Moderna, Inc. (MRNA) FY 2021 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Part I, Item 1A - Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biotechnology company pioneering messenger RNA (mRNA) therapeutics and vaccines to create a new generation of transformative medicines to improve the lives of patients. 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. In January 2022, the U.S. Food and Drug Administration (FDA) approved the Biologics License Application (BLA) for our COVID-19 vaccine, Spikevax, for individuals 18 years of age and older in the United States. Spikevax is our first product to achieve licensure in the United States, and it has been authorized for use or approved by regulators in more than 70 countries.

Within our platform, we develop technologies that enable the development of mRNA medicines for diverse applications. When we identify technologies that we believe could enable a new group of potential mRNA medicines with shared product features, we call that group a “modality.” While the programs within a modality may target diverse diseases, they share similar mRNA technologies, delivery technologies, and manufacturing processes to achieve shared product features. The programs within a modality will also generally share similar pharmacology profiles, including the desired dose response, the expected dosing regimen, the target tissue for protein expression, safety and tolerability goals, and pharmaceutical properties. Programs within a modality often have correlated technology risk, but because they pursue diverse diseases they often have uncorrelated biology risk. We have created seven modalities to date:

•prophylactic vaccines;

•systemic secreted and cell surface therapeutics;

•cancer vaccines;

•intratumoral immuno-oncology;

•localized regenerative therapeutics;

•systemic intracellular therapeutics; and

•inhaled pulmonary therapeutics.

We have designated our prophylactic vaccines and systemic secreted and cell surface therapeutics modalities as our “core modalities.” In these core modalities, our strategy is to invest in additional development candidates using our accumulated innovations in technology, our process insights and our preclinical and clinical experience. Our exploratory modalities continue to be a critical part of advancing our strategy to maximize the application of our potential mRNA medicines.

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 in areas including mRNA and lipid nanoparticle formulation, and an integrated manufacturing plant that allows for rapid clinical and commercial production at scale. We have established relationships with a broad range of domestic and overseas government and commercial collaborators, which has allowed for the pursuit of both groundbreaking science and rapid scaling of our manufacturing capabilities. Most recently, our capabilities have come together to allow the authorization and approval of one of the earliest and most-effective vaccines against the COVID-19 pandemic.

2021 Business Highlights

Moderna COVID-19 Vaccine

On December 18, 2020, we received an Emergency Use Authorization (EUA) from the FDA for the emergency use of the Moderna COVID-19 Vaccine (also referred to as mRNA-1273 and marketed under the brand name Spikevax) in individuals 18 years of age or

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older. Subsequently, we have also received authorization for our COVID-19 vaccine from health agencies in more than 70 countries and from the World Health Organization (WHO). Additional authorizations are currently under review in other countries. In addition, we have received authorization for our COVID-19 vaccine for use in adolescents in the European Union, the United Kingdom, Australia, Canada, Switzerland and other countries, and have pending applications for authorization to administer the vaccine to adolescents with regulatory agencies in the United States and other countries. In January 2022, we received full FDA approval for Spikevax to prevent COVID-19 in individuals 18 years of age and older in the United States.

A booster dose of our COVID-19 vaccine at the 50 µg dose level is authorized for use under an EUA for adults 18 years and older. A third dose of our COVID-19 vaccine at the 100 µg dose level is authorized for use under an EUA in immunocompromised individuals 18 years of age or older in the United States who have undergone solid organ transplantation, or who are diagnosed with conditions that are considered to have an equivalent level of immunocompromise. The European Medicines Agency (EMA) has also authorized a third dose of the Moderna COVID-19 vaccine given at least 28 days after the second dose to severely immunocompromised individuals 12 years of age or older, as well as the administration of 50 µg booster doses for individuals 18 years of age and older.

