied at or prior to each such Closing Date; and

                              (v) Since the respective dates as of which
            information is given in the Registration Statement and the
            Prospectus, and except as disclosed in or contemplated by the
            Prospectus, (i) there has not been any material adverse change or a
            development involving a material adverse change in the condition
            (financial or otherwise), properties, business, management,
            prospects, net worth or results of operations of the Company and its
            subsidiaries considered as a whole; (ii) the business and operations
            conducted by the Company and its subsidiaries have not sustained a
            loss by strike, fire, flood, accident or other calamity (whether or
            not insured) of such a character as to interfere materially with the
            conduct of the business and operations of the Company and its
            subsidiaries considered as a whole; (iii) no legal or governmental
            action, suit or proceeding is pending or threatened against the
            Company which is material to the Company, whether or not arising
            from transactions in the ordinary course of business, or which may
            materially and adversely affect the transactions contemplated by
            this Agreement; (iv) since such dates and except as so disclosed,
            the Company has not incurred any material liability or obligation,
            direct, contingent or indirect, made any change in its capital stock
            (except pursuant to its stock plans), made any material change in
            its short-term or funded debt or repurchased or otherwise acquired
            any of the Company's capital stock; and (v) the Company has not
            declared or paid any dividend, or made any other distribution, upon
            its outstanding capital stock payable to stockholders of record on a
            date prior to such Closing Date.

            (j) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably requested as
to the accuracy, at and as of each of the Closing Dates, of the representations
and warranties made herein by it and as to compliance at and as of each of the
Closing Dates by it with its covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to such Closing Dates, and as to
satisfaction of the other conditions to the obligations of the Underwriters
hereunder.

            (k) Cowen shall have received the written agreements of the
officers, directors and certain holders of Common Stock that, without the prior
consent of Cowen, each will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of, other
than by operation of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock (including, without limitation, (i)
any securities convertible into shares of Common Stock and (ii) any Common Stock
of the Company which may be deemed to be beneficially owned by the undersigned
in accordance with the Rules and Regulations) during the 90 days following the
effective date of the Registration Statement.

      All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the





                                      -21-
   22


conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Dates, but Cowen shall be
entitled to waive any of such conditions.

      9. EFFECTIVE DATE. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. Boston time on the first full business day following
the effectiveness of the Registration Statement or at such earlier time after
the Registration Statement becomes effective as the Representatives may
determine on and by notice to the Company or by release of any of the Stock for
sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by the
Representatives of telegrams (i) advising Underwriters that the shares of Stock
are released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first.

      10. TERMINATION. This Agreement (except for the provisions of Section 5)
may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.

      This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to each of the
Closing Dates trading in securities on the Nasdaq National Market System shall
have been suspended or minimum or maximum prices shall have been established on
any such exchange or market, or a banking moratorium shall have been declared by
New York or United States authorities; (ii) if trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) if at or prior to each of the Closing Dates there shall have been
(A) an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or (B) any change in financial markets or any calamity or crisis
which, in the judgment of the Representatives, makes it impractical or
inadvisable to offer or sell the Firm Stock or Optional Stock, as applicable, on
the terms contemplated by the Prospectus; (iv) if there shall have been any
development or prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Firm Stock or the Optional Stock, as applicable, on the terms contemplated by
the Prospectus; (v) if there shall be any litigation or proceeding, pending or
threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Firm Stock or Optional
Stock, as applicable, on the terms contemplated by the Prospectus; or (vi) if
there shall have occurred any of the events specified in the immediately
preceding clauses (i) - (v) together with any other such event that makes it, in
the judgment of the Representatives, impractical or inadvisable to offer or







                                      -22-
   23


deliver the Firm Stock or Optional Stock, as applicable, on the terms
contemplated by the Prospectus.

      11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representatives under Section 8 or Section 10, the Company
will bear and pay the expenses specified in Section 5 hereof and, in addition to
its obligations pursuant to Section 6 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand, the Company will pay such amounts to the Representatives.

      12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder and
the aggregate number of shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed ten percent (10%) of the total
number of shares underwritten, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.

      If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Date[s] for a period of not more
than five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.

      13. NOTICES. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives, c/o Cowen & Company at Financial Square, New
York, New York 10005 except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such




                                      -23-
   24


Underwriter at the address furnished by the Representatives or, if sent to the
Company, shall be mailed, delivered or telegraphed and confirmed c/o President,
Vertex Pharmaceuticals Incorporated, 130 Waverly Street, Cambridge, MA 02139.

