Moderna Inc

5. Collaboration Agreements and Research and Development Funding Arrangement

Merck

In June 2016, we entered into a Collaboration and License Agreement for the development and commercialization of personalized mRNA cancer vaccines (also known as individualized neoantigen therapy, or INT) with Merck. This agreement was subsequently amended and restated in 2018. Our role in this strategic alliance involves identifying genetic mutations in a particular patient’s tumor cells, synthesizing mRNA for these mutations, encapsulating the mRNA in one of our proprietary lipid nanoparticles (LNPs), and administering a unique mRNA INT to each patient. Each INT is designed to specifically activate the patient’s immune system against her or his own cancer cells.

In September 2022, Merck exercised its option for INT, including mRNA-4157, pursuant to the terms of the agreement and in October 2022 paid us an option exercise fee of $250 million. Following this exercise, the Merck Participation Term commenced. Pursuant to the agreement, we and Merck have agreed to collaborate on further development and commercialization of INT, with costs and any profits or losses to be shared equally on a worldwide basis.

For the three and nine months ended September 30, 2024, we recognized expenses, net of Merck's reimbursements, of $109 million and$280 million, respectively, related to the INT collaboration under the Merck Participation Term. For the three and nine months ended September 30, 2023, these expenses were $53 million and$122 million, respectively.

Additionally, for the three and nine months ended September 30, 2024, the net cost recovery for capital expenditures was$25 million and$82 million, respectively. For the three and nine months ended September 30, 2023, the net cost recovery for capital expenditures was$16 million and$34 million, respectively. These amounts were applied to reduce the capitalized cost of the assets.

We have other collaborative and licensing arrangements that we do not consider to be individually significant to our business at this time. Pursuant to these agreements, we may be required to make upfront payments and payments upon achievement of various development, regulatory and commercial milestones, which in the aggregate could be significant. Future milestone payments, if any, will be reflected in our consolidated financial statements when the corresponding events have occurred. In addition, we may be required to pay significant royalties on future sales if products related to these arrangements are commercialized.

Development and Commercialization Funding Arrangement with Blackstone Life Sciences (Blackstone)

In March 2024, we entered into a development and commercialization funding arrangement with Blackstone, under which Blackstone has committed to providing up to $750 million in funding to us. This funding supports the development of our investigational mRNA-based influenza vaccine. Contingent upon regulatory approval in the U.S. and only if the approval is dependent on data from the funded activities, Blackstone will be entitled to receive low single-digit percentage royalties and up to $750 million in sales milestone payments. These payments are based on net sales of our future influenza and combination vaccines, with sales milestone payments contingent upon achieving specified cumulative net sales targets.

Given the substantive transfer of financial risk to Blackstone, we account for this arrangement as an obligation to conduct research and development activities. The funding is recognized as a reduction to the expenses of our mRNA-based influenza program. This reduction is recognized proportionally as the related costs are incurred, based on an input method. For the three and nine months ended September 30, 2024, we recorded research and development expense reductions of $30 million and $35 million, respectively.

6. Financial Instruments

Cash and Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, and available-for-sale securities by significant investment category as of September 30, 2024 and December 31, 2023 (in millions):

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity as of September 30, 2024 and December 31, 2023 were as follows (in millions):

In accordance with our investment policy, we place investments in investment grade securities with high credit quality issuers, and generally limit the amount of credit exposure to any one issuer. We evaluate securities for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the issuer, and our intent and ability to hold the investment to allow for an anticipated recovery in fair value. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. We didnot recognize any impairment charges related to available-for-sale securities for the three and nine months ended September 30, 2024 and 2023. We didnot record any credit-related allowance for available-for-sale securities as of September 30, 2024 and December 31, 2023.

The following table summarizes the amount of gross unrealized losses and the estimated fair value for our available-for-sale securities in an unrealized loss position by the length of time the securities have been in an unrealized loss position as of September 30, 2024 and December 31, 2023 (in millions):

As of September 30, 2024 and December 31, 2023, we held 233 and 392 available-for-sale securities, respectively, out of our total investment portfolio that were in a continuous unrealized loss position. We neither intend to sell these investments, nor do we believe that we are more-likely-than-not to conclude we will have to sell them before recovery of their carrying values. We also believe that we will be able to collect both principal and interest amounts due to us at maturity.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities:

•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in millions):

(1)Investments in publicly traded equity securities with readily determinable fair values are recorded at quoted market prices for identical securities, with changes in fair value recorded in other expense, net, in our condensed consolidated statements of operations.

