Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. 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 unaudited financial information and related notes included in this Form 10-Q and our consolidated financial statements and related notes and other financial information in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the SEC) on February 25, 2022 (the 2021 Form 10-K). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, 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 II, Item 1A - Risk Factors in this Form 10-Q, 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 pioneering messenger RNA (mRNA) therapeutics and vaccines to create a new generation of transformative medicines to improve the lives of patients. 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, autoimmune diseases and cardiovascular diseases, independently and with our strategic collaborators. Within our platform, we develop technologies that enable the development of mRNA medicines for diverse applications. When we identify technologies that we believe could enable a new group of potential mRNA medicines with shared product features, we call that group a “modality.” We have created seven modalities to date:

  • prophylactic vaccines;

  • systemic secreted and cell surface therapeutics;

  • cancer vaccines;

  • intratumoral immuno-oncology;

  • localized regenerative therapeutics;

  • systemic intracellular therapeutics; and

  • inhaled pulmonary therapeutics.

On December 18, 2020, we received an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) for the emergency use of the Moderna COVID-19 Vaccine (also referred to as mRNA-1273 and marketed under the brand name Spikevax) as a two-dose, 100 µg primary series in individuals 18 years of age or older. In January 2022, we received full commercial approval for Spikevax as a two-dose, 100 µg primary series to prevent COVID-19 in individuals 18 years of age and older in the United States, and Spikevax is approved or authorized in individuals 18 years and older in more than 80 countries. In addition, we have received authorization from the FDA and global regulators in more than 40 countries for our COVID-19 vaccine as a two-dose 100 µg primary series in adolescents aged 12-17 years and as a two-dose 50 µg primary series in children ages 6 through 11 years old. Additionally, a two-dose, 25 µg primary series of our COVID-19 vaccine is authorized in young children ages 6 months through 5 years old in the United States, Canada, Australia, and other jurisdictions.

The FDA, European Medicines Agency (EMA), Swissmedic and other health agencies around the world have authorized a booster dose of our COVID-19 vaccine at the 50 µg dose level for adults ages 18 years and older. In March 2022, the FDA and other health agencies authorized a second booster dose at the 50 µg dose level for adults 50 years and older and adults over 18 years of age with certain kinds of immunocompromise.

Business Highlights and Recent Developments

Moderna COVID-19 Vaccine Clinical Studies

  • Omicron-specific booster candidates (mRNA-1273.529/.214/.222):** Our Omicron-containing vaccine candidates are being studied to evaluate the immunogenicity, safety and reactogenicity of mRNA-1273.529 and mRNA-1273.214 as a single booster dose in adults aged 18 years and older. mRNA-1273.529 is a vaccine candidate specific to the Omicron variant of concern (BA.1). mRNA-1273.214 is a bivalent candidate that combines our Omicron-specific (BA.1) candidate (mRNA-1273.529) and mRNA-1273. We are also developing a bivalent vaccine candidate (mRNA-1273.222) based upon the BA.4/5 Omicron variant strains and mRNA-1273. mRNA-1273.214 is being evaluated in an ongoing registrational, Phase 2/3 study in the U.S. and a Phase 3 study in the UK. We expect to begin dosing with mRNA-1273.222 in the U.S. Phase 2/3 study soon.

  • Based on our June 2022 clinical data, a 50 µg booster dose of mRNA-1273.214 met all pre-specified endpoints including superior neutralizing antibody response (geometric mean ratio) against the Omicron variant one month after administration when compared to the original mRNA-1273 vaccine. The booster dose of mRNA-1273.214 was generally well-tolerated, with side effects comparable to a booster dose of mRNA-1273 at the 50 µg dose level. Additionally, one month after administration in previously vaccinated and boosted participants, a 50 µg booster dose of mRNA-1273.214 elicited potent neutralizing antibody responses against the Omicron subvariants BA.4 and BA.5 in all participants regardless of prior infection. We are working to complete regulatory submissions in the coming weeks requesting to update the composition of our booster vaccine to mRNA-1273.214.

  • We are advancing both mRNA-1273.214 and mRNA-1273.222 for fall 2022 based on different market needs for Omicron subvariants. On July 28, 2022, we entered into a supply agreement with the U.S. government for an initial 66 million doses of mRNA-1273.222, with options for the U.S. government to purchase up to an additional 234 million doses. We also have supply agreements with other governments for the supply of mRNA-1273.214 for the fall booster season.

  • Beta-specific bivalent booster (mRNA-1273.211):** mRNA-1273.211 is a bivalent vaccine candidate that combines our Beta-specific candidate (mRNA-1273.351) and mRNA-1273. Several mutations found in the Beta variant of concern have been persistent in more recent variants of concern, including Omicron. A 50 µg booster dose of mRNA-1273.211 demonstrated superiority compared to a 50 µg booster dose of mRNA-1273 against Beta, Delta and Omicron variants of concern one month after administration. Superiority continued six months after administration for Beta and Omicron variants of concern as well. A 50 µg booster dose of mRNA-1273.211 was generally well tolerated with a reactogenicity profile comparable to a booster dose of mRNA-1273 at the 50 µg dose level.

  • Moderna COVID-19 Vaccine for adolescents and children:** In adolescents aged 12-17 years, the primary series (two doses of 100 µg) of our COVID-19 vaccine is authorized in more than 40 countries.