Manufacturing Scaling

In 2021, we rapidly scaled our manufacturing capabilities for our COVID-19 vaccine. By June, we had delivered 200 million doses of the Moderna COVID-19 Vaccine to the U.S. government. By end of September, we and our partners ramped up our capacity worldwide and supplied more than 500 million doses of our COVID-19 vaccine globally. We took measures to scale capacity at a significant pace, including the expansion of our Moderna Technology Center (MTC) in Norwood, Massachusetts. By the end of 2021, we had shipped approximately 800 million doses of our COVID-19 vaccine worldwide.

In April 2021, we announced new funding commitments to increase supply at our owned and partnered manufacturing facilities. We expect these investments will allow for a doubling of drug substance manufacturing at Lonza’s Switzerland-based facility, a more than doubling of formulation, fill and finish and drug substance manufacturing at Rovi’s Spain-based facility, as well as a 50 percent increase of drug substance at Moderna’s facilities in the U.S. When completed, the investments are also expected to result in an increase in safety stock of raw materials and finished product used to deliver committed volumes.

Access Expansion

We recognize that vaccine availability continues to be a challenge in many parts of the world, and we remain focused on ensuring that low-income countries have access to our vaccine. In April, we announced additional investments to increase global supply of our COVID-19 vaccine and in May we announced an agreement with Gavi, the Vaccine Alliance to supply up to 500 million doses of our vaccine at our lowest tiered price, in line with our global access commitments. This agreement has subsequently been revised to provide up to 650 million doses to be delivered across 2021 and 2022.

Additionally, in October, we announced that Moderna will build a state-of-the-art mRNA facility in Africa with the goal of producing up to 500 million doses of vaccines each year at the 50 µg dose level. We also announced the first step in our long-term partnership with the African Union with a Memorandum of Understanding to supply up to 110 million doses of our COVID-19 vaccine to address the needs of low-income countries in Africa. In January 2022, African Union informed us that it will not exercise its option for 60 million doses in the second quarter of 2022, due to its expectation that existing supplies will be sufficient to meet its vaccination targets.

Program Development

Throughout the year, we continued to build a diverse clinical portfolio of vaccines and therapeutics across our seven modalities. Our longstanding approach to portfolio development, pursuing programs that have shared technology or biology, has helped us reduce risk as our pipeline has grown to 40 programs in development, including 23 in clinical studies as of December 31, 2021.

Beyond our COVID-19 vaccine, in 2021 we launched the second pivotal trial in our company’s history with CMVictory, a Phase 3 study of our vaccine to prevent congenital cytomegalovirus (CMV), which is the number one cause of birth defects in the U.S. This milestone takes us one step closer to potentially bringing another important vaccine to millions of people.

We are making other significant advances across our programs. Our seasonal influenza vaccine showed positive interim Phase 1 data, and our respiratory syncytial virus (RSV) vaccine moved to a Phase 2/3 trial of 34,000 participants in the fourth quarter of 2022. In oncology, our Personalized Cancer Vaccine Phase 2 trial is now fully enrolled, and we expect a readout as early as the fourth quarter of 2022. We also saw early positive data from the Phase 2 study of our mRNA VEGF-A therapeutic with AstraZeneca moving it to the next stage of clinical development.

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Financial Highlights

We have entered into supply agreements with the U.S. Government, other international governments, Gavi (on behalf of the COVAX Facility), and the African Union for the supply of our COVID-19 vaccine. The agreements are generally subject to receipt of authorization or approval for the use and distribution of the vaccine from the relevant regulatory authority in each jurisdiction. Under these agreements, we are entitled to upfront deposits for our COVID-19 vaccine supply, which is initially recorded as deferred revenue. As of December 31, 2021, we had approximately $6.7 billion in deferred revenue in connection with the supply agreements with the U.S. Government and other customers, which will be recognized as revenue when revenue recognition criteria have been met. For the year ended December 31, 2021, we delivered approximately 332 million doses of our COVID-19 vaccine to the U.S. Government and approximately 475 million doses to other governments, and we recognized $17.7 billion in product sales.