      14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence and the persons entitled to the
benefits of the provisions of Section 6 any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person.

      15. APPLICABLE LAW. This Agreement shall be governed by and construed in 
accordance with the laws of the State of New York.

      16. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any action taken
under this Agreement by Cowen, as Representative, will be binding on all the
Underwriters.

      17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.

      18. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof.

      In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and the Representatives.

      19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.





                                      -24-
   25


      If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.

    

                                 Very truly yours,


                                 VERTEX PHARMACEUTICALS INCORPORATED


                                 By:
                                    --------------------------------
                                    President



Accepted and delivered 
  as of the date first above written.

COWEN & COMPANY
BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
J.P. MORGAN SECURITIES INC.
   Acting on their own behalf 
   and as Representatives of 
   several Underwriters
   referred to in the 
   foregoing Agreement.

By: COWEN & COMPANY

By: Cowen Incorporated
    its general partner


By:
    ---------------------------------
    Title:





                                      -25-
   26







                                   SCHEDULE A


                                                                   NUMBER OF
                                                                  FIRM SHARES
                             NAME                               TO BE PURCHASED
                             ----                               ---------------

Cowen & Company.............................................        _______
Bear, Stearns & Co. Inc.....................................        _______
Robertson, Stephens & Company LLC...........................        _______
J.P. Morgan Securities Inc.                                         _______

TOTAL.......................................................      2,500,000
                                                                  =========







   27


                                    EXHIBIT I
                                    ---------


      The opinion of Warner & Stackpole LLP, counsel for the Company, shall be
as follows:

      (i) Each of the Company and its Subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to own
or lease its properties and conduct its business as described in the Prospectus,
and is fully qualified to do business and is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect upon the Company and its Subsidiaries, taken as a whole.

      (ii) The authorized Common Stock of Company as of December 31, 1996 is as
set forth under the caption "Capitalization" in the Prospectus, and the Common
Stock conforms to the description set forth under the caption "Description of
Capital Stock" in the Prospectus. Since December 31, 1996, to such counsel's
knowledge, the Company has not issued or committed to issue any shares of Common
Stock or other securities of the Company other than as reflected in the
Registration Statement and Prospectus, or with respect to the issuance of Common
Stock in connection with the outstanding options and warrants as described in
the Registration Statement and Prospectus. The outstanding shares of Common
Stock have been, and the Stock, upon issuance and delivery and payment therefor
in the manner herein described, will be, duly authorized, validly issued, fully
paid and nonassessable. The certificates for the Stock as delivered to the
Underwriters are in due and proper form. There are no preemptive or other rights
to subscribe for or to purchase, or any restriction upon the voting or transfer
of, any shares of Common Stock pursuant to the Company's Restated Articles of
Organization or by-laws or under any agreement or other instrument known to such
counsel to which the Company or any of its Subsidiaries is a party or by which
it is bound; and to such counsel's knowledge, there are no contractual
preemptive rights or rights of first refusal or other similar rights which exist
with respect to any of the Stock or the issue and sale thereof, other than as
set forth in the Registration Statement or the Prospectus. To such counsel's
knowledge, no holder of shares of Common Stock or other securities of the
Company has the right (other than a right which has been waived) to have any
securities owned by such holder included in the Registration Statement. To such
counsel's knowledge, all of the outstanding shares of the capital stock of each
Subsidiary of the Company, except for Altus and Versal, are owned directly or
indirectly by the Company, free and clear of any claim, lien, encumbrance or
security interest.

      (iii) The execution or delivery hereof or consummation of the transaction
contemplated hereby will not result in a violation of, or constitute a default
under, the Restated Articles of Organization or by-laws of the Company or any of
its Subsidiaries, or, in any manner which would have a material adverse effect
on the Company and its Subsidiaries taken as a whole, would result in a
violation or default, or with the giving of notice or lapse of time or both,
would result in such violation or default, under any agreement, lease, contract,
indenture or other instrument known to such counsel to which the Company or any
of its Subsidiaries is a party or 







