Annual Report (10-k)
11 February 2021 - 08:07AM
Edgar (US Regulatory)
false2021-12-312022-12-312023-12-312030-12-312029-12-312008 2009
2010
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an amount less than 0.5 million.Mainly MCPS conversion.Following
the adoption of ASU 2016-01, the Company recorded a $ 5 million
opening balance reclassification from accumulated other
comprehensive income to retained earnings. Mandatory convertible
preferred shares.During the third quarter of 2020, Teva recorded a
gain of $134 million under share in profits of associated
companies, net, reflecting the difference between the book value of
Teva’s investment in American Well and its fair value as of the
date it completed its initial public offering in September 2020.
The investment was reclassified from “investment in associated
companies” to “investment in marketable securities,” since Teva no
longer had significant influence in American Well. This represented
a transfer into Level 3 measurement within fair value hierarchy. By
December 31, 2020, Teva recorded an additional gain of $80 million
under financial expenses, net, reflecting the revaluation gain of
this security as of December 31, 2020 and transferred it to Level 2
measurement within fair value hierarchy due to a change in discount
rate. Due to management’s intention and ability to sell this
security in the next twelve months, the balance as of December 31,
2020 was reclassified to short term investments.Accumulated
goodwill impairment as of December 31, 2020, December 31, 2019 and
December 31, 2018 was approximately $25.6 billion, $21.0 billion
and $21.0 billion, respectively.Contingent consideration represents
liabilities recorded at fair value in connection with
acquisitions.In July 2020, Teva repaid at maturity €1,010 million
of its 0.375% senior notes.In March 2020, Teva repaid at maturity
$700 million of its 2.25% senior notes. Mainly related to the
divestment of several activities in our International Markets
segment. Including $514 million convertible notes. See note
9a.Including impairments related to exit and disposal activities
Includes adjustments for foreign currency translation.In 2020,
Income from investments comprised mainly of revaluation gain of
Teva’s investment in American Well Corporation (“American Well”).
See note 20. In 2018, Other, net comprised mainly of a make-whole
payment of $46 million following early redemption of senior notes
during 2018. In 2020 and 2018, income before income taxes includes
goodwill impairment in non-Israeli subsidiaries that did not have a
corresponding tax effect.The decrease in deferred tax liability is
mainly due to impairment and amortization.The amounts are shown
after reduction for unrecognized tax benefits of $ 63 million and
$115 million as of December 31, 2020 and 2019, respectively. This
amount represents the tax effect of gross carryforward losses and
deductions with the following expirations: 2021-2022—$79 million;
2023-2029—$663 million; 2030 and thereafter—$171 million. The
remaining balance—$1,327 million—can be utilized with no expiration
date.Comparative figures are based on prior hedge accounting
standard.In each of the first and second quarters of 2017, Teva
entered into a cross currency swap agreement with a notional amount
of $500 million maturing in 2020. These cross currency swaps were
designated as a net investment hedge of Teva’s foreign subsidiaries
euro denominated net assets, in order to reduce the risk of adverse
exchange rate fluctuations. With respect to these cross currency
swap agreements, Teva recognized gains which mainly reflect the
differences between the float-for-float interest rates paid and
received. In the first quarter of 2020, these cross-currency swap
agreements expired. The settlement of these transactions resulted
in cash proceeds of $3 million. With respect to cross-currency swap
agreements, Teva recognized gains which mainly reflect the
differences between the fixed interest rate and the floating
interest rate. In the fourth quarter of 2019, Teva terminated $588
million in cross-currency swap agreements against its outstanding
3.65% senior notes maturing in November 2021. The settlement of
these transactions resulted in cash proceeds of $95 million. The
cash flow hedge accounting adjustments of these instruments, which
are recorded under senior notes and loans, are amortized under
financial expenses, net over the life of the debt as additional
interest expense. In the fourth quarter of 2016, Teva entered into
an interest rate swap agreement designated as fair value hedge
relating to its 2.8% senior notes due 2023 with respect to $500
million notional amount of outstanding debt. With respect to this
interest rate swap agreement, Teva recognized a loss which mainly
reflects the differences between the fixed interest rate and the
floating interest rate. In the third quarter of 2019, Teva
terminated this interest rate swap agreement. The settlement of
these transactions resulted in a gain position of $10 million. The
fair value hedge accounting adjustments of these instruments, which
are recorded under senior notes and loans, are amortized under
financial expenses, net over the life of the debt as additional
interest expense. Amounts do not include foreign currency
translation adjustments attributable to non-controlling interests
of $56 million gain in 2020, $14 million gain in 2019 and $26
million gain in 2018. Teva entered into option and forward
contracts designed to limit the exposure of foreign exchange
fluctuations on projected revenues and expenses recorded in euro,
the British pound, the Russian ruble and some other currencies
during the period for which such instruments are transacted. These
derivative instruments do not meet the criteria for hedge
accounting, however, they are accounted for as an economic hedge.
These derivative instruments, which may include hedging
transactions against future projected revenues and expenses, are
recognized on the balance sheet at their fair value on a quarterly
basis, while the foreign exchange impact on the underlying revenues
and expenses may occur in subsequent quarters. Changes in the fair
value of the derivative instruments are recognized in the same line
item in the statements of income as the underlying exposure being
hedged. [The [positive] impact from these derivatives recognized
under revenues was $1 million, $14 million and ($4) million,
partially offset by $0 million, $X million and $X million negative
impact recognized under cost of sales in the years ended December
31, 2020, 2019 and 2018, respectively]. [To be updated] The cash
flows associated with these derivatives are reflected as cash flows
from operating activities in the consolidated statements of cash
flows. Teva uses foreign exchange contracts (mainly option and
forward contracts) to hedge balance sheet items from currency
exposure. These foreign exchange contracts are not designated as
hedging instruments for accounting purposes. In connection with
these foreign exchange contracts, Teva recognizes gains or losses
that offset the revaluation of the balance sheet items also
recorded under financial expenses, net. Section 8 of the Patented
Medicines (Notice of Compliance) Regulation relates to recoveries
of lost revenue related to patent infringement proceedings in
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SECURITIES AND EXCHANGE COMMISSION
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2020
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization)
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5 Basel Street, Petach Tikva, ISRAEL, 4951033
(Address of principal executive offices and Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange on which registered
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American Depositary
Shares, each representing one Ordinary Share
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Securities registered pursuant to Section 12(g) of the
Act:
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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, 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.
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| Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer
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Smaller reporting company |
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Emerging growth company |
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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 has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule
12b-2
of the Exchange
Act). Yes ☐ No ☒
The aggregate market value of the voting common equity held by
non-affiliates
of the registrant, computed by reference to the closing price at
which the American Depositary Shares were last sold on the New York
Stock Exchange, as of the last business day of the registrant’s
most recently completed second fiscal quarter (June 30, 2020), was
approximately $11.83 billion. Teva Pharmaceutical Industries
Limited has no
non-voting
common equity. For purpose of this calculation only, this amount
excludes ordinary shares and American Depositary Shares held by
directors and executive officers and by each person who owns or may
be deemed to own 10% or more of the registrant’s common equity at
June 30, 2020.
As of December 31, 2020, the registrant had 1,096,511,852
ordinary shares outstanding.
Portions of the registrant’s definitive proxy statement for its
annual meeting of shareholders to be filed within 120 days after
the close of the registrant’s fiscal year are incorporated by
reference into Part III of this Annual Report on Form
10-K.
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1
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1
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2
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24
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47
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48
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48
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48
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48
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50
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52
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82
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85
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169
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169
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170
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170
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170
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170
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170
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170
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171
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176
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INTRODUCTION AND USE OF CERTAIN TERMS
Unless otherwise indicated, all references to the “Company,” “we,”
“our” and “Teva” refer to Teva Pharmaceutical Industries Limited
and its subsidiaries, and references to “revenues” refer to net
revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$”
are to the lawful currency of the United States of America, and
references to “NIS” are to new Israeli shekels. References to
“ADS(s)” are to Teva’s American Depositary Share(s). References to
“MS” are to multiple sclerosis. Market data, including both sales
and share data, is based on information provided by IQVIA, a
provider of market research to the pharmaceutical industry, unless
otherwise stated. References to “R&D” are to Research and
Development, references to “IPR&D” are to
in-process
R&D, references to “S&M” are to Selling and Marketing and
references to “G&A” are to General and Administrative. Some
amounts in this report may not add up due to rounding. All
percentages have been calculated using unrounded amounts. This
report on Form
10-K
contains many of the trademarks and trade names used by Teva in the
United States and internationally to distinguish its products and
services. Any third-party trademarks mentioned in this report are
the property of their respective owners.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK
FACTOR SUMMARY
In addition to historical information, this Annual Report on Form
10-K,
and the reports and documents incorporated by reference in this
Annual Report on Form
10-K,
may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which are based
on management’s current beliefs and expectations and are subject to
substantial risks and uncertainties, both known and unknown, that
could cause our future results, performance or achievements to
differ significantly from that expressed or implied by such
forward-looking statements. You can identify these forward-looking
statements by the use of words such as “should,” “expect,”
“anticipate,” “estimate,” “target,” “may,” “project,” “guidance,”
“intend,” “plan,” “believe” and other words and terms of similar
meaning and expression in connection with any discussion of future
operating or financial performance. Important factors that
could cause or contribute to such differences include risks
relating to:
| |
• |
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our ability to successfully compete in the marketplace, including:
that we are substantially dependent on our generic products;
consolidation of our customer base and commercial alliances among
our customers; delays in launches of new generic products; the
increase in the number of competitors targeting generic
opportunities and seeking U.S. market exclusivity for generic
versions of significant products; our ability to develop and
commercialize biopharmaceutical products; competition for our
specialty products, including AUSTEDO
®
, AJOVY
®
and COPAXONE
®
; our ability to achieve expected results from investments in our
product pipeline; our ability to develop and commercialize
additional pharmaceutical products; and the effectiveness of our
patents and other measures to protect our intellectual property
rights;
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our substantial indebtedness, which may limit our ability to incur
additional indebtedness, engage in additional transactions or make
new investments, may result in a further downgrade of our credit
ratings; and our inability to raise debt or borrow funds in amounts
or on terms that are favorable to us;
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our business and operations in general, including: uncertainty
regarding the magnitude, duration, and geographic reach of the
COVID-19
pandemic and its impact on our business, financial condition,
operations, cash flows, and liquidity and on the economy in
general; our ability to successfully execute and maintain the
activities and efforts related to the measures we have taken or may
take in response to the
COVID-19
pandemic and associated costs therewith; effectiveness of our
optimization efforts; our ability to attract, hire and retain
highly skilled personnel; manufacturing or quality control
problems; interruptions in our supply chain; disruptions of
information technology systems; breaches of our data security;
variations in intellectual property laws; challenges associated
with conducting business globally, including political or economic
instability, major hostilities or terrorism; costs and delays
resulting from the extensive pharmaceutical regulation to which we
are subject or delays in governmental processing time due to travel
and work restrictions caused by the
COVID-19
pandemic; |
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the effects of reforms in healthcare regulation and reductions in
pharmaceutical pricing, reimbursement and coverage; significant
sales to a limited number of customers; our ability to successfully
bid for suitable acquisition targets or licensing opportunities, or
to consummate and integrate acquisitions; and our prospects and
opportunities for growth if we sell assets;
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compliance, regulatory and litigation matters, including: failure
to comply with complex legal and regulatory environments; increased
legal and regulatory action in connection with public concern over
the abuse of opioid medications and our ability to reach a final
resolution of the remaining opioid-related litigation; scrutiny
from competition and pricing authorities around the world,
including our ability to successfully defend against the U.S.
