Moderna, Inc. (MRNA) FY 2023 MD&A

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Part I, Item 1A - Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biotechnology company advancing a new class of medicines made of messenger RNA (mRNA). mRNA medicines are designed to direct the body’s cells to produce intracellular, membrane or secreted proteins that have a therapeutic or preventive benefit with the potential to address a broad spectrum of diseases. Our platform builds on continuous advances in basic and applied mRNA science, delivery technology and manufacturing, providing us the capability to pursue in parallel a robust pipeline of new development candidates. We are developing therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases and autoimmune diseases, independently and with our strategic collaborators.

Since our founding in 2010, we have transformed from a research-stage company advancing programs in the field of mRNA to a commercial enterprise with a diverse clinical portfolio of vaccines and therapeutics across six modalities, a broad intellectual property portfolio and integrated manufacturing capabilities that allow for rapid clinical and commercial production at scale. We have a diverse and extensive development pipeline of 42 development candidates across our 45 development programs, of which 40 are in clinical studies currently.

Our COVID-19 vaccine is our first commercial product and is marketed, where approved, under the name Spikevax®. Our original vaccine, mRNA-1273, targeted the SARS-CoV-2 ancestral strain, and we have leveraged our mRNA platform to rapidly adapt our vaccine to emerging SARS-CoV-2 strains to provide protection as the virus evolves and regulatory guidance is updated.

2023 Business Highlights

On September 11, 2023, we received approval of the supplemental Biologics License Application from the U.S. Food and Drug Administration (FDA) for our updated COVID-19 vaccine, which targets the Omicron XBB.1.5 sublineage of SARS-CoV-2 (mRNA-1273.815), for individuals 12 years and older. The FDA also issued an Emergency Use Authorization for mRNA-1273.815 for children aged 6 months to 11 years old. We subsequently received authorization from regulatory authorities around the globe for mRNA-1273.815 and initiated the shipment of doses both in the U.S. and internationally.

For the year ended December 31, 2023, we recognized net product sales of $6.7 billion from sales of our COVID-19 vaccines, compared to $18.4 billion and $17.7 billion for the years ended December 31, 2022 and 2021, respectively.

In January 2023, we announced positive data from the interim analysis of our pivotal ConquerRSV study of our vaccine candidate against respiratory syncytial virus (RSV) (mRNA-1345). In the study, mRNA-1345 met primary efficacy endpoints, demonstrating vaccine efficacy of 83.7% against RSV lower respiratory tract disease in older adults. We have filed for a Biologics License Application to the FDA for our RSV vaccine for adults aged 60 years or older, and used a Priority Review Voucher to accelerate review. We have also submitted marketing authorization applications for the vaccine for adults aged 60 years or older to medical authorities in several countries beyond the U.S. We have initiated the manufacturing of mRNA-1345 and are preparing for a marketing launch in 2024, subject to approval.

During the third quarter of 2023, we embarked on a strategic initiative to optimize the cost structure of our COVID-19 business, with a focus on resizing our manufacturing cost structure. The launch of this initiative was prompted by the completion of our long-range planning within the third quarter of 2023, which incorporated revised forecasts of vaccination rates. These projections accounted for the market’s transition from COVID-19 pandemic conditions towards an endemic seasonal market. Consequently, this strategic shift resulted in charges of $1.4 billion for the quarter. In the fourth quarter of 2023, we incurred additional charges of $169 million related to this initiative. Despite the immediate impact to our financial statements, we believe this strategic initiative will enhance the efficiency of our manufacturing operations and equip us with the agility to better adjust our scale according to future market demands.

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Program Developments

As of December 31, 2023, nine of our 45 development programs are in late-stage development, including seven programs in Phase 3 and two rare disease programs that are expected to enter pivotal studies in 2024.

Respiratory Vaccines

•Respiratory syncytial virus (RSV) vaccine: We have filed for regulatory approvals for our vaccine for the prevention of RSV-associated lower respiratory tract disease (RSV-LRTD) and acute respiratory disease (ARD) in adults ages 60 years or older (mRNA-1345). We expect regulatory approvals beginning in the first half of 2024. We anticipate entering the RSV market with a strong competitive profile as the only pre-filled syringe product available at the time of launch, along with robust efficacy data, a well-established safety and tolerability profile, and widespread consumer awareness and demand established in 2023.

•Next-generation COVID-19 vaccine: Our next-generation COVID-19 vaccine candidate, which is designed to be refrigerator-stable (mRNA-1283), is currently in its pivotal Phase 3 study. We anticipate data from the study in the first half of 2024.