As of December 31, 2021, we had cash, cash equivalents and investments of approximately $17.6 billion. We are using this capital to fund operations and investing activities for technology creation, drug discovery and clinical development programs, infrastructure and capabilities to enable our research and early development activities (which includes our MTC), our digital infrastructure, creation of our portfolio of intellectual property, acquisition of key raw materials and supplies to support our commercial production quantities, development of a commercial team, expansion into global markets, funding our strategic collaborations and administrative support. We also use this capital to fund our Share Repurchase Program, designed to return value to our stockholders and minimize dilution from stock issuances.

Other Business Updates

In May 2021, we announced an expansion of our MTC. The MTC has been core to our long-term strategy and has enabled us to provide the scale and flexibility to support the development of our mRNA medicines and vaccines, including our COVID-19 vaccine. This investment will more than double the space at the MTC to approximately 650,000 square feet and allow us to continue to optimize our mRNA products as we explore new pharmaceutical delivery forms such as prefilled syringes and lyophilized products.

We are also investing in a new Moderna Science Center (MSC) in Cambridge, Massachusetts, to create a purpose-built space to support our next chapter of discovery and serve as our principal executive offices. The MSC will integrate digital-first scientific research and development labs along with space for innovation and co-creation with our people and our partners around the world. As part of our ongoing commitment to sustainability, the high-performance building is designed to be the most sustainable commercial lab building in Cambridge.

In addition to our owned facilities in the U.S., we have expanded our footprint across the globe, with active subsidiaries in more than 12 countries, including the U.S., Canada, many European countries and the Asia Pacific region. As Moderna expands internationally, we also announced in 2021 preliminary agreements with the governments of Canada and Australia to bring state-of-the-art mRNA manufacturing facilities to those countries to provide direct access to rapid pandemic response capabilities as well as domestically manufactured mRNA vaccines against other diseases.

Financial Operations Overview

Revenue

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

We began to record product sales for our COVID-19 vaccine subsequent to its authorization for emergency use by the FDA and Health Canada in December 2020. For the years ended December 31, 2021 and 2020, we recognized $17.7 billion and $200 million, respectively, of product sales from sales of our COVID-19 vaccine.

Other than product sales, our revenue in 2021 and 2020 was derived from government-sponsored and private organizations including BARDA, DARPA and the Bill & Melinda Gates Foundation and from strategic alliances with AstraZeneca, Merck and Vertex to discover, develop, and commercialize potential mRNA medicines.

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

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

As of December 31, 2021, we had signed supply agreements of approximately $20.6 billion for the future supply of our COVID-19 vaccine to be delivered in 2022 and 2023 and had deferred revenue of $6.7 billion associated with customer deposits received or billable under these agreements. Additional supply agreements have been agreed upon since December 31, 2021, and others are under discussion for 2022 and 2023 deliveries. We believe that the SARS-CoV-2 virus will evolve to an endemic phase in 2022 and as a result, we expect our product sales to be larger in the second half of 2022 than in the first half.

In addition, we expect to continue to receive funding from our contract with BARDA. As of December 31, 2021, the remaining available funding, net of revenue earned was $189 million under the BARDA contract. To the extent that existing or potential future products generate revenue, our revenue may vary due to many uncertainties in future product demand, the development of our mRNA medicines and other factors.

Cost of sales

Cost of sales includes raw materials, personnel and facility and other costs associated with manufacturing our commercial product. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and final formulation and packaging costs. Cost of sales also includes shipping costs, royalties payable to third parties based on sales of our products, and charges for inventory valuation reserves.

Research and development expenses

The nature of our business and primary focus of our activities generate a significant amount of research and development costs.

Research and development expenses represent costs incurred by us for the following:

•cost to develop our platform;

•discovery efforts leading to development candidates;

•preclinical, nonclinical, and clinical development costs for our programs;

•cost to develop our manufacturing technology and infrastructure; and

•digital infrastructure costs related to our drug discovery efforts and clinical trials.