Department of Justice (“DOJ”) criminal charges of Sherman Act
violations; potential liability for patent infringement; product
liability claims; failure to comply with complex Medicare and
Medicaid reporting and payment obligations; compliance with
anti-corruption sanctions and trade control laws; and environmental
risks;
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• |
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other financial and economic risks, including: our exposure to
currency fluctuations and restrictions as well as credit risks;
potential impairments of our intangible assets; potential
significant increases in tax liabilities; and the effect on our
overall effective tax rate of the termination or expiration of
governmental programs or tax benefits, or of a change in our
business;
|
and other factors discussed in this Annual Report on Form
10-K,
including in the sections captioned “Risk Factors.” Forward-looking
statements speak only as of the date on which they are made, and we
assume no obligation to update or revise any forward-looking
statements or other information contained herein, whether as a
result of new information, future events or otherwise. You are
cautioned not to put undue reliance on these forward-looking
statements.
We are a global pharmaceutical company, committed to helping
patients around the world to access affordable medicines and
benefit from innovations to improve their health. Our mission is to
be a global leader in generics, specialty medicines and
biopharmaceuticals, improving the lives of patients.
We operate worldwide, with headquarters in Israel and a significant
presence in the United States, Europe and many other markets around
the world. Our key strengths include our world-leading generic
medicines expertise and portfolio, focused specialty medicines
portfolio and global infrastructure and scale.
Teva was incorporated in Israel on February 13, 1944 and is
the successor to a number of Israeli corporations, the oldest of
which was established in 1901.
We operate our business through three segments: North America,
Europe and International Markets. Each business segment manages our
entire product portfolio in its region, including generics,
specialty and
(“OTC”) products. This structure enables strong alignment and
integration between operations, commercial regions, R&D and our
global marketing and portfolio function, optimizing our product
lifecycle across therapeutic areas.
In addition to these three segments, we have other activities,
primarily the sale of active pharmaceutical ingredients (“API”) to
third parties, certain contract manufacturing services and an
out-licensing
platform offering a portfolio of products to other pharmaceutical
companies through our affiliate Medis.
For information regarding our major customers, see note 19 to our
consolidated financial statements.
Below is an overview of our three business segments.
Our North America segment includes the United States and
Canada.
We are the leading generic pharmaceutical company in the United
States. We market over 500 generic prescription products in more
than 1,500 dosage strengths, packaging sizes and forms, including
oral solid dosage forms, injectable products, inhaled products,
liquids, ointments and creams. Most of our generic sales in the
United States are made to retail drug chains, mail order
distributors and wholesalers.
Our wholesale and retail selling efforts are supported by
participation in key pharmaceutical conferences as well as focused
advertising in professional journals and on leading pharmacy
websites. We continue to strengthen consumer awareness of the
benefits of generic medicines through partnerships and digital
marketing programs.
Our specialty portfolio in North America focuses on three main
areas: central nervous system (“CNS”) and pain, respiratory and
oncology.
Our CNS portfolio includes AJOVY
®
for the preventive treatment of migraine in adults, AUSTEDO
®
for the treatment of neurodegenerative and movement disorders –
chorea associated with Huntington disease and tardive dyskinesia
and COPAXONE
®
, which is still among the leading products for the treatment of
multiple sclerosis (“MS”) in North America since it launched nearly
25 years ago.
We are committed to maintaining a leading presence in the
respiratory market by delivering a range of medicines for the
treatment of asthma and chronic obstructive pulmonary disease
(“COPD”), including ProAir
®
, QVAR
®
and our newly launched digital inhaler portfolio.
We maintain a meaningful presence in oncology medicines, including
both specialty and generic medicines (including biosimilars). In
2019, we launched TRUXIMA
®
, our first oncology biosimilar product in the United States.
BENDEKA
®
is a liquid,
low-volume
(50 mL) and short-time
10-minute
infusion formulation of bendamustine hydrochloride that we licensed
from Eagle Pharmaceuticals, Inc. (“Eagle”).
Anda, our distribution business in the United States, distributes
generic, specialty and OTC pharmaceutical products from various
third party manufacturers to independent retail pharmacies,
pharmacy retail chains, hospitals and physician offices in the
United States. Anda is able to compete in the secondary
distribution market by maintaining high inventory levels for a
broad offering of products, competitive pricing and offering next
day delivery throughout the United States.
Our Europe segment includes the European Union and certain other
European countries.
We are the leading generic pharmaceutical company in Europe. We are
among the top three generic pharmaceutical companies in a number of
European Union markets, including some of the largest markets in
the European Union. No single country in Europe represents more
than 25% of our total European generic revenues, and therefore we
are not highly dependent on any single country that could be
affected by pricing reforms or changes in regulations and public
policy.
Despite their diversity and highly fragmented nature, the European
markets share many characteristics that allow us to leverage our
pan-European
presence and broad portfolio. Global customers are important
partners in
our generic business and are expanding across Europe, although
customer consolidation is lower than in the United States. We are
one of a few generic pharmaceutical companies with a
pan-European
footprint. Most competitors focus on a select few markets or
business lines.
Our OTC portfolio in Europe includes global brands such as SUDOCREM
®
as well as local and regional brands such as NasenDuo
®
in Germany and Flegamina
®
in Poland.
Our specialty portfolio in Europe focuses on three main areas: CNS
and pain (including migraine), respiratory and oncology. Our
leading product, COPAXONE, continues to be among the leading
products for the treatment of MS, though new treatments are being
introduced to various markets in the European Union. AJOVY was
granted EU marketing authorization in 2019 and, as of
December 31, 2020, we have launched AJOVY in most European
countries.
Our International Markets segment includes all countries in which
we operate other than those in our North America and Europe
segments. These markets comprise more than 35 countries, covering a
substantial portion of the global pharmaceutical market.
Our key international markets are Japan, Russia and Israel. In
Japan, we operate a majority of our business through a business
venture with Takeda Pharmaceutical Companies Limited (“Takeda”), in
which we own a 51% stake and Takeda owns the remaining 49%. On
February 1, 2021, we completed the sale of the majority of the
generic and operational assets of our business venture in Japan.
Countries in our International Markets segment include highly
regulated, pure generic markets, such as Israel, branded generics
oriented markets, such as Russia and certain Latin America markets,
and hybrid markets, such as Japan. Each market’s strategy is built
upon differentiation and filling the unmet needs of that market.
Our integrated sales force enables us to extract synergies across
our branded generic, OTC and specialty medicines product offerings
and across various channels (e.g., retail, institutional).
Our specialty portfolio in our International Markets segment
focuses on three main areas: CNS and pain, respiratory and
oncology.
Our Product Portfolio and Business Offering
Our product and service portfolio includes generic medicines,
biopharmaceuticals, specialty medicines, OTC products, a
distribution business, API and contract manufacturing. Each region
manages the entire range of products and services offered in its
region and our global marketing and portfolio function optimizes
our pipeline and product lifecycle across therapeutic areas. In
most markets in which we operate, we use an integrated and
comprehensive marketing model, offering a broad portfolio of
products, including specialty, generic and OTC products.
Generic medicines are the chemical and therapeutic equivalents of
originator medicines and are typically more affordable in
comparison to the originator’s products. Generics are required to
meet similar governmental requirements as their brand-name
equivalents, such as those relating to manufacturing processes and
health authorities’ inspections, and must receive regulatory
approval prior to their sale in any given country. Generic
medicines may be manufactured and marketed if relevant patents on
their brand-name equivalents (and any additional
government-mandated market exclusivity periods) have expired or
have been challenged or otherwise circumvented.
We develop, manufacture and sell generic medicines in a variety of
dosage forms, including tablets, capsules, injectables, inhalants,
liquids, ointments and creams. We offer a broad range of basic
chemical entities,
as well as specialized product families, such as sterile products,
hormones, high-potency drugs and cytotoxic substances, in both
parenteral and solid dosage forms.
Our generics business has a wide-reaching commercial presence. We
are the leading generic pharmaceutical company in the United States
and have a top three leadership position in many countries,
including some of the key European markets. We have a robust
product portfolio, comprehensive R&D capabilities and product
pipeline and a global operational network, which enables us to
execute key generic launches to further expand our product pipeline
and diversify our revenue stream. We use these capabilities to help
overcome price erosion in our generics business.
When considering whether to develop a generic medicine, we take
into account a number of factors, including our overall strategy,
regional and local patient and customer needs, R&D and
manufacturing capabilities, regulatory considerations, commercial
factors and the intellectual property landscape. We will challenge
patents when appropriate if we believe they are either invalid or
would not be infringed by our generic version. We may seek
alliances to acquire rights to products we do not have in our
portfolio, to share development costs or litigation risks, or to
resolve patent and regulatory barriers to entry.
Between 2017 and 2019, we substantially optimized our global
generics portfolio, particularly in the United States, through
product discontinuation and price adjustments, with a focus on
increasing profitability. This resulted in the restructuring and
optimization of our manufacturing and supply network, including the
closure or divestment of a significant number of manufacturing
plants around the world. We are continuing our ongoing efforts to
consolidate our manufacturing and supply network.
In markets such as the United States, the United Kingdom, Canada,
the Netherlands and Israel, generic medicines may be substituted by
the pharmacist for their brand name equivalent or prescribed by
International Nonproprietary Name (“INN”). In these
so-called
“pure generic” markets, physicians and patients have little control
over the choice of generic manufacturer, and consequently generic
medicines are not actively marketed or promoted to physicians or
consumers. Instead, the relationship between the manufacturer and
pharmacy chains and distributors, health funds and other health
insurers is critical. Many of these markets have automatic
substitution models when generics are available as alternatives to
brands. In Russia, Turkey, Ukraine, Kazakhstan and certain Latin
American and European countries, generic medicines are generally
sold under brand names alongside the originator brand. These
markets are referred to as “branded generic” markets and are
generally “out of pocket” markets in which consumers can pay for a
particular branded generic medicine (as opposed to government or
privately funded medical health insurance), often at the
recommendation of their physician. Branded generic products are
actively promoted and a sales force is necessary to create and
maintain brand awareness. Other markets, such as Germany, Japan,
France, Italy and Spain, are hybrid markets with elements of both
approaches.