•Seasonal flu vaccine: Our seasonal flu vaccine candidate (mRNA-1010) demonstrated consistently acceptable safety and tolerability across three Phase 3 trials. In the most recent Phase 3 trial, mRNA-1010 met all immunogenicity endpoints, demonstrating higher titers compared to a currently licensed vaccine. mRNA-1010 has also shown higher or comparable titers compared to a currently licensed enhanced vaccine (Fluzone HD®) in a separate Phase 1/2 study. We are in discussions with regulators and intend to file in 2024.

•Seasonal flu + COVID-19 vaccine: The Phase 3 trial of our combination vaccine candidate against seasonal flu and COVID-19 (mRNA-1083) is fully enrolled. We anticipate data from the study in 2024.

Latent and Other Vaccines

•Cytomegalovirus (CMV) vaccine: The pivotal Phase 3 study of our CMV vaccine candidate (mRNA-1647) is fully enrolled and accruing cases, evaluating its efficacy, safety and immunogenicity in the prevention of primary infection in women of childbearing age. We anticipate potential efficacy data from the study in 2024.

Oncology Therapeutics

•Individualized Neoantigen Therapy (INT): We continue to demonstrate the potential clinical benefit of our INT program (mRNA-4157), which we are developing in collaboration with Merck. Two separate Phase 3 trials continue to enroll patients with resected high-risk (stage III/IV) melanoma and completely resected stage II, IIIA or IIIB non-small cell lung cancer. We and Merck plan to expand their clinical studies to additional tumor types in 2024.

In December 2023, we announced results of a three-year analysis of our Phase 2b study evaluating INT in combination with KEYTRUDA®, Merck’s anti-PD-1 therapy, in patients with resected high-risk melanoma. Compared to KEYTRUDA alone, this combination continued to show an improvement in recurrence-free survival, reducing the risk of recurrence or death by 49%, as well as in distant metastasis-free survival, reducing the risk of developing distant metastasis or death by 62%.

Rare Diseases

•Propionic acidemia (PA) & methylmalonic acidemia (MMA): We expect to advance our rare disease therapeutic programs for PA (mRNA-3927) and MMA (mRNA-3705) into pivotal studies in 2024.

Other Business Updates

In January 2023, we acquired OriCiro Genomics K.K., a Japan-based, privately held biotech company primarily focused on cell-free DNA synthesis and amplification technologies, for $86 million. With this acquisition, we obtained tools for cell-free synthesis and amplification of plasmid DNA, a key building block in mRNA manufacturing. OriCiro’s technology strategically complements our manufacturing process, and we expect it will allow us to further accelerate our research and development efforts.

In February 2023, we entered into a strategic collaboration and license agreement with Life Edit Therapeutics Inc. (Life Edit) to collaborate on the discovery and development of in vivo mRNA gene editing therapies. The partnership will combine Life Edit’s suite of proprietary gene editing technologies, including base editing, with our mRNA platform to advance in vivo gene editing therapies against a select set of therapeutic targets.

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In March 2023, we entered into a strategic collaboration and license agreement with Generation Bio Co. (GBIO). The collaboration aims to expand the application of each company’s platform by developing novel nucleic acid therapeutics, including those capable of reaching immune cells, to accelerate our respective pipelines of non-viral genetic medicines. Under the agreement, we have the option to license GBIO’s proprietary cell-targeted lipid nanoparticle (ctLNP) and closed-ended DNA (ceDNA) technology for two immune cell programs and two liver programs, with an additional option for either a third immune cell or liver program.

In September 2023, we announced a strategic research and development collaboration agreement with Immatics, a clinical-stage biopharmaceutical company active in the discovery and development of T cell-redirecting cancer immunotherapies. Upon effectiveness of the agreement in October 2023, we made an upfront payment of $120 million to Immatics. This collaboration between Moderna and Immatics centers on combining mRNA technology and T-cell receptor (TCR) platforms to develop cancer therapies, focusing on in vivo expression of TCR bispecifics (TCER®), creation of mRNA-based cancer vaccine utilizing extensive tumor data, and enhancing TCR-T cell therapy through combined preclinical and clinical studies.

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Financial Operations Overview

Revenue

Net product sales

Net product sales by customer geographic location were as follows for the periods presented (in millions):

In the third quarter of 2023, we commenced sales of our COVID-19 vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and organizations. In the U.S., our COVID-19 vaccine is now sold primarily to wholesalers and distributors, and to a lesser extent, directly to retailers and healthcare providers. Net product sales are recognized net of estimated wholesaler chargebacks, invoice discounts for prompt payments and pre-orders, provisions for sales returns, and other related deductions. Please refer to Note 3 to our consolidated financial statements.