The costs above comprise the following categories:

•personnel-related expenses, including salaries, benefits, and stock-based compensation expense;

•expenses incurred under agreements with third parties, such as consultants, investigative sites, contract research organizations, or CROs, that conduct our preclinical studies and clinical trials, and in-licensing arrangements;

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•expenses associated with developing manufacturing capabilities and acquiring materials for preclinical studies, clinical trials and pre-launch inventory, including both internal manufacturing and third-party contract manufacturing organizations, or CMOs;

•expenses incurred for the procurement of materials, laboratory supplies, and non-capital equipment used in the research and development process; and

•facilities, depreciation, and amortization, and other direct and allocated expenses incurred as a result of research and development activities.

We use our employee and infrastructure resources for the advancement of our platform, and for discovering and developing programs. Due to the number of ongoing programs and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development programs are generally not recorded or maintained on a program- or modality-specific basis.

The following table reflects our research and development expenses, including direct program specific expenses summarized by modality and indirect or shared operating costs summarized under other research and development expenses during the years ended December 31, 2021, 2020, and 2019 (in millions):

__________

(1)Includes a total of 37 development candidates at December 31, 2021 and 21 development candidates at each of December 31, 2020 and 2019. Program-specific expenses include external costs and allocated manufacturing costs of pre-launch inventory, mRNA supply and consumables, and are reflected as of the beginning of the period in which the program was internally advanced to development or removed if development was ceased.

A “modality” refers to a group of programs with common product features and the associated combination of enabling mRNA technologies, delivery technologies, and manufacturing processes. The program-specific expenses by modality summarized in the table above include expenses we directly attribute to our programs, which consist primarily of external costs, such as fees paid to outside consultants, central laboratories, investigative sites, and CROs in connection with our preclinical studies and clinical trials, CMOs, and allocated manufacturing costs of pre-launch inventory, mRNA supply and consumables. Costs to acquire and manufacture pre-launch inventory, mRNA supply for preclinical studies and clinical trials are recognized and included in unallocated manufacturing expenses when incurred, and subsequently allocated to program-specific manufacturing costs after completion of the program-specific production. The timing of allocating manufacturing costs to the specific program varies depending on the program development and production schedule. We generally do not allocate personnel-related costs, including stock-based compensation, costs associated with our general platform research, technical development, and other shared costs on a program-specific basis. These costs were therefore excluded from the summary of program-specific expenses by modality.

Discovery program expenses are costs associated with research activities for our programs in the preclinical discovery stage, and primarily consist of external costs for CROs and lab services, and allocated manufacturing cost of preclinical mRNA supply and consumables.

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Platform research expenses are mainly costs to develop technical advances in mRNA science, delivery science, and manufacturing process design. These costs include personnel-related costs, computer equipment, facilities, preclinical mRNA supply and consumables, and other administrative costs to support our platform research. Technology development and unallocated manufacturing expenses are primarily related to non-program-specific manufacturing process development and manufacturing costs.

Shared discovery and development expenses are research and development costs such as personnel-related costs and other costs, which are not otherwise included in development programs, discovery programs, platform research, technical development and unallocated manufacturing expenses, stock-based compensation, and other expenses.

The largest component of our total operating expenses has historically been our investment in research and development activities, including development of our platform, mRNA technologies, and manufacturing technologies. We expense research and development costs as incurred and cannot reasonably estimate the nature, timing, and estimated costs required to complete the development of the development candidates and investigational medicines we are currently developing or may develop in the future. There are numerous risks and uncertainties associated with the research and development of such development candidates and investigational medicines, including, but not limited to:

•scope, progress, and expense of developing ongoing and future development candidates and investigational medicines;

•entry in and completion of related preclinical studies;

•enrollment in and completion of subsequent clinical trials;

•safety and efficacy of investigational medicines resulting from these clinical trials;

•changes in laws or regulations relevant to the investigational medicines in development;

•receipt of the required regulatory approvals; and

•commercialization, including establishing manufacturing and marketing capabilities.