Our position in the generics market is supported by our global
R&D function, as well as our API R&D and manufacturing
activities, which provide significant vertical integration for our
products.
For information about our product launches and pipeline of generic
medicines in North America and Europe, see “Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Segment Information—North America Segment” and “Item
7—Management’s Discussions and Analysis of Financial Condition and
Results of Operations—Segment Information—Europe Segment.”
Biologic medicines are large and complex medicines produced by or
made from living cells or organisms, often produced using
cutting-edge biotechnological methods. Biosimilars are highly
similar to the reference biologic, in both structure and function
(e.g., pharmacodynamics, pharmacokinetics, safety, efficacy and
immunogenicity) and, for any approved uses, have no clinically
meaningful differences from the reference product in terms of
safety, purity, and potency.
In November 2019 and February 2020, we launched TRUXIMA
®
(rituximab-abbs), a biosimilar to Rituxan
®
(rituximab), in the United States and in Canada, respectively. It
is our first oncology biosimilar product in the United States and
is the first rituximab biosimilar to be approved in the United
States.
In January 2020 and March 2020, we launched HERZUMA
®
(trastuzumab-pkrb), a biosimilar to Herceptin
®
(trastuzumab), in Canada and the United States, respectively.
In November 2020, a Biologics License Application (“BLA”) was
accepted for review by the FDA and a Marketing Authorization
Application was accepted for review by the European Medicines
Agency (“EMA”) for a proposed biosimilar to Humira
®
(adalimumab) that is under development by Alvotech. For further
information regarding our partnership with Alvotech, see “Item
7—Management’s Discussion and Analysis of Financial Condition and
Results of Operations— Alvotech Partnership.”
We have additional biosimilar products in development in various
stages of clinical trials and regulatory review.
Our specialty medicines business, which is focused on delivering
innovative solutions to patients and providers via medicines,
devices and services in key regions and markets around the world,
includes our core therapeutic areas of CNS (with a strong emphasis
on MS, neurodegenerative disorders, neuropsychiatry, movement
disorders and pain care including migraine) and respiratory
medicines (with a focus on asthma and COPD). We also have specialty
products in oncology and selected other areas.
We deploy medical and sales and marketing professionals within
specific therapeutic areas who seek to address the needs of
patients and healthcare professionals. We tailor our patient
support, payer relations and medical affairs activities to the
distinct characteristics of each therapeutic area and
medicine.
The U.S. market is the most significant market in our specialty
business. In Europe and International Markets, we leverage existing
synergies between our specialty business and our generics and OTC
businesses. Our specialty presence in International Markets is
mainly built on our CNS, pain, respiratory and oncology
medicines.
We have built specialized “Patient Support Programs” to help
patients adhere to their treatments, improve patient outcomes and,
in certain markets, to ensure timely delivery of medicines and
assist in securing reimbursement. These programs reflect the
importance we place on supporting patients and ensuring better
medical outcomes for them. Patient Support Programs are currently
operated in many countries around the world in multiple therapeutic
areas. We believe that it is important to provide a range of
services and solutions tailored to meet the needs of patients
according to their specific condition and local market
requirements. We believe this capability provides an important
competitive advantage in the specialty medicines market.
Below is a description of our key specialty products:
CNS (including
Movement Disorders, Pain and Migraine)
Our
portfolio includes AUSTEDO for the treatment of tardive dyskinesia
and chorea associated with Huntington disease, AJOVY for the
preventive treatment of migraine and COPAXONE for the treatment of
relapsing forms of MS.
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AUSTEDO (deutetrabenazine) is a deuterated form of a small molecule
inhibitor of vesicular monoamine 2 transporter, or VMAT2, that is
designed to regulate the levels of a specific
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neurotransmitter, dopamine, in the brain. The FDA granted
Deutetrabenazine New Chemical Entity exclusivity until April 2022
and Orphan Drug exclusivity for the treatment of chorea associated
with Huntington disease until April 2024.
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AUSTEDO was launched in the U.S. in 2017. It is indicated for the
treatment of chorea associated with Huntington disease and for the
treatment of tardive dyskinesia in adults, which is a debilitating,
often irreversible movement disorder caused by certain medications
used to treat mental health or gastrointestinal conditions.
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AUSTEDO launched in China for the treatment of chorea associated
with Huntington disease and for the treatment of tardive dyskinesia
in early 2021. We continue with additional submissions in various
other countries around the world.
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AUSTEDO is protected in the United States by five Orange Book
patents expiring between 2031 and 2033 and in Europe by two patents
expiring in 2029. The first date for expected generic ANDA filings
on AUSTEDO is in April 2021.
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AJOVY (fremanezumab-vfrm) injection is a fully humanized monoclonal
antibody that binds to calcitonin gene-related peptide (“CGRP”) and
it is indicated for the preventive treatment of migraine in adults.
AJOVY was launched in the U.S. in 2018. AJOVY was approved in
Canada in April 2020.
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During 2019, AJOVY was granted a marketing authorization in the
European Union by the EMA in a centralized process and began
receiving marketing authorizations in various countries in our
International Markets segment. By the end of 2020, we launched
AJOVY in most European countries and in certain International
Markets countries. We are moving forward with plans to launch in
other countries around the world.
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On January 27, 2020, the FDA approved an auto-injector device
for AJOVY in the U.S., which became commercially available in April
2020. We have also received approval from the EMA for AJOVY’s
auto-injector submission in the EU in October 2019, and we
commenced launch in March 2020.
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AJOVY is protected by patents expiring in 2026 in Europe and in
2027 in the United States. Applications for patent term extensions
have been submitted in various markets around the world, and
certain extensions in Europe and other countries have already been
granted until 2031. Additional patents relating to the use of AJOVY
in the treatment of migraine have also been issued in the United
States and will expire in 2035 and 2037. Such patents are also
pending in other countries. AJOVY will also be protected by
regulatory exclusivity of 12 years from marketing approval in the
United States and 10 years from marketing approval in Europe.
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We have filed a lawsuit in the U.S. District Court for the District
of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”)
marketing and sale of its galcanezumab product for the treatment of
migraine infringes nine Teva patents. Lilly then submitted IPR
(inter partes review) petitions to the Patent Trial and Appeal
Board, challenging the validity of the nine patents asserted
against it in the litigation. The litigation in the district court
was stayed pending resolution of the IPR petitions. On
February 18, 2020, the Patent Trial and Appeal Board issued
decisions on the first six IPRs, finding the six composition of
matter patents invalid as being obvious. On April 21, 2020, we
filed notices of appeal in connection with these decisions. On
March 31, 2020 the Patent Trial and Appeal Board issued a
decision upholding the three method of treatment patents and, on
June 1, 2020, Lilly filed notices of appeal in connection with
the decisions on these three patents. The litigation stay ended
following the issuance of the most recent IPR decisions, and the
parties are proceeding with the litigation. In addition, in 2018 we
entered into separate agreements with Alder Biopharmaceuticals,
Inc. and Lilly, resolving the European Patent Office oppositions
that they filed against our AJOVY patents. The settlement agreement
with Lilly also resolved Lilly’s action to revoke the patent
protecting AJOVY in the United Kingdom.
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COPAXONE (glatiramer acetate injection) is one of the leading MS
therapies in the United States (according to IQVIA data as of late
2020). COPAXONE is indicated for the treatment of patients with
relapsing forms of MS (“RMS”), including the reduction of the
frequency of relapses in relapsing-remitting multiple sclerosis
(“RRMS”), including in patients who have experienced a first
clinical episode and have MRI features consistent with MS.
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COPAXONE is believed to have a unique mechanism of action that
works with the immune system, unlike many therapies that are
believed to rely on general immune suppression or cell
sequestration to exert their effect. COPAXONE provides a proven mix
of efficacy, safety and tolerability.
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One European patent protecting COPAXONE 40 mg/mL was found invalid
by the Board of Appeal of the European Patent Office in September
2020. Two additional patents expiring in 2030 are currently under
opposition at the European Patent Office. In certain countries,
Teva remains in litigation against generic companies on an
additional COPAXONE 40 mg/mL patent that expires in 2030.
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The market for MS treatments continues to develop, particularly
with the approval of generic versions of COPAXONE. Oral treatments
for MS, such as Tecfidera
®
, Gilenya
®
and Aubagio
®
, continue to present significant and increasing competition.
COPAXONE also continues to face competition from existing
injectable products, as well as from monoclonal antibodies, such as
Ocrevus
®
.
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Our specialty
portfolio includes BENDEKA / TREANDA
®
, GRANIX
®
and TRISENOX
®
in the United States and LONQUEX
®
, TEVAGRASTIM
®
/RATIOGRASTIM
®
and TRISENOX
®
outside the United States.
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BENDEKA (bendamustine hydrochloride) injection and TREANDA
(bendamustine hydrochloride) for injection are approved in the
United States for the treatment of patients with Chronic
Lymphocytic Leukemia (“CLL”) and patients with indolent
B-cell
Non-Hodgkin’s Lymphoma (“NHL”) that has progressed during or within
six months of treatment with rituximab or a rituximab-containing
regimen. We launched BENDEKA in the United States in January 2016.
It is a liquid,
low-volume
(50 mL) and short-time
10-minute
infusion formulation of bendamustine hydrochloride that we licensed
from Eagle. |
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BENDEKA faces direct competition from Belrapzo
®
(a
bendamustine hydrochloride product from Eagle). Other competitors
to BENDEKA include combination therapies such as
R-CHOP
(a combination of cyclophosphamide, vincristine, doxorubicin and
prednisone in combination with rituximab) and
CVP-R
(a combination of cyclophosphamide, vincristine and prednisolone in
combination with rituximab) for the treatment of NHL, as well as a
combination of fludarabine, doxorubicin and rituximab for the
treatment of CLL and newer targeted oral therapies, such as
ibrutinib, idelilisib and venetoclax. |
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In July 2018, Eagle prevailed in its suit against the FDA to obtain
seven years of orphan drug exclusivity in the United States for
BENDEKA. On March 13, 2020, this decision was upheld in the
appellate court. As things currently stand, drug applications
referencing BENDEKA, TREANDA or any other bendamustine product will
not be approved by the FDA until the orphan drug exclusivity
expires in December 2022. In April 2019, we signed an amendment to
the license agreement with Eagle extending the royalty term
applicable to the United States to the full period for which we
sell BENDEKA and increased the royalty rate. In consideration,
Eagle agreed to assume a portion of BENDEKA-related patent
litigation expenses.
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There are 15 patents listed in the U.S. Orange Book for BENDEKA
with expiry dates in 2026 and 2031. In September 2019, a patent
infringement action against four of six ANDA filers for generic
versions of BENDEKA was tried in the United States District Court
for the District of Delaware. On April 27, 2020, the District
Court upheld the validity of all of the asserted patents and found
that all four ANDA filers infringe at least one of the patents.