The following table summarizes product sales provision for the periods presented (in millions):

As of December 31, 2023, our COVID-19 vaccine was our only commercial product authorized for use.

As of December 31, 2023, we had deferred revenue of $613 million associated with customer deposits received or billable under supply agreements for delivery of our COVID-19 vaccine primarily in 2024.

Our net product sales for the full year 2023 declined significantly as compared to the full year 2022, reflecting the ongoing shift of the COVID-19 vaccine market toward a seasonal commercial market. In addition, we experienced greater seasonality for sales, with greater demand in the fall/winter seasons in each hemisphere as countries seek to provide booster vaccinations to their populations. For 2024, we expect the progression toward a seasonal commercial market to persist, resulting in further projected reductions in net product sales for our COVID-19 vaccine relative to 2023.

Other revenue

Other than net product sales, our revenue has been primarily derived from government-sponsored and private organizations including the Biomedical Advanced Research and Development Authority (BARDA), the Defense Advanced Research Projects Agency (DARPA) and the Bill & Melinda Gates Foundation and from strategic alliances with Merck & Co., Inc (Merck), Vertex Pharmaceuticals Incorporated and Vertex Pharmaceuticals (Europe) Limited (together, Vertex) and others to discover, develop, and commercialize potential mRNA medicines.

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The following table summarizes other revenue for the periods presented (in millions):

Cost of sales

Cost of sales includes raw materials, personnel and facility and other costs associated with manufacturing our commercial products. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and final formulation and packaging costs. Cost of sales also includes shipping costs, indirect overhead costs associated with our product sales during the period, third-party royalties on net sales of our products, and charges for inventory valuation, excess and obsolete inventory and losses on firm purchase commitments.

Research and development expenses

The nature of our business and primary focus of our activities generate a significant amount of research and development costs.

Research and development expenses represent costs incurred by us for the following:

•cost to develop our platform;

•discovery efforts leading to development candidates;

•preclinical, nonclinical, and clinical development costs for our programs;

•cost to develop our manufacturing technology and infrastructure; and

•digital infrastructure costs related to our drug discovery efforts and clinical trials.

The costs above comprise the following categories:

•personnel-related expenses, including salaries, benefits, and stock-based compensation expense;

•expenses incurred under agreements with third parties, such as consultants, investigative sites, contract research organizations (CROs), that conduct our preclinical studies and clinical trials, and in-licensing arrangements;

•expenses associated with developing manufacturing, modification of formulation or design of a product or process, advancing the design to meet specific functional and economic requirements for manufacture and obtaining materials for preclinical studies, clinical trials and pre-launch inventory from internal and third-party contract manufacturing organizations (CMOs);

•expenses incurred for the procurement of materials, laboratory supplies, and non-capital equipment used in the research and development process;

•upfront fees and milestones paid to third-parties for licenses and technologies that had not reached technological feasibility and did not have an alternative future use; and

•facilities, depreciation, and amortization, and other direct and allocated expenses incurred as a result of research and development activities.

We use our employee and infrastructure resources for the advancement of our platform, and for discovering and developing programs. Due to the number of ongoing programs and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development programs are generally not recorded or maintained on a program- or modality-specific basis.

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The following table reflects our research and development expenses, including direct program specific expenses summarized by modality and indirect or shared operating costs summarized under other research and development expenses during the years ended December 31, 2023, 2022, and 2021 (in millions):

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(1)Includes a total of 42 development candidates at December 31, 2023, 45 development candidates at December 31, 2022, and 37 development candidates at December 31, 2021. Program-specific expenses are reflected as of the beginning of the period in which the program was internally advanced to development or removed if development was ceased.

A “modality” refers to a group of programs with common product features and the associated combination of enabling mRNA technologies, delivery technologies, and manufacturing processes. The program-specific expenses by modality summarized in the table above include expenses we directly attribute to our programs, which consist primarily of external costs, such as fees paid to outside consultants, central laboratories, investigative sites, and CROs in connection with our preclinical studies and clinical trials, CMOs, and allocated manufacturing costs of pre-launch inventory, mRNA supply and consumables. Costs to acquire and manufacture pre-launch inventory, mRNA supply for preclinical studies and clinical trials are recognized and included in unallocated manufacturing expenses when incurred, and subsequently allocated to program-specific manufacturing costs after completion of the program-specific production. The timing of allocating manufacturing costs to the specific program varies depending on the program development and production schedule. We generally do not allocate personnel-related costs, including stock-based compensation, costs associated with our general platform research, technical development, and other shared costs on a program-specific basis. These costs were therefore excluded from the summary of program-specific expenses by modality.

