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, 2022, which was filed with the Securities and Exchange Commission (the SEC) on February 24, 2023 (the 2022 Form 10-K).

Overview

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

Since our founding in 2010, we have transformed from a research-stage company advancing programs in the field of mRNA to a commercial enterprise with a diverse clinical portfolio of vaccines and therapeutics across seven 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 45 development candidates across our 47 development programs, of which 36 are in clinical studies currently.

Our COVID-19 vaccines are marketed, where approved, under the name Spikevax. To date, we have developed three versions of our COVID-19 vaccine: (1) our original vaccine targeting the SARS-CoV-2 ancestral strain (mRNA-1273), (2) our bivalent BA.1 Omicron-targeting vaccine (mRNA-1273.214) and (3) our bivalent BA.4/BA.5 Omicron-targeting vaccine (mRNA-1273.222). We currently sell mRNA-1232.214 and mRNA-1273.222 commercially.

Business Highlights

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

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

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

In March 2023, we and the Government of the Republic of Kenya finalized an agreement to establish an mRNA manufacturing facility in Kenya. In partnership with the Kenyan Government, we plan to build a state-of-the-art mRNA facility in Kenya to produce up to 500 million doses of vaccines each year. We expect the new facility to enable drug substance and drug product manufacturing for Kenya and the African continent. In addition, this facility is expected to have surge capacity to rapidly scale and respond to public health emergencies on the continent and around the world. With this agreement, we have commitments to establish mRNA manufacturing facilities in Kenya, Canada, Australia and the United Kingdom, in addition to our manufacturing facilities in the United States.

For the first quarter of 2023, we recognized product sales of $1.8 billion from sales of our COVID-19 vaccines, compared to $5.9 billion in the first quarter of 2022. Diluted earnings per share was $0.19 for the first quarter of 2023, compared to diluted earnings per share of $8.58 in the first quarter of 2022.

Recent Program Developments

COVID-19 vaccines (mRNA-1273/Spikevax®, mRNA-1273.214, mRNA-1273.222 and mRNA-1283)

• We expect to continue to meet the evolving needs of the endemic COVID-19 market including through multivalent boosters and by advancing next-generation vaccines. We perform continuous epidemiological monitoring and risk assessment of SARS-CoV-2 variants to select which variant-targeted vaccines to evaluate in preclinical and clinical studies. Our monitoring activities allow for expedited delivery of new vaccines in the event that regulatory agencies request specific vaccine composition updates to address public health needs. Our mRNA platform can produce variant-matched vaccines on an accelerated time horizon, consistent with recent U.S. Food and Drug Administration (FDA) comments on the timing of potential strain selection for the fall booster season.

• Our next-generation, refrigerator-stable COVID-19 vaccine, mRNA-1283, has demonstrated encouraging results in multiple clinical studies and recently began dosing participants in a Phase 3 trial.

Seasonal influenza (flu) vaccines (mRNA-1010)

• Our first seasonal influenza vaccine candidate, mRNA-1010, is currently being evaluated in two Phase 3 trials (the P302 and P303 trials). The first Phase 3 trial (P301) of mRNA-1010 was conducted in the Southern Hemisphere to evaluate safety and non-inferior immunogenicity compared to a licensed flu vaccine. The previously announced interim results from the P301 trial indicated that mRNA-1010 demonstrated superiority in geometric mean titers (GMT) for A/H3N2 and non-inferiority in GMT for A/H1N1. mRNA-1010 did not meet non-inferiority for the influenza B/Victoria- and B/Yamagata-lineage strains. mRNA-1010 demonstrated an acceptable safety and tolerability profile in the trial, and the independent Data and Safety Monitoring Board (DSMB) for P301 did not identify any safety concerns.

• The second Phase 3 trial (P302) for mRNA-1010 is being conducted in the Northern Hemisphere to evaluate safety and non-inferior efficacy compared to a licensed flu vaccine. The independent DSMB has completed the first interim analysis of efficacy and informed the us that mRNA-1010 did not meet the statistical threshold necessary to declare early success and recommended that the trial continue with efficacy follow-up towards the next analysis. The DSMB did not identify any safety concerns. Blinded follow-up for safety and efficacy is ongoing in this trial. A preliminary analysis of immunogenicity from a subset of participants in the P302 trial has also been completed. In this analysis, mRNA-1010 demonstrated geometric mean titer ratios consistent with superiority against both influenza A strains (A/H1N1, A/H3N2) and consistent with non-inferiority against both influenza B strains (B/Victoria, B/Yamagata) relative to the licensed comparator. The P302 study did not pre-specify success criteria for immunogenicity endpoints.