As we continue to pursue our indication expansion of mRNA-1273 during the current pandemic, and continue to develop variant-specific COVID-19 vaccine candidates and our next-generation COVID-19 vaccine candidate (mRNA-1283), we expect to continue to incur significant additional expenses. At this time, the magnitude of these potential expenditures is not known. In connection with the BARDA agreement to accelerate development of mRNA-1273, grant revenue and expenses within the committed funding scope are expected to continue in 2022. BARDA’s funding is expected to offset those expenses that are covered under the BARDA agreement, subject to our obtaining reimbursement from BARDA. As of December 31, 2021, the remaining available funding from BARDA, net of revenue earned was $189 million. Please refer to Note 4 to our consolidated financial statements.

Changes in expectations or outcomes of any of the known or unknown risks and uncertainties may materially impact our expected research and development expenditures. Continued research and development is central to the ongoing activities of our business. Investigational medicines in later stages of clinical development, such as our CMV vaccine (mRNA-1647) and our COVID-19 vaccine, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development costs to continue to increase for the foreseeable future as our investigational medicines progress through the development phases and as we identify and develop additional programs. There are numerous factors associated with the successful commercialization of any of our investigational medicines, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time due to the early stage of development of our investigational medicines. Moreover, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

Selling, general and administrative expenses

We started to incur sales and marketing expenses in the fourth quarter of 2020 to prepare for commercial operations in connection with the sale of our COVID-19 vaccine, and these expenses increased throughout the course of 2021. Selling, general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for executives, finance, legal, human resources, business development and other administrative and operational functions, professional fees, accounting and legal services, information technology and facility-related costs, and expenses associated with obtaining and maintaining intellectual property, or IP. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

We anticipate selling, general and administrative expenses will increase as we continue to expand the number of programs in development and prepare for the establishment of commercial activities both within and outside the United States. We have already incurred additional expenses related to building out a regulatory, sales and marketing team to support the sale, marketing and distribution of our COVID-19 vaccine and the expansion of our footprint across the globe, with active subsidiaries in more than 12 countries. If we obtain regulatory approval for additional investigational medicines, and do not enter into one or more third-party

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commercialization collaboration and manufacturing arrangements, we will incur significant additional expenses related to building out these functions.

We have a broad IP portfolio covering our development and commercialization of mRNA vaccine and therapeutic programs, including those related to mRNA design, formulation, and manufacturing platform technologies. We regularly file patent applications to protect innovations arising from our research and development. We also hold trademarks and trademark applications in the United States and foreign jurisdictions. Costs to secure and defend our IP are expensed as incurred, and are classified as selling, general and administrative expenses.

Interest income

Interest income consists of interest generated from our investments in cash and cash equivalents, money market funds, and high-quality fixed income securities.

Other expense, net

Other expense, net consists of interest expense, gains (losses) from the sale of investments in marketable securities, and other income and expense unrelated to our core operations. Interest expense is primarily derived from our finance leases related to our Moderna Technology Center and certain contract manufacturing service agreements.

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, are reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our

consolidated financial statements require the most significant judgments and estimates.

Income taxes

We account for income taxes based on an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We determine our deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made. As of December 31, 2021, we maintained a valuation allowance against a portion of the state deferred tax assets based on management’s evaluation of all available evidence.

We are subject to income tax audits and adjustments by tax authorities. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. We develop our assessment of uncertain tax positions and as additional information becomes available, estimates are revised and refined. We record reserves for potential tax payments to various tax authorities related to uncertain tax positions. These reserves are based on a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. Differences between estimates and final settlement may occur resulting in additional tax expense.

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Recently issued accounting pronouncements

We have reviewed all recently issued standards and have determined that such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.

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Results of operations

A discussion regarding our results of operations for the year ended December 31, 2021 compared to 2020 is presented below. A discussion regarding our results of operations for the year ended December 31, 2020 compared to 2019 can be found under Part II -Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (SEC) on February 26, 2021.

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

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Revenue

Total revenue increased by $17.7 billion in 2021, primarily due to increases in product sales. Product sales increased by $17.5 billion in 2021 from sales of our COVID-19 vaccine to domestic and international government customers and international purchasing organizations, such as Gavi (on behalf of the COVAX Facility) and the African Union, subsequent to the authorization by the FDA and Health Canada for emergency use in December 2020. Grant revenue increased by $206 million, or 39%, in 2021, mainly due to an increase in grant revenue from BARDA related to our COVID-19 vaccine development in 2021.

