Moderna 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _ to _

Commission File Number: 001-38753

Moderna, Inc.

(Exact Name of Registrant as Specified in Its Charter)

(617) 714-6500

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 27, 2023, there were 381,283,996 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Form 10-Q) contains express or implied forward-looking statements. All statements other than those of historical facts contained in this Form 10-Q are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements in this Form 10-Q include, but are not limited to, statements about:

• our activities with respect to our COVID-19 vaccine, and our plans and expectations regarding future generations of our COVID-19 vaccine, including boosters, that we may develop in response to variants of the SARS-CoV-2 virus, ongoing clinical development, manufacturing and supply, pricing, commercialization, regulatory matters (including authorization or approval for boosters), demand for COVID-19 vaccines, our provisions for product returns, and third-party and governmental arrangements and potential arrangements;

• our expectations regarding the endemic and seasonal commercial market for COVID-19 vaccines and our preparations for and ability to effectively compete in such a market, as well as the impact that the evolving market will have on our financial returns;

• expected sales and delivery of our COVID-19 vaccine in future periods, and expected seasonality for sales;

• our global regulatory submissions for our RSV vaccine candidate, mRNA-1345, and plans for commercialization of this product;

• our ability to successfully contract with third-party suppliers, distributors and manufacturers;

• our ability and the ability of third parties with whom we contract to successfully manufacture, supply and distribute our COVID-19 vaccine and boosters, and any future commercial products at scale as well as drug substances, delivery vehicles, development candidates, and investigational medicines for preclinical and clinical use;

• internal and external costs associated with manufacturing for our products, including our COVID-19 vaccine, and the impact on our cost of sales for the current year and future periods, and the impact of resizing initiatives on our cost of sales;

• the scope of protection we are able to establish and maintain for intellectual property rights covering our commercial products, development candidates, investigational medicines and technology, including our ability to enter into license agreements, and our expectations regarding pending legal proceedings related to our intellectual property;

• our plans with respect to our individualized neoantigen therapy (INT), including our plan to expand the development program to additional tumor types, including non-small cell lung cancer;

• the timing of initiation, progress, completion, results and cost of our clinical trials, preclinical studies and research and development programs, as well as those of our collaborators, including Merck and Vertex Pharmaceuticals;

• participant enrollment in our clinical trials, including enrollment demographics and timing;

• potential advantages of mRNA as compared to traditional medicine;

• our ability to obtain and maintain regulatory approval of our investigational medicines;

• the implementation of our business model and strategic plans for our business, investigational medicines and technology;

• potential product launches, including the timing of launches;

• our ability to successfully commercialize our products, if approved;

• the pricing and reimbursement of our medicines, if approved;

• the build out of our manufacturing and commercial operations;

• estimates of our future expenses, revenues and capital requirements;

• our operation and funding requirements, including our forecast of the period of time through which our financial resources will be adequate to support our operations;

• the potential benefits of strategic collaboration agreements and our ability to enter into strategic collaborations or other agreements with collaborators with development, regulatory and commercialization expertise;

• our financial performance;

• our tax provision and related tax liabilities;

• legal and regulatory developments in the United States and foreign countries;

• our ability to produce our products or investigational medicines with advantages in turnaround times or manufacturing cost; and

• developments relating to our competitors and our industry.

Forward-looking statements often contain words such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our operational or financial performance, and involve risks, uncertainties, and other factors that may cause our actual results to differ materially from any future results expressed or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Form 10-Q and under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual results could differ materially from those expressed or implied by the forward-looking statements.

The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We undertake no obligation to update any forward-looking statements, except as required by applicable securities law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q. However, any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission should be consulted.

TRADEMARKS

This Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to may appear without the ® or ™ symbols, but such references are not intended to indicate that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our reference to other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, the terms “Moderna,” the “Company,” “we,” “us” and “our” in this Form 10-Q refer to Moderna, Inc. and its consolidated subsidiaries.