Discovery program expenses are costs associated with research activities for our programs in the preclinical discovery stage, and primarily consist of external costs for CROs and lab services, and allocated manufacturing cost of preclinical mRNA supply and consumables.

Platform research expenses are mainly costs to develop technical advances in mRNA science, delivery science, and manufacturing process design. These costs include personnel-related costs, computer equipment, facilities, preclinical mRNA supply and consumables, and other administrative costs to support our platform research.

Technology development and unallocated manufacturing expenses are primarily related to non-program-specific manufacturing process development and manufacturing costs.

Shared discovery and development expenses are research and development costs such as personnel-related costs and other costs, which are not otherwise included in development programs, discovery programs, platform research, technical development, certain collaborative and licensing arrangements, and unallocated manufacturing expenses, stock-based compensation, and other expenses.

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Historically, we have made substantial investments in research and development activities, including development of our platform, mRNA technologies, and manufacturing technologies. We expense research and development costs as incurred and cannot reasonably estimate the nature, timing, and estimated costs required to complete the development of the development candidates and investigational medicines we are currently developing or may develop in the future.

Changes in expectations or outcomes of any of the known or unknown risks and uncertainties may materially impact our expected research and development expenditures. Continued research and development is central to the ongoing activities of our business. Investigational medicines in later stages of clinical development, such as our RSV vaccine, seasonal flu vaccine, CMV vaccine, new generations of COVID-19 vaccines, combination vaccines, and our INT program, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development costs to be substantial in the near term as our investigational medicines advance through development phases and as we identify and develop additional programs. We expect a modest reduction in research and development costs in 2024. There are numerous factors associated with the successful commercialization of any of our investigational medicines, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time due to the early stage of development of many of our investigational medicines. Moreover, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for executives, finance, legal, human resources, business development, commercial, marketing, and other administrative and operational functions, professional fees, accounting and legal services, information technology and facility-related costs, and expenses associated with obtaining and maintaining intellectual property (IP). These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

We anticipate selling, general and administrative expenses to decrease marginally in 2024 compared to 2023. This is due to the continued development of our programs and preparations for commercial activities both within and outside the United States. Our global expansion has already led to increased expenses, particularly as we build our regulatory, sales and marketing teams to support the commercialization of our COVID-19 vaccines and extend our global presence, with active subsidiaries in 19 countries as of December 31, 2023. Commercial and marketing efforts were significant contributors to our selling, general and administrative expenses in 2023, making up a substantial portion of these costs. If we obtain regulatory approval for additional investigational medicines without establishing third-party commercialization collaboration and manufacturing collaborations, we may incur further costs in developing these operational capacities. However, we anticipate selling, general and administrative expenses to decrease slightly compared to 2024, reflecting efficiencies gained from our established infrastructure and operations.

We have a broad IP portfolio covering our development and commercialization of mRNA vaccine and therapeutic programs, including those related to mRNA design, formulation, and manufacturing platform technologies. We regularly file patent applications to protect innovations arising from our research and development. We also hold trademarks and trademark applications in the United States and foreign jurisdictions. Costs to secure and defend our IP are expensed as incurred, and are classified as selling, general and administrative expenses.

Interest income

Interest income consists of interest generated from our investments in cash and cash equivalents, money market funds, and high-quality fixed income securities.

Other expense, net

Other expense, net consists of interest expense, gains (losses) from the sale of investments in marketable securities, gains (losses) related to changes in fair value of investments in equity securities, and other income and expense unrelated to our core operations. Interest expense is primarily derived from our finance leases related to our Moderna Technology Center and certain contract manufacturing service agreements.

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Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, are reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our

consolidated financial statements require the most significant judgments and estimates.

Net product sales

Prior to the third quarter of 2023, we sold our COVID-19 vaccine to the U.S. Government, foreign governments and organizations. The agreements and related amendments with these entities generally do not include variable consideration, such as discounts, rebates or returns. In the third quarter of 2023, we commenced sales of our latest COVID-19 vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and organizations. In the U.S., our COVID-19 vaccine is sold primarily to wholesalers and distributors, and to a lesser extent, directly to retailers and healthcare providers.