• We have developed an update to mRNA-1010 that is expected to have improved immunogenicity against influenza B strains and commenced enrollment in a confirmatory Phase 3 trial (P303) in April 2023.

Respiratory syncytial virus (RSV) vaccine (mRNA-1345)

• Our vaccine candidate against RSV, mRNA-1345, is in an ongoing Phase 2/3, randomized, observer-blind, placebo-controlled case-driven trial (ConquerRSV) in adults aged 60 years and older. In this study, 35,541 participants from 22 countries were randomized 1:1 to receive one dose of mRNA-1345 or placebo. Following review by an independent DSMB, the primary efficacy endpoints have been met, including vaccine efficacy (VE) of 83.7% (95.88% CI: 66.1%, 92.2%; p<0.0001) against RSV-associated lower respiratory tract disease (RSV-LRTD) as defined by two or more symptoms. Vaccine efficacy was maintained in participants over 70 years of age and participants with comorbidities. mRNA-1345 was well tolerated; solicited adverse reactions were mostly grade 1 or grade 2 in severity. No cases of Guillain-Barre Syndrome (GBS) have been reported.

• In January 2023, based on the positive topline data from the pivotal Phase 3 efficacy trial, the FDA granted mRNA-1345 Breakthrough Therapy Designation for the prevention of RSV-LRTD in adults 60 years or older.

• Pediatric RSV mRNA-1345 is ongoing in a Phase 1 study of children five to less than 24 months old.

Respiratory combination vaccines (mRNA-1073, mRNA-1083, mRNA-1230, mRNA-1045 and mRNA-1365)

• We are evaluating several respiratory combination vaccines in the clinic. Phase 1 studies have completed the enrollment and started for our mRNA-1073 combination vaccine (COVID+Flu), mRNA-1230 combination vaccine (COVID+Flu+RSV), and mRNA-1045 combination vaccine (Flu+RSV). mRNA-1073 encodes for the COVID-19 spike protein and the flu HA

glycoproteins. mRNA-1230 encodes for the COVID-19 spike protein, the flu HA glycoproteins and the RSV prefusion F glycoprotein. mRNA-1045 encodes for RSV prefusion F glycoprotein and the flu HA glycoprotein.

• We are conducting a Phase 1 trial of mRNA-1365, our pediatric RSV and human metapneumovirus (hMPV) combination vaccine, which has dosed its first participants. mRNA-1365 encodes for the RSV prefusion F glycoprotein and the hMPV F protein.

• We are conducting a Phase 1 trial of mRNA-1083, our next-generation COVID+Flu vaccine, which has dosed its first participants.

• We intend to launch our first combination vaccines by 2025, subject to successful completion of clinical trials and receipt of regulatory approvals. Our strategy is to regularly update these combination vaccines with improved next-generation vaccine candidates as appropriate.

CMV vaccine (mRNA-1647)

• Our vaccine candidate against CMV, mRNA-1647, is in a pivotal Phase 3 trial (CMVictory) evaluating the vaccine’s ability to protect against primary CMV infection in women ages 16 to 40 years. The trial is a randomized, observer-blind, placebo-controlled study designed to evaluate the efficacy, safety, and immunogenicity of mRNA-1647 to evaluate the prevention of primary infection. The trial is more than 50% enrolled, with an expectation to enroll up to 7,300 women from approximately 150 clinical sites. The primary efficacy analysis will be triggered based on the accrual of seroconversion cases.

• Since the majority of cases of disabling congenital CMV infection could be prevented by a universal vaccination policy, we are testing mRNA-1647 in adolescents. A Phase 1/2 open-label and placebo-controlled study of mRNA-1647 to evaluate safety and immunogenicity in male and female participants ages 9 to 15 years has begun enrollment.