As of September 30, 2024 and December 31, 2023, we did not have non-financial assets or liabilities measured at fair value on a recurring basis and did not have any Level 3 financial assets or financial liabilities.

For the three and nine months ended September 30, 2024, we recognized net losses of $8 million and $43 million, respectively, on equity investments from changes in fair value of the securities. For the three and nine months ended September 30, 2023, we recognized net losses of $33 million and $16 million, respectively, on equity investments from changes in fair value of the securities.

In addition, as of December 31, 2023, we had $42 million in equity investments without readily determinable fair values, which were recorded within other non-current assets in our consolidated balance sheets and excluded from the fair value measurement tables above. These investments became publicly traded during the first quarter of 2024 and were recorded at their quoted market price in our condensed consolidated balance sheets as of September 30, 2024.

7. Inventory

Inventory as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

(1)Consisted of raw materials with an anticipated consumption beyond one year. Inventory, non-current is included in other non-current assets in the condensed consolidated balance sheets.

Inventory write-downs as a result of excess, obsolescence, scrap or other reasons, and losses on firm purchase commitments are recorded as a component of cost of sales in our condensed consolidated statements of operations. For the three and nine months ended September 30, 2024, inventory write-downs were $214 million and $302 million, respectively. For the three and nine months ended September 30, 2023, inventory write-downs were $1.3 billion and $1.9 billion, respectively. For both the three and nine months ended September 30, 2024, losses on firm purchase commitments were $21 million. For the three and nine months ended September 30, 2023, losses on firm purchase commitments were zero and $141 million, respectively. Inventory write-downs were mainly related to obsolete inventory due to inventory in excess of expected demand and shelf-life expiration. Losses on firm purchase commitments were primarily related to excess raw material purchase commitments that will expire before the anticipated consumption of those raw materials. As of September 30, 2024 and December 31, 2023, the accrued liability for losses on firm future purchase commitments in our condensed consolidated balance sheets was $21 million and $79 million, respectively.

In May 2024, the FDA approved our RSV vaccine for adults aged 60 years and older, and we began to capitalize RSV vaccine inventory. As of September 30, 2024 and December 31, 2023, we had inventory on hand of $477 million and $372 million, respectively, inclusive of inventory for our COVID-19 and RSV vaccines. Our raw materials and work-in-progress inventory have variable shelf lives. We expect that the majority of this inventory will be consumed over the next three years. The shelf life of our COVID-19 vaccine product ranges from nine to twelve months. The shelf life of our RSV vaccine is 18 months.

Pre-launch Inventory

Consistent with guidance from regulators, we have updated our COVID-19 vaccine to target the KP.2 and JN.1 strains of the SARS-CoV-2 virus, and are prepared to meet the anticipated 2024-2025 season demand. We commenced manufacturing and capitalizing pre-launch inventory costs related to both KP.2 and JN.1 strains in the first half of 2024, prior to regulatory approval. As of June 30, 2024, we had capitalized pre-launch COVID-19 vaccine inventory of $165 million in our condensed consolidated balance sheets. During the third quarter of 2024 and the subsequent period, our vaccine targeting the KP.2 strain received approval from the FDA and Health Canada, while our vaccine targeting the JN.1 strain was approved by regulatory authorities in the European Union, the United Kingdom, and other global markets. We have since commenced the supply of this updated vaccine to customers.

8. Property, Plant and Equipment, Net

Property, plant and equipment, net, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

Depreciation and amortization expense for three and nine months ended September 30, 2024 was $51 million and $126 million, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2023 was $246 million and $414 million, respectively.

9. Other Balance Sheet Components

Accounts Receivable, net

Accounts receivable, net, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

Other Non-Current Assets

Other non-current assets, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

(1)Consisted of raw materials with an anticipated consumption beyond one year.

Accrued Liabilities

Accrued liabilities, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

(1)Related to losses that are expected to arise from firm, non-cancellable, commitments for future raw material purchases (Note 7).