                                       I-
   28


by which any of them is bound, or to which any of their properties are subject,
or any franchise, license, authorization, approval, permit, judgment, decree,
order, statute, rule or regulation known to such counsel to which the Company or
any of its Subsidiaries may be subject (other than the Federal Securities laws
or securities or "Blue Sky" laws of certain jurisdictions, as to which no
opinion need be expressed in this paragraph). The performance by the Company of
its obligations hereunder will not violate any law, rule, administrative
regulation, or, to such counsel's knowledge, any decree or order of any court or
any governmental agency or body having jurisdiction over the Company, its
Subsidiaries or their properties, or, in a manner which would have a material
adverse effect on the Company and its Subsidiaries taken as a whole, result in
the creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or any of its Subsidiaries. Except for permits
and similar authorizations required under the Securities Act, the Exchange Act
and the securities or "Blue Sky" laws of certain jurisdictions and for such
permits and authorizations which have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body or financial
institution is required by law, or to such counsel's knowledge by any decree or
order of any court, government agency or body in connection with the execution
and delivery of this Agreement by the Company and consummation of the
transactions contemplated by this Agreement nor, to such counsel's knowledge, is
any such consent, approval, authorization or order required of any financial
institution in connection with the execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated by this
Agreement.

      (iv) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company, and has been duly executed and delivered by
the Company.

      (v) The Registration Statement and all post-effective amendments thereto
have become effective under the Securities Act and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending before or contemplated by the Commission and any
and all filings required by Rule 424 and Rule 430A of the Commission have been
made; the Registration Statement, the Preeffective Prospectus and the Prospectus
and any amendment or supplement thereto, as of their respective dates, comply as
to form in all material respects with the requirements of the Securities Act and
the Rules and Regulations (except that counsel need express no opinion on the
financial statements and schedules and the other financial data included
therein). In addition, such counsel shall state that, although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or any amendment thereto, nothing has come to the
attention of such counsel which causes them to believe that the Registration
Statement or any amendment thereto at the time it became effective (except that
counsel need express no opinion on the financial statements and schedules and
the other financial data included therein) contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and that, on
the First Closing Date or Option Closing Date, the Preeffective Prospectus and
the Prospectus or any amendment or supplement thereto (except that counsel need
express no opinion on the financial statements and schedules and the other
financial data included therein), contains any untrue statement of a material
fact or omits to state a material fact 




                                      I-2
   29

necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

      (vi) All descriptions in the Preeffective Prospectus and the Prospectus of
statutes, regulations, legal or governmental proceedings, contracts and other
documents are accurate and fairly represent the information required to be
shown; and such counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be filed as
exhibits thereto which are not so summarized, described or filed, nor does such
counsel know of any pending or threatened litigation or any governmental
proceeding, statute or regulation required to be described in the Preeffective
Prospectus and the Prospectus which is not so described.

      (vii) All documents incorporated by reference in the Preeffective
Prospectus and the Prospectus, when they were filed with the Commission,
complied as to form in all material respects with the requirements of the
Exchange Act; and such counsel has no reason to believe that any such documents,
when they were so filed, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
documents were so filed, not misleading; such counsel need express no opinion as
to the financial statements and schedules and other financial data contained in
any such document.

      In rendering such opinion, such counsel may state that insofar as their
opinion under clause (v) above relates to the accuracy and completeness of the
Registration Statement, the Preeffective Prospectus and the Prospectus, it is
based upon participation in conferences with representatives of the
Underwriters, and with officers and other representatives of the Company and its
independent public accountants, at which the contents of the Registration
Statement, the Preeffective Prospectus and the Prospectus were discussed,
without independent verification by such counsel of the accuracy or completeness
of such information. Such counsel may also rely upon the opinions of other
competent counsel and, as to factual matters, on certificates of officers of the
company and of state officials, in which case their opinion is to state that
they are so doing and copies of said opinions or certificates are to be attached
to the opinion unless said opinions or certificates (or, in the case of
certificates, the information therein) have been furnished to the
Representatives in other form.






                                      I-3
   30


                                                             Exhibit II
                                                             ----------

                                                             Form of Opinion -
                                                             Subject to Change
                                                             -----------------

                                               ________ __, 1997


Cowen & Company
Bear Stearns & Co., Inc.
Robertson, Stephens & Company LLC
J.P. Morgan Securities Inc.
c/o Cowen & Company
As Representatives of the Several Underwriters
One Financial Square
New York, New York  10005


      Vertex Pharmaceuticals Incorporated
      -----------------------------------

Dear Ladies and Gentlemen:

      We are patent counsel to Vertex Pharmaceuticals Incorporated, a
Massachusetts corporation (the "Company"). As patent counsel to the Company, we
are familiar with those patent and intellectual property matters referred to us
by the Company ("our Representation").