Operating expenses

Cost of sales

We began capitalizing our COVID-19 vaccine inventory costs in December 2020, in connection with an Emergency Use Authorization from the FDA and an Interim Order from Health Canada for use of our COVID-19 vaccine, and based upon our expectation that these costs would be recoverable through commercialization of mRNA-1273. Prior to the capitalization of our COVID-19 vaccine inventory costs, costs related to our pre-launch inventory were recorded as research and development expenses in the period incurred. We expensed $242 million of pre-launch inventory costs in 2020.

Our cost of sales was $2.6 billion, or 15% of our product sales, in 2021, including third-party royalties of $641 million. A portion of the inventory costs associated with our product sales for the year ended 2021 was expensed previously. If inventory sold for the year ended 2021 was valued at cost, including what was expensed as pre-launch inventory, our cost of sales for the period would have been $2.8 billion, or 16% of our product sales. We utilized all of our pre-launch inventory during 2021. We expect that our cost of sales as a percentage of product sales will increase in 2022 due to higher manufacturing costs and lower average selling price per dose, driven by the expected increase in deliveries to low income countries.

Research and development expenses

Research and development expenses increased by $621 million, or 45%, in 2021. The increase was primarily attributable to an increase in clinical trial expenses of $721 million, an increase in personnel-related costs of $79 million, and an increase in consulting and outside services of $59 million, partially offset by a decrease in manufacturing expenses of $251 million, attributable to pre-launch inventory expensed in 2020 prior to FDA authorization. The increase in 2021 was largely attributable to the continued clinical development of mRNA-1273. The increase in personnel-related costs was primarily driven by an increase in the number of employees supporting our mRNA-1273 development activities as well as other research and development programs.

We expect that research and development expenses will increase in 2022 as we continue to progress our indication expansion of mRNA-1273, and continue to develop our pipeline and advance our product candidates into later-stage development. In addition, we also expect to incur significant costs related to the development of variant-specific COVID-19 candidates and our next-generation COVID-19 vaccine candidate (mRNA-1283).

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $379 million, or 202%, in 2021. The increase was mainly due to an increase in consulting and outside services of $97 million, an increase in personnel-related costs of $73 million, an increase in marketing expense of $67 million, an increase in distributor fees of $64 million, and an increase in legal, licensing and insurance expenses of $42 million. The increases in personnel-related costs and consulting and outside services were primarily attributable to mRNA-1273 commercialization-related activities and increased headcount.

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

Interest income

Interest income generated from our investments in marketable securities decreased by $7 million, or 28%, in 2021, mainly attributable to an overall lower interest rate.

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Other expense, net

The following table summarizes other expense, net for the periods presented (in millions):

Total other expense, net increased by $23 million, or 383%, in 2021. The increase was primarily due to losses related to remeasurements and our balance sheet hedging activities, partially offset by gains on foreign currency transactions. Our interest expense is primarily related to our finance leases. The increase in interest expense was driven by new finance leases that commenced in 2021. Please refer to Note 11 to our consolidated financial statements.

Provision for income taxes

Provision for income taxes increased by $1.1 billion in 2021, primarily due to an increase in pre-tax income. Our effective tax rate for the year ended December 31, 2021 was 8.1%, which included tax benefits related to the release of the valuation allowance on most of our deferred tax assets, foreign-derived intangible income deduction, and stock-based compensation. Provision for income taxes was immaterial for the year ended December 31, 2020. We expect that our effective tax rate will increase in 2022 as the valuation allowance against our deferred tax assets was mostly released in 2021.