ADDITIONAL INFORMATION

Our website, www.modernatx.com, including the Investor Relations section, www.investors.modernatx.com; and corporate blog www.modernatx.com/moderna-blog; as well as our social media channels: Facebook, www.facebook.com/modernatx; Twitter, www.twitter.com/moderna_tx (@moderna_tx); LinkedIn, www.linkedin.com/company/modernatx; Instagram (@moderna_tx); and Threads (@moderna_tx) contain a significant amount of information about us, including financial and other information for investors. We encourage investors to visit these websites and social media channels as information is frequently updated and new information is shared. Information contained on our website, corporate blog and social media channels shall not be deemed incorporated into, or be a part of, this Form 10-Q.

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MODERNA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except per share data)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MODERNA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share data)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MODERNA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)

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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 advancing a new class of medicines made of messenger RNA (mRNA). mRNA medicines are designed to direct the body’s cells to produce intracellular, membrane or secreted proteins that have a therapeutic or preventive benefit with the potential to address a broad spectrum of diseases. Our platform builds on continuous advances in basic and applied mRNA science, delivery technology and manufacturing, providing us the capability to pursue in parallel a robust pipeline of new development candidates. We are developing therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, 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 six modalities, a broad intellectual property portfolio and integrated manufacturing capabilities that allow for rapid clinical and commercial production at scale. We have a diverse and extensive development pipeline of 41 development candidates across our 43 development programs, of which 38 are in clinical studies currently.

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

Business Highlights

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

In January 2023, we announced positive data from the interim analysis of our pivotal ConquerRSV study of our vaccine candidate against respiratory syncytial virus (RSV) (mRNA-1345). ConquerRSV is a randomized, double-blind, placebo-controlled study of approximately 37,000 adults 60 years or older in 22 countries. In the study, mRNA-1345 met primary efficacy endpoints, demonstrating vaccine efficacy of 83.7% against RSV lower respiratory tract disease in older adults. We have filed for a Biologics License Application to the FDA for our RSV vaccine for adults aged 60 years or older, and used a Priority Review Voucher to accelerate review. We have also submitted marketing authorization applications for the vaccine for adults aged 60 years or older to medical authorities in several countries beyond the U.S. We have initiated the manufacturing of mRNA-1345 and are preparing for a marketing launch, subject to approval.

In September 2023, we announced a strategic research and development collaboration agreement with Immatics, a clinical-stage biopharmaceutical company active in the discovery and development of T cell-redirecting cancer immunotherapies. Upon effectiveness of the agreement in October 2023, we made an upfront payment of $120 million to Immatics. This collaboration between Moderna and Immatics focuses on three pillars:

• Applying Moderna’s mRNA technology for in vivo expression of Immatics’ next-generation, half-life extended T-cell receptor (TCR) bispecifics (TCER) targeting cancer-specific HLA-presented peptides.

• Enabling the discovery and development of novel mRNA-based cancer vaccines by leveraging Moderna’s mRNA science and customized information from Immatics’ tumor and normal tissue data included in the target discovery platform XPRESIDENT and its bioinformatics and AI platform XCUBE.

• Evaluating Immatics’ IMA203 TCR-T therapy targeting PRAME in combination with Moderna's PRAME mRNA-based cancer vaccine. The collaboration contemplates conducting preclinical studies and a Phase 1 clinical trial evaluating the safety and efficacy of the combination with the objective of further enhancing IMA203 T cell responses.

This partnership presents an opportunity to leverage our mRNA technology alongside Immatics’ TCR platform, potentially diversifying and augmenting the way we approach cancer treatment.

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

For the third quarter of 2023, we recognized net product sales of $1.8 billion from sales of our COVID-19 vaccine, compared to $3.1 billion for the third quarter of 2022. Diluted loss per share was $(9.53) for the third quarter of 2023, compared to diluted earnings per share of $2.53 for the third quarter of 2022.