Three of the four ANDA filers have appealed the district court
decision, but barring an adverse appellate decision, these ANDA
filers should be enjoined until the patents expire in 2031. The
litigation against the fifth ANDA filer was dismissed after the
withdrawal of its patent challenge, and the case against the sixth
ANDA filer is in the early stages of litigation.
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Additionally, in July 2018, Teva and Eagle filed suit against
Hospira, Inc. (“Hospira”) related to its 505(b)(2) new drug
application (“NDA”) referencing BENDEKA in the U.S. District Court
for the District of Delaware. On December 16, 2019, the
Delaware District Court dismissed the case against Hospira on all
but one of the asserted patents, which expires in 2031. Trial
against Hospira on that patent is scheduled to begin on
November 15, 2021.
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In addition to the settlement with Eagle regarding its bendamustine
505(b)(2) NDA, between 2015 and 2020, we reached final settlements
with 22 ANDA filers for generic versions of the lyophilized form of
TREANDA and one 505(b)(2) NDA filer for a generic version of the
liquid form of TREANDA, providing for the launch of generic
versions of TREANDA prior to patent expiration.
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Our
portfolio includes our legacy products, ProAir and QVAR, as well as
our new digital inhalers with
built-in
sensors: ProAir
®
Digihaler
®
, AirDuo
®
Digihaler
®
and ArmonAir
®
Digihaler
®
. Our portfolio also includes BRALTUS
®
, CINQAIR
®
/CINQAERO
®
, DuoResp
®
Spiromax
®
and AirDuo
®
RespiClick
®
/ ArmonAir
®
RespiClick
®
.
We are committed to maintaining a leading presence in the
respiratory market by delivering a range of medicines for the
treatment of asthma and COPD. Our portfolio is centered on
optimizing respiratory treatment for patients and healthcare
providers through the development and commercialization of
innovative delivery systems and therapies that help address unmet
needs.
The key areas of focus for our respiratory R&D is the
development of differentiated respiratory therapies for patients
using innovative delivery systems to deliver chemical and
biological therapies. Our device strategy is intended to result in
“device consistency,” allowing physicians to choose the device that
best matches a patient’s needs both in terms of ease of use and
effectiveness of delivery of the prescribed molecule, and includes
three main types of devices: (i) Digihaler, which captures and
shares objective inhaler use data; (ii) a breath-actuated
inhaler (“BAI”) used in QVAR RediHaler
®
; and (iii) RespiClick (U.S.) or Spiromax (EU), a novel
inhalation-driven multi-dose dry powder inhaler (“MDPI”).
Our legacy products include ProAir and QVAR:
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(albuterol sulfate) is an inhalation aerosol with dose counter and
is indicated for patients four years of age and older for the
treatment or prevention of bronchospasm with reversible obstructive
airway disease and for the prevention of exercise-induced
bronchospasm. ProAir HFA is among the leading quick relief inhalers
in the United States. In January 2019, we launched our own ProAir
authorized generic in the United States following the launch of a
generic version of Ventolin
®
HFA, another albuterol inhaler. Generic versions of ProAir were
launched in 2020.
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(albuterol sulfate) inhalation powder is a breath-actuated,
multi-dose,
dry-powder,
short-acting beta-agonist inhaler for the treatment or prevention
of bronchospasm with reversible obstructive airway disease and for
the prevention of exercise-induced bronchospasm in patients four
years of age and older.
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(beclomethasone dipropionate HFA) is indicated as a maintenance
treatment for asthma as a prophylactic therapy in patients five
years of age or older. QVAR is also indicated for asthma patients
who require systemic corticosteroid administration, where adding
QVAR may reduce or eliminate the need for systemic corticosteroids.
Three generic manufacturers have filed ANDAs for the metered-dose
inhaler (“MDI”) presentation of QVAR. We are currently
asserting our patents against two of those ANDA filers in the New
Jersey District Court. No trial date has been set for these pending
lawsuits.
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(beclomethasone dipropionate HFA) inhalation aerosol, a BAI, is
indicated for the maintenance treatment of asthma as a prophylactic
therapy in patients four years of age and older.
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Our Digihaler portfolio consists of ProAir Digihaler, ArmonAir
Digihaler
and AirDuo Digihaler that capture objective inhaler use data that
may help health care professionals and patients make more informed
treatment decisions that may improve health outcomes:
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(albuterol sulfate 117 mcg) inhalation powder was launched in the
U.S. in July 2020. It is the first and only digital rescue inhaler
with
built-in
sensors which connects to a companion mobile application and
provides inhaler use information to people with asthma and
COPD.
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(fluticasone propionate MDPI U.S.) was launched in the U.S. in
September 2020. It is a formulation of long acting inhaled
corticosteroid (“ICS”) using our MDPI device, indicated for
maintenance treatment of asthma as prophylactic therapy in patients
12 years of age and older.
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(fluticasone propionate and salmeterol inhalation powder) was
launched in the U.S. in September 2020. It is the first and only
digital maintenance inhaler with
built-in
sensors which connects to a companion mobile application and
provides inhaler use information to people with asthma.
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Additional products in our respiratory portfolio include:
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(tiotropium bromide) is a long-acting muscarinic antagonist,
indicated for adult patients with COPD, delivered via the Zonda
®
inhaler. It was launched in Europe in August 2016.
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(reslizumab) injection is a humanized
interleukin-5
antagonist monoclonal antibody for
add-on
maintenance treatment of adult patients with severe asthma and with
an eosinophilic phenotype. This biologic treatment was launched in
the U.S. and in certain European countries in 2016 and in Canada in
2017.
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(fluticasone propionate and salmeterol inhalation powder) (and its
authorized generic) is a combination of an inhaled corticosteroid
and a long acting beta-agonist bronchodilator, approved in the
United States for the treatment of asthma in patients aged 12 years
and older who are uncontrolled on an ICS or whose disease severity
clearly warrants the use of an ICS/long-acting beta2-adrenergic
agonist combination.
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Below is a description of key products in our specialty
pipeline:
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Dyskinesia in Cerebral Palsy
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(budesonide and formoterol fumarate dihydrate)
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(beclomethasone dipropionate HFA)
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(1) |
Developed in collaboration with Regeneron Pharmaceuticals, Inc.
(“Regeneron”). Results for two phase 3 clinical trials, FACT OA1
and FACT OA2, were released on August 5, 2020, indicating that
the
co-primary
endpoints for fasinumab 1 mg monthly were achieved. Fasinumab 1 mg
monthly demonstrated significant improvements in pain and physical
function over placebo at week 16 and week 24, respectively.
Fasinumab 1 mg monthly also showed nominally significant benefits
in physical function in two trials and pain in one trial, when
compared to the maximum
FDA-approved
prescription doses of
non-steroidal
anti-inflammatory drugs for osteoarthritis. The FACT OA1 trial
included an additional treatment arm, fasinumab 1 mg every two
months, which showed numerical benefit over placebo, but did not
reach statistical significance. In initial safety analyses from the
phase 3 trials, there was an increase in arthropathies reported
with fasinumab. In a
sub-group
of patients from one phase 3 long-term safety trial, there was an
increase in joint replacement with fasinumab 1 mg monthly treatment
during the
off-drug
follow-up
period, although this increase was not seen in the other trials to
date. |
Active treatment of patients with fasinumab, which only involved
dosing in an optional second-year extension phase of one trial, has
been discontinued following a recommendation from the fasinumab
program’s Independent Data Monitoring Committee that the program
should be terminated, based on available evidence obtained to date.
The core efficacy data has already been obtained to support
potential fasinumab regulatory filings. Long-term safety data
continues to be gathered, and is expected to be reported in 2021,
along with a decision on the program.
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(2) |
In January 2021, we announced positive results for a phase 3
clinical trial designed to evaluate the efficacy of risperidone
LAI. No new safety signals were identified that are inconsistent
with the known safety profile of other risperidone formulations.
The second phase 3 study evaluating long-term safety and
tolerability is ongoing.
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During 2020, development of the following projects was
discontinued:
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AUSTEDO for the treatment of Tourette syndrome in pediatric
patients in the U.S., which was being developed under a partnership
agreement with Nuvelution Pharma, Inc.; and
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fremanezumab (anti CGRP) for post-traumatic headache.
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We have other sources of revenues, primarily the sale of APIs to
third parties, certain contract manufacturing services and an
out-licensing
platform offering a portfolio of products to other pharmaceutical
companies through our affiliate Medis.
We produce approximately 350 APIs for our own use and for sale to
third parties in many therapeutic areas. APIs used in
pharmaceutical products are subject to regulatory oversight by
health authorities. We utilize a variety of production
technologies, including chemical synthesis, semi-synthetic
fermentation, enzymatic synthesis, high potency manufacturing,
plant extract technology and peptide synthesis. Our advanced
technology and expertise in the field of solid state particle
technology enable us to meet specifications for particle size
distribution, bulk density, specific surface area and polymorphism,
as well as other characteristics.
We provide contract manufacturing services related to products
divested in connection with the sale of certain business lines, as
well as other miscellaneous items. Our other activities are not
included in our North America, Europe and International Markets
segments described above.
Our R&D activities span the breadth of our business, including
generic medicines (finished goods and API), biosimilars, specialty
medicines and OTC medicines.
All of our R&D activities are concentrated under one global
group with overall responsibility for generics, biosimilars and
specialty, enabling better focus and efficiency.
A strong focus for Teva is the development of new generic
medicines. We develop generic products for our North America,
Europe and International Markets segments. Our focus is on
developing complex formulations with complex technologies, which
have higher barriers to entry. Generic R&D activities, which
are carried out in development centers located around the world,
include product formulation, analytical method development,
stability testing, management of bioequivalence,
bio-analytical
studies, other clinical studies and registration of generic drugs
in all of the markets where we operate. We also operate several
clinics where most of our bioequivalent studies are performed as
well as most of our phase 1 studies for specialty and biosimilar
products. We have more than 1,160 generic products in our
pre-approved
global pipeline, which includes products in all stages of the
approval process:
pre-submission,
post-submission and after tentative approval.
In addition, our generic R&D supports our OTC business in
developing OTC products, as well as in overseeing the work
performed by contract developers.
Our current R&D capabilities include solid oral dosage forms
(such as tablets and capsules), inhalation, semi-solid and liquid
formulations (such as ointments and creams), sterile formulations
and other dosage forms, and delivery systems, such as matrix
systems, special coating systems for sustained release products,
orally disintegrating systems, sterile systems, such as vials,
syringes, blow-fill-seal systems, long-acting release injectable,
transdermal patches, oral thin film, drug device combinations and
nasal delivery systems. In addition, we are in the process of
developing multiple
AB-rated
respiratory programs and devices for our long active injectable
pipeline.