Human immunodeficiency virus (HIV) vaccine (mRNA-1644 and mRNA-1574)

• In collaboration with the International AIDS Vaccine Initiative (IAVI) and the Bill & Melinda Gates Foundation, mRNA-1644 is testing a novel HIV vaccine strategy in humans as delivered by mRNA to elicit broadly neutralizing HIV-1 antibodies (bnAbs) through sequential vaccination of novel prime and boost antigens that induce specific B-cell responses. In collaboration with IAVI and the HIV Vaccine Trials Network, mRNA-1574 is testing multiple native-like HIV trimer mRNAs in humans to improve our understanding of how to make stable and immunogenic native-HIV trimers.

• We are advancing three Phase 1 clinical trials of HIV vaccines with partners (mRNA-1644/IAVI G002, mRNA-1644/IAVI G003, mRNA-1574/NIAID) to expand on proof-of-concept data and evaluate the potential of mRNA technology to successfully deliver immunogens. The goal of these trials is to determine whether this approach is safe and immunogenic, meaning that the immunogens elicit the right type of broadly neutralizing HIV-1 antibodies (bnAbs). The trials are the beginning of an iterative research process with the expectation for multiple Phase 1 trials to converge on a potentially protective vaccine that merits advancement to Phase 2. These trials are conducted in parallel to accelerate the advancement of immunogens into vaccine candidates.

Individualized neoantigen therapy (Personalized cancer vaccine) (mRNA-4157)

• We are developing mRNA-4157, an investigational mRNA individualized neoantigen therapy (INT), which we previously referred to as our personalized cancer vaccine, in collaboration with Merck. In December 2022, we announced that the randomized Phase 2 trial of mRNA-4157 had met its primary endpoint. The open-label Phase 2 study is 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. The study showed that mRNA-4157 in combination with KEYTRUDA reduced the risk of recurrence or death by 44% (HR=0.56 [95% CI, 0.31-1.08]; one-sided p value=0.0266) compared with KEYTRUDA alone. The results are the first demonstration of efficacy for an investigational mRNA cancer treatment in a randomized clinical trial in melanoma. Adverse events observed were consistent with those previously reported in a Phase 1 clinical trial, which showed mRNA-4157 to be well-tolerated at all dose levels. We and Merck plan to discuss results with regulatory authorities and to initiate a Phase 3 study in adjuvant melanoma in 2023 and rapidly expand to additional tumor types, including non-small cell lung cancer (NSCLC).

• In February 2023, mRNA-4157 received a Breakthrough Therapy Designation from the FDA. In April 2023, mRNA-4157 received a Priority Medicines (PRIME) scheme designation by the European Medicines Agency (EMA) for the adjuvant treatment of patients with high-risk stage III/IV melanoma following complete resection. The FDA granted Breakthrough

Therapy Designation and the EMA granted PRIME scheme designation based on positive data from the Phase 2b KEYNOTE-942/mRNA-4157-P201 trial.

Cystic Fibrosis (CF) (VX-522)

• CF is a rare genetic disease, which is progressive from birth and leads to multi-organ damage and early death due to lung dysfunction. It is caused by the mutations in the cystic fibrosis transmembrane conductance regulator (CFTR) gene which results in the loss of CFTR chloride ion channel function. This decreased function of CFTR at the cell surface leads to thick, sticky mucus in multiple organ systems but most pathologically the lungs. Our program is designed to treat the underlying cause of CF by enabling cells in the lungs to produce functional CFTR protein for the treatment of the 10% of patients who do not produce any modulator-responsive CFTR protein. This would be the first demonstration of a nebulized mRNA therapy produced by Moderna. We are collaborating with Vertex on our CF candidate, VX-522.

• In January 2023, Vertex announced that it has initiated a Phase 1, single ascending dose clinical trial in CF patients who cannot benefit from CFTR modulators, and the FDA has granted VX-522 Fast Track designation. The trial is active and enrolling patients. Vertex expects to complete the single ascending dose study and to initiate the multiple ascending dose study.