Recent Program Developments

Individualized neoantigen therapy (mRNA-4157)

• We are developing mRNA-4157, an investigational mRNA individualized neoantigen therapy (INT), in collaboration with Merck & Co., Inc (Merck). In July 2023, we and Merck announced the initiation of the pivotal Phase 3 randomized V940-001 clinical trial evaluating mRNA-4157 in combination with KEYTRUDA (pembrolizumab), Merck’s anti-PD-1 therapy, as an adjuvant treatment in patients with resected high-risk melanoma (Stage IIB-IV). The trial is underway globally, and the patients are enrolling in several countries. The trial is expected to enroll approximately 1,089 patients at more than 165 sites in over 25 countries around the world. The primary endpoint of the study is recurrence-free survival (RFS) and secondary endpoints include distant metastasis-free survival (DMFS), overall survival and safety.

• We and Merck are also preparing for the commencement of a Phase 3 trial of mRNA-4157 during the fourth quarter 2023 in non-small cell lung cancer (NSCLC) in patients with resected stage II-IIIB NSCLC who have received adjuvant chemotherapy, with no recurrence. The primary endpoint is disease free survival compared to pembrolizumab. Secondary endpoints are overall survival, DMFS and safety. The trial is expected to enroll approximately 868 patients.

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Combination vaccine against influenza and COVID-19 (mRNA-1083)

• In October 2023, we reported positive interim results from the Phase 1/2 trial of mRNA-1083, an investigational combination vaccine against influenza and COVID-19. The ongoing Phase 1/2 clinical trial is a randomized, observer blind study evaluating the safety and immunogenicity of mRNA-1083 compared to a standard dose influenza vaccine, Fluarix, in adults 50 to 64 years of age and against an enhanced influenza vaccine, Fluzone HD, in adults 65 to 79 years of age. For both age groups, mRNA-1083 was compared against Spikevax booster. The mRNA-1083 candidate selected to advance to Phase 3 achieved hemagglutination inhibition antibody titers similar to or greater than both licensed quadrivalent influenza vaccines and achieved SARS-CoV-2 neutralizing antibody titers similar to the Spikevax bivalent booster in the Phase 1/2 study. mRNA-1083 resulted in geometric mean titer (GMT) ratios >1.0 relative to Fluarix in adults 50 to 64 years of age, for all four influenza vaccine strains. GMT ratios for mRNA-1083 relative to Fluzone HD in adults 65 to 79 were also >1.0, for all four influenza vaccine strains. The GMT ratios of mRNA-1083 relative to Spikevax bivalent were > 0.9 in adults 50 to 64 years of age and > 1.0 in adults 65 to 79 years of age, relative to Spikevax. Reported rates of solicited local and systemic adverse reactions after mRNA-1083 administration were similar to the standalone COVID-19 vaccine group in the trial. The majority of solicited adverse reactions were grade 1 or 2 in severity. Grade 3 solicited local or solicited systemic reactions were reported in less than 4% of participants ages 50 and above. No new safety concerns were identified for mRNA-1083 compared to the standalone vaccines.

• The first participants were dosed in the Phase 3 trial of mRNA-1083 in October 2023. The Phase 3 study will evaluate the immunogenicity, safety and reactogenicity of mRNA-1083 as compared with active control, co-administered licensed influenza and SARS-CoV-2 vaccines in 8,000 healthy adults 50 years of age or older.

Seasonal influenza (flu) vaccines (mRNA-1010, mRNA-1011 and mRNA-1012)

• In September 2023, we announced that our updated vaccine candidate against seasonal influenza, mRNA-1010, met all co-primary endpoints in an interim analysis of the P303 study across all four A and B strains (A/H1N1, A/H3N2, influenza B/Yamagata, B/Victoria). mRNA-1010 has demonstrated an acceptable safety and tolerability profile across all clinical trials to date, including three Phase 3 trials (P301, P302, P303), and independent data and safety monitoring boards (DSMBs) have raised no safety concerns. The Company has decided not to continue the earlier P302 study for mRNA-1010 into a second season, in light of the fact that all primary endpoints have been met in the P303 study.