Other Current Liabilities

Other current liabilities, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

Other Non-Current Liabilities

Other non-current liabilities, as of September 30, 2024 and December 31, 2023 consisted of the following (in millions):

Deferred Revenue

The following table summarizes the activities in deferred revenue for thenine months ended September 30, 2024 (inmillions):

10. Leases

We have entered into various long-term, non-cancelable lease arrangements for our facilities and equipment, expiring at various times through 2042. Certain of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease costs under such arrangements on a straight-line basis over the life of the lease. We havetwo main campuses in Massachusetts, our Cambridge campus and our Moderna Technology Center (MTC), an industrial technology center located in Norwood. We also lease various parcels of land, as well as office, lab, and manufacturing spaces across the globe for our business operations.

Cambridge Campus

Our Cambridge campus consists of multiple leased properties, including office and research laboratory spaces totaling approximately 667,000 square feet, including the Moderna Science Center.

Moderna Science Center

In September 2021, we entered into a lease agreement for a building in Cambridge, Massachusetts, comprising approximately 462,000 square feet. This facility, which includes our principal executive offices along with additional office and laboratory spaces, is referred to as the Moderna Science Center (MSC). After an approximatelytwo-year building project, the lease term is 15 years, with options fortwo additional seven-year extensions. During the third quarter of 2023, we commenced the lease and recognized the related right-of-use asset and lease liability on our condensed consolidated balance sheets.

Following the commencement of the MSC lease, we amended the expiration dates of our existing leases at Technology Square in the fourth quarter of 2023. Originally scheduled to expire ranging from 2024 to 2029, these leases have been adjusted to conclude by early 2025. All our Cambridge leases are classified as operating leases.

Moderna Technology Center

Our MTC is composed ofthree buildings, MTC South, MTC North and MTC East, totaling approximately 686,000 square feet. Our MTC leases expire in 2042 and we have the option to extend the term forthree extension periods offive years each. All of our MTC leases are classified as finance leases.

In September 2024, we entered into a purchase and sale agreement for the properties we currently lease in Norwood, Massachusetts, where the MTC is located. The total purchase price for the properties is approximately $370 million. In October 2024, we made a nonrefundable deposit of $50 million as part of the transaction. The closing of the transaction is subject to certain conditions, with an anticipated closing date in December 2024.

Operating and financing lease right-of-use assets and lease liabilities as of September 30, 2024 and December 31, 2023 were as follows (in millions):

(1)These assets are real estate related assets, which include land, office, manufacturing, and laboratory spaces.

(2)Net of accumulated amortization.

(3)These assets are real estate assets related to the MTC leases and contract manufacturing service agreements.

(4)Included in property, plant and equipment in the condensed consolidated balance sheets, net of accumulated depreciation.

(5)Included in other current liabilities in the condensed consolidated balance sheets.

Future minimum lease payments under our non-cancelable lease agreements as of September 30, 2024, were as follows (in millions):

(1)Includes certain optional lease term extensions, predominantly related to the MTC leases, which represent a total of $668 million of undiscounted future lease payments.

11. Commitments and Contingencies

Legal Proceedings

We are involved in various claims and legal proceedings of a nature considered ordinary course in our business. 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. We are not currently a party to any legal proceedings for which a material loss is probable, or for which a loss is reasonably estimable at this time.

Indemnification Obligations

As permitted under Delaware law, we indemnify our officers, directors, and employees for certain events, occurrences while the officer, or director is, or was, serving at our request in such capacity. The term of the indemnification is for the officer’s or director’s lifetime.

We have standard indemnification arrangements in our leases for laboratory and office space that require us to indemnify the landlord against any liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or non-performance under our leases.

We enter into indemnification provisions under our agreements with counterparties in the ordinary course of business, typically with business partners, contractors, clinical sites and customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited.

Through the three and nine months ended September 30, 2024 and the year ended December 31, 2023, we hadnot experienced any material losses related to these indemnification obligations, andno material claims were outstanding. We do not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, andno related reserves were established.

