Moderna, Inc. (MRNA) FY 2024 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 medicines across four franchises: respiratory virus vaccines, latent and other virus vaccines, oncology therapeutics and rare disease therapeutics.

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 several 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 34 development candidates across our 44 development programs, of which 41 are in clinical studies currently.

Our COVID 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. In May 2024, the U.S. Food and Drug Administration (FDA) granted approval for mRESVIA® (mRNA-1345), our mRNA vaccine against respiratory syncytial virus (RSV), to protect adults aged 60 and older from lower respiratory tract disease caused by RSV infection. This marks our second approved mRNA product and underscores our ongoing commitment to delivering solutions for patients by addressing global public health threats related to infectious diseases.

2024 Business Highlights

Respiratory Vaccines

During the fourth quarter of 2024, we achieved significant milestones in our respiratory vaccine portfolio. We filed for regulatory approval with the FDA for our next-generation COVID vaccine (mRNA-1283), supported by positive Phase 3 efficacy and immunogenicity data, leveraging a priority review voucher, and have been assigned a Prescription Drug User Fee Act (PDUFA) goal date of May 31, 2025. We also submitted a regulatory application for our respiratory syncytial virus (RSV) vaccine, mRESVIA (mRNA-1345), for high-risk adults aged 18 to 59, following positive Phase 3 data and using a priority review voucher, and have been assigned a PDUFA goal date of June 12, 2025. Additionally, we filed for FDA approval of our flu+COVID combination vaccine (mRNA-1083), based on positive Phase 3 immunogenicity data in adults aged 50 years and older.

Net Product Sales and Net (Loss) Earnings Per Share

For the year ended December 31, 2024, we recognized net product sales of $3.1 billion from sales of our COVID and RSV vaccines, compared to $6.7 billion and $18.4 billion for the years ended December 31, 2023 and 2022, respectively. Loss per share was $(9.28) for the year ended December 31, 2024, compared to (loss) earnings per share of $(12.33) and $20.12 for the years ended December 31, 2023 and 2022, respectively.

Program Developments

As of December 31, 2024, eleven of our 44 development programs are in late-stage development, including nine programs in Phase 3 and two rare disease programs that are expected to generate pivotal data in 2025.

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Respiratory Vaccines

•Next-generation COVID vaccine: We shared positive Phase 3 vaccine efficacy and immunogenicity data for our next-generation COVID vaccine (mRNA-1283) at our 2024 R&D Day event in September 2024. We have filed for regulatory approval of mRNA-1283 with the FDA using a priority review voucher. The FDA has accepted our Biologics License Application (BLA) for mRNA-1283 and has assigned a PDUFA goal date of May 31, 2025.

•RSV vaccine: We received regulatory approval of our RSV vaccine mRESVIA (mRNA-1345) for adults aged 60 years and older in 2024. We shared positive Phase 3 data for mRNA-1345 in high-risk adults aged 18 to 59 at our 2024 R&D Day event and have since submitted an application to the FDA for regulatory approval using a priority review voucher, and have been assigned a PDUFA goal date of June 12, 2025.

•Seasonal flu + COVID vaccine: We shared positive Phase 3 immunogenicity data for our flu+COVID combination vaccine (mRNA-1083) for adults aged 50 years and older at our 2024 R&D Day event. We have filed with the FDA for regulatory approval of mRNA-1083, which may require vaccine efficacy data from our ongoing Phase 3 seasonal flu vaccine study.

•Seasonal flu vaccine: We have shared positive Phase 3 immunogenicity and safety data for our seasonal flu vaccine (mRNA-1010). We are conducting a two-season Phase 3 efficacy study (P304), where the timing of the efficacy readout depends on case accrual and could happen in the current season.

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. The Data Safety Monitoring Board (DSMB) met to review the initial study data and has informed us that the criterion for early efficacy was not met. The DSMB recommended that the study continue as planned. We remain blinded and anticipate final efficacy data from the study in 2025.

•Norovirus vaccine: The two-season Phase 3 study evaluating the efficacy, safety and immunogenicity of our trivalent vaccine candidate against norovirus (mRNA-1403) is fully enrolled in the Northern Hemisphere and we are preparing second season enrollment in the Southern Hemisphere. The trial is currently on FDA clinical hold following a single adverse event report of Guillain-Barré syndrome, which is currently under investigation. We do not expect an impact on the study's efficacy readout timeline as enrollment in the Northern Hemisphere has already been completed. The timing of the Phase 3 readout will be dependent on case accruals.