• We continue to advance a portfolio of influenza vaccine candidates that include additional hemagglutinin (HA) antigens for broader coverage of circulating influenza A strains (mRNA-1011 and mRNA-1012) and candidates that incorporate both HA and neuraminidase (NA) antigens to target multiple proteins involved in the influenza virus lifecycle to reduce the potential of viral antigenic escape (mRNA-1020 and mRNA-1030).

CMV vaccine (mRNA-1647)

• The pivotal Phase 3 trial (CMVictory) of our CMV vaccine candidate, mRNA-1647, is fully enrolled with adult women from approximately 150 clinical sites. CMVictory is 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 primary efficacy analysis will be triggered based on the accrual of seroconversion cases.

Discontinued Programs

• In September 2023, we announced the discontinuation of four programs from our pipeline as we prioritize investments in other programs: VEGF-A (AZD8601); IL-12 (MEDI1191); pediatric hMPV + PIV3 (mRNA-1653); and our COVID + flu combination vaccine based on our original COVID vaccine (mRNA-1073).

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Our Pipeline

The following chart shows our current pipeline of 43 development programs across our six 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-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; RSV, respiratory syncytial virus; VZV, varicella-zoster virus.

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Results of operations

The following tables summarize our condensed consolidated statements of operations for the periods presented (in millions):

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Revenue

Net product sales

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

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

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

As of September 30, 2023, our COVID-19 vaccine was our only commercial product authorized for use.

As of September 30, 2023, we had deferred revenue of $1.5 billion associated with customer deposits received or billable under supply agreements for delivery of our COVID-19 vaccine in 2023.

We believe that the COVID-19 vaccine market continues to shift to an endemic seasonal market. Our net product sales for the nine months ended September 30, 2023 declined significantly as compared to the same period in 2022, and we expect net product sales for the full year 2023 will similarly reflect a significant decline as compared to full year 2022. In addition, we anticipate greater seasonality for sales, with greater demand in the fall/winter seasons in each hemisphere as countries seek to provide booster vaccinations to their populations.

Other revenue

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

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

Total revenue decreased by $1.5 billion and $10.1 billion, or 46% and 72%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, mainly due to decreases in net product sales of our COVID-19 vaccine.

Net product sales decreased by $1.4 billion and $9.7 billion, or 44% and 71%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to lower sales volume in 2023, partially offset by higher average selling price.

Other revenue decreased by $170 million and $444 million, or 70% and 74%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, mainly due to decreases in grant revenue under our agreement with BARDA for the development of our COVID-19 vaccine.

Operating expenses

Cost of sales

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

Cost of sales for the three months ended September 30, 2023 was $2.2 billion, including third-party royalties of $78 million, inventory write-down of $353 million related to our finished and semi-finished COVID-19 vaccine inventory, unutilized manufacturing capacity of $90 million, and $1.4 billion in charges related to the strategic initiative. Cost of sales for the nine months ended September 30, 2023 was $3.8 billion, including third-party royalties of $176 million, inventory write-downs of $1.9 billion, unutilized manufacturing capacity and wind down costs of $781 million, and losses on firm purchase commitments and cancellation fees of $205 million (please refer to Note 9 to our condensed consolidated financial statements for inventory related charges). These charges, other than royalties, were largely attributable to a shift in product demand to our latest monovalent XBB.1.5 COVID-19 vaccine and a decline in customer demand, which ultimately led to our strategic initiative.

Cost of sales for the three months ended September 30, 2023 increased by $1.1 billion, or 104%, compared to the same period in 2022. Cost of sales as a percentage of net product sales for the three months ended September 30, 2023 was 128%, compared to 35% for the same period in 2022. Cost of sales for the nine months ended September 30, 2023 increased by $266 million, or 8%, compared to the same period in 2022. Cost of sales as a percentage of net product sales for the nine months ended September 30, 2023 was 97%, compared to 26% for the same period in 2022. The increases in cost of sales in 2023 were primarily driven by our strategic initiative implemented during the third quarter of 2023, partially offset by lower sales volume. The increases in cost of sales as a percentage of net product sales in 2023 were mainly due to the strategic initiative, and other aforementioned charges (excluding royalties) over lower net product sales, driven by a decline in product demand and increased product seasonality. Absent the charges resulting from the strategic initiative, the cost of sales as a percentage of net product sales would have been 47% and 61% for the three and nine months ended September 30, 2023, respectively.