In children aged 6-11 years, the primary series (two doses of 50 µg) of our COVID-19 vaccine is authorized in more than 40 countries, including the U.S., the EU, Australia, and Canada.

In children aged 6 months to 5 years, the primary series (two doses of 25 µg) of our COVID-19 vaccine is authorized in the U.S., Canada, Australia, and other jurisdictions.

  • Next-generation vaccine candidate against COVID-19 (mRNA-1283):** mRNA-1283 is a next-generation vaccine candidate against COVID-19 and is being developed as a potential refrigerator-stable mRNA vaccine that will facilitate easier distribution and administration by healthcare providers. In a Phase 1 study of mRNA-1283, preliminary results indicate that when administered as primary series at lower dose levels (10 µg, 30 µg), mRNA-1283 elicits a robust anti-SARS-CoV-2 neutralizing antibody response comparable to the 100 µg mRNA-1273 primary series. The frequency of local and systemic solicited adverse reactions of the mRNA-1283 primary series administered at lower dose levels (10 µg, 30 µg) was overall comparable to mRNA-1273. Enrollment is complete in a Phase 2 study evaluating booster doses of mRNA-1283, mRNA-1283.211 (SARS-CoV-2/Beta bivalent), and mRNA-1283.529 (Omicron monovalent).

  • For the second quarter of 2022, we recognized product sales of $4.5 billion from sales of our COVID-19 vaccine, compared to $4.2 billion in the second quarter of 2021.

Other Business Updates

In June 2022, we entered into an agreement in principle with the United Kingdom government to establish an mRNA Innovation and Technology Center in the United Kingdom. We expect this state-of-the-art mRNA vaccine manufacturing facility to provide access to rapid pandemic response capabilities and our respiratory virus vaccine candidates. Additionally, we plan to expand our presence in the United Kingdom through investments in research and development activities. The UK agreement follows previous agreements entered into with the Government of the Republic of Kenya, the Australian Federal Government and the Government of Canada to establish state-of-the-art mRNA vaccine manufacturing facilities in those countries.

Key Updates for our Other Development Candidates

  • Seasonal influenza (flu) (mRNA-1010, mRNA-1011, mRNA-1012, mRNA-1020 and mRNA-1030):** As part of our influenza vaccine development strategy, we are developing five different influenza vaccines. mRNA-1010 is a single investigational vaccine consisting of four distinct mRNA sequences that encode the A H1N1, H3N2 and influenza B Yamagata and Victoria lineages in our proprietary LNP. mRNA-1011 and mRNA-1012 are investigational vaccines that will include the four WHO-recommended strains and aim to add additional hemagglutinin (HA) antigens (e.g. H3N2, H1N1). mRNA-1020 and mRNA-1030 are investigational vaccines that will aim to add neuraminidase (NA) antigens.

In March 2022, an interim analysis of a Phase 2 study of mRNA-1010 identified no significant safety concerns, and the immunogenicity data is consistent with a potential for superiority to standard dose vaccine for influenza A strains (which drives the majority of disease in adults). The interim data is consistent with potential for non-inferiority to standard dose vaccine in influenza B strains (primarily a concern in pediatrics). In June 2022, the first participants were dosed in a Phase 3 safety and immunogenicity study of mRNA-1010. We expect to enroll approximately 6,000 adults in Southern Hemisphere countries. Further, we are preparing for a Phase 3 efficacy study in fall 2022 if needed.

In April, we announced that the Phase 1/2 trial of mRNA-1020 and mRNA-1030 dosed its first participants, and the trial is now fully enrolled. The Phase 1/2 randomized, observer-blind, dose-ranging study will evaluate the safety, reactogenicity and immunogenicity of a single dose of mRNA-1020 or mRNA-1030 in healthy adults 18 years and older in the U.S. mRNA-1020 and mRNA-1030 candidates each include eight mRNAs, targeting both hemagglutinin and neuraminidase at different doses and ratios.

  • Respiratory syncytial virus (RSV) vaccine (mRNA-1345):** mRNA-1345 is a vaccine against RSV encoding for a prefusion F glycoprotein, which elicits a superior neutralizing antibody response compared to the postfusion state. The Phase 1 study of mRNA-1345 to evaluate the tolerability, reactogenicity and immunogenicity of mRNA-1345 in younger adults, older adults, women of child-bearing age, older adults of Japanese descent and children is ongoing. All cohorts are fully enrolled except the RSV seropositive children cohort, which is ongoing. Phase 1 interim data from the older adult cohort showed that a single mRNA-1345 vaccination at 50 µg, 100 µg or 200 µg boosted neutralizing antibody titers against RSV-A by approximately 14-fold and against RSV-B by approximately 10-fold. The Phase 3 portion of the pivotal global Phase 2/3 study of mRNA-1345 with approximately 34,000 participants is currently enrolling. Additionally, a Phase 3 study to evaluate the safety, tolerability and immunogenicity of mRNA-1345, when given alone or co-administered with a seasonal influenza vaccine, in adults 50 years of age or older is fully enrolled. The FDA has granted Fast Track designation for mRNA-1345 in adults older than 60 years of age.