Emerging Programs

• In April 2023, we announced new development candidates against Lyme disease, representing our first bacterial vaccine candidates, and norovirus, constituting our first vaccine candidates against an enteric virus. To address Lyme’s biological complexity, we are advancing a seven-valent approach with two Lyme disease vaccine candidates that will be developed in parallel. mRNA-1982 is designed to elicit antibodies specific for Borrelia burgdorferi, which causes almost all Lyme disease in the U.S. mRNA-1975 is designed to elicit antibodies specific for the four major Borrelia species causing disease in the U.S. and Europe.

• A broadly effective norovirus vaccine will require a multivalent vaccine design, given the wide genetic and antigenic diversity of noroviruses. We are developing pentavalent (mRNA-1405) and trivalent (mRNA-1403) candidates for norovirus.

Our Pipeline

The following chart shows our current pipeline of 47 development programs across our seven modalities.

Abbreviations: BARDA, Biomedical Advanced Research and Development Authority; CMV, Cytomegalovirus; EBV, Epstein-Barr virus; HIV, human immunodeficiency virus; hMPV, human metapneumovirus; HSV, herpes simplex virus; ILCM, Institute for Life Changing Medicines; IL-12, interleukin 12; IL-23, interleukin 23; IL-36γ, interleukin-36 gamma; NIAID, National Institute of Allergy and Infectious Diseases; NIH, National Institutes of Health; OX40L, wildtype OX40 ligand; PIV3, human parainfluenza virus 3; RSV, respiratory syncytial virus; VEGF-A, vascular endothelial growth factor A; VZV, varicella-zoster virus.

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

• Infectious disease vaccines:** Our infectious vaccines modality currently includes 32 development programs, 25 of which have entered into clinical trials. Our original COVID-19 vaccine (Spikevax/mRNA-1273) has been approved or authorized for individuals 18 years and older in more than 70 countries and for adolescent and pediatric populations in more than 50 countries. Our bivalent BA.1 Omicron-targeting vaccine (mRNA-1273.214) and BA.4/BA.5 Omicron-targeting vaccine (mRNA-1273.222) are sold commercially in various countries. We have ongoing Phase 3 studies for our flu vaccine (mRNA-1010), RSV vaccine in older adults (mRNA-1345), next-generation COVID-19 vaccine (mRNA-1283) and CMV vaccine (mRNA-1647). We have ongoing Phase 2 trials for flu vaccines (mRNA-1020, mRNA-1030, mRNA-1011 and mRNA-1012) and our Zika vaccine (mRNA-1893). We have ongoing Phase 1 trials for our RSV vaccine in pediatrics (mRNA-1345), combined COVID and flu vaccine (mRNA-1073), next-generation combined COVID and flu vaccine (mRNA-1083), combined COVID, flu and RSV vaccine (mRNA-1230), combined flu and RSV vaccine (mRNA-1045), hMPV/PIV3 vaccine (mRNA-1653), pediatric RSV and hMPV vaccine (mRNA-1365), EBV vaccine to prevent infectious mononucleosis (mRNA-1189), EBV vaccine to address EBV sequelae (mRNA-1195), VZV vaccine (mRNA-1468), HIV vaccines (mRNA-1644 and mRNA-1574) and Nipah vaccine (mRNA-1215). Our seven preclinical programs within our infectious disease vaccines modality are for an endemic HCoV vaccine (mRNA-1287), pandemic flu vaccine (mRNA-1018), HSV vaccine (mRNA-1608), norovirus vaccines (mRNA-1403 and mRNA-1405) and Lyme vaccines (mRNA-1975 and mRNA-1982).

• 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, currently in a Phase 1 trial, and PD-L1 (mRNA-6981) for autoimmune hepatitis, currently in preclinical development.

• Cancer vaccines and therapeutics:** We are currently developing three programs within our cancer vaccines and therapeutics modality. Our individualized neoantigen therapy program (mRNA-4157) is being developed in collaboration with Merck and met its primary endpoint in a randomized Phase 2 trial. We and Merck plan to discuss results with regulatory authorities and to initiate a Phase 3 study in adjuvant melanoma in 2023 and rapidly expand to additional tumor types, including non-small cell lung cancer (NSCLC). 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 is currently in a Phase 1 clinical trial.