We expect our cost of sales as a percentage of net product sales to remain elevated for 2023 as we transition from a pandemic market to an endemic market, characterized by greater seasonality, for our COVID-19 vaccine. We expect that this transition will result in our cost of sales for the full year 2023 to represent a higher percentage of our net product sales than the percentage experienced in 2022. Similarly, our per unit manufacturing cost in 2023 is expected to be significantly higher than the prior year. However, in light of our recent strategic initiative, we expect a reduction in our cost of sales as a percentage of net product sales for the fourth quarter of 2023, compared to the preceding quarters of the same year.

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Research and development expenses

Research and development expenses increased by $340 million, or 41%, for the three months ended September 30, 2023, compared to the same period in 2022. The increase was primarily attributable to increases in personnel-related costs and stock-based compensation of $97 million, consulting and outside services of $71 million, clinical trial expenses of $63 million, manufacturing costs for clinical trial materials of $56 million, and digital- and facility-related costs of $33 million. Research and development expenses increased by $1.4 billion, or 65%, for the nine months ended September 30, 2023, compared to the same period in 2022. The increase was primarily attributable to increases in clinical trial expenses of $478 million, personnel-related costs and stock-based compensation of $279 million, manufacturing costs for clinical trial materials of $273 million, and consulting and outside services of $157 million. These increases for the three and nine month periods in 2023 were largely driven by increased clinical development, particularly for our RSV, flu and CMV programs and our next-generation COVID-19 vaccine candidate (mRNA-1283), increased headcount and our collaboration agreements with Life Edit and Generation Bio executed in the first quarter of 2023.

We expect that research and development expenses will remain higher through year-end 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, including our RSV, seasonal flu and CMV vaccine programs, as well as our individualized neoantigen therapy (personalized cancer vaccine) program.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $164 million, or 59%, for the three months ended September 30, 2023, compared to the same period in 2022. The increase was mainly due to increases in personnel-related costs of $74 million, commercial and marketing expense of $44 million, and consulting and outside services of $28 million. Selling, general and administrative expenses increased by $322 million, or 43%, for the nine months ended September 30, 2023, compared to the same period in 2022. The increase was mainly due to increases in personnel-related costs and stock-based compensation of $157 million, outside services of $143 million, and commercial and marketing expense of $73 million, partially offset by a decrease in distributor fees of $60 million driven by a reduction in net product sales, and an endowment to the Moderna Charitable Foundation of $50 million contributed in 2022. These increases for the three and nine month periods in 2023 were primarily driven by increased headcount and spend in digital, medical affairs and commercial functions to support our digital initiatives, marketed products and company expansion.

We expect that selling, general and administrative expenses will remain higher through year-end 2023, as compared to 2022, due to our build out of our global commercial, regulatory, sales and marketing infrastructure, as we continue to invest in our business operations and programs.

Interest income

Interest income increased by $47 million, or 81%, for the three months ended September 30, 2023, compared to the same period in 2022. Interest income increased by $205 million, or 181%, for the nine months ended September 30, 2023, compared to the same period in 2022. The increases in interest income from our investments in marketable securities for the three and nine month periods in 2023 were mainly driven by an overall higher interest rate environment.