Purchase Commitments and Purchase Orders

We enter into agreements in the normal course of business with vendors and contract manufacturing organizations for raw materials and manufacturing services and with vendors for preclinical research studies, clinical trials and other goods or services. As of September 30, 2024, we had $1.2 billion of non-cancelable purchase commitments related to raw materials and manufacturing agreements, which are expected to be paid through 2029. As of September 30, 2024, we had $342 million of non-cancelable purchase commitments related to research and development and other goods and services which are expected to be paid through 2031. These amounts represent our minimum contractual obligations, including termination fees.

In addition to purchase commitments, we have agreements with third parties for various goods and services, including services related to clinical operations and support and contract manufacturing, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or winddown costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. As of September 30, 2024, we had cancelable open purchase orders of $3.3 billion in total under such agreements for our significant clinical operations and support and contract manufacturing. These amounts represent only our estimate of those items for which we had a contractual commitment to pay as of September 30, 2024, assuming we would not cancel these agreements. The actual amounts we pay in the future to the vendors under such agreements may differ from the purchase order amounts.

Licenses to Patented Technology

We have patent license agreements with Cellscript, LLC and its affiliate, mRNA RiboTherapeutics, Inc., and the National Institute of Allergy and Infectious Diseases. Under these agreements, we are required to pay royalties and certain milestone payments. For further information on our licensing and royalty payments, please refer to our 2023 Form 10-K under the heading “Business—Intellectual Property—In-licensed intellectual property” and Note 11 to our consolidated financial statements contained therein.

For the three and nine months ended September 30, 2024, we recognized $92 million and $110 million, respectively, of royalty expenses associated with our product sales. For the three and nine months ended September 30, 2023, we recognized $78 million and $176 million, respectively, of royalty expenses associated with our product sales. These royalty expenses were recorded to cost of sales in our condensed consolidated statements of operations.

Additionally, we have other in-license agreements with third parties which require us to make future development, regulatory and commercial milestone payments and sales-based royalties for specified products associated with the agreements. The achievement of these milestones have not yet occurred as of September 30, 2024.

12. Stock-Based Compensation and Share Repurchase Programs

Stock-Based Compensation

The following table presents the components and classification of stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 as follows (in millions):

As of September 30, 2024, there was $875 million of total unrecognized compensation cost related to unvested stock-based compensation with respect to options, RSUs and PSUs granted. That cost is expected to be recognized over a weighted-average period of 2.6 years as of September 30, 2024.

Share Repurchase Programs

As of September 30, 2024, $1.7 billion of our Board of Directors’ authorization for repurchases of our common stock (the 2022 Repurchase Programs) remains outstanding, with no expiration date. The timing and actual number of shares repurchased under the 2022 Repurchase Programs will depend on a variety of factors, including price, general business and market conditions, and other investment opportunities, and shares may be repurchased through open market purchases through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

During the three and nine months ended September 30, 2024, there wereno shares repurchased.

13. Income Taxes

The following table summarizes our income tax expense for the periods presented (in millions, except for percentages):

The effective tax rate for the three and nine months ended September 30, 2024 was higher than the statutory rate, primarily due to our global valuation allowance, which limits our ability to recognize tax benefits from the loss. The higher effective tax rate was also due to certain of our foreign subsidiaries that have taxable income, while we incurred a net loss before income taxes in other jurisdictions. The decrease in our effective tax rate, compared to the same periods in 2023, was primarily attributable to the establishment of a $1.7 billion valuation allowance on deferred tax assets in the third quarter of 2023. This valuation allowance has been applied consistently since its initial recognition in the third quarter of 2023. For additional details regarding our deferred tax assets and the policies governing our valuation allowance, please refer to Note 13 to our consolidated financial statements in our 2023 Form 10-K.

We periodically reassess the need for valuation allowances on our deferred tax assets, considering both positive and negative evidence to evaluate whether it is more likely than not that all or a portion of such assets will not be realized. Significant management judgment is required in assessing the realizability of our deferred tax assets. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to modify our valuation allowance, which could materially impact our financial position and results of operations.

We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We are not currently subject to any tax assessment from an income tax examination in the U.S. or any other major taxing jurisdiction.

14. Earnings (Loss) per Share

The computation of basic earnings (loss) per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and potential dilutive common shares during the period as determined by using the treasury stock method.

Basic and diluted EPS for the three and nine months ended September 30, 2024 and 2023 were calculated as follows (in millions, except per share data):