  • Combined COVID and flu vaccine (mRNA-1073): mRNA-1073 is a combination vaccine that encodes for the COVID spike protein and the influenza HA glycoproteins. A Phase 1/2 study comparing mRNA-1073 to co-administered mRNA-1010 and mRNA-1273, and to mRNA-1010 and mRNA-1273 alone is ongoing in approximately 1,050 participants aged 18-75 years, and the trial is fully enrolled.

  • HIV vaccines (mRNA-1644 & mRNA-1574):** We are currently advancing two HIV preventative vaccine strategies based on germline targeting and immune-focusing approaches. Our mRNA-1644 program is designed to test the hypothesis that sequential administration of priming and boosting HIV immunogens delivered by mRNA can induce specific classes of B-cell responses and guide their early maturation toward broadly neutralizing antibody (bnAb) development. The induction of bnAbs is widely considered to be a goal of HIV vaccination, and this is the first step in that process. The immunogens being tested in IAVI G002 were developed by scientific teams at IAVI and Scripps Research and will be delivered via Moderna’s mRNA technology. The Phase 1 trial sponsored by IAVI and supported by the Gates Foundation is ongoing. In addition, we are also advancing an HIV trimer mRNA vaccine trial of mRNA-1574. The primary hypothesis is that the soluble and membrane-bound HIV envelope trimer mRNA vaccines will be safe and well-tolerated by HIV-uninfected individuals and will elicit autologous neutralizing antibodies. The Phase 1 trial is ongoing and is sponsored and funded by the Division of AIDS (DAIDS) of the National Institute of Allergy and Infectious Diseases (NIAID) within the National Institutes of Health (NIH).

  • Nipah vaccine (mRNA-1215):** The first participants in a Phase 1 study of mRNA-1215, our vaccine candidate against the Nipah virus (NiV), were dosed in July 2022. The trial is sponsored and funded by the NIAID. mRNA-1215 was co-developed along with the NIH’s Vaccine Research Center, and the Phase 1 clinical testing is focused on pandemic preparedness.

  • Propionic acidemia (PA) (mRNA-3927):** The Phase 1/2 clinical trial for mRNA-3927, our therapy for the treatment of propionic acidemia, or PA, is ongoing, and the second cohort is fully enrolled. We are enrolling other patients into additional cohorts. The Phase 1/2 study is designed to evaluate the safety and tolerability of mRNA-3927 in patients with PA. PA, is a rare, life-threatening, inherited metabolic disorder due to a defect in the mitochondrial enzyme propionyl-CoA carboxylase (PCC). It primarily affects the pediatric population. There is no approved therapy for PA, including no approved enzyme replacement therapy. We have received Rare Pediatric Disease Designation and Orphan Drug Designation from the FDA and Orphan Drug Designation from the European Commission for the PA program. The FDA has also granted Fast Track designation to mRNA-3927. This is the first development candidate to enter the clinic in our intracellular therapeutics modality.

  • Methylmalonic acidemia (MMA) (mRNA-3705):** The Phase 1/2 clinical trial for mRNA-3705, our therapy for the treatment of methylmalonic acidemia, or MMA, is ongoing and the first cohort has been fully enrolled. The study is now open in the UK, Canada and the U.S. Moderna is enrolling patients into additional cohorts. The Phase 1/2 study is designed to evaluate the safety and tolerability of mRNA-3705 in patients with MMA. MMA is a rare, life-threatening, inherited metabolic disorder that is primarily caused by a defect in the mitochondrial enzyme methylmalonyl-coenzyme A mutase, or MUT. It primarily affects the pediatric population. There is no approved therapy that addresses the underlying disorder, including no approved enzyme replacement therapy, due to the complexity of the protein and its mitochondrial localization.

  • Glycogen storage disease type 1a (GSD1a) (mRNA-3745):** In June 2022, the first participant in the Phase 1 study of our GSD1a therapeutic candidate, mRNA-3745, was dosed. Individuals with GSD1a have a deficiency in glucose-6-phosphatase resulting in pathological blood glucose imbalance. mRNA-3745 is an IV-administered mRNA encoding human G6Pase enzyme, designed to restore the deficient or defective intracellular enzyme activity in patients with GSD1a. The FDA has granted mRNA-3745 Orphan Drug Designation.

  • IL-12 (MEDI1191):** AstraZeneca is leading the early clinical development and an ongoing, open-label multicenter Phase 1 clinical trial of intratumoral injections of MEDI1191 alone and in combination with the checkpoint inhibitor, durvalumab. In April 2022, AstraZeneca presented updated Phase 1 data at the American Association for Cancer Research (AACR) conference. Intratumoral MEDI1191 combined with durvalumab was safe and the combination showed preliminary evidence of clinical benefit, with 29% of patients exhibiting partial responses or stable disease ≥12 weeks as best overall response**.**

  • Personalized cancer vaccine (mRNA-4157):** Our personalized cancer vaccine, or PCV, is currently being evaluated in a Phase 1 and Phase 2 study. The randomized, placebo-controlled Phase 2 study investigating a 1 mg dose of mRNA-4157 in combination with Merck’s pembrolizumab (KEYTRUDA®), compared to pembrolizumab alone, for the adjuvant treatment of high-risk resected melanoma is fully enrolled (n=150). The primary endpoint of the Phase 2 study is recurrence-free survival at 12 months. The Phase 1 in multiple cohorts is ongoing. Moderna shares worldwide commercial rights to mRNA-4157 with Merck.