Liquidity and capital resources

Prior to the commercialization of our COVID-19 vaccine, we have historically funded our operations primarily from the sale of equity instruments and from proceeds from certain strategic alliance arrangements and grant agreements. Starting in August 2020, we entered into supply agreements with the U.S. Government, other international governments, Gavi, and the African Union for the supply of our COVID-19 vaccine. Under these agreements, we are entitled to upfront deposits for our COVID-19 vaccine supply, which are initially recorded as deferred revenue and will be recognized as revenue when revenue recognition criteria have been met. As of December 31, 2021, we had $6.7 billion in deferred revenue related to customer deposits received or billable. In addition, we expect to continue to receive funding from our contract with BARDA related to our mRNA-1273 program. As of December 31, 2021, the remaining available funding, net of revenue earned was $189 million.

As of December 31, 2021, we had cash, cash equivalents and investments of $17.6 billion. 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. As of December 31, 2021, we had current and non-current investments of approximately $3.9 billion and $6.8 billion, respectively.

Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes. Unless modified or repealed, and based on current assumptions, the mandatory capitalization would increase our cash tax liabilities.

We continue to work toward the large-scale technical development, manufacturing scale-up in several countries and larger scale deployment of our COVID-19 vaccine. To support the scale-up, we have expended and will need to continue to expend significant resources and capital.

Cash flow

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

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Operating activities

We derive cash flows from operations primarily from cash collected from customer deposits 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. Prior to 2020, we experienced negative cash flows from operating activities as we invested in our mRNA technologies, development pipeline, digital infrastructure, manufacturing technology, and infrastructure.

Net cash provided by operating activities in 2021 was $13.6 billion and consisted of net income of $12.2 billion and non-cash adjustments of $110 million, plus a net change in assets and liabilities of $1.3 billion. Non-cash items primarily included depreciation and amortization of $232 million, stock-based compensation of $142 million, deferred income taxes of $318 million, and amortization of investment premiums and discounts of $54 million. The net change in assets and liabilities was primarily due to an increase in deferred revenue of $2.8 billion, an increase in accrued liabilities of $989 million, an increase in income taxes payable of $876 million, and an increase in accounts payable of $204 million, partially offset by an increase in accounts receivable of $1.8 billion, an increase in inventory of $1.4 billion, and an increase in prepaid expenses and other assets of $489 million.

Net cash provided by operating activities in 2020 was $2.0 billion and consisted of net loss of $747 million less non-cash adjustments of $196 million, plus a net change in assets and liabilities of $2.6 billion. Non-cash items primarily included stock-based compensation of $93 million, leased assets expensed of $62 million, depreciation and amortization of $31 million, and amortization of investment premiums and discounts of $10 million. The net change in assets and liabilities was primarily due to an increase in deferred revenue of $3.8 billion, an increase in accrued liabilities of $388 million, an increase in accounts payable of $12 million, and an increase in operating lease liabilities of $12 million, partially offset by an increase in accounts receivable of $1.4 billion, an increase in prepaid expenses and other assets of $241 million, an increase of inventory of $47 million, and an increase in operating lease right-of-use assets of $11 million.

Net cash used in operating activities in 2019 was $459 million and consisted of net loss of $514 million less non-cash adjustments of $108 million, plus a net change in assets and liabilities of $53 million. Non-cash items primarily included stock-based compensation of $81 million, and depreciation and amortization of $31 million. The net change in assets and liabilities was primarily due to a decrease in deferred revenue of $44 million, and a decrease in accounts payable of $24 million, partially offset by an increase in operating lease liabilities, non-current of $13 million, and a decrease in prepaid expenses and other assets of $10 million.

Investing activities

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

Net cash used in investing activities in 2021 was $8.5 billion, which included purchases of marketable securities of $12.7 billion, purchases of property and equipment of $284 million, and investment in convertible notes of $30 million, partially offset by proceeds from sales of marketable securities of $3.1 billion and proceeds from maturities of marketable securities of $1.3 billion.

Net cash used in investing activities in 2020 was $1.7 billion, which included purchases of marketable securities of $3.0 billion and purchases of property and equipment of $68 million, partially offset by proceeds from maturities of marketable securities of $1.1 billion and proceeds from sales of marketable securities of $215 million.