We recognize net product sales when control of the product transfers to the customer, typically upon delivery. Net product sales in the U.S. are recognized net of estimated wholesaler chargebacks, invoice discounts for prompt payments and pre-orders, provisions for sales returns, and other related deductions. These provisions are recorded based on contractual terms and our estimate of returns for product sold during the period, using the expected value method or the most likely amount method. Estimates are assessed each period and adjusted as required to revise information or actual experience. Please refer to Note 2 to our consolidated financial statements for further discussion and analysis of each significant category of product sales provisions and the accounting policy.

The application of our critical accounting policies necessitates substantial management judgment and estimation, particularly when determining the amount of variable consideration to recognize. The subjectivity of this process is heightened when assessing factors outside our direct control such as lack of pertinent historical data and limited third-party information. Among all variables, estimating returns presents the most significant judgment due to the broad range of potential outcomes and the current lack of return history with our customers. As we receive more historical data on our product returns, we will integrate this information to refine our estimates and enhance the precision of our financial projections. The actual results could differ from our estimates, and such differences could have a material impact to our financial statements.

Inventory

Inventory is recorded at the lower of cost or net realizable value, with cost determined using first-in, first-out and average cost methods for different inventory components. We periodically review the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise unsaleable items. If unsaleable items are observed and there are no alternate uses for the inventory, we will record a write-down to net realizable value in the period that the decline in value is first recognized through a charge to cost of sales. The process of determining whether inventory cost will be realizable requires significant judgment and estimates by management. If actual market conditions prove less favorable than projected by management, additional write-downs of inventory may be required. On a quarterly basis, we also assess whether we have any excess firm, non-cancelable, purchase commitment liabilities, resulting from our supply agreements with third-party vendors. The determination of net realizable value and firm purchase commitment liabilities requires significant judgment, including consideration of many factors, such as estimates of future product demand, current and future market conditions, potential product obsolescence, expiration and utilization of raw materials under firm purchase commitments and contractual minimums, among others. In 2023, the significant judgment included the write-down of raw materials due to our revised long-range plan, reflecting lower expected future demand for our COVID-19 vaccine. In prior years, this significant judgement was related to excess raw material purchase commitments from firm, non-cancelable purchase contracts with third-party vendors.

We maintain raw materials beyond our one-year forecasted production plan, which were classified as non-current and included in other non-current assets in our consolidated balance sheets. The classification and valuation of these materials involve significant

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judgment and estimates. While we consider the assumptions used in estimating inventory write-downs to be reasonable, any significant future changes in these assumptions or shifts in future events and market conditions could lead to different estimates. Please refer to Note 7 to our consolidated financial statements for further discussion and analysis of these inventory related charges.

Income taxes

We account for income taxes based on an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We determine our deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, we consider the scheduled reversal of deferred tax liabilities, uncertain tax positions, projected future taxable income and the effects of tax planning strategies in assessing the need for a valuation allowance.

During 2023, our assessment included consideration of a full-year pre-tax loss and a projected three-year cumulative loss as determined by our long-range financial planning process. This process indicated a significant decrease in expected sales of our COVID-19 vaccine as we transition to a seasonal market and substantial research and development expenses for ongoing Phase 3 clinical trials and the advancement of product candidates into later-stage development. These factors were considered as negative evidence in the realizability of our deferred tax assets. Furthermore, in assessing the need for a valuation allowance, we evaluated other sources of taxable income, such as taxable income in carryback years, available tax planning strategies, and the future reversals of taxable temporary differences. After a thorough evaluation of all available evidence, we determined it was more likely than not that we would not realize the majority of our deferred tax assets, leading us to maintain a valuation allowance of $2.2 billion against our deferred tax assets as of December 31, 2023. In the event that actual results differ from our estimates, or if future changes in estimates occur, the adjustments to the valuation allowance could materially impact our financial results. Such changes may result in significant increases or decreases to our tax provision in a period in which such estimates are changed, which in turn would affect net income or loss.

Recently issued accounting pronouncements

See Note 2 - Summary of Significant Accounting Policies, to the consolidated financial statements, under the caption “Recently Issued Accounting Standards Not Yet Adopted”.

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Results of operations

A discussion regarding our results of operations for the year ended December 31, 2023 compared to 2022 is presented below. A discussion regarding our results of operations for the year ended December 31, 2022 compared to 2021 can be found under Part II -Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (SEC) on February 24, 2023.

The following table summarizes our consolidated statements of operations for the periods presented (in millions):

Revenue

Total revenue decreased by $12.4 billion, or 64%, in 2023, primarily attributable to a significant reduction in net product sales of our COVID-19 vaccine. Net product sales decreased by $11.8 billion, or 64%, in 2023, mainly due to lower sales volume across all regions in 2023, reflecting the market's transition to a seasonal commercial market for COVID-19 vaccine. The decline was partially offset by a higher average selling price, particularly in the United States, where commercial market sales commenced in the third quarter of 2023. Other revenue decreased by $651 million, or 79%, in 2023, mainly due to a decrease in grant revenue under our agreement with BARDA for the development of our COVID-19 vaccine, and lower collaboration revenue following the recognition of Merck's $250 million participation payment related to our INT collaboration in 2022.