Our Pipeline

The following chart shows our current pipeline of 46 development programs, grouped by respiratory vaccines, latent & public health vaccines and therapeutics.

mrna-20220630_g2.jpg

Abbreviations: AZ, AstraZeneca; BARDA, Biomedical Advanced Research and Development Authority; CMV, Cytomegalovirus; DARPA, Defense Advanced Research Projects Agency; EBV, Epstein-Barr virus; HIV, human immunodeficiency virus; hMPV, human metapneumovirus; ILCM, Institute for Life Changing Medicines; IL-12, interleukin 12; IL-23, interleukin 23; IL-36γ, interleukin-36 gamma; NIH, National Institutes of Health; OX40L, wildtype OX40 ligand; RSV, respiratory syncytial virus; VEGF-A, vascular endothelial growth factor A.

We have developed seven modalities, which are summarized as follows:

  • Prophylactic vaccines:** Our prophylactic vaccines modality currently includes 32 development programs, 23 of which have entered into clinical trials. We have ongoing Phase 1 trials for our RSV vaccine in pediatrics (mRNA-1345), flu vaccines (mRNA-1020 and mRNA-1030), combined COVID and flu vaccine (mRNA-1073), hMPV/PIV3 vaccine (mRNA-1653), EBV vaccine (mRNA-1189), HIV vaccines (mRNA-1644 and mRNA-1574) and Nipah vaccine (mRNA-1215). We have an ongoing Phase 2 study for our Zika vaccine (mRNA-1893). We have ongoing Phase 3 studies for our flu vaccine (mRNA-1010), RSV vaccine in older adults (mRNA-1345) and CMV vaccine (mRNA-1647). Our COVID-19 vaccine (mRNA-1273) is described in detail above. Our eight preclinical programs within our prophylactic vaccines modality are for a combined COVID-19, flu and RSV vaccine (mRNA-1230), combined pediatric RSV and hMPV vaccine (mRNA-1365), pan-HCoV vaccine (mRNA-1278), seasonal flu vaccines (mRNA-1011 and mRNA-1012), EBV vaccine to prevent long-term sequelae (mRNA-1195), VZV vaccine (mRNA-1468), and HSV vaccine (mRNA-1608). Three other vaccines as part of public health programs have had positive Phase 1 readouts – H10N8 vaccine (mRNA-1440), H7N9 flu vaccine (mRNA-1851), and Chikungunya vaccine (mRNA-1388) – but are not being further developed without government or other funding.

  • Systemic secreted and cell surface therapeutics:** We have two systemic secreted and cell surface therapeutics development candidates in our pipeline. Our secreted programs include Relaxin (mRNA-0184) for cardiac disorders and PD-L1 (mRNA-6981) for autoimmune hepatitis, which are currently in preclinical development. We are stopping our IL-2 program (mRNA-6231) after early clinical data and in response to the evolving competitive landscape. We previously announced positive data from our Chikungunya Antibody program (mRNA-1944) within this modality; however, we do not expect to advance our Chikungunya Antibody program without outside funding, and we are not currently pursuing further development of it at this time.

  • Cancer vaccines:** We are currently developing three programs within our cancer vaccines modality. Our personalized cancer vaccine program (mRNA-4157) is being developed in collaboration with Merck and is in a multiple-arm Phase 1 trial and a randomized Phase 2 trial, which is fully enrolled. Our second program within this modality is a KRAS vaccine (mRNA-5671). We have retained all rights to our KRAS vaccine from Merck and we are evaluating next steps for the program. Our third program is our checkpoint vaccine (mRNA-4359), which has received safe to proceed from the FDA.

  • Intratumoral immuno-oncology:** We have two programs in this modality. Our first program, OX40L/IL-23/IL-36γ (Triplet) (mRNA-2752), is currently in a Phase 1 study that is designed as an open-label, multicenter study of intratumoral injections of Triplet (mRNA-2752) alone or in combination with durvalumab (anti-PD-L1). Our second program, IL-12 (MEDI1191), is being developed in collaboration with AstraZeneca. AstraZeneca is currently enrolling an open-label multicenter Phase 1 clinical trial of intratumoral injections of MEDI1191 alone and in combination with the checkpoint inhibitor, durvalumab.

  • Localized regenerative therapeutics:** Our localized VEGF-A program, AZD8601, which was developed in collaboration with AstraZeneca, has completed a Phase 1a/b trial to describe its safety, tolerability, protein production, and activity in diabetic patients. The study has met its primary objectives of describing safety and tolerability and secondary objectives of demonstrating protein production and changes in blood flow post AZD8601 administration. We believe these data provide clinical proof of mechanism for our mRNA technology outside of the vaccine setting. In 2021, the Phase 2 study met the primary endpoint of safety and tolerability of AZD8601 for the 3 mg dose. In the study of 11 patients, seven were treated with AZD8601 VEGF-A mRNA and four received placebo injections. Numerical trends were observed in endpoints in the heart failure efficacy domains compared with placebo, including increase in left ventricular ejection fraction (LVEF) and patient reported outcomes. In addition, all seven patients treated with AZD8601 had NT-proBNP (a biomarker that measures the level of a hormone that is elevated in patients with heart failure) levels below heart failure limit at 6 months follow-up compared to one of four patients treated with placebo. After a portfolio review, AstraZeneca has returned the rights to AZD8601 to us. We are evaluating next steps for the program.