Other expense, net

The following tables summarize other expense, net for the periods presented (in millions):

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Total other expense, net increased by $44 million, or 629%, for the three months ended September 30, 2023, compared to the same period in 2022. The increase in other expense, net for the three months ended September 30, 2023 was primarily due to losses on equity investments and losses on foreign currency transactions and remeasurements. Total other expense, net increased by $52 million, or 158%, for the nine months ended September 30, 2023, compared to the same period in 2022. The increase in other expense, net for the nine months ended September 30, 2023 was primarily due to losses on available-for-sale debt securities and equity investments and an increase in interest expense. 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 provision of $1.7 billion and $919 million for the three and nine months ended September 30, 2023. Provision for income taxes increased by $1.5 billion for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to an increase in valuation allowance on deferred tax assets of $1.7 billion. Provision for income taxes decreased by $104 million, or 10%, for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a significant decrease in pre-tax income, partially offset by an increase in valuation allowance on deferred tax assets of $1.7 billion. As a result of the significant reduction in pre-tax income and the valuation allowance, the 2023 effective tax rate will not be comparable to the prior year. Please refer to Note 15 to our condensed consolidated financial statements.

Liquidity and capital resources

The following table summarizes our cash, cash equivalents, investments and working capital as of September 30, 2023 and December 31, 2022 (in millions):

Our cash, cash equivalents and investments are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments, consisting primarily of government and corporate debt securities, are stated at fair value. Cash, cash equivalents and investments as of September 30, 2023 decreased by $5.4 billion, or 29%, compared to December 31, 2022. During the nine months ended September 30, 2023, we had a net cash outflow from operating activities of $3.7 billion, repurchases of our common stock of $1.2 billion, purchases of property and equipment of $487 million, and a business acquisition, net of cash acquired of $85 million, partially offset by unrealized gains on available-for-sale debt securities of $196 million.

Working capital, which is current assets less current liabilities, as of September 30, 2023 decreased by $2.1 billion, or 25%, compared to December 31, 2022, primarily due to a decrease in cash, cash equivalents and short-term investments of $2.3 billion, primarily to fund our operating activities and repurchases of common stock, and a decrease in inventory of $462 million, mainly due to write down of inventory. This was partially offset by a decrease in short-term deferred revenue of $666 million, mainly driven by revenue recognized from deferred revenue in excess of customer deposits received.

As of September 30, 2023, we did not have any off-balance sheet arrangements.

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Cash flow

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

Operating activities

We derive cash flows from operations primarily from cash collected from customer deposits and accounts receivable, net related to our COVID-19 vaccine product sales, as well as certain government-sponsored and private organizations and strategic alliances. Our cash flows from operating activities are significantly affected by our use of cash for operating expenses and working capital to support the business.

Beginning in the third quarter of 2020, we entered into supply agreements with the U.S. Government and other international organizations for the supply of our COVID-19 vaccine and received upfront deposits. In the third quarter of 2023, we commenced sales of our COVID-19 vaccine to the U.S. commercial market, in addition to continuing sales to international governments and organizations. In the U.S., our COVID-19 vaccine is sold primarily to wholesalers and distributors, and to a lesser extent, directly to retailers and healthcare providers. Wholesalers and distributors typically do not make upfront payments to us. As of September 30, 2023, we had $1.5 billion in deferred revenue related to customer deposits received or billable.

Net cash used in operating activities for the nine months ended September 30, 2023 was $3.7 billion and consisted of net loss of $4.9 billion, a net change in assets and liabilities, net of acquisition of business, of $388 million and non-cash adjustments of $1.6 billion. Non-cash items primarily included deferred income taxes of $934 million, depreciation and amortization of $419 million, and stock-based compensation of $226 million. The net change in assets and liabilities was mainly due to a decrease in deferred revenue of $1.2 billion due to revenue recognized upon shipments of our COVID-19 vaccine, an increase in right-of-use assets, operating leases of $657 million due to the lease commencement of our future corporate headquarters, and an increase in accounts receivable, net of $481 million primarily due to shipments of our COVID-19 vaccine in the U.S. for the fall vaccination season, partially offset by a decrease in prepaid expenses and other assets of $772 million primarily due to write downs of non-current inventory, an increase in operating lease liabilities of $605 million due to the lease commencement of our future corporate headquarters, and a decrease in inventory of $462 million due to inventory write downs.