Net cash used in investing activities in 2019 was $15 million, which included purchases of marketable securities of $1.1 billion and purchases of property and equipment of $32 million, partially offset by proceeds from maturities of marketable securities of $993 million and proceeds from sales of marketable securities of $169 million.

Financing activities

Net cash used in financing activities in 2021 was $873 million, primarily from repurchases of common stock of $857 million and changes in financing lease liabilities of $140 million, partially offset by net proceeds from the issuance of common stock in connection with the exercise of stock options and employee stock purchases under our equity plans of $124 million.

Net cash provided by financing activities in 2020 was $2.0 billion, primarily from net proceeds from equity offerings of $1.9 billion and net proceeds from the issuance of common stock in connection with the exercise of stock options and employee stock purchases under our equity plans of $186 million.

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Net cash provided by financing activities in 2019 was $52 million, primarily from net proceeds from the issuance of common stock in connection with the exercise of stock options and employee stock purchases under our equity plans of $51 million.

Operation and funding requirements

From our inception to the end of 2020, we incurred significant losses from operations due to our significant research and development expenses. We generated net income for the year ended 2021 in connection with product sales following the authorization of our first commercial product. We have retained earnings of $10.0 billion as of December 31, 2021. We have significant future capital requirements including expected operating expenses to conduct research and development activities, operate our organization, meet capital expenditure needs, and fund our share repurchase program. We expect our expenses to increase in connection with our ongoing activities 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 mRNA-1273, including development of any new generations of boosters and vaccines against variants of SARS-CoV-2, and buildout of global commercial, regulatory, sales and marketing infrastructure to support the commercialization of our COVID-19 vaccine will require significant cash outflows during 2022, most of which may not be reimbursed or otherwise paid for by our partners or collaborators. In addition, we have substantial facility, lease and purchase obligations. We have entered into certain collaboration 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 December 31, 2021, will be sufficient to enable us to fund our projected operations, capital expenditures and share repurchases through at least the next 12 months from the issuance of the financial statements included in this Annual Report on Form 10-K. We are subject to all the risks related to the development and commercialization of novel medicines, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors including expenses related to the ongoing COVID-19 pandemic, 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.

If we fail to sustain profitability on a continuing basis, we may be required to finance future cash needs through a combination of public or private equity offerings, structured financings and debt financings, government funding arrangements, potential future strategic alliances from which we receive upfront fees, milestone payments, and other forms of consideration, and marketing, manufacturing, distribution and licensing arrangements. If we are required to finance future cash needs, additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of one or more of our investigational medicines, or slow down or cease work on one or more of our programs. If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise funds through strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or investigational medicines or grant licenses on terms that may not be favorable to us. Any of these events could significantly harm our business, financial condition, and prospects.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of December 31, 2021 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in millions):

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(1)The amounts in the table include a total payment of $637 million associated with our MTC leases for the optional lease extension periods. For accounting purpose, a lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. Please refer to Note 11 to our consolidated financial statements.

(2)We entered into a lease agreement for approximately 462,000 square feet in Cambridge, Massachusetts (Moderna Science Center) and will undergo an approximately two-year building project. Following the building project, the lease term is 15 years, subject to our right to extend the lease for up to two additional seven-year terms. The rent will commence on the Initial Phase Commencement date defined in the lease agreement that is currently estimated to be in July 2023.

(3)The amounts represent non-cancelable fixed payment obligations related to purchases of raw materials, contract manufacturing services, clinical services and other goods or services in the normal course of business.

We have agreements with certain vendors for various services, including services related to clinical operations, and support and contract manufacturing, which we are not contractually able to terminate for convenience. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. At December 31, 2021, we had cancelable open purchase orders of $2.4 billion in total under such agreements for our clinical operations and support and contract manufacturing. These amounts represent only our estimate of those items for which we had a contractual commitment to pay at December 31, 2021, assuming we would not cancel these agreements. The actual amounts we pay in the future to the vendors under such agreements may differ from the cancelable open purchase order amounts of $2.4 billion.

In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business. The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.