Oncology Therapeutics

•Individualized Neoantigen Therapy (INT): We continue to demonstrate the potential clinical benefit of our INT (mRNA-4157). In collaboration with Merck, the Phase 3 clinical trial for adjuvant melanoma is fully enrolled. Two Phase 3 studies for non-small cell lung cancer are enrolling. A randomized Phase 2 study for high-risk muscle invasive bladder cancer is enrolling, and a randomized Phase 2 study for adjuvant renal cell carcinoma is enrolling.

Rare Diseases

•Propionic acidemia (PA) therapeutic: In an ongoing Phase 1/2 study designed to evaluate safety and pharmacology in trial participants with PA, our investigational therapeutic (mRNA-3927) has been generally well-tolerated to date with no events meeting protocol-defined dose-limiting toxicity criteria. Early results suggest potential decreases in annualized metabolic decompensation event (MDE) frequency compared to pre-treatment, and the majority of patients have elected to continue on the open label extension study. We began generating registrational trial data in 2024.

•Methylmalonic acidemia (MMA) therapeutic: Our investigational therapeutic for MMA (mRNA-3705) has been selected by the FDA for the Support for Clinical Trials Advancing Rare Disease Therapeutics (START) pilot program. We and the FDA have agreed on the pivotal study design. We expect to start a registrational study in the first half of 2025.

Other Business Updates

In March 2024, we entered into a development and commercialization funding agreement with Blackstone Life Sciences (Blackstone) to advance our flu program. As part of the agreement, Blackstone has committed up to $750 million in funding to support development efforts. Blackstone will be eligible for low-single digit royalties and milestone payments based on cumulative net sales of

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our future flu and combination vaccines, contingent upon regulatory approval in the U.S. and the success of the funded activities. The funding is recognized as a reduction to the expenses of our flu program. We will retain full rights and control of our flu program.

In April 2024, we entered a non-exclusive out-licensing agreement with a pharmaceutical company based in Japan for mRNA COVID-related intellectual property for the territory of Japan. We received an upfront payment of $50 million, which includes a $20 million prepayment creditable against future royalties. Additionally, we are entitled to low double-digit royalties on the net sales of the company’s COVID product.

In June 2024, we were awarded up to $176 million through the Rapid Response Partnership Vehicle (RRPV), funded by BARDA, to accelerate the development of mRNA-based pandemic influenza vaccines. The project award will support the late-stage development of an mRNA-based vaccine to enable the licensure of a pre-pandemic vaccine against the H5 influenza virus. This subtype of the influenza virus causes a highly infectious and severe disease in birds known as avian influenza and poses a risk of spillover into the human population. The agreement also includes additional options to prepare for and accelerate responses to future public health threats.

During the third quarter of 2024, we updated our COVID vaccine to target the KP.2 and JN.1 strains of the SARS-CoV-2 virus for the 2024-2025 season, consistent with guidance from regulators. Our vaccine targeting the KP.2 strain received approval from the FDA and Health Canada, while our vaccine targeting the JN.1 strain was approved by regulatory authorities in the European Union (EU), the United Kingdom, Japan, Taiwan, and other jurisdictions.

In May 2024, the FDA approved mRESVIA to protect adults aged 60 years and older from lower respiratory tract disease caused by RSV infection. The approval was granted under a breakthrough therapy designation. Subsequently, the Advisory Committee on Immunization Practices (ACIP) issued a recommendation for all unvaccinated people 75 years of age and older and unvaccinated people aged 60 to 74 who are at increased risk. In August 2024, the European Commission (EC) granted marketing authorization for mRESVIA to protect adults aged 60 years and older from lower respiratory tract disease caused by RSV infection. The authorization is valid in all 27 EU member states, as well as Iceland, Liechtenstein and Norway. We have also filed for mRNA-1345 approval with regulators in multiple markets worldwide and commenced sales in the U.S. in the third quarter of 2024.

In September 2024, our manufacturing facility in Laval, Quebec, received a Drug Establishment License (DEL) from Health Canada, certifying the site’s compliance with the required safety and quality standards to produce drug substance. This certification marked a significant step in enabling our Canadian facility to become fully operational, supporting domestic manufacturing of mRNA vaccines, including COVID vaccines, with production expected to begin in 2025.