  • Systemic intracellular therapeutics:** We have five systemic intracellular therapeutics development candidates in our pipeline. Our intracellular programs address propionic acidemia, or PA (mRNA-3927), methylmalonic acidemia (MMA) (mRNA-3705), glycogen storage disorder type 1a (GSD1a) (mRNA-3745), phenylketonuria (PKU) (mRNA-3283), and Crigler-Najjar Syndrome Type 1 (CN-1) (mRNA-3351). We have ongoing Phase 1 clinical trials for PA (mRNA-3927), MMA (mRNA-3705) and GSD1a (mRNA-3745). PKU (mRNA-3283) and CN-1 (mRNA-3351) are currently in preclinical development. We have entered into a collaboration agreement with the Institute for Life Changing Medicines (ILCM) to license mRNA-3351 to ILCM with no upfront fees, and without any downstream payments. ILCM will be responsible for the clinical development of mRNA-3351.

  • Inhaled pulmonary therapeutics:** We have one inhaled pulmonary therapeutic development candidate in our pipeline. Our program addresses cystic fibrosis, or CF (VXc-522), in collaboration partnership with Vertex Pharmaceuticals. VXc-522 is an mRNA therapeutic designed to treat the underlying cause of CF by enabling cells in the lungs to produce functional cystic fibrosis transmembrane conductance regulator (CFTR) protein for the treatment of the 10% of patients who do not produce any CFTR protein. IND-enabling studies are underway and Vertex expects to submit an IND for this program in 2022. Moderna has licensed worldwide commercial rights to VXc-522 to Vertex.

Financial Operations Overview

Revenue

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

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue:
Product sales$4,531$4,197$10,456$5,930
Grant revenue183139309333
Collaboration revenue35185028
Total revenue$4,749$4,354$10,815$6,291

For the three months ended June 30, 2022, we recognized $4.5 billion of product sales from our COVID-19 vaccine, of which $1.5 billion was generated in the United States and $3.1 billion was generated from Europe and the rest of the world. For the three months ended June 30, 2021, we recognized $4.2 billion of product sales from our COVID-19 vaccine, of which $2.1 billion was generated in the United States and $2.1 billion was generated from Europe and the rest of the world.

For the six months ended June 30, 2022, we recognized $10.5 billion of product sales from our COVID-19 vaccine, of which $2.4 billion was generated in the United States and $8.1 billion was generated from Europe and the rest of the world. For the six months ended June 30, 2021, we recognized $5.9 billion of product sales from our COVID-19 vaccine, of which $3.4 billion was generated in the United States and $2.5 billion was generated from Europe and the rest of the world.

As of June 30, 2022, we had deferred revenue of $4.3 billion associated with customer deposits received or billable under supply agreements for delivery of our COVID-19 vaccine into 2023. Based upon currently signed supply agreements for delivery of our COVID-19 vaccine in 2022, we expect that our COVID-19 vaccine product sales will be generally consistent in the second half of 2022, as compared to the first half of the year. We also anticipate that product sales will be greater in the fourth quarter of 2022 than the third quarter of 2022, driven by the expected timing of potential marketing authorizations of our COVID-19 bivalent booster candidates.

Other than product sales, our revenue has been primarily derived from government-sponsored and private organizations including BARDA, DARPA and the Gates Foundation and from strategic alliances with AstraZeneca, Merck and Vertex to discover, develop, and commercialize potential mRNA medicines.

Grant revenue was comprised as follows for the periods presented (in millions):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Grant revenue:
BARDA (1)$179$134$301$326
Other4587
Total grant revenue$183$139$309$333

(1) For the three months ended June 30, 2022, $175 million of BARDA grant revenue was related to our mRNA-1273 program and $4 million was related to our Zika vaccine program. For the six months ended June 30, 2022, $295 million of BARDA grant revenue was related to our mRNA-1273 program and $6 million was related to our Zika vaccine program.

Collaboration revenue from our strategic alliances was comprised as follows for the periods presented (in millions):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Collaboration revenue:
AstraZeneca$4$4$4$4
Merck54154
Vertex2592918
Other1122
Total collaboration revenue$35$18$50$28

We expect to continue to receive funding from our contract with BARDA. As of June 30, 2022, the remaining available funding, net of revenue earned under our agreement with BARDA for the development of our mRNA-1273 vaccine was $203 million. To the extent that existing or potential future products generate revenue, our revenue may vary due to many uncertainties in the future product demand, the development of our mRNA medicines and other factors.

Research and development expenses

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. 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 three and six months ended June 30, 2022 and 2021 (in millions):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Program expenses by modality:
Prophylactic vaccines$336$241$526$489
Systemic secreted and cell surface therapeutics2132
Cancer vaccines27524
Intratumoral immuno-oncology671213
Systemic intracellular therapeutics961311
Inhaled pulmonary therapeutics (1)3—5—
Total program-specific expenses by modality (2)$358$262$564$539
Other research and development expenses:
Discovery programs41157128
Platform research31276552
Technical development and unallocated manufacturing expenses1955332986
Shared discovery and development expenses664919688
Stock-based compensation19153929
Total research and development expenses$710$421$1,264$822

(1)Inhaled pulmonary therapeutics modality was added in the fourth quarter of 2021.