We pursue biosimilar pipeline projects in other therapeutic and
disease areas that leverage our global R&D and commercial areas
of expertise. Biosimilar development activities, such as analytical
method development, testing for analytical biosimilarity,
pre-clinical
work, clinical studies and regulatory strategy, are conducted in
Teva’s various global development sites.
Our specialty R&D product pipeline is focused on biologic and
select small molecule products. Specialty development activities
include preclinical assessment (including toxicology,
pharmacokinetics, pharmacodynamics and pharmacology studies),
clinical development (including pharmacology and the design,
execution and analysis of global safety and efficacy trials), as
well as regulatory strategy to deliver registration of our pipeline
products. We develop novel specialty products in our core
therapeutic and disease focus areas. We have CNS projects in areas
such as migraine, pain, movement disorders/neurodegeneration and
neuropsychiatry. Our respiratory projects are focused on asthma and
COPD and include both novel compounds and delivery systems designed
to address unmet patient needs.
Our API R&D division focuses on the development of processes
for the manufacturing of APIs, including intermediates, chemicals
and fermentation products, for both our generic and proprietary
drugs. Our facilities include two large development centers in
India and Croatia, focusing on synthetic products, and three
centers with specific expertise: a center in Hungary specializing
in fermentation and semi-synthetic products, a center in Israel for
oligonucleotides and a center in the Czech Republic for
high-potency APIs. Our substantial investment in API R&D
generates a steady flow of API products, supporting the timely
introduction of generic products to market in compliance with
increasing regulatory requirements. The API R&D division also
seeks methods to continuously reduce API production costs, enabling
us to improve our cost structure.
While our focus is on internal growth that leverages our R&D
capabilities, we have entered into, and expect to pursue,
in-licensing,
acquisition and partnership opportunities to supplement and expand
our existing specialty and biosimilar pipeline (e.g., the
transactions with Celltrion, Regeneron and Alvotech). In parallel,
we evaluate and expand the development scope of our existing
R&D pipeline products as well as our existing products for
submission in additional markets.
We operate our business globally and believe that our global
infrastructure provides us with the following capabilities and
advantages:
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global R&D facilities that enable us to have a broad global
generic pipeline and product line, as well as a focused pipeline of
specialty products;
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pharmaceutical manufacturing facilities approved by the FDA, EMA
and other regulatory authorities located around the world, which
offer a broad range of production technologies and the ability to
concentrate production in order to achieve high quality and
economies of scale;
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API manufacturing capabilities that offer a stable, high-quality
supply of key APIs, vertically integrated with our pharmaceutical
operations; and
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high-volume, technologically advanced distribution facilities that
allow us to deliver new products to our customers quickly and
efficiently, providing a cost-effective, safe and reliable
supply.
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These capabilities provide us with the means to respond on a global
scale to a wide range of therapeutic and commercial requirements of
patients, customers and healthcare providers.
Pharmaceutical
Production
We operate 46 finished dosage and packaging pharmaceutical plants
in 22 countries. These plants manufacture solid dosage forms,
sterile injectables, liquids, semi-solids, inhalers, transdermal
patches and other medical devices. In 2020, we produced
approximately 68 billion tablets and capsules and
approximately 646 million sterile units.
Our primary manufacturing technologies, solid dosage forms,
injectable and blow-fill-seal, are available in North America,
Europe, Latin America, India and Israel. The manufacturing sites
located in Israel, Germany, Hungary, Croatia, Bulgaria, India,
Spain, Poland and the Czech Republic make up the majority of our
production capacity.
We use several external contract manufacturers to achieve
operational and cost benefits. We continue to strengthen our third
party operations unit to strategically work with our supplier base
in order to meet cost, supply security and quality targets on a
sustainable basis in alignment with our global procurement
organization.
Our policy is to maintain multiple supply sources for APIs to
appropriately mitigate risk in our supply chain to the extent
possible. However, our ability to do so may be limited by
regulatory and other requirements.
Between 2017 and 2019, we closed or divested a significant number
of manufacturing plants in the United States, Europe, Israel and
Japan in connection with a restructuring plan. We are continuing
our ongoing efforts to consolidate our manufacturing and supply
network.
Raw Materials for
Pharmaceutical Production
In general, we purchase our raw materials and supplies required for
the production of our products in the open market. For some
products, we purchase such raw materials and supplies from one
source (the only source available to us) or a single source (the
only approved source among many available to us), thereby requiring
us to obtain such raw materials and supplies from that particular
source. We attempt, if possible, to mitigate our raw material
supply risks through inventory management and alternative sourcing
strategies.
We source a large portion of our APIs from our own manufacturing
facilities. Additional APIs are purchased from suppliers located in
Europe, Asia and the United States. We have implemented a supplier
audit program to ensure that our suppliers meet our high standards
and are able to fulfill the requirements of our global
operations.
We currently have 15 API production facilities, producing
approximately 350 APIs in various therapeutic areas. Our API
intellectual property portfolio includes hundreds of granted
patents and pending applications worldwide.
We have expertise in a variety of production technologies,
including chemical synthesis, semi-synthetic fermentation,
enzymatic synthesis, high-potency manufacturing, plant extract
technology, peptides synthesis, vitamin D derivatives synthesis and
prostaglandins synthesis. Our advanced technology and expertise in
the field of solid state particle technology enable us to meet
specifications for particle size distribution, bulk density,
specific surface area and polymorphism, as well as other
characteristics.
Our API facilities are required to comply with applicable current
Good Manufacturing Practices (“cGMP”) requirements under U.S.,
European, Japanese and other applicable quality standards. Our API
plants are regularly inspected by the FDA, European agencies and
other authorities, as applicable.
Patents and Other Intellectual Property Rights
We rely on a combination of patents, trademarks, copyrights, trade
secrets and other proprietary
know-how
and regulatory exclusivities, as well as contractual protections,
to establish and protect our intellectual property rights. We own
or license numerous patents covering our products in the United
States and other countries. We have also developed many brand names
and own many trademarks covering our products. We consider the
overall protection of our intellectual property rights to be of
material value and act to protect these rights from infringement.
We license or assign certain intellectual property rights to third
parties in connection with certain business transactions.
Environment, Health and Safety
We are committed to business practices that promote socially and
environmentally responsible economic growth. During 2020, we
continued to make significant progress on our multi-year plan
towards our long-term environment, health and safety (“EHS”) goal
referred to as “Target Zero”: zero incidents, zero injuries and
zero releases. Among other things, in 2020, we:
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continued the implementation of our global EHS management system,
which promotes proactive compliance with applicable EHS
requirements, establishes EHS standards throughout our global
operations and helps drive continuous improvement in our EHS
performance;
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provided EHS regulatory monitoring tools in all countries where we
have significant operations; and
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proactively evaluated EHS compliance through self-evaluation and an
internal and external audit program, addressing
non-conformities
through appropriate corrective and preventative action. |
Please see the section entitled “Environmental Sustainability” from
our Teva 2019 ESG Progress Report (which is located on our website)
for more detailed information regarding our environmental goals.
Nothing on our website, including our 2019 ESG Progress Report or
sections thereof, shall be deemed incorporated by reference into
this Annual Report or any other filing with the Securities and
Exchange Commission.
We are committed not only to complying with quality requirements
but to developing and leveraging quality as a competitive
advantage. In 2020, we successfully completed numerous inspections
by various regulatory agencies of our finished dosage
pharmaceutical and API plants and we actively engaged in
discussions with authorities to mitigate drug shortages and
participated in several industry-wide task forces. We continue to
focus on maintaining a solid and sustainable quality compliance
foundation, as well as making quality a priority to foster
continuous compliance. We seek to ensure that quality is an
embedded part of our corporate culture and is reflected in all of
our daily operations, delivering reliable and high quality
products.
For information regarding significant regulatory events, see note
15 to our consolidated financial statements.
Sales of generic medicines have benefitted from increasing
awareness and acceptance on the part of healthcare insurers and
institutions, consumers, physicians and pharmacists around the
world. Factors contributing to this increased awareness are the
passage of legislation permitting or encouraging generic
substitution and the publication by regulatory authorities of lists
of equivalent pharmaceuticals, which provide physicians and
pharmacists with generic alternatives. In addition, various
government agencies and many private managed care or insurance
programs encourage the substitution of brand-name pharmaceuticals
with generic products as a cost-savings measure in the purchase of,
or reimbursement for, prescription pharmaceuticals.
In the United States, we are subject to competition in the generic
drug market from domestic and international generic drug
manufacturers and brand-name pharmaceutical companies through
introduction of next-generation medicines, authorized generics,
existing brand equivalents and manufacturers of therapeutically
similar drugs. An increase in FDA approvals for existing generic
products is increasing the competition on our base generic
products. Price competition from additional generic versions of the
same product typically results in margin pressures, which is
causing some generics companies to increase focus on portfolio
efficiency.
The European market continues to be ever more competitive,
especially in terms of pricing, higher quality standards, customer
service and portfolio relevance. We are one of only a few companies
with a
pan-European
footprint, while most of our European competitors focus on a
limited number of selected markets or business lines. Our
leadership position in Europe allows us to be a reliable partner to
fulfill the needs of patients, physicians, pharmacies, customers
and payers.
In our International Markets, our global scale and broad portfolio
give us a significant competitive advantage over local competitors,
allowing us to optimize our offerings through a combination of high
quality medicines and unique
approaches.
Furthermore, in significant markets such as Japan and Russia,
governments have issued or are in process of issuing regulations
designed to increase generic penetration. Specifically, in Japan,
ongoing regulatory pricing reductions and generic competition to
off-patented
products have negatively affected our sales in Japan. These
conditions result in intense competition in the generic market,
with generic companies competing for advantage based on pricing,
time to market, reputation and customer service.
The biosimilars business is also highly competitive and continues
to evolve as intellectual property protections for biological
products continue to expire in the United States. While we believe
that our biologics knowledge and experience provide us with
competitive advantages, we anticipate significant competition in
the biosimilar space. Risks related to commercialization of our
prospective biosimilars include the number of competitors,
potential for steeper than anticipated price erosion, and
intellectual property challenges that may impact timely
commercialization. There is also a risk of lower or slower uptake
due to various factors that may differ among biosimilars such as
competitive practices, physician hesitancy to prescribe biosimilars
for certain therapeutic areas, and level of financial incentives
(payer or government). We anticipate that the downward pressure on
uptake may ease in the future as physicians and payers become
increasingly aware of the benefits of biosimilars and more
comfortable prescribing them.
Our specialty medicines business faces intense competition from
both specialty and generic pharmaceutical companies. The specialty
business may continue to be affected by price reforms and changes
in the political landscape, following recent public debate in the
United States. We believe that our primary competitive advantages
include our commercial marketing teams, global R&D
capabilities, the body of scientific evidence substantiating the
safety and efficacy of our various medicines, our patient-centric
solutions, physician and patient experience with our medicines and
our medical capabilities, which are tailored to our product
offerings, regional and local markets and the needs of our
stakeholders.