In January 2025, we entered into a new agreement with the RRPV, funded by BARDA. The agreement provides up to $590 million to support the late-stage development and licensure of mRNA-based pre-pandemic influenza vaccines. In addition, the funding will enable the expansion of clinical studies for up to five additional subtypes of pandemic influenza, enhancing our preparedness to address emerging public health threats.

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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):

Net product sales by product were as follows (in millions):

As of December 31, 2024, we have two commercial products authorized for use, our COVID vaccine and our RSV vaccine. The RSV vaccine was approved by the FDA in May 2024 for adults aged 60 years and older.

In the third quarter of 2023, we commenced sales of our COVID vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and international organizations. We also commenced sales of our RSV vaccine in the third quarter of 2024. In the U.S., our COVID and RSV vaccines are 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 government rebates, and other related deductions.

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

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(1)Includes an adjustment of approximately $216 million for the full year 2024, reflecting a reduction in prior year provision estimates, primarily related to returns and chargebacks for the previous COVID vaccine season.

Prior to the third quarter of 2023, we sold our COVID vaccine to the U.S. Government, foreign governments and international organizations. The agreements and related amendments with these entities generally do not include variable consideration, such as discounts, rebates or returns. Certain of these agreements entitle us to upfront deposits for our COVID vaccine supply, initially recorded as deferred revenue. As of December 31, 2024, we had deferred revenue of $188 million associated with customer deposits received or billable under supply agreements for delivery of our COVID vaccine, with the majority in 2025.

Other revenue

Other revenue comprises grant revenue, collaboration revenue, and licensing and royalty revenue. Grant and collaboration revenues have been primarily derived from government-sponsored and private organizations including the Biomedical Advanced Research and

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Development Authority (BARDA), the Defense Advanced Research Projects Agency (DARPA) and the 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. Licensing and royalty revenue is related to our out-licensing agreement for mRNA COVID related intellectual property in Japan, executed in 2024.

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 therapeutic area-specific basis.

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The following table reflects our research and development expenses, including direct program specific expenses summarized by therapeutic area and indirect or shared operating costs summarized under other research and development expenses during the years ended December 31, 2024, 2023, and 2022 (in millions):

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(1)Includes a total of 34 development candidates at December 31, 2024, 42 development candidates at December 31, 2023, and 45 development candidates at December 31, 2022. Program-specific expenses are reflected as of the beginning of the period in which the program was internally advanced to development.

The program-specific expenses by therapeutic area summarized in the table above include external development costs, such as fees paid to outside consultants, central laboratories, investigative sites, and CROs in connection with our preclinical studies and clinical trials. 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 therapeutic area.

Discovery and platform research expenses include costs associated with early-stage research activities for preclinical programs and the development of technical advances in mRNA science, delivery science, and manufacturing process design. These costs include external CRO and lab services, personnel-related costs, computer equipment, facilities, and other administrative costs.

Technology development and manufacturing expenses are primarily related to manufacturing process development and manufacturing costs, including expenses for acquiring and manufacturing pre-launch inventory, mRNA supply for preclinical studies and clinical trials.

Shared discovery and development expenses are research and development costs such as personnel-related costs and other costs, such as the purchase of priority review vouchers. These expenses are not otherwise included in development programs, discovery and platform research, technical development, manufacturing expenses, or stock-based compensation.

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 norovirus vaccine, seasonal flu vaccine, new generations of COVID vaccines, combination vaccines, CMV vaccine, 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.

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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, maintaining, and defending intellectual property (IP). These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

Prior to 2024, selling, general and administrative expenses increased annually as we expanded our commercial infrastructure to support the global commercialization of our COVID vaccine. These increases were driven by investments in building regulatory, sales, and marketing teams, establishing subsidiaries in multiple countries, and supporting operational growth. In 2024, selling, general and administrative expenses decreased significantly by $375 million, or 24%, compared to 2023. This decline reflects our focus on productivity improvements, cost-saving initiatives, and targeted investments that strengthen our overall efficiency.

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 or losses related to the sale of investments in marketable securities, changes in fair value of investments in equity securities, foreign currency transactions, remeasurements and hedges, 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 prior to its acquisition in December 2024, and certain contract manufacturing service agreements.