Operating expenses

Cost of sales

In the third quarter 2023, we launched a strategic initiative aimed at optimizing the cost structure of our COVID-19 business, with an emphasis on resizing our manufacturing cost structure. This initiative was triggered by the completion of our long-range planning within the third quarter of 2023, which incorporated revised forecasts of vaccination rates reflecting the market's transition from COVID-19 pandemic conditions to an endemic seasonal market. The initiative involved scaling down our capacity and commitments with our third-party CMOs, reevaluating our raw material inventory levels, and reducing our purchase commitments related to raw materials not anticipated to be consumed before expiration. As a result of this initiative, we incurred inventory write-downs of $903 million related to raw materials, and CMO wind down costs and cancellation fees of $513 million. Furthermore, as a continuation of this strategic initiative during the fourth quarter of 2023, we incurred $153 million in CMO wind down costs and $16 million in inventory write-downs. We believe that this strategic initiative will enhance the efficiency of our manufacturing operations and provide us with the flexibility to better scale according to future market needs.

Our cost of sales was $4.7 billion, or 70% of our net product sales, in 2023, including third-party royalties of $301 million, inventory write-downs of $2.2 billion, unutilized manufacturing capacity and wind down costs of $981 million, and losses on firm purchase

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commitments and cancellation fees of $205 million. Our cost of sales was $5.4 billion, or 29% of our net product sales, in 2022, including third-party royalties of $1.1 billion, inventory write-downs of $1.3 billion, unutilized manufacturing capacity and wind down costs of $677 million, and losses on firm purchase commitments and cancellation fees of $725 million. These charges, other than royalties, were largely attributable to a shift in product demand to the latest variant-targeted COVID-19 vaccine and a decline in customer demand, which ultimately led to our strategic initiative implemented in the third quarter of 2023.

Cost of sales for 2023 decreased by $723 million, or 13%, compared to 2022. The decrease in cost of sales was primarily driven by lower sales volume, partially offset by an increase in inventory write-downs. Cost of sales as a percentage of net product sales for 2023 increased by 41 percentage points to 70% from 29% in 2022. The increase in cost of sales as a percentage of net product sales was mainly due to the strategic initiative described above, and other aforementioned charges (excluding royalties) over lower net product sales, driven by a decline in product demand and increased product seasonality. In light of our recent strategic initiative implemented in the third quarter of 2023, we expect a reduction in our cost of sales as a percentage of net product sales for the full year 2024, compared to the full year 2023.

Research and development expenses

Research and development expenses increased by $1.6 billion, or 47%, in 2023. The increase was primarily attributable to increases in clinical trial expenses of $411 million, clinical manufacturing expenses of $335 million, personnel-related costs of $286 million, and consulting and outside services of $267 million. The increase in 2023 was largely attributable to the late-stage clinical development associated with our RSV vaccine, CMV vaccine and combination vaccine against seasonal influenza and COVID-19, as well as our INT program. The increase in personnel-related costs was mainly driven by an increase in the number of employees supporting our increased research and development programs and activities.

We anticipate a modest reduction in research and development expenses in 2024 compared to the current levels of 2023, as we continue to advance the development of variant-specific and next-generation COVID-19 vaccine candidates and continue to develop our pipeline and advance our product candidates into later-stage development, in particular those in ongoing Phase 3 studies, including our RSV, CMV, seasonal flu and combination vaccine programs, as well as our INT program.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $417 million, or 37%, in 2023. The increase was mainly due to increases in personnel-related costs of $188 million, consulting and outside services of $148 million, and marketing expense of $118 million, partially offset by an endowment to the Moderna Charitable Foundation of $50 million contributed in 2022 that did not recur in 2023. The increase in 2023 was primarily driven by increased headcount and spend in digital, medical affairs and commercial functions to support our digital initiatives, marketed product and Company expansion.

We anticipate that selling, general and administrative expenses in 2024 will be slightly lower than the levels experienced in 2023. This reflects our ongoing commitment to efficiency as we expand our global commercial, regulatory, sales and marketing infrastructure. Moreover, it aligns with our strategic focus on advancing our program development and enhancing our overall business processes.