Our employees are the heart of our Company. In the highly
competitive pharmaceutical industry, it is imperative that we
attract, develop and retain top talent on an ongoing basis. To do
this, we seek to make Teva an inclusive, diverse and safe
workplace, with meaningful compensation, benefits and wellness
programs, and offering training and leadership development programs
that foster career growth.
Our Human Resources and Compensation Committee, Compliance
Committee and Board play key roles in overseeing culture and talent
at Teva and devote time throughout the year to human capital
strategy and execution in such areas as: inclusion and diversity,
Company culture, employee engagement, training and development,
recruiting and turnover, leadership development and succession
planning. Management regularly updates the Board on internal
metrics in these areas.
As of December 31, 2020, Teva’s work force consisted of 40,216
employees. As a global company, we have employees in 60 countries
around the world, representing a wide range of nationalities. In
certain countries, we are party to collective bargaining agreements
with certain groups of employees.
The following table presents our workforce headcount by employment
type:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,100 |
|
|
|
38,130 |
|
|
|
40,556 |
|
|
|
|
|
1,272 |
|
|
|
1,158 |
|
|
|
621 |
|
|
|
|
|
1,844 |
|
|
|
1,497 |
|
|
|
1,756 |
|
|
|
|
|
40,216 |
|
|
|
40,785 |
|
|
|
42,933 |
|
Total full time equivalent
|
|
|
39,717 |
|
|
|
40,039 |
|
|
|
42,535 |
|
The following table presents our workforce headcount by geographic
area (excluding contractors):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,918 |
|
|
|
7,336 |
|
|
|
7,752 |
|
|
|
|
|
18,569 |
|
|
|
18,207 |
|
|
|
19,004 |
|
International Markets (excluding Israel)
|
|
|
9,210 |
|
|
|
9,408 |
|
|
|
9,579 |
|
|
|
|
|
3,675 |
|
|
|
4,337 |
|
|
|
4,843 |
|
Total (excluding contractors)
|
|
|
38,372 |
|
|
|
39,288 |
|
|
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41,177 |
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Inclusion and diversity are essential to our ability to innovate
and grow our business. It is our desire to create and sustain an
inclusive and diverse work environment.
Employees identifying as female represent 45% of our global
employee population, 47% of managers, and 23% of top executives, as
of December 31, 2020.
We seek to underscore our inclusive and diverse culture through
employee resource groups and training, among other things. For
instance, in the U.S., the Teva Inclusion Network is made up of
nine employee resource groups (“ERGs”), which have a key role in
creating a culture of inclusion and bring together employees with
shared characteristics and life experiences to foster opportunities
for networking, mentoring, collaboration, community outreach,
career development, leadership training and cultural exchanges.
Currently, our ERGs include groups for women, men, African
Americans, Hispanics/Latinos, Asian Americans, employees with
disabilities, military veterans, pride and parenting stages. We
also train and offer educational resources to our employees on
unconscious bias.
We believe that every person has the right to a safe and healthy
work environment, and we believe all injuries, illnesses and safety
incidents are preventable. We aspire toward Target Zero: Zero
Incidents, Zero Injuries and Zero Releases (spills and accidental
discharges). We also ensure our employees are properly trained on
the safety precautions implemented across our Company.
Since the start of the
COVID-19
pandemic, we have operated conscientiously, focusing on the health,
safety and well-being of our employees as a top priority. We have
reduced the number of employees in our facilities to enable social
distancing by introducing virtual solutions and flexible work
arrangements. We adhere to PPE and hygiene instructions to protect
our people, their families and the communities where we operate and
live. We handle suspected and confirmed
COVID-19
cases with the highest safety measures and with full respect for
our employees’ privacy.
Employee Career Growth, Training and Development
We invest in employee career growth and development at Teva in
order to remain competitive in our industry. Our programs also
benefit employees individually by providing them with the resources
they need to enhance their professional and management abilities,
develop leadership skills and achieve their career
aspirations.
We maintain a range of learning resources to support employees of
all levels in developing skills and contributing to Teva’s
strategy, ultimately driving business performance. Much of our
employee training is
in-role,
amplified by global online training and locally-tailored training
modules to meet different challenges, help gain new leadership and
essential skills and ensure compliance with our policies.
In order to measure our success at promoting talent from inside our
organization, we track the proportion of positions filled with
internal candidates and other related statistics.
To continue our employee training and development during the
COVID-19
pandemic, many of our
in-person
programs have been modified to be virtual. In addition, we equipped
our managers with information and tools on effective management in
times of disruption and provided employees with online resources to
address the challenges of working remotely, including with respect
to maintaining their well-being.
Compensation, Benefits and Wellness
Our commitment to our employees starts with compensation and
benefit programs that show how we value their contributions by
providing a full complement of competitive compensation, health and
retirement programs for them and their families. In addition to
salaries, we offer variable pay in the form of bonuses and
stock-based compensation for eligible employees. We have one global
annual bonus design for all eligible employees, demonstrating our
One Teva culture. We offer benefits that vary by country and are
designed to be competitive in the marketplace.
Through practical tools and local programs, we also address the
physical, financial, social and emotional needs of our employees
and their families. We offer programs and initiatives that promote
healthy diets, physical activity and mental well-being. For
example, we provide annual medical
check-ups
and examinations for employees across many of our markets. In
addition, we enhanced our well-being programs in response to the
COVID-19
pandemic.
Employee Engagement and Satisfaction
To understand whether our human capital strategies are effective
and are resonating with our employees, and where we can improve, we
conduct an annual employee survey. In 2019, 82% of our employees
completed the survey. In 2020, in the midst of the
COVID-19
pandemic, 86% participated. The 2020 employee survey served as one
of the ways we sought to monitor employee morale during this time.
Results of the survey show that employee engagement levels are
high. Employees are feeling connected with Teva’s mission and
values. They feel pride in Teva’s positive impact on society and
have trust in Teva’s future. Management reviews the survey results
closely to determine areas for improvement and creates action plans
to address any gaps. Survey results are communicated to employees
though global communications and town halls and shared with our
Board of Directors.
We have also created an initiative to recognize and celebrate Teva
heroes—those who have gone above and beyond during this challenging
time to deliver on Teva’s mission and provide medicines to our
patients around the world.
Please see the section entitled “Our People” from our Teva 2019 ESG
Progress Report (which is located on our website) for more detailed
information regarding our Human Capital programs and initiatives.
Nothing on our website, including our 2019 ESG Progress Report or
sections thereof, shall be deemed incorporated by reference into
this Annual Report or any other filing with the Securities and
Exchange Commission.
Food and Drug
Administration and the Drug Enforcement Administration
All pharmaceutical manufacturers selling products in the United
States are subject to extensive regulation by the United States
federal government, principally by the FDA and the Drug Enforcement
Administration (“DEA”), and, to a lesser extent, by state and local
governments. The Federal Food, Drug, and Cosmetic Act, the
Controlled Substances Act (“CSA”) and other federal and state
statutes and regulations govern or influence the development,
manufacture, testing, safety, efficacy, labeling, approval,
storage, distribution, recordkeeping, advertising, promotion, sale,
import and export of our products. Our facilities are periodically
inspected by the FDA, which has extensive enforcement powers over
the activities of pharmaceutical manufacturers. Noncompliance with
applicable requirements may result in fines, criminal penalties,
civil injunction against shipment of products, recall and seizure
of products, total or partial suspension of production, sale or
import of products, refusal of the government to enter into supply
contracts or to approve NDAs, ANDAs or BLAs and criminal
prosecution by the U.S. Department of Justice (“DOJ”). The FDA also
has the authority to deny or revoke approvals of marketing
applications and the power to halt the operations of
non-complying
manufacturers. Any failure to comply with applicable FDA policies
and regulations could have a material adverse effect on our
operations.
FDA approval is required before any “new drug” (including generic
versions of previously approved drugs) may be marketed, including
new strengths, dosage forms and formulations of previously approved
drugs. Applications for FDA approval must contain information
relating to bioequivalence (for generics), safety, toxicity and
efficacy (for new drugs), product formulation, raw material
suppliers, stability, manufacturing processes, packaging, labeling
and quality control. FDA procedures generally require that
commercial manufacturing equipment be used to produce test batches
for FDA approval. The FDA also requires validation of manufacturing
processes so that a company may market new products. The FDA
conducts
pre-approval
and post-approval reviews and plant inspections to implement these
requirements.
The federal CSA and its implementing regulations establish a closed
system of controlled substance distribution for legitimate
handlers. The CSA imposes registration, security, recordkeeping and
reporting, storage, manufacturing, distribution, importation and
other requirements upon legitimate handlers under the oversight of
the DEA. The DEA categorizes controlled substances into one of five
schedules—Schedule I, II, III, IV, or V—with varying qualifications
for listing in each schedule. Facilities that manufacture,
distribute, conduct chemical analysis, import or export any
controlled substance must register annually with the DEA. The DEA
inspects all registered facilities to review security, record
keeping and reporting and handling prior to issuing a controlled
substance registration and periodically thereafter. Failure to
maintain compliance with applicable requirements, particularly as
manifested in the loss or diversion of controlled substances, can
result in enforcement action, such as civil penalties, refusal to
renew necessary registrations or the initiation of proceedings to
revoke those registrations. In certain circumstances, violations
could lead to criminal prosecution.
The Drug Price Competition and Patent Term Restoration Act (the
“Hatch-Waxman Act”) established the procedures for obtaining FDA
approval for generic forms of brand-name drugs. This act also
provides market exclusivity provisions that can delay the approval
of certain NDAs and ANDAs. One such provision allows a five-year
period of data exclusivity for NDAs containing new chemical
entities and a three-year period of market exclusivity for NDAs
(including different dosage forms) containing new clinical trial(s)
essential to the approval of the application. The Orphan Drug Act
grants seven years of exclusive marketing rights to a specific drug
for a specific orphan indication. The term “orphan drug” refers,
generally, to a drug that treats a rare disease affecting fewer
than 200,000 Americans. Market exclusivity provisions are distinct
from patent protections and apply equally to patented and
non-patented
drug products. Another provision of the Hatch-Waxman Act extends
certain patents for up to five years as compensation for the
reduction of effective life of the patent which resulted from time
spent in clinical trials and time spent by the FDA reviewing a drug
application.