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 policy 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 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 vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and organizations. We also commenced sales of our RSV vaccine in the third quarter of 2024. In the U.S., our COVID vaccine and RSV vaccine are 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 are recognized net of estimated wholesaler chargebacks, invoice discounts for prompt payments and pre-orders, provisions for sales

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returns, government rebates, and other related deductions. These provisions are recorded based on contractual terms, our estimate of returns for product sold, and other relevant considerations, 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 the limited historical data, constrained third-party information, and evolving market dynamics. Among all variables, estimating returns presents the most significant judgment due to the broad range of potential outcomes and the current lack of established return trends. While we now have one year of data on our product returns, this remains insufficient to establish reliable patterns. We will continue to enhance our projections as additional information becomes available. The actual results could differ from our estimates, and such differences could have a material impact to our financial statements.

Recently issued accounting pronouncements

See Note 2 - Summary of Significant Accounting Policies, to the consolidated financial statements, under the caption “Recently Issued Accounting Standards”.

Results of operations

A discussion regarding our results of operations for the year ended December 31, 2024 compared to 2023 is presented below. A discussion regarding our results of operations for the year ended December 31, 2023 compared to 2022 can be found under Part II -Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (SEC) on February 23, 2024.

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

Revenue

Total revenue decreased by $3.6 billion, or 53%, in 2024, primarily attributable to a significant reduction in net product sales of our COVID vaccine. Net product sales decreased by $3.6 billion, or 53%, in 2024, mainly due to lower sales volumes in Europe and the rest of the world. This decline reflects the transition to a seasonal commercial market for COVID vaccine, as revenue from these regions was previously generated largely through advance purchase agreements with foreign governments and international organizations during the pandemic. In the United States, sales remained relatively consistent compared to 2023. However, 2024 sales include an approximately $216 million benefit related to a reversal of prior-year sales provisions. Excluding this adjustment, product sales volume in the United States declined compared to 2023, primarily due to lower vaccination rates and increased market

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competition. Although we commenced sales of our RSV vaccine in the third quarter of 2024, these sales did not have a significant impact on our overall product sales for the year. Other revenue decreased by $50 million, or 28%, in 2024, primarily due to lower grant and collaboration revenue, partially offset by license and royalty revenue related to the licensing agreement for mRNA COVID-related intellectual property in Japan, executed in 2024.

Product sales are expected to decline further in 2025, driven by a potential reduction in vaccination rates, lower sales under advanced purchase agreements as most have been fulfilled, and increasing competitive pressures in the market.

Operating expenses

Cost of sales

Our cost of sales was $1.5 billion, or 47% of our net product sales, in 2024, including third-party royalties of $155 million, inventory write-downs of $495 million, primarily for raw materials and our finished and semi-finished COVID vaccine inventory, wind-down costs of $263 million, unutilized manufacturing capacity of $105 million, and losses from non-cancellable raw material purchase commitments of $60 million. 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 commitments and cancellation fees of $205 million. These charges in 2024, other than royalties, were largely driven by customer demand forecast adjustments, termination of third-party contract manufacturing service agreements, and commitments for manufacturing capacity and raw material purchase agreements. Charges in 2023, other than royalties, were primarily attributable to a shift in product demand to the latest variant-targeted COVID vaccine and a decline in customer demand, which ultimately led to our strategic initiative implemented in the third quarter of 2023 to optimize our COVID business by resizing manufacturing operations in response to the shift toward an endemic seasonal market. Refer to Note 7 to our consolidated financial statements for further details on inventory related charges and this initiative.

Cost of sales for 2024 decreased by $3.2 billion, or 69%, compared to 2023. Cost of sales as a percentage of net product sales for 2024 decreased by 23 percentage points to 47% from 70% in 2023. The decrease in cost of sales was primarily driven by reduced inventory write-downs, unutilized manufacturing capacity, purchase commitment and cancellation fees, and lower sales volume. Additionally, the reduction reflects the impact of our strategic initiative launched, which incurred $1.6 billion in charges during 2023, contributed to improved manufacturing efficiency and cost reductions in 2024. Of the wind-down costs incurred in 2024, $238 million related to the termination of a contract manufacturing agreement during the fourth quarter, as part of our continued efforts to optimize our manufacturing footprint in alignment with the transition to a seasonal endemic market. The decrease in cost of sales as a percentage of net product sales was primarily attributable to these reduced costs, partially offset by the lower product sales.

In 2025, we anticipate a reduction in cost of sales, primarily due to lower anticipated product sales. However, we expect cost of sales as a percentage of net product sales to increase compared to 2024, driven by excess manufacturing capacity and the impact of fixed costs being allocated across a lower sales volume.