Interest income

Interest income generated from our investments in marketable securities increased by $221 million in 2023, mainly attributable to an overall higher interest rate environment, partially offset by lower average investment balances.

Other expense, net

The following table summarizes other expense, net for the periods presented (in millions):

Total other expense, net increased by $79 million, or 176%, in 2023. The increase was primarily due to losses on equity investments and a net realized loss on available-for-sale debt securities as well as an increase in interest expense. Our interest expense is primarily

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related to our finance leases. The increase in interest expense was driven by new finance leases that commenced in 2023. Please refer to Note 10 to our consolidated financial statements.

Provision for income taxes

Provision for income taxes decreased by $441 million, or 36%, in 2023, primarily due to a significant decrease in pre-tax income, partially offset by an increase in valuation allowance on deferred tax assets of $2.1 billion. Our effective tax rate for the year ended December 31, 2023 was (19.6)%, which is higher than the statutory rate. It is mainly driven by an increase in valuation allowances on deferred tax assets, partially offset by tax benefits from research and development credits and stock-based compensation. As a result of the significant reduction in pre-tax income and the valuation allowance, the 2023 effective tax rate is not comparable to the prior year. Please refer to Note 13 to our consolidated financial statements.

Liquidity and capital resources

The following table summarizes our cash, cash equivalents, investments and working capital for each period presented (in millions):

Our cash, cash equivalents and investments are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Our investments, consisting primarily of government and corporate debt securities, are stated at fair value. Cash, cash equivalents and investments as of December 31, 2023 decreased by $4.9 billion, or 27%, compared to December 31, 2022. For the year ended December 31, 2023, we had a net cash outflow from operations of $3.1 billion, repurchases of our common stock of $1.2 billion, and purchases of property, plant and equipment of $707 million.

Working capital, which is current assets less current liabilities, as of December 31, 2023 decreased by $1.2 billion, or 14%, compared to December 31, 2022, primarily due to a decrease in cash, cash equivalents and short-term investments of $1.3 billion, primarily to fund our operating activities and repurchases of our common stock, a decrease in inventory of $747 million, a decrease in prepaid and other current assets of $568 million, and a decrease in accounts receivable, net of $493 million. This was partially offset by a decrease in short-term deferred revenue of $1.5 billion, mainly driven by revenue recognized from deferred revenue in excess of customer deposits received.

Cash flow

The following table summarizes the primary sources and uses of cash for the periods presented (in millions):

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Operating activities

We derive cash flows from operations primarily from cash collected from customer deposits and accounts receivable, net related to our COVID-19 vaccine product sales, as well as certain government-sponsored and private organizations and strategic alliances. Our cash flows from operating activities are significantly affected by our use of cash for operating expenses and working capital to support the business. Beginning in the third quarter of 2020, we entered into supply agreements with the U.S. Government and foreign governments and organizations for the supply of our COVID-19 vaccine and received upfront deposits. In the third quarter of 2023, we commenced sales of our COVID-19 vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and organizations. In the U.S., our COVID-19 vaccine is sold primarily to wholesalers and distributors, and to a lesser extent, directly to retailers and healthcare providers. Wholesalers and distributors typically do not make upfront payments to us. As of December 31, 2023, we had $613 million in deferred revenue related to customer deposits received or billable.

Net cash used by operating activities in 2023 was $3.1 billion and consisted of net loss of $4.7 billion and non-cash adjustments of $1.7 billion, plus a net change in assets and liabilities of $139 million. Non-cash items primarily included deferred income taxes of $828 million, depreciation and amortization of $621 million, and stock-based compensation of $305 million. The net change in assets and liabilities was primarily due to a decrease in deferred revenue of $2.1 billion due to revenue recognized upon shipments of our COVID-19 vaccine, partially offset by a decrease in prepaid expenses and other assets of $1.0 billion, primarily driven by write-downs of long term inventory, decrease in income tax receivable due to receipt of tax refunds and decrease in pre-tax income, and reductions in vendor prepayments and down payments as well as a decrease in inventory of $747 million due to inventory write-downs.

Net operating cash flows decreased by $8.1 billion, or 163%, in 2023 compared to 2022, primarily attributable to a decrease in net income of $13.1 billion, a $1.3 billion change in accounts receivable due to lower product sales and timing of collection, and a $1.2 billion change in accounts payable and accrued liabilities driven by higher vendor spend and timing of payments. This was partially offset by a change in prepaid expenses and other assets of $2.7 billion primarily driven by inventory write-downs and reductions in vendor down payments, a change in deferred revenue of $2.1 billion due to less revenue recognized from deferred revenue in excess of customer deposits received, and a decrease in deferred income tax assets of $1.4 billion due to an increase in valuation allowance.