      This opinion is being furnished to you pursuant to Section 8(g) of the
Underwriting Agreement dated ________ __. 1997 (the "Agreement") between you and
the Company, relating to the sale to you, severally, of certain shares of Common
Stock of the Company.

      In our capacity as the Company's patent counsel, we have reviewed the
following statements under the captions "Risk Factors - Uncertainty to Patents
and Proprietary Information," "Business - Clinical Programs" and "Business -
Patents and Proprietary Information" in a copy of the Prospectus forming a part
of the Registration Statement on Form S-3 (Registration No. 333___) as filed by
the Company under the Securities Act of 1933, on _____:

Risk Factors
      - Uncertainty Related to Patents and Proprietary Information


Business
      - Clinical Programs

            HIV Program



                                       I-
   31


            Cancer Multidrug Resistance Program



            Hemoglobin Disorders Program



            Inflammation Program



            IMPDH Program



            Neurophilins Program



            Hepatitis C Program



Business
      - Patents and Proprietary Information



("the Statements").





                                      II-2
   32



      We have not independently verified the accuracy or completeness of the
factual matters contained in these Statements; subject thereto, insofar as these
Statements constitute facts pertaining to our Representation and involve matters
of United States law, they are, to our actual knowledge, accurate statements or
summaries of the matters therein set forth. As to questions of material fact
relevant thereto, we have in part relied upon representations made to us by
officers of the Company.

      Specifically, we believe as to certain aspects of the Statements that:

            (i) Subject to any disclosure to the contrary in the Prospectus, to
      our actual knowledge, there are no legal or governmental proceedings,
      except patent prosecution, pending or threatened relating to the patents
      or patent applications of the Company referenced in the Statements and
      related to our Representation;

            (ii) Subject to any disclosure to the contrary in the Prospectus, to
      our actual knowledge, there are no facts that would preclude the Company
      from having clear title to or a valid license under the patents and patent
      applications referenced in the Statements and related to our
      Representation;

            (iii) To our actual knowledge, we and the Company have complied and
      are continuing to comply on an ongoing basis, with the required duty of
      candor and good faith in dealing with the United States Patent and
      Trademark Office (the "Office"), including the duty to disclose to the
      Office all information actually known by us to be material to the
      patentability of each issued United States patent or pending application
      referred in the Statements and related to our Representation.

      Further, we have no actual knowledge that causes us to believe, as of the
date of this letter, that the description in the Statements of the Company's
situation relating to patents and patent applications pertaining to our
Representation, contain any untrue statement of a material fact or omit to state
a material fact necessary to make such Statements not misleading in the context
in which they are made.

      As we have discussed, pursuant to our firm's policy any communication from
us, including this letter, is solely for your information, and to assist you as
the underwriters in conducting your investigation of the affairs of the Company
in connection with the aforesaid Registration Statement and it is not to be
quoted or otherwise referred to in any public disclosure document (including
without limitation the Registration Statement), furnished to any other person,
or filed with any governmental agency. Moreover, this letter speaks as of the
date hereof and we assume no obligation to advise you of any changes of law or
fact that may thereafter occur.





                                      II-3
   33


                                    Very truly yours,

                                    FISH & NEAVE



                                    James F. Haley, Jr.
                                    Andrew S. Marks





JFH/ASM:mem


                                      II-4

   1
                                                                    EXHIBIT 4.3
                                   FORM OF

                       FIRST AMENDMENT TO RIGHTS AGREEMENT
                       -----------------------------------



     AMENDMENT, dated as of February 21, 1997, to the Rights Agreement, dated as
of July 1, 1991 (the "Rights Agreement"), between Vertex Pharmaceuticals
Incorporated, a Massachusetts corporation (the "Company"), and The First
National Bank of Boston, as Rights Agent (the "Rights Agent").

     The Company and the Rights Agent have heretofore executed and entered into
the Rights Agreement. Pursuant to Section 27 of the Rights Agreement, the
Company and the Rights Agent may from time to time supplement or amend the
Rights Agreement in accordance with the provisions of Section 27 thereof. All
acts and things necessary to make this Amendment a valid agreement, enforceable
according to its terms, have been done and performed, and the execution and
delivery of this Amendment by the Company and the Rights Agent have been in all
respects duly authorized by the Company and the Rights Agent.