Research and development expenses

Research and development expenses decreased by $302 million, or 6%, in 2024. The decrease was primarily attributable to decreases in clinical trial expenses of $427 million, clinical manufacturing expenses of $286 million, and preclinical research expenses of $246 million. These reductions were partially offset by an increase of $231 million in personnel-related costs, including stock-based compensation, and the purchase of two priority review vouchers. The decrease was largely attributable to reduced spending across our COVID, RSV, seasonal flu, CMV and combination vaccine programs. The decrease in expenses for the seasonal flu program was primarily due to funding provided by Blackstone. Please refer to Note 5 to our consolidated financial statements for details on the research and development funding arrangement with Blackstone. These reductions were partially offset by increased spending on our norovirus and INT programs. The increase in personnel-related costs and stock-based compensation was mainly due to higher headcount to support our continued research and development efforts.

We expect research and development costs to decline in 2025 as we focus our investments on prioritized programs and strategic areas, aligning resources with our long-term objectives. However, we still anticipate incurring a significant amount of research and development expenses in 2025 as we continue to develop our pipeline and advance our product candidates into later-stage development, in particular those in ongoing Phase 3 studies, including our norovirus, flu+COVID combination, CMV, and RSV vaccine programs, as well as our INT program.

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Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $375 million, or 24%, in 2024. The decrease was mainly due to a $342 million reduction in consulting and outside services across all functions, along with a $72 million reduction in commercial and marketing expenses. The decrease reflects cost discipline and operational efficiencies gained by reducing reliance on external consultants and bringing more functions in-house.

While we continue to make selective investments to support our key priorities, we expect a slight decrease in spending in 2025 as we maintain an efficient and scalable operational structure.

Interest income

Interest income generated from our investments in marketable securities increased by $4 million in 2024, 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 decreased by $37 million, or 30%, in 2024. The decrease was primarily driven by a reduction in net realized losses on available-for-sale debt securities and lower interest expense. Interest expense, which is primarily related to our finance leases, declined due to the termination or expiration of certain finance leases in 2023. Please refer to Note 10 to our consolidated financial statements for additional information.

Provision for income taxes

Provision for income taxes decreased by $818 million, or 106%, in 2024, primarily due to the establishment of a $1.7 billion valuation allowance on deferred tax assets in the third quarter of 2023. This valuation allowance has been applied consistently since its initial recognition. Our effective tax rate for the year ended December 31, 2024 was 1.3%, which is lower than the statutory rate. It is mainly driven by the increase in valuation allowances on deferred tax assets, partially offset by tax benefits from research and development credits. As a result of the valuation allowance, the 2024 effective tax rate is not comparable to the prior year. Please refer to Note 13 to our consolidated financial statements for additional details.

Liquidity and capital resources

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

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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, 2024 decreased by $3.8 billion, or 28%, compared to December 31, 2023. For the year ended December 31, 2024, we had a net cash outflow from operations of $3.0 billion, and purchases of property, plant and equipment of $1.1 billion.

Working capital, defined as current assets less current liabilities, as of December 31, 2024 decreased by $1.4 billion, or 19%, compared to December 31, 2023. This was primarily due to a $1.6 billion decrease in cash, cash equivalents and short-term investments, mainly used to fund our operating activities, and a $534 million decrease in accounts receivable, primarily driven by timing of collections. These decreases were partially offset by a $415 million reduction in short-term deferred revenue, mainly resulting from revenue recognized from deferred revenue in excess of customer deposits received, and a $371 million decrease in accrued liabilities, reflecting an overall reduction in spend.

Cash flow

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

Operating activities

We derive cash flows from operations primarily from cash collected from customer deposits and accounts receivable related to our product sales, as well as certain government-sponsored and private organizations, strategic alliances and funding arrangements. 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, foreign governments and international organizations for the supply of our COVID vaccine and received upfront deposits. In the third quarter of 2023, we commenced sales of our COVID vaccine to the U.S. commercial market, in addition to continuing sales to foreign governments and international organizations. In the U.S., our COVID vaccine is sold primarily to wholesalers and distributors, and to a lesser extent, directly to retailers and healthcare providers. We also commenced sales of our RSV vaccine in the third quarter of 2024. Wholesalers and distributors typically do not make upfront payments to us. As of December 31, 2024, we had $188 million in deferred revenue related to customer deposits received or billable.