(2)Includes a total of 43 and 30 development candidates at June 30, 2022 and 2021, respectively. Program-specific expenses include external costs and allocated manufacturing costs of pre-launch inventory, mRNA supply and consumables, and 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 contract research organizations (CROs) in connection with our preclinical studies and clinical trials, contract manufacturing organizations, 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 and unallocated manufacturing expenses, stock-based compensation, and other expenses.

The largest component of our total operating expenses has historically been our investment in research and development activities, including preclinical and clinical development of our product candidates, development of our platform, mRNA technologies, and manufacturing technologies.

As we continue to pursue our indication expansion of mRNA-1273, and continue to develop variant-specific COVID-19 vaccine candidates and our next-generation COVID-19 vaccine candidate, we expect to continue to incur significant additional expenses. In connection with the BARDA agreement to accelerate development of mRNA-1273, grant revenue and expenses within the committed funding scope are expected to continue in 2022. BARDA’s funding is expected to offset those expenses that are covered under the BARDA agreement, subject to our obtaining reimbursement from BARDA. As of June 30, 2022, the remaining available funding, net of revenue earned was $203 million.

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 CMV vaccine, RSV vaccine, flu vaccine and our COVID-19 vaccine, 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 continue to increase in the foreseeable future as our investigational medicines progress through the development phases and identify and develop additional programs. 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 our investigational medicines. Moreover, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

Critical accounting policies and significant judgments and estimates

There have been no material changes in our critical accounting policies and estimates in the preparation of our condensed consolidated financial statements during the three months ended June 30, 2022 compared to those disclosed in our 2021 Form 10-K.

Results of operations

The following table summarizes our condensed consolidated statements of income for each period presented (in millions):

Three Months Ended June 30,Change 2022 vs. 2021
20222021$%
Revenue:
Product revenue$4,531$4,197$3348%
Grant revenue1831394432%
Collaboration revenue35181794%
Total revenue4,7494,3543959%
Operating Expenses:
Cost of sales1,38175063184%
Research and development71042128969%
Selling, general and administrative2111219074%
Total operating expenses2,3021,2921,01078%
Income from operations2,4473,062(615)(20)%
Interest income403371,233%
Other expense, net(13)(2)(11)550%
Income before income taxes2,4743,063(589)(19)%
Provision for income taxes277283(6)(2)%
Net income$2,197$2,780$(583)(21)%
Six Months Ended June 30,Change 2022 vs. 2021
20222021$%
Revenue:
Product revenue$10,456$5,930$4,52676%
Grant revenue309333(24)(7)%
Collaboration revenue50282279%
Total revenue10,8156,2914,52472%
Operating Expenses:
Cost of sales2,3989431,455154%
Research and development1,26482244254%
Selling, general and administrative479198281142%
Total operating expenses4,1411,9632,178111%
Income from operations6,6744,3282,34654%
Interest income55748686%
Other expense, net(26)(12)(14)117%
Income before income taxes6,7034,3232,38055%
Provision for income taxes849322527164%
Net income$5,854$4,001$1,85346%

Revenue

Total revenue increased by $395 million, or 9%, for the three months ended June 30, 2022, compared to the same period in 2021, mainly due to an increase in product sales from sales of our COVID-19 vaccine. Product revenue increased by $334 million, or 8%, for the three months ended June 30, 2022, compared to the same period in 2021, largely driven by a higher average selling price due to favorable customer mix. Grant revenue increased by $44 million, or 32%, for the three months ended June 30, 2022, compared to the same period in 2021, primarily driven by an increase in revenue from BARDA related to our mRNA-1273 vaccine development.

Total revenue increased by $4.5 billion, or 72%, for the six months ended June 30, 2022, compared to the same period in 2021, mainly due to an increase in product sales from sales of our COVID-19 vaccine. Product revenue increased by $4.5 billion, or 76%, for the six months ended June 30, 2022, compared to the same period in 2021, largely driven by our manufacturing capacity ramp-up. Grant revenue decreased by $24 million, or 7%, for the six months ended June 30, 2022, compared to the same period in 2021, primarily driven by a decrease in revenue from BARDA related to our mRNA-1273 vaccine development.

Operating expenses

Cost of sales

Cost of sales for the three months ended June 30, 2022 was $1.4 billion, including third-party royalties of $157 million. Cost of sales for the three months ended June 30, 2022 increased by $631 million, or 84%, compared to the same period in 2021. Cost of sales as a percentage of product sales for the three months ended June 30, 2022 was 30%, compared to 18% for the same period in 2021. These increases were primarily attributable to write-downs for excess and obsolete inventory related to our COVID-19 vaccine, losses on firm purchase commitments of raw materials, and unutilized manufacturing capacity driven by a shift in product demand.