     In consideration of the foregoing and the mutual agreements set forth
herein, the parties hereto agree as follows:

     1.   Section 1(a) of the Rights Agreement is hereby amended in its entirety
to read as follows:

          (a)    "Acquiring Person" shall mean any Person (as hereinafter 
     defined) who or which, together with all Affiliates and Associates (as such
     terms are hereinafter defined) of such Person, shall be the Beneficial
     Owner (as hereinafter defined) of 15% or more of the Common Shares of the
     Company then outstanding, but shall not include the Company, any Subsidiary
     (as hereinafter defined) of the Company, any employee benefit plan of the
     Company or any Subsidiary of the Company, any entity holding Common Shares
     for or pursuant to the terms of any such plan, or any Person who, alone or
     together, with all Affiliates and Associates of such Person, is, as of the
     date of this Agreement, the Beneficial Owner of 15% or more of the Common
     Shares of the Company then outstanding. Notwithstanding the foregoing, no
     Person shall become an "Acquiring Person" as a result of an acquisition of
     Common Shares by the Company which, by reducing the number of shares
     outstanding, increases the proportionate number of shares beneficially
     owned by such Person to 15% or more of the Common Shares of the Company
     then outstanding; PROVIDED, HOWEVER, that if a Person shall become the
     Beneficial Owner of 15% or more of the Common Shares of the Company then
     outstanding by reason of share purchases by the Company and shall, after
     such share purchases by the Company, become the Beneficial Owner of any
     additional Common Shares of the Company, then such Person shall be deemed
     to be an "Acquiring Person".

     2.   Section 3(a) of the Rights Agreement is hereby amended in its entirety
to read as follows:


   2

          (a)    Until the earlier of (i) the tenth day after the Shares
     Acquisition Date or (ii) the tenth business day (or such later date as may
     be determined by action of the Board of Directors prior to such time as any
     Person becomes an Acquiring Person) after the date of the commencement by
     any Person (other than the Company, any Subsidiary of the Company, any
     employee benefit plan of the Company or of any Subsidiary of the Company or
     any entity holding Common Shares for or pursuant to the terms of any such
     plan) of, or of the first public announcement of the intention of any
     Person (other than the Company, any Subsidiary of the Company, any employee
     benefit plan of the Company or of any Subsidiary of the Company or any
     entity holding Common Shares for or pursuant to the terms of any such plan)
     to commence, a tender or exchange offer the consummation of which would
     result in any Person becoming the Beneficial Owner of Common Shares
     aggregating 15% or more of the then outstanding Common Shares (including
     any such date which is after the date of this Agreement and prior to the
     issuance of the Rights; the earlier of such dates being herein referred to
     as the "Distribution Date"), (x) the Rights will be evidenced (subject to
     the provisions of Section 3(b) hereof) by the certificates for Common
     Shares registered in the names of the holders thereof (which certificates
     shall also be deemed to be Right Certificates) and not by separate Right
     Certificates, and (y) the right to receive Right Certificates will be
     transferable only in connection with the transfer of Common Shares. As soon
     as practicable after the Distribution Date, the Company will prepare and
     execute, the Rights Agent will countersign, and the Company will send or
     cause to be sent (and the Rights Agent will, if requested, send) by
     first-class, insured, postage-prepaid mail, to each record holder of Common
     Shares as of the close of business on the Distribution Date, at the address
     of such holder shown on the records of the Company, a Right Certificate, in
     substantially the form of Exhibit B hereto (a "Right Certificate"),
     evidencing one Right for each Common Share so held. As of the Distribution
     Date, the Rights will be evidenced solely by such Right Certificates.

     3.   Section 7(b) of the Rights Agreement is hereby modified and amended by
deleting the amount $60 and substituting $270 therefore. There shall be no
adjustment to the Purchase Price as set forth in Section 7(b), as modified and
amended hereby, pursuant to Section 11(a)(i) with respect to any event described
in Section 11(a)(i) which occurred prior to the date of this Amendment.

     4.   If any term, provision, covenant or restriction of this Amendment is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment, and the Rights Agreement, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.

     5.   This Amendment shall be deemed to be a contract made under the laws of
the Commonwealth of Massachusetts and for all purposes shall be governed by and
construed in accordance with the laws of such Commonwealth applicable to
contracts to be made and performed entirely within such Commonwealth.