Net cash used by operating activities in 2024 was $3.0 billion and consisted of net loss of $3.6 billion and non-cash adjustments of $635 million, plus a net change in assets and liabilities of $78 million. Non-cash items primarily included stock-based compensation of $429 million and depreciation and amortization of $189 million. The net change in assets and liabilities was primarily due to a decrease in deferred revenue of $439 million due to revenue recognized from deferred revenue in excess of customer deposits received, and a decrease in accounts payable and accrued liabilities of $454 million resulting from overall lower spend in the period. These were partially offset by a decrease in accounts receivable of $534 million, mainly due to timing of collections, a decrease in prepaid expenses and other assets of $145 million, primarily driven by reductions in vendor prepayments, as well as a decrease in inventory of $83 million, largely due to inventory sold and write-downs.

Net cash used by operating activities decreased by $114 million, or 4%, in 2024 compared to 2023. This decrease was primarily driven by a decrease in net loss of $1.2 billion, a change in deferred revenue of $1.6 billion, reflecting less revenue recognized from deferred revenue in excess of customer deposits received in 2024. This was partially offset by a change in prepaid expenses and other assets of $1.7 billion, mainly due to a decrease in deferred income tax assets in 2023 resulting from the establishment of a valuation allowance and reductions in vendor prepayments, and a change in inventory of $664 million, driven by a smaller reduction in inventory write-downs.

Investing activities

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

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Net cash provided by investing activities in 2024 was $1.9 billion, which primarily included proceeds from maturities of marketable securities of $5.6 billion and proceeds from sales of marketable securities of $4.0 billion, partially offset by purchases of marketable securities of $6.5 billion, and purchases of property, plant and equipment of $1.1 billion.

Net cash flows provided by investing activities decreased by $2.3 billion, or 54%, in 2024 compared to 2023, primarily due to increases in purchases of marketable securities of $2.8 billion, and purchases of property, plant and equipment of $344 million, partially offset by an increase in proceeds from sale of marketable securities of $761 million.

Financing activities

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

Net cash provided by financing activities in 2024 was $56 million, consisting of 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 $66 million.

Net cash provided by financing activities increased by $1.4 billion, or 104%, in 2024 compared to 2023, mainly due to a decrease in repurchases of common stock.

Operation and funding requirements

Our principal sources of funding as of December 31, 2024 consisted of cash and cash equivalents, investments, and cash we may generate from operations. We reported a net loss of $3.6 billion and $4.7 billion for the years ended December 31, 2024 and 2023, respectively. In contrast, we generated net income of $8.4 billion and $12.2 billion for the years ended December 31, 2022 and 2021, respectively, following the authorization of our first commercial product in December 2020. From our inception to the end of 2020, we incurred significant losses from operations due to our significant research and development expenses. We have retained earnings of $10.0 billion as of December 31, 2024.

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 norovirus, flu+COVID combination, CMV, RSV, and next-generation COVID vaccine candidates, INT, development of any new COVID vaccines against variants of SARS-CoV-2, late-stage clinical development, investments in digital capabilities and artificial intelligence technologies, 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 various collaboration and licensing agreements, as well as a research and development funding arrangement with a third party. These arrangements collectively encompass the funding of specific research and development activities, with the distinction that under the research and development funding arrangement, we receive funding. However, for all these arrangements, we may be obligated to make potential future milestone and royalty payments.

We believe that our cash, cash equivalents, and investments as of December 31, 2024, 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 experienced a decline in customer demand for our COVID vaccine in 2023, and this trend continued into 2024, reflecting the market's ongoing transition to a seasonal commercial pattern in the endemic COVID vaccine market. 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.

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Contractual obligations and commitments

The following table summarizes our contractual obligations as of December 31, 2024 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 represent non-cancelable fixed payment obligations related to purchases of raw materials, contract manufacturing services, research and development and other goods or services in the normal course of business. As of December 31, 2024, $60 million of the purchase commitments related to raw materials was recorded as an accrued liability for loss on future firm purchase commitments and is included in the purchase obligations line above.

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, 2024, we had cancelable open purchase orders of $2.9 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 had a contractual commitment to pay at December 31, 2024, 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 $2.9 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, 2024, we did not have any off-balance sheet arrangements, other than those obligations and commitments disclosed herein, that were material or reasonably likely to become material to our financial condition or results of operations.

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