Cost of sales for the six months ended June 30, 2022 was $2.4 billion, including third-party royalties of $364 million. Cost of sales for the six months ended June 30, 2022 increased by $1.5 billion, or 154%, compared to the same period in 2021, primarily due to higher sales volume, as well as inventory write-downs and losses on firm purchase commitments of raw materials. Cost of sales as a percentage of product sales for the six months ended June 30, 2022 was 23%, compared to 16% for the same period in 2021. The increase was mainly due to write-downs for excess and obsolete inventory related to our COVID-19 vaccine and losses on firm purchase commitments of raw materials, and to a lesser extent, unutilized manufacturing capacity, and the lack of the pre-launch inventory benefit that positively impacted the first quarter of 2021. If inventory sold for the six months ended June 30, 2021 was valued at cost, our cost of sales for the period would have been $1.1 billion, or 19%, of our product sales.

We expect our manufacturing costs to increase as we move from a pandemic to a seasonal market environment for our COVID-19 vaccine. We expect that this shift will cause our cost of sales for the full year of 2022 to represent a higher percentage of our product sales than the percentage experienced in 2021.

Research and development expenses

Research and development expenses increased by $289 million, or 69%, for the three months ended June 30, 2022, compared to the same period in 2021. The increase was primarily attributable to increases in clinical trial expenses of $162 million, personnel-related costs of $57 million, and consulting and outside services of $39 million.

Research and development expenses increased by $442 million, or 54%, for the six months ended June 30, 2022, compared to the same period in 2021. The increase was primarily attributable to increases in clinical trial expenses of $200 million, personnel-related costs of $96 million, consulting and outside services of $62 million, technology and facility-related costs of $32 million, and manufacturing costs for clinical trial materials of $27 million. These increases for the three and six month periods in 2022 were largely driven by increased clinical development, particularly our COVID-19 vaccine and RSV programs, and headcount.

We expect that research and development expenses will increase in 2022 as we continue to progress our indication expansion of mRNA-1273, and continue to develop our pipeline and advance our product candidates into later-stage development, in particular our RSV, flu and CMV vaccine programs. In addition, we also expect to incur significant costs related to the development of variant-specific COVID-19 candidates and our next-generation COVID-19 vaccine candidate.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $90 million, or 74%, for the three months ended June 30, 2022, compared to the same period in 2021. The increase was mainly due to an increase in distributor fees and marketing expenses of $31 million and an increase in personnel-related costs of $27 million. These increases for the three month period in 2022 were primarily driven by our COVID-19 vaccine commercialization-related activities and increased headcount.

Selling, general and administrative expenses increased by $281 million, or 142%, for the six months ended June 30, 2022, compared to the same period in 2021. The increase was mainly due to an increase in distributor fees of $66 million, an increase in personnel-related costs of $58 million, an endowment to the Moderna Charitable Foundation (the Foundation) of $50 million, an increase in consulting and outside services of $37 million, and an increase in marketing expenses of $27 million. These increases for the six month period in 2022 were primarily driven by our COVID-19 vaccine commercialization-related activities, increased headcount, and the launch of the Foundation.

We expect that selling, general and administrative expenses will increase in 2022, as we continue to build out our global commercial, regulatory, sales and marketing infrastructure to support the commercialization of our COVID-19 vaccine, and continue to expand the number of programs and our business operations.

Interest income

Interest income increased by $37 million for the three months ended June 30, 2022, compared to the same period in 2021. Interest income increased by $48 million for the six months ended June 30, 2022, compared to the same period in 2021. The increases in interest income from our investments in marketable securities for the three and six month periods in 2022 were mainly driven by increased investment balances and an overall higher interest rate environment.

Other expense, net

The following table summarizes other expense, net for each period presented (in millions):

Three Months Ended June 30,Change 2022 vs. 2021
20222021$%
(Loss) gain on investments$(8)$2$(10)(500)%
Interest expense(5)(5)——%
Other income, net—1(1)(100)%
Total other expense, net$(13)$(2)$(11)550%
Six Months Ended June 30,Change 2022 vs. 2021
20222021$%
(Loss) gain on investments$(14)$2$(16)(800)%
Interest expense(11)(8)(3)38%
Other expense, net(1)(6)5(83)%
Total other expense, net$(26)$(12)$(14)117%

Total other expense, net increased by $11 million for the three months ended June 30, 2022, compared to the same period in 2021. Total other expense, net increased by $14 million for the six months ended June 30, 2022, compared to the same period in 2021. The increases in other expense, net for the three and six month periods in 2022 were primarily due to realized losses on available-for-sale debt securities. Our interest expense is primarily related to our finance leases. Please refer to Note 11 to our condensed consolidated financial statements.

Income taxes

Provision for income taxes decreased by $6 million for the three months ended June 30, 2022, compared to the same period in 2021, primarily due to a decrease in pre-tax income, partially offset by a higher effective tax rate. Provision for income taxes increased by $527 million for the six months ended June 30, 2022, compared to the same period in 2021, primarily due to an increase in pre-tax income and a higher effective tax rate. The increase in effective tax rate for the three and six months ended June 30, 2022 was mainly due to the tax benefit recorded in 2021 related to the release of the valuation allowance on the majority of our deferred tax assets, as well as a decrease in excess windfall benefits from stock-based compensation, partially offset by an increase in foreign derived intangible income benefit in 2022. We expect that our effective tax rate will increase for the full year 2022 compared to 2021, mainly driven by the release of the valuation allowance on the majority of the deferred tax assets in 2021.