Under the Hatch-Waxman Act, any company submitting an ANDA or an
NDA under Section 505(b)(2) of the Food, Drug, and Cosmetic
Act (i.e., an NDA that, similar to an ANDA, relies, in whole or in
part, on FDA’s prior approval of another company’s drug product;
also known as a “505(b)(2) application”) must make certain
certifications with respect to the patent status of the drug for
which it is seeking approval. In the event that such applicant
plans to challenge the validity or enforceability of an existing
listed patent or asserts that the proposed product does not
infringe an existing listed patent, it files a “Paragraph IV”
certification. In the case of ANDAs, the Hatch-Waxman Act provides
for a potential
180-day
period of generic exclusivity for the first company to
submit an ANDA with a Paragraph IV certification. This filing
triggers a regulatory process in which the FDA is required to delay
the final approval of subsequently filed ANDAs containing Paragraph
IV certifications until 180 days after the first commercial
marketing. For both ANDAs and 505(b)(2) applications, when
litigation is brought by the patent holder, in response to this
Paragraph IV certification, the FDA generally may not approve the
ANDA or 505(b)(2) application until the earlier of 30 months or a
court decision finding the patent invalid, not infringed or
unenforceable. Submission of an ANDA or a 505(b)(2) application
with a Paragraph IV certification can result in protracted and
expensive patent litigation.
Products manufactured outside the United States and marketed in the
United States are subject to all of the above regulations, as well
as to FDA, DEA and United States customs regulations at the port of
entry. Products marketed outside the United States that are
manufactured in the United States are additionally subject to
various export statutes and regulations, as well as regulation by
the country in which the products are to be sold.
Our products also include biopharmaceutical products that are
comparable to brand-name biologics, but that are not approved as
biosimilar versions of such brand-name products. While regulations
are still being developed by the FDA relating to the Biologics
Price Competition and Innovation Act of 2009, which created a
statutory pathway for the approval of biosimilar versions of
brand-name biological products and a process to resolve patent
disputes, the FDA has issued guidance to provide a roadmap for
development of biosimilar products.
In August 2017, the FDA user fee reauthorization legislation, known
as the FDA Reauthorization Act of 2017 (“FDARA”) was enacted in the
United States. The agreements for pharmaceuticals, biosimilars and
medical devices were negotiated with industry representatives over
the course of 2016 to establish the amounts regulated companies
would pay the FDA to support the product review process at the
agency. Various fees must be paid by these manufacturers at
different times, such as annually and with the submission of
different types of applications. In return for this additional
funding, the FDA has entered into agreements with each of the
affected industries (known as the “user fee agreements”) that
commit the agency to interacting with manufacturers and reviewing
applications such as NDAs, ANDAs and BLAs in certain ways, and
taking action on those applications at certain times. The agency is
obligated to set specific timelines to communicate with companies,
meet with company product sponsors during the review process and
take action on their applications. On the generics side, FDARA
established a new
180-day
exclusivity for certain generic drugs that are no longer protected
by exclusivity or patents, as well as new programs for enhanced and
priority review of certain generic drug applications. On the
branded side, this was the sixth agreement between the industry and
the FDA. The user fee agreement for biosimilars was reauthorized
for the second time as well.
The Patient
Protection and Affordable Care Act and Certain Government
Programs
The Patient Protection and Affordable Care Act (“ACA”) from 2010
represented the most significant health care reform in the United
States in over thirty years. It was passed to require individuals
to have health insurance and to control the rate of growth in
healthcare spending through, among other things, stronger
prevention and wellness measures, increased access to primary care,
changes in healthcare delivery systems and the creation of health
insurance exchanges. Enrollment in the health insurance exchanges
began in October 2013. However, the individual mandate was
subsequently repealed by Congress in the tax reform bill signed
into law in December 2017. In December 2018, a U.S. federal
district court ruled that the ACA is unconstitutional, but such
decision has been stayed, pending resolution by the Supreme Court
following oral arguments on November 10, 2020.
The ACA requires the pharmaceutical industry to share in the costs
of reform, by, among other things, increasing Medicaid rebates and
expanding Medicaid rebates to cover Medicaid managed care programs.
The ACA also included funding of pharmaceutical costs for Medicare
patients in excess of the prescription drug coverage limit and
below the catastrophic coverage threshold. Commencing 2019, under
the ACA, pharmaceutical companies were obligated to fund 70% of the
patient obligation for branded prescription pharmaceuticals in this
gap, or “donut hole.” Additionally, an excise tax was levied
against certain branded pharmaceutical products. The tax is
specified by statute to be approximately $2.8 billion in 2019
and each year
thereafter. The tax is to be apportioned to qualifying
pharmaceutical companies based on an allocation of their
governmental programs as a portion of total pharmaceutical
government programs.
The Centers for Medicare & Medicaid Services (“CMS”)
administer the Medicaid drug rebate program, in which
pharmaceutical manufacturers pay quarterly rebates to each state
Medicaid agency. Generally, for generic drugs marketed under ANDAs,
manufacturers (including Teva) are required to rebate 13% of the
average manufacturer price, and for products marketed under NDAs or
BLAs, manufacturers are required to rebate the greater of 23.1% of
the average manufacturer price or the difference between such price
and the commercial best price during a specified period. An
additional rebate for products marketed under ANDAs, NDAs or BLAs
is payable if the average manufacturer price increases at a rate
higher than inflation and other methodologies apply to new
formulations of existing drugs.
Various state Medicaid programs have implemented voluntary
supplemental drug rebate programs that may provide states with
additional manufacturer rebates in exchange for preferred status on
a state’s formulary or for patient populations that are not
included in the traditional Medicaid drug benefit coverage. In
addition, a number of states, including New York, have enacted
legislation that requires entities to pay assessments or taxes on
the sale or distribution of opioid medications in order to address
the misuse of prescription opioid medications.
In Europe, marketing authorizations for pharmaceutical products may
be obtained either through a centralized procedure involving the
EMA, a mutual recognition procedure which requires submission of
applications in other member states following approval by a
so-called
reference member state, a decentralized procedure that entails
simultaneous submission of applications to chosen member states or
occasionally through a local national procedure.
During 2020, we continued to register products in the European
Union, primarily using the decentralized procedure (simultaneous
submission of applications to chosen member states). We continue to
use, on occasion, the mutual recognition and centralized
procedures.
The European pharmaceutical industry is highly regulated and much
of the legislative and regulatory framework is driven by the
European Parliament and the European Commission. This has many
benefits, including the potential to harmonize standards across the
complex European market, but it also has the potential to create
complexities affecting the entire European market.
The medicines regulatory framework of the European Union requires
that medicinal products, including generic versions of previously
approved products and new strengths, dosage forms and formulations
of previously approved products, receive a marketing authorization
before they can be placed on the market in the European Union.
Authorizations are granted after a favorable assessment of quality,
safety and efficacy by the respective health authorities. In order
to obtain authorization, application must be made to the EMA or to
the competent authority of the member state concerned. Besides
various formal requirements, the application must contain the
results of pharmaceutical (physico-chemical, biological or
microbiological) tests,
pre-clinical
(toxicological and pharmacological) tests and clinical trials. All
of these tests must have been conducted in accordance with relevant
European regulations and must allow the reviewer to evaluate the
quality, safety and efficacy of the medicinal product.
In order to control expenditures on pharmaceuticals, most member
states of the European Union regulate the pricing of such products
and in some cases limit the range of different forms of a drug
available for prescription by national health services. These
controls can result in considerable price differences among member
states.
In addition to patent protection, exclusivity provisions in the
European Union may prevent companies from applying for marketing
approval for a generic product for eight years (or ten years for
orphan medicinal products) from the date of the first marketing
authorization of the original product in the European Union.
Further, the generic product will be barred from market entry
(marketing exclusivity) for a further two years, with the
possibility of extending the market exclusivity by one additional
year under certain circumstances.
The term of certain pharmaceutical patents may be extended in the
European Union by up to five years upon grant of Supplementary
Patent Certificates (“SPC”). The purpose of this extension is to
increase effective patent life (i.e., the period between grant of a
marketing authorization and patent expiry) to 15 years.
Subject to the respective pediatric regulation, the holder of an
SPC may obtain a further patent term extension of up to six months
under certain conditions. This
six-month
period cannot be claimed if the license holder claims a
one-year
extension of the period of marketing exclusivity based on the
grounds that a new pediatric indication brings a significant
clinical benefit in comparison with other existing therapies.
In July 2019, the SPC Manufacturing Waiver Regulation came into
force in the European Union (subject to certain conditions)
allowing products manufactured prior to SPC expiry to be exempt
from SPC infringement if such products are manufactured for export
to
non-European
Union markets or for launch in the European Union upon expiry of
the SPC. This waiver will apply from July 2, 2022 to all SPCs
that come into effect after July 1, 2019 or, if the SPC was
applied for after July 1, 2019, from the date the SPC comes
into effect.
Orphan designated products, which receive, under certain
conditions, a blanket period of ten years of market exclusivity,
may receive an additional two years of exclusivity instead of an
extension of the SPC if the requirements of the pediatric
regulation are met.
The legislation also allows for R&D work during the patent term
for the purpose of developing and submitting registration
dossiers.
In 2016, the United Kingdom conducted a referendum and voted to
leave the European Union, also known as “Brexit.” On March 29,
2017, the United Kingdom government invoked Article 50 of the
Lisbon Treaty to exit the European Union. On January 31, 2020,
the United Kingdom left the European Union, and entered a
transition period of 11 months. On December 24, 2020, the
United Kingdom and European Union agreed on a new Trade and
Cooperation Agreement and on December 31, 2020, the United
Kingdom formally left the transition period. The Trade and
Cooperation Agreement is comprehensive, but does not cover all
areas of regulation pertinent to the pharmaceutical industry, so
certain complexities remain. We continue to have processes and
contingencies in place to minimize their impact, and to maintain
our ability to supply medicines to patients in the United Kingdom,
and to supply medicines made in the United Kingdom to other
markets.
In November 2020, the European Commission published a
“Pharmaceutical strategy for Europe,” which sets out a suite of
policies that will shape the future European regulatory
environment. These wide-ranging policies represent a multi-year
program aimed, through review and revision of existing legislation,
to provide a flexible regulatory system that, amongst other things,
will lead to accelerated availability of medicines and promote
sustainability of that system.
In addition to regulations in the United States and Europe, we, and
our partners, are subject to a variety of regulations in other
jurisdictions governing, among other things, clinical trials and
any commercial sales, marketing and distribution of our products.
Such regulations may be similar or, in some cases, more stringent
than those applicable in the United States and Europe.
Whether or not we, or our partners, obtain FDA approval for a
product, we must obtain the requisite approvals from regulatory
authorities in foreign countries prior to the commencement of
clinical trials or
marketing of such product in those countries. The requirements and
processes governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary from country to country.
In addition, we, and our partners, may be subject to foreign laws
and regulations and other compliance requirements, including,
without limitation, anti-kickback laws, false claims laws and other
fraud and abuse laws, as well as laws and regulations requiring
transparency of pricing and marketing information and governing the
privacy and security of health information.
If we, or our partners, fail to comply with applicable foreign
regulatory requirements, we may be subject to, among other things,
fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal
prosecution.
Miscellaneous Regulatory Matters
We are subject to various national, regional and local laws of
general applicability, such as laws regulating working conditions.