   3

     6.   This Amendment may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.

     7.   In all respects not inconsistent with the terms and provisions of this
Amendment to the Rights Agreement, the Rights Agreement is hereby ratified,
adopted, approved and confirmed. In executing and delivering this Amendment, the
Rights Agent shall be entitled to all the privileges and immunities afforded to
the Rights Agent under the terms and conditions of the Rights Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.



Attest:                                        VERTEX PHARMACEUTICALS     
                                               INCORPORATED


By:_____________________________               By:______________________________
   Name:                                          Name:
   Title:                                         Title:



Attest:                                        THE FIRST NATIONAL BANK OF BOSTON


By:_____________________________               By:______________________________
   Name:                                          Name:
   Title:                                         Title:

   1
                                                                                    
75 State Street                             [LOGO OF WARNER & STACKPOLE LLP]              Telephone: (617) 951-9000
Boston, Massachusetts 02109                        COUNSELLORS AT LAW                           Fax: (617) 951-9151




                                                                    EXHIBIT 5   

                                            February 25, 1997



Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, Massachusetts 02139-4211

Ladies and Gentlemen:

         We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration Statement
on Form S-3 (the "Registration Statement") with respect to the public offering
by Vertex Pharmaceuticals Incorporated, a Massachusetts corporation (the
"Company"), of up to 2,875,000 shares (the "Shares") of the Common Stock, $.01
par value per share, of the Company and the proposed issuance by the Company in
connection therewith of rights to purchase Series A Junior Participating
Preferred Stock, $.01 par value per share (the "Rights").

         We have examined (i) the Registration Statement, (ii) the form of
Underwriting Agreement between the Company and Cowen & Company, Bear, Stearns &
Co. Inc., Robertson, Stephens & Company LLC and J.P. Morgan Securities Inc. as
Representatives of the several underwriters named in Schedule A thereto (the
"Underwriting Agreement"), (iii) the Restated Articles of Organization of the
Company, as amended to date, (iv) the Rights Agreement (the "Rights Plan"),
dated July 1, 1991, between the Company and The First National Bank of Boston,
as amended by a form of amendment approved by the Board of Directors of the
Company on February 18, 1997 but not yet executed by The First National Bank of
Boston, under which the Rights are proposed to be issued, and such other
documents and records as we have deemed necessary for the purposes of this
opinion.

         In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.

         We assume that appropriate action will be taken, prior to the offer and
sale of the Shares, to register and qualify the Shares and the Rights for sale
under all applicable state securities or "blue sky" laws.


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                        [LOGO OF WARNER & STACKPOLE LLP]
                                   
Vertex Pharmaceuticals Incorporated
February 25, 1997                  
Page 2                             


         We are members of the bar of the Commonwealth of Massachusetts and we
express no opinion as to any matters insofar as any laws other than Federal laws
and the laws of the Commonwealth of Massachusetts may be applicable.

         Based upon the foregoing, we are of the opinion that the Shares and the
Rights are duly authorized for issuance and, upon (i) the effectiveness of the
Registration Statement, (ii) the execution and delivery of the Underwriting
Agreement by the parties thereto, (iii) payment for the Shares in accordance
with the terms of the Underwriting Agreement, (iv) the issuance of the
certificates therefor by the Company, and (v) as to the Rights only, the
issuance of the Rights in accordance with the terms of the Rights Plan, the
Shares and the Rights will be validly issued, fully paid and non-assessable.

         In connection with our opinion set forth above with respect to the
Rights, whether the Board of Directors of the Company might be required to
redeem or terminate the Rights at some future time will depend upon the facts
and circumstances existing at that time and, accordingly, is beyond the scope of
our opinion.

         We hereby consent to the reference to this firm under the heading
"Legal Opinions" in the prospectus which is part of the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.

                                            Very truly yours,

                                            /s/ Warner & Stackpole LLP

                                            WARNER & STACKPOLE LLP

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                                                                    EXHIBIT 23.1
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We consent to the incorporation by reference in this registration statement
on Form S-3 of our report, dated February 18, 1997, on our audits of the
consolidated financial statements of Vertex Pharmaceuticals Incorporated. We
also consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data."
 
                                            /s/ COOPERS & LYBRAND L.L.P.
                                            COOPERS & LYBRAND L.L.P.
 
Boston, Massachusetts
February 25, 1997