• 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), was developed in collaboration with AstraZeneca. In August 2022, AstraZeneca notified us that it was terminating the development of the IL-12 program (MEDI1191) and that they were returning the rights to the program to us. We are evaluating next steps for the program.

• Localized regenerative therapeutics:** Our localized VEGF-A program, AZD8601, which was developed in collaboration with AstraZeneca, has advanced through a Phase 2 trial. 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 six 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), ornithine transcarbamylase deficiency (OTC) (mRNA-3139), phenylketonuria (PKU) (mRNA-3283), and Crigler-Najjar Syndrome Type 1 (CN-1) (mRNA-3351). We have an ongoing Phase 2 clinical trial for PA (mRNA-3927), and ongoing Phase 1 clinical trials for MMA (mRNA-3705) and GSD1a (mRNA-3745). OTC (mRNA-3139), 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 (VX-522), in collaboration partnership with Vertex Pharmaceuticals, as described above. VX-522 is currently in a Phase 1 clinical trial. Moderna has licensed worldwide commercial rights to VX-522 to Vertex.

Results of operations

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

			Three Months Ended March 31,												Change 2023 vs. 2022
			2023						2022						$						%
Revenue:
Product revenue			$	1,828					$	5,925					$	(4,097)					(69)%
Other revenue			34						141						(107)						(76)%
Total revenue			1,862						6,066						(4,204)						(69)%
Operating Expenses:
Cost of sales			792						1,017						(225)						(22)%
Research and development			1,131						554						577						104%
Selling, general and administrative			305						268						37						14%
Total operating expenses			2,228						1,839						389						21%
(Loss) income from operations			(366)						4,227						(4,593)						(109)%
Interest income			109						15						94						627%
Other expense, net			(48)						(13)						(35)						269%
(Loss) income before income taxes			(305)						4,229						(4,534)						(107)%
(Benefit from) provision for income taxes			(384)						572						(956)						(167)%
Net income			$	79					$	3,657					$	(3,578)					(98)%

Revenue

Product sales by customer geographic location were as follows (in millions):

												Three Months Ended March 31,
																		2023						2022
United States																		$	1					$	945
Europe																		576						2,076
Rest of world(1)																		1,251						2,904
Total																		$	1,828					$	5,925

---

(1) Includes product sales recognized under the agreement with Gavi, which facilitates the allocation and distribution of our COVID-19 vaccines around the world, particularly for low- and middle-income countries.

As of March 31, 2023, our original COVID-19 vaccine (mRNA-1273) and Omicron-targeting bivalent boosters (mRNA-1273.214 and mRNA-1273.222) were our only commercial products authorized for use.

As of March 31, 2023, we had deferred revenue of $1.8 billion associated with customer deposits received or billable under supply agreements for delivery of our COVID-19 vaccines in 2023. We believe that the COVID-19 vaccine market continues to shift to an endemic seasonal market and our product sales will decline significantly in 2023 compared to 2022. In addition, we anticipate greater seasonality for sales, with greater demand in the fall/winter season in each hemisphere as countries seek to provide booster vaccinations to their populations.

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

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

												Three Months Ended March 31,
																		2023						2022
Grant revenue																		$	24					$	126
Collaboration revenue																		10						15
Total other revenue																		$	34					$	141

Total revenue decreased by $4.2 billion, or 69%, for the three months ended March 31, 2023, compared to the same period in 2022, mainly due to a decrease in product sales of our COVID-19 vaccines. Product revenue decreased by $4.1 billion, or 69%, for the three months ended March 31, 2023, compared to the same period in 2022, primarily driven by lower sales volume in 2023. Other revenue decreased by $107 million, or 76%, for the three months ended March 31, 2023, compared to the same period in 2022, largely due to a decrease in grant revenue under our agreement with BARDA for the development of our mRNA-1273 vaccine.