Net operating cash flows decreased by $7.1 billion, or 213%, during the nine months ended September 30, 2023, compared to the same period in 2022, primarily attributable to a decrease in net income of $11.8 billion, partially offset by a change in deferred revenue of $1.5 billion due to revenue recognized from deferred revenue in excess of customer deposits received, deferred income taxes of $1.4 billion due to an increase in valuation allowance, and prepaid expense and other assets of $1.4 billion due to inventory write-downs.

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 nine months ended September 30, 2023 was $4.7 billion, which primarily included proceeds from maturities and sales of marketable securities of $7.4 billion, partially offset by purchases of marketable securities of $2.1 billion, purchases of property and equipment of $487 million, and a business acquisition, net of cash acquired of $85 million.

Net investing cash flows increased by $8.9 billion, or 215%, during the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in purchases of marketable securities of $6.8 billion and an increase in proceeds from maturities of marketable securities of $2.5 billion.

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Financing activities

Net cash used in financing activities for the nine months ended September 30, 2023 was $1.3 billion, primarily due to repurchases of common stock of $1.2 billion.

Net cash used in financing activities decreased by $1.7 billion, or 58%, during the nine months ended September 30, 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 September 30, 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 also incurred a net loss of $4.9 billion for the nine months ended September 30, 2023. We have retained earnings of $13.4 billion as of September 30, 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 anticipate maintaining substantial expenses across all areas of our ongoing activities, particularly as we continue research and development of our development candidates and clinical activities for our investigational medicines. This also extends to our manufacturing costs, including our arrangements with our supply and manufacturing partners. Our ongoing work on our RSV, seasonal flu and CMV vaccine candidates, individualized neoantigen therapy, COVID-19 vaccines, including development of any new generations of boosters and vaccines against variants of SARS-CoV-2, combination vaccines, late-stage clinical development, and buildout of global commercial, regulatory, sales and marketing infrastructure will require significant cash outflows in future periods, 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 September 30, 2023, together with cash expected to be generated from product sales, 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. For example, we have experienced a decline in customer demand for our COVID-19 vaccine, reflecting the market's ongoing transition to an endemic seasonal market in 2023. We foresee that our commitment to investing in our business for future product launches may lead to continued negative cash flows from operations in upcoming periods. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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 September 30, 2023 compared to those disclosed in our 2022 Form 10-K, other than as set forth below with respect to our accounting policy related to net product sales in the U.S. In the third quarter of 2023, we initiated sales of our COVID-19 vaccine in the U.S. commercial market. While our inventory policy remains unchanged, we have observed an increase in the judgment and estimates involved in inventory valuation. A summary of the policy and the significant judgments and estimates associated with inventory valuation is provided below.

Net product sales

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

We recognize net product sales when control of the product transfers to the customer, typically upon delivery. Net product sales in the U.S. are recognized net of estimated wholesaler chargebacks, invoice discounts for prompt payments and pre-orders, provisions for

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sales returns, and other related deductions. These provisions are recorded based on contractual terms and our estimate of returns for product sold during the period, using the expected value method or the most likely amount method. Estimates are assessed each period and adjusted as required to revise information or actual experience.

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

Please refer to Note 3 to our condensed consolidated financial statements for additional details.

Inventory

Inventory is recorded at the lower of cost or net realizable value, with cost determined using first-in, first-out and average cost methods for different inventory components. We periodically review the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise unsaleable items. If unsaleable items are observed and there are no alternate uses for the inventory, we will record a write-down to net realizable value in the period that the decline in value is first recognized through a charge to cost of sales. The process of determining whether inventory cost will be realizable requires significant judgment and estimates by management. If actual market conditions prove less favorable than projected by management, additional write-downs of inventory may be required. On a quarterly basis, we also assess whether we have any excess firm, non-cancelable, purchase commitment liabilities, resulting from our supply agreements with third-party vendors. The determination of net realizable value and firm purchase commitment liabilities requires significant judgment, including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions, potential product obsolescence, expiration and utilization of raw materials under firm purchase commitments and contractual minimums, among others. We maintain raw materials beyond our one-year forecasted production plan, which were classified as non-current and included in other non-current assets in our consolidated balance sheets. The classification and valuation of these materials involve significant judgment and estimates. While we consider the assumptions used in estimating inventory write-downs to be reasonable, any significant future changes in these assumptions or shifts in future events and market conditions could lead to different estimates.