Liquidity and capital resources

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

June 30,December 31,
20222021
Financial assets:
Cash and cash equivalents$2,873$6,848
Investments5,0243,879
Investments, non-current10,1626,843
Total$18,059$17,570
Working capital:
Current assets$13,563$16,071
Current liabilities6,8129,128
Total$6,751$6,943

Our cash, cash equivalents and investments are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments, consisting primarily of government and corporate debt securities, are stated at fair value. Cash, cash equivalents and investments as of June 30, 2022 increased by $489 million, or 3%, compared to December 31, 2021. During the six months ended June 30, 2022, we generated cash from operations of $3.1 billion, partially offset by repurchases of our common stock of $1.9 billion, purchases of property and equipment of $219 million, and unrealized losses on available-for-sale debt securities of $326 million.

Working capital, which is current assets less current liabilities, as of June 30, 2022 decreased by $192 million, or 3%, compared to December 31, 2021, primarily due to a decrease in deferred revenue of $2.2 billion, mainly driven by revenue recognized from deferred revenue in excess of customer deposits received, and a decrease in income taxes payable of $527 million. This was offset by a decrease in cash, cash equivalents and short-term investments of $2.8 billion, primarily due to purchases of long-term marketable securities, repurchases of our common stock, and income tax payments.

As of June 30, 2022, we did not have any off-balance sheet arrangements.

Cash flow

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

Six Months Ended June 30,
20222021
Net cash provided by (used in):
Operating activities$3,067$7,034
Investing activities(5,073)(4,058)
Financing activities(1,969)2
Net (decrease) increase in cash, cash equivalents and restricted cash$(3,975)$2,978

Operating activities

We derive cash flows from operations primarily from cash collected from customer deposits and accounts receivable related to our COVID-19 vaccine supply agreements, 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, other international governments, and Gavi for the supply of our COVID-19 vaccine and received upfront deposits. As of June 30, 2022, we had $4.3 billion in deferred revenue related to customer deposits received or billable. In addition, we expect to continue to receive funding from our contract with BARDA related to our mRNA-1273 program. As of June 30, 2022, the remaining available funding from BARDA, net of revenue earned was $203 million.

Net cash provided by operating activities for the six months ended June 30, 2022 was $3.1 billion and consisted of net income of $5.9 billion and non-cash adjustments of $83 million, partially offset by a net change in assets and liabilities of $2.7 billion. Non-cash items primarily included deferred income taxes of $376 million, depreciation and amortization of $155 million, and stock-based compensation of $94 million. The net change in assets and liabilities was mainly due to a decrease in deferred revenue of $2.4 billion, a decrease in income taxes payable of $527 million, an increase in inventory of $480 million, and an increase in prepaid expenses and other assets of $324 million, partially offset by a decrease in accounts receivable of $484 million, an increase in accrued liabilities of $305 million, and an increase in other liabilities of $263 million.

Net cash provided by operating activities decreased by $4.0 billion, or 56%, during the six months ended June 30, 2022, compared to the same period in 2021, primarily attributable to revenue recognized from deferred revenue in excess of customer deposits received and increased income tax payments, partially offset by increased product sales and higher collection of receivables.

Investing activities

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

Net cash used in investing activities for the six months ended June 30, 2022 was $5.1 billion, which primarily included purchases of marketable securities of $8.7 billion and purchases of property and equipment of $219 million, partially offset by proceeds from sales of marketable securities of $2.5 billion and proceeds from maturities of marketable securities of $1.4 billion.

Net cash used in investing activities increased by $1.0 billion, or 25%, during the six months ended June 30, 2022, compared to the same period in 2021, primarily reflecting timing differences related to purchases, sales, and maturities of marketable debt securities and changes in our investment portfolio mix.

Financing activities

Net cash used in financing activities for the six months ended June 30, 2022 was $2.0 billion, primarily due to repurchase of common stock of $1.9 billion.

Net cash used in financing activities increased by $2.0 billion during the six months ended June 30, 2022, compared to the same period in 2021, mainly due to repurchase of common stock.

Operation and funding requirements

Our principal sources of funding as of June 30, 2022 consisted of cash and cash equivalents, investments, and cash we expect to generate from operations. We generated net income of $12.2 billion for the year ended 2021, 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 $15.8 billion as of June 30, 2022.

We have significant future capital requirements including expected operating expenses to conduct research and development activities, operate our organization, meet capital expenditure needs, and fund our share repurchase program (refer to Note 13 to our condensed consolidated financial statements). We expect our expenses to increase in connection with our ongoing activities, particularly as we continue research and development of our development candidates and clinical activities for our investigational medicines. We also expect our expenses to increase associated with manufacturing costs, including our arrangements with our international supply and manufacturing partners. Our ongoing work on our COVID-19 vaccine, including development of any new generations of boosters and vaccines against variants of SARS-CoV-2, and buildout of global commercial, regulatory, sales and marketing infrastructure to support the commercialization of our COVID-19 vaccine will require significant cash outflows during 2022, 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 (refer to Note 11 and Note 12 to our condensed consolidated financial statements). We have entered into certain collaboration and licensing 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 June 30, 2022, together with cash expected to be generated from operations, will be sufficient to enable us to fund our projected operations, capital expenditures and stock repurchases through at least the next 12 months from the issuance of these financial statements included in this Form 10-Q. 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. 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

As of June 30, 2022, other than disclosed within Note 11 and Note 12 to our condensed consolidated financial statements, there have been no material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K.

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