Operating expenses

Cost of sales

Cost of sales for the three months ended March 31, 2023 was $792 million, including third-party royalties of $86 million, inventory write-downs of $148 million, unutilized manufacturing capacity of $135 million, and losses on firm purchase commitments and related cancellation fees of $95 million. Cost of sales for the three months ended March 31, 2023 decreased by $225 million, or 22%, compared to the same period in 2022. Cost of sales as a percentage of product sales for the three months ended March 31, 2023 was 43%, compared to 17% for the same period in 2022. The decrease in cost of sales in 2023 was primarily driven by lower sales volume. The increase in cost of sales as a percentage of product sales in 2023 was mainly due to the aforementioned charges, other than royalties, over lower product sales, as well as higher manufacturing cost per unit and unutilized capacity. The increased manufacturing cost per unit was largely driven by lower product sales to absorb fixed manufacturing costs, as well as a shift from multi-dose vials to single-dose presentations. The increase in unutilized manufacturing capacity was driven by lower production volume, due to increased product seasonality and a decline in product demand.

We expect our manufacturing costs to increase as we move from a pandemic market to an endemic market, characterized by greater seasonality, for our COVID-19 vaccines in 2023. We expect that this shift will cause our cost of sales for the full year of 2023 to represent a higher percentage of our product sales than the percentage experienced in 2022. Our per unit manufacturing cost in 2023 is expected to be significantly higher than the prior year; we may continue to experience significant unutilized capacity charges and inventory write-downs in 2023 (please refer to Note 9 to our condensed consolidated financial statements for inventory related charges).

Research and development expenses

Research and development expenses increased by $577 million, or 104%, for the three months ended March 31, 2023, compared to the same period in 2022. The increase was primarily attributable to increases in clinical trial expenses of $281 million, manufacturing costs for clinical trial materials of $108 million, personnel-related costs and stock-based compensation of $98 million, and preclinical research expenses, including collaboration upfront fees, of $43 million. These increases for the three month period in 2023 were largely driven by increased clinical development, particularly for our RSV, flu and CMV programs, increased headcount and our recently announced collaboration agreements with Life Edit and Generation Bio.

We expect that research and development expenses will increase in 2023, as compared to 2022, as we continue to progress the development of variant-specific and next-generation COVID-19 vaccine candidates and continue to develop our pipeline and advance our product candidates into later-stage development, in particular those in ongoing Phase 3 studies, our RSV, flu and CMV vaccine programs, as well as our individualized neoantigen therapy (personalized cancer vaccine) program, which currently has an ongoing multiple-arm Phase 1 trial and an ongoing randomized Phase 2 trial.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $37 million, or 14%, for the three months ended March 31, 2023, compared to the same period in 2022. The increase was mainly due to increases in outside services of $50 million, personnel-related costs and stock-based compensation of $41 million, partially offset by an endowment to the Moderna Charitable Foundation (the Foundation) of $50 million contributed in 2022. These increases for the three month period in 2023 were primarily driven by our commercialization-related activities, increased headcount and digital- and technology-related spend to support the corporate expansion.

We expect that selling, general and administrative expenses will increase in 2023, as compared to 2022, as we continue to build out our global commercial, regulatory, sales and marketing infrastructure, and continue to expand the number of programs and our business operations.

Interest income

Interest income increased by $94 million for the three months ended March 31, 2023, compared to the same period in 2022. The increases in interest income from our investments in marketable securities for the three month period in 2023 were mainly driven by 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 March 31,												Change 2023 vs. 2022
			2023						2022						$						%
Loss on investments			$	(35)					$	(6)					$	(29)					(483)%
Interest expense			(9)						(6)						(3)						50%
Other expense, net			(4)						(1)						(3)						300%
Total other expense, net			$	(48)					$	(13)					$	(35)					269%

Total other expense, net increased by $35 million, or 269%, for the three months ended March 31, 2023, compared to the same period in 2022. The increase in other expense, net for the three months ended March 31, 2023 was primarily due to losses on equity investments and available-for-sale debt securities. Our interest expense is primarily related to our finance leases. Please refer to Note 12 to our condensed consolidated financial statements.

Income taxes

We had a tax benefit of $384 million for the three months ended March 31, 2023. Income taxes decreased by $956 million, or 167%, for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a significant decrease in income. As a result, the 2023 effective tax rate will not be comparable to the prior year.