Investing activities

Our primary investing activities consist of purchases, sales, and maturities of our investments, capital expenditures for land, leasehold improvements, manufacturing, laboratory, computer equipment and software, and business development.

Net cash provided by investing activities in 2023 was $4.2 billion, which primarily included proceeds from maturities of marketable securities of $5.6 billion and proceeds from sales of marketable securities of $3.2 billion, partially offset by purchases of marketable securities of $3.8 billion, and purchases of property, plant and equipment of $707 million.

Net investing cash flows increased by $9.4 billion, or 181%, in 2023 compared to 2022, primarily due to a decrease in purchases of marketable securities of $7.7 billion and an increase in proceeds from maturities of marketable securities of $2.4 billion.

Financing activities

Our primary financing activities consist of repurchases of common stock, issuance of common stock related to our equity plans, and finance leases.

Net cash used in financing activities in 2023 was $1.4 billion, primarily from repurchases of common stock of $1.2 billion and changes in financing lease liabilities of $270 million, partially offset by net proceeds from the issuance of common stock in connection with the exercise of stock options and employee stock purchases under our equity plans of $46 million.

Net cash used in financing activities decreased by $2.1 billion, or 60%, in 2023 compared to 2022, mainly due to a decrease in repurchases of common stock.

Operation and funding requirements

Our principal sources of funding as of December 31, 2023 consisted of cash and cash equivalents, investments, and cash we may generate from operations. We generated net income of $8.4 billion and $12.2 billion for the years ended 2022 and 2021, respectively,

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following the authorization of our first commercial product in December 2020. We also incurred a net loss of $4.7 billion for the year ended December 31, 2023. We have retained earnings of $13.6 billion as of December 31, 2023.

We have significant future capital requirements including expected operating expenses to conduct research and development activities, operate our organization, and meet capital expenditure needs. We anticipate maintaining substantial expenses across all areas of our ongoing activities, particularly as we continue research and development of our development candidates and clinical activities for our investigational medicines. This also extends to our manufacturing costs, including our arrangements with our supply and manufacturing partners. Our ongoing work on our RSV, seasonal flu and CMV vaccine candidates, individualized neoantigen therapy, COVID-19 vaccines, including development of any new vaccines against variants of SARS-CoV-2, combination vaccines, late-stage clinical development, and buildout of global commercial, regulatory, sales and marketing infrastructure and manufacturing facilities will require significant cash outflows in future periods, most of which may not be reimbursed or otherwise paid for by our partners or collaborators. In addition, we have substantial facility, lease and purchase obligations. We have also entered into certain collaboration agreements with third parties that include the funding of certain research and development activities and potential future milestone and royalty payments by us.

We believe that our cash, cash equivalents, and investments as of December 31, 2023, together with cash expected to be generated from product sales, will be sufficient to enable us to fund our projected operations and capital expenditures through at least the next 12 months from the issuance of the financial statements included in this Annual Report on Form 10-K. We are subject to all the risks related to the development and commercialization of novel medicines, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors, which may adversely affect our business. For example, we have experienced a decline in customer demand for our COVID-19 vaccine, reflecting the market's ongoing transition to a seasonal model in an endemic market in 2023. We foresee that our commitment to investing in our business for future product launches may lead to continued negative cash flows from operations in upcoming periods. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of December 31, 2023 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in millions):

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(1)The amounts in the table include a total payment of $668 million associated with our MTC leases for the optional lease extension periods. For accounting purposes, a lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. Please refer to Note 10 to our consolidated financial statements.

(2)The amounts represent non-cancelable fixed payment obligations related to purchases of raw materials, contract manufacturing services, clinical services and other goods or services in the normal course of business. As of December 31, 2023, $79 million of the purchase commitments related to raw materials was recorded as an accrued liability for loss on future firm purchase commitments.

We have agreements with certain vendors for various services, including services related to clinical operations, and support and contract manufacturing, which we are not contractually able to terminate for convenience. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. At December 31, 2023, we had cancelable open purchase orders of $3.0 billion in total under such agreements for our clinical operations and support and contract manufacturing. These amounts represent only our estimate of those items for which we

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had a contractual commitment to pay at December 31, 2023, assuming we would not cancel these agreements. The actual amounts we pay in the future to the vendors under such agreements may differ from the cancelable open purchase order amounts of $3.0 billion.

In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business. The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

As of December 31, 2023, we did not have any off-balance sheet arrangements that were material or reasonably likely to become material to our financial condition or results of operations.

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