Contractual Obligations

As of September 30, 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.

Our market risks, and the way we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2022 Form 10-K. There have been no material changes to our market risk or to our management of such risks for the three and nine months ended September 30, 2023.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2023, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the controls established pertaining to our new commercial sales process in the U.S. In the third quarter of 2023, we initiated the sales of our COVID-19 vaccine in the U.S. commercial market. Please refer to Note 3 to our condensed consolidated financial statements for additional details.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by a management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II

Item 1. Legal Proceedings

We are involved in various claims and legal proceedings of a nature considered ordinary course in our business, including the intellectual property litigation described in our 2022 Form 10-K under the heading “Legal Proceedings.” Most of the issues raised by these claims are highly complex and subject to substantial uncertainties. For a description of risks relating to these and other legal proceedings we face, see Part I, Item 1A., “Risk Factors,” of our 2022 Form 10-K, including the discussion under the headings entitled “Risks related to our intellectual property” and “Risks related to the manufacturing of our commercial products, development candidates, investigational medicines and our future pipeline.” The outcome of any such proceedings, regardless of the merits, is inherently uncertain; therefore, assessing the likelihood of loss and any estimated damages is difficult and subject to considerable judgment.

Proceedings Related to Patents Owned by Alnylam

As previously disclosed in the 2022 10-K, in March 2022, Alnylam Pharmaceuticals, Inc. (Alnylam) filed a complaint against us in the U.S. District Court for the District of Delaware asserting that our manufacture and sale of our COVID-19 vaccine infringes a U.S. patent concerning cationic lipids. In August 2023, the District Court entered a final judgment of non-infringement in our favor. Alnylam has appealed that decision to the U.S. Court of Appeals for the Federal Circuit.

Information regarding risk and uncertainties related to our business appears in Part I, Item 1A. “Risk Factors” of our 2022 Form 10-K. There have been no material changes from the risk factors previously disclosed in the 2022 Form 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On August 1, 2022, our Board of Directors authorized a share repurchase program for our common stock of up to $3.0 billion, with no expiration date. During the three months ended September 30, 2023, there were no shares repurchased. As of September 30, 2023, $1.7 billion of our Board of Directors’ authorization for repurchases of our common stock remains outstanding, with no expiration date.

Refer to Note 14 to condensed consolidated financial statements for information regarding our share repurchase programs.

During the three months ended September 30, 2023, the following officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) of the Company took the following actions regarding trading arrangements with respect to our securities:

On August 11, 2023, Stephane Bancel, our Chief Executive Officer, terminated a trading arrangement that was intended to satisfy the affirmative defense of Rule 10b5-1(c) (the Bancel 10b5-1 Plan). The Bancel 10b5-1 Plan was entered into on March 7, 2023, and was scheduled to commence on September 6, 2023, with a termination date of the earlier of August 29, 2025 or the date all shares under the plan were sold. The aggregate number of securities to be sold pursuant to the Bancel 10b5-1 Plan was 1,200,000.

On August 24, 2023, Arpa Garay, our Chief Commercial Officer, adopted a trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) (the Garay 10b5-1 Plan). Between November 27, 2023 and August 30, 2024, the Garay 10b5-1 Plan provides for the potential sale of approximately 4,540 shares of the Company’s common stock and for the potential exercise of vested stock options and the associated sale of up to 24,897 shares. The plan expires on August 30, 2024, or upon the earlier completion of all authorized transactions under the plan.

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The Exhibits listed below are filed or incorporated by reference as part of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.