Liquidity and capital resources

The following table summarizes our cash, cash equivalents, investments and working capital as of March 31, 2023 and December 31, 2022 (in millions):

						March 31,						December 31,
						2023						2022
Financial assets:
Cash and cash equivalents						$	3,441					$	3,205
Investments						5,482						6,697
Investments, non-current						7,442						8,318
Total						$	16,365					$	18,220
Working capital:
Current assets						$	12,122					$	13,431
Current liabilities						3,499						4,923
Total						$	8,623					$	8,508

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 March 31, 2023 decreased by $1.9 billion, or 10%, compared to December 31, 2022. During the three months ended March 31, 2023, we had a net cash outflow from operating activities of $1.2 billion, repurchases of our common stock of $526 million, purchases of property and equipment of $113 million, and a business acquisition, net of cash acquired of $85 million, partially offset by unrealized gains on available-for-sale debt securities of $122 million.

Working capital, which is current assets less current liabilities, as of March 31, 2023 increased by $115 million, or 1%, compared to December 31, 2022, primarily due to a decrease in short-term deferred revenue of $819 million, mainly driven by revenue recognized from deferred revenue in excess of customer deposits received, and a decrease in accrued liabilities of $488 million. This was partially offset by a decrease in short-term investments of $1.2 billion, primarily to fund our operating activities and repurchases of common stock.

As of March 31, 2023, 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):

			Three Months Ended March 31,
			2023						2022
Net cash provided by (used in):
Operating activities			$	(1,225)					$	2,763
Investing activities			2,011						(3,921)
Financing activities			(542)						(642)
Net increase (decrease) in cash, cash equivalents and restricted cash			$	244					$	(1,800)

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 and other international organizations for the supply of our COVID-19 vaccines and received upfront deposits. As of March 31, 2023, we had $1.8 billion in deferred revenue related to customer deposits received or billable.

Net cash used in operating activities for the three months ended March 31, 2023 was $1.2 billion and consisted of net income of $79 million, a net change in assets and liabilities, net of acquisition of business, of $1.1 billion and non-cash adjustments of $160 million. Non-cash items primarily included deferred income taxes of $310 million, depreciation and amortization of $78 million, and stock-based compensation of $75 million. The net change in assets and liabilities was mainly due to a decrease in deferred revenue of $819 million, a decrease in accrued liabilities of $495 million, an increase in prepaid expenses and other assets of $212 million and a decrease in accounts payable of $117 million, partially offset by a decrease in accounts receivable of $272 million, and a decrease in inventory of $216 million.

Net operating cash flows decreased by $4.0 billion, or 144%, during the three months ended March 31, 2023, compared to the same period in 2022, primarily attributable to a decrease in net income of $3.6 billion.

Investing activities

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

Net cash provided by investing activities for the three months ended March 31, 2023 was $2.0 billion, which primarily included proceeds from sales of marketable securities of $2.0 billion and proceeds from maturities of marketable securities of $1.4 billion, partially offset by purchases of marketable securities of $1.1 billion, purchases of property and equipment of $113 million, and a business acquisition, net of cash acquired of $85 million.

Net investing cash flows increased by $5.9 billion, or 151%, during the three months ended March 31, 2023, compared to the same period in 2022, 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 three months ended March 31, 2023 was $542 million, primarily due to repurchases of common stock of $526 million.

Net cash used in financing activities decreased by $100 million, or 16%, during the three months ended March 31, 2023, compared to the same period in 2022, mainly due to a decrease in repurchases of common stock.

Operation and funding requirements

Our principal sources of funding as of March 31, 2023 consisted of cash and cash equivalents, investments, and cash we may generate from operations. We generated net income of $8.4 billion and $12.2 billion for the years ended 2022 and 2021, 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 $18.4 billion as of March 31, 2023.

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 programs (refer to Note 14 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 RSV, seasonal flu, CMV vaccine candidates, individualized neoantigen therapy, COVID-19 vaccines, including development of any new generations of boosters and vaccines against variants of SARS-CoV-2, late-stage clinical development, and buildout of global commercial, regulatory, sales and marketing infrastructure will require significant cash outflows during 2023, most of which will 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 12 and Note 13 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 March 31, 2023, 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.

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 March 31, 2023 compared to those disclosed in our 2022 Form 10-K.

Contractual Obligations

As of March 31, 2023, other than disclosed within Note 12 and Note 13 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 2022 Form 10-K.