We are also subject to country specific data protection laws and
regulations applicable to the collection and processing of personal
data around the world. In addition, we are subject to various
national, regional and local environmental protection laws and
regulations, including those governing the emission of material
into the environment. We are also subject to various national,
regional and local laws regulating how we interact with healthcare
professionals and representatives of government that impact our
promotional and other commercial activities.
Data exclusivity provisions exist in many countries around the
world and may be introduced in additional countries in the future,
although their application is not uniform. In general, these
exclusivity provisions prevent the approval and/or submission of
generic drug applications to the health authorities for a fixed
period of time following the first approval of the brand-name
product in that country. As these exclusivity provisions operate
independently of patent exclusivity, they may prevent the
submission of generic drug applications for some products even
after the patent protection has expired.
On 16 July 2020, the Court of Justice of the European Union
invalidated Decision 2016/1250 on the adequacy of the protection
provided by the
EU-US
Data Privacy Shield (“Schrems II”). The General Data Protection
Regulation (the “GDPR”) provides that the transfer of personal data
to a country outside the European Economic Area (“EEA”) may, in
principle, take place only if the third country ensures an adequate
level of data protection, and the
EU-U.S.
Privacy Shield was previously approved by the European Commission
to provide such adequate level of data protection. However, in the
view of the Court, U.S. law and practice are not circumscribed in a
way that satisfies requirements that are essentially equivalent to
those required under EU law, and therefore the
EU-U.S.
Privacy Shield cannot be considered to ensure an adequate level of
data protection. As a practical result of the ruling and ensuing
guidance from the European Data Protection Board, companies must
now verify, on a
basis, and in collaboration with the data importers, whether the
law of the importer’s country ensures a level of protection for the
personal data that is essentially equivalent to the EEA’s
protections. If not, data exporters will need to assess whether
they can implement supplementary measures to help ensure the
requisite level of protection. As a result, companies are now
required to conduct and document comprehensive data transfer
assessments before allowing any personal data to flow from the EU
to outside the EU, and if supplementary measures cannot address an
adequate level of protection, then such transfers shall be
restricted. Teva is preparing for these new developments by
aligning our data mapping documentation with these new requirements
and Teva will continue to closely monitor further guidance from
authorities on how to adequately address data transfers going
forward.
In October 2015, the European Commission adopted regulations
providing detailed rules for the safety features appearing on the
packaging of medicinal products for human use. This legislation,
part of the Falsified Medicines Directive (“FMD”), is intended to
prevent counterfeit medicines entering into the supply chain and
will allow wholesale distributors and others who supply medicines
to the public to verify the authenticity of the medicine at the
level of the individual pack. The safety features comprise a unique
identifier and a tamper-
evident seal on the outer packaging, which are to be applied to
certain categories of medicines. FMD is effective as of February
2019. Teva’s packaging sites, distribution centers and contract
manufacturing operators (“CMOs”) for the European market comply
with this new requirement.
In November 2013, the federal Drug Supply Chain Security Act (the
“DSCSA”) became effective in the United States, mandating an
industry-wide, national serialization system for pharmaceutical
packaging with a
ten-year
phase-in
process. By November 2018, all manufacturers and
re-packagers
were required to mark each prescription drug package with a unique
serialized code. Teva’s packing sites, distribution centers and
CMOs for the U.S. market comply with the new requirements. In
addition, under the DSCSA, Teva is required by November 2023, to
provide to downstream trading partners, serial number specific
transaction details. This will require additional modification to
the packing sites, distribution centers and CMOs for the U.S.
market. Subsequently, in February 2019, the EU enacted the
Falsified Medicines Directive (“FMD”), traceability requirements
for drug products, which Teva complies with as well. Other
countries are following suit with variations of two main
requirements: (i) to be able to associate the unit data with
the uniquely-identified shipping package, or (ii) to report
the data for tracking and tracing of products, reimbursements and
other purposes. Certain countries, such as Russia, China, Korea,
Turkey, Argentina, Brazil and India (for exported products),
already have laws mandating serialization and aggregation and we
are working to comply with these requirements. Other countries,
including India (domestic market), Indonesia, Kazakhstan, Malaysia,
Taiwan, Ukraine and other Latin American countries are currently
considering mandating similar requirements.
Our main corporate website address is http://www.tevapharm.com.
Copies of our Quarterly Reports on Form
10-Q,
Annual Report on Form
10-K
and Current Reports on Form
8-K
filed or furnished to the U.S. Securities and Exchange Commission
(the “SEC”), and any amendments to the foregoing, will be provided
without charge to any shareholder submitting a written request to
our company secretary at our principal executive offices or by
sending an email to TevaIR@tevapharm.com. All of our SEC filings
are also available on our website at http://www.tevapharm.com, as
soon as reasonably practicable after having been electronically
filed or furnished to the SEC. The SEC maintains an Internet site
that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC
at www.sec.gov. The information on our website is not, and will not
be deemed, a part of this Report or incorporated into any other
filings we make with the SEC. We also file our annual reports and
other information with the Israeli Securities Authority through its
fair disclosure electronic system called MAGNA. You may review
these filings on the website of the MAGNA system operated by the
Israeli Securities Authority at www.magna.isa.gov.il or on the
website of the Tel Aviv Stock Exchange (the “TASE”) at
www.tase.co.il.
Our business faces significant risks. You should carefully consider
all of the information set forth in this Annual Report and in our
other filings with the SEC, including the following risk factors
which we face and which are faced by our industry. Our business,
financial condition and results of operations could be materially
adversely affected by any of these risks. This report also contains
forward-looking statements that involve risks and uncertainties.
Our results could materially differ from those anticipated in these
forward-looking statements as a result of certain factors including
the risks described below and elsewhere in this report and our
other SEC filings. For a summary of the risk factors included in
this Item 1A and for further details on our forward-looking
statements, see “Forward-Looking Statements and Summary of Risk
Factors” on page 1.
Risks related to our ability to successfully compete in the
marketplace
Sales of our generic
medicines comprise a significant portion of our business, and we
are subject to the significant risks associated with the generic
pharmaceutical business.
In 2020, total revenues from sales of our generic medicines in all
our business segments were $9,316 million, or 55% of our total
revenues. Generic pharmaceuticals are, as a general matter, less
profitable
than specialty pharmaceuticals, and have faced price erosion in
each of our business segments, placing even greater importance on
our ability to continually introduce new products. We have become
more dependent on sales of our generics medicines and are
increasingly subject to market and regulatory factors and other
risks affecting generic pharmaceuticals worldwide.
During 2020, our business was impacted by increased volatility in
demand and fluctuations in overall prescription volumes due in
large part to the
COVID-19
pandemic. The effects of the
COVID-19
pandemic may continue in 2021. Due to the volume of our generic
portfolio and global nature of our supply chain, we have
experienced supply discontinuities due to regulatory actions and
approval delays, which had an impact on our ability to timely meet
demand in certain instances. These adverse market forces have
a direct impact on our overall performance.
We also expect to continue to experience significant adverse
challenges in the U.S. generics market deriving from limitations on
our ability to influence generic medicine pricing in the long term
and a decrease in value from future launches and growth. These and
other challenges have required us to recognize significant goodwill
impairments in past years. If we experience further difficulty in
this market, this may continue to adversely affect our revenues and
profits from our North America business segment or cause us to
recognize one or more goodwill impairments relating to this
reporting unit.
Sales of our generic
products may be adversely affected by the continuing consolidation
of our customer base and commercial alliances among our
customers.
A significant portion of our sales are made to relatively few U.S.
retail drug chains, wholesalers, managed care purchasing
organizations, mail order distributors and hospitals. These
customers have undergone significant consolidation and formed
various commercial alliances in recent years, which may continue to
increase the pricing pressures that we face in the United States.
Additionally, the emergence of large buying groups, and the
prevalence and influence of managed care organizations and similar
institutions, have increased pressure on price, as well as terms
and conditions required to do business. Certain of these Group
Purchasing Organizations (“GPOs”) have been making aggressive
requests for pricing proposals and established commercial alliances
resulting in greater bargaining power. Due to such consolidation
and subsequent changes in these commercial alliances, there are
four large GPOs that account for approximately 85% of generics
purchases in the United States. We expect the trend of increased
pricing pressures from our customers and price erosion in the U.S.
generics market to continue.
The traditional model for distribution of pharmaceutical products
is also undergoing disruption as a result of the entry or potential
entry of new competitors and significant mergers among key industry
participants. For example, in 2020, Amazon.com launched its
pharmaceutical distribution business. In November 2020, Mylan and
Pfizer’s Upjohn completed a merger of their businesses by forming
Viatris Inc., and, in November 2018, CVS Health and Aetna completed
a merger which created a vertically integrated organization with
increased control over the physician and pharmacy networks and,
ultimately, over which medicines are sold to patients. In addition,
several major hospital systems in the United States announced a
plan to form a nonprofit company that will provide U.S. hospitals
with a number of generic drugs. These changes to the traditional
supply chain could lead to our customers having increased
negotiation leverage and to additional pricing pressure and price
erosion.
Our net sales may also be affected by fluctuations in the buying
patterns of retail chains, mail order distributors, wholesalers and
other trade buyers, whether resulting from seasonality, pricing,
wholesaler buying decisions or other factors. Our business was also
impacted by increased volatility in demand due in large part to the
COVID-19
pandemic and fluctuations in overall market prescription volumes.
In addition, since a significant portion of our U.S. revenues is
derived from relatively few key customers, any financial
difficulties experienced by a single key customer, or any delay in
receiving payments from such a customer, could have a material
adverse effect on our business, financial condition and results of
operations.
Our revenues and
profits from generic products may decline as a result of
competition from other pharmaceutical companies and changes in
regulatory policy.
Our generic drugs face intense competition. Prices of generic drugs
may, and often do, decline, sometimes dramatically, especially as
additional generic pharmaceutical companies (including
low-cost
generic producers based in China and India) receive approvals and
enter the market for a given product and competition intensifies.
Consequently, our ability to sustain our sales and profitability on
any given product over time is affected by the number of companies
selling such product, including new market entrants, and the timing
of their approvals. The goals established under the Generic Drug
User Fee Act, and increased funding of the FDA’s Office of Generic
Drugs, have led to more and faster generic approvals, and
consequently increased competition for some of our products. The
FDA has stated that it has established new steps to enhance
competition, promote access and lower drug prices and is approving
record-breaking numbers of generic applications. While these FDA
improvements are expected to benefit Teva’s generic product
pipeline, they will also benefit competitors that seek to launch
products in established generic markets where Teva currently offers
products.
Furthermore, brand pharmaceutical companies continue to manage
products in a challenging environment through marketing agreements
with payers, pharmacy benefits managers and generic manufacturers.
For example, brand companies often sell or license their own
generic versions of their products, either directly or through
other generic pharmaceutical companies
(so-called
“authorized generics”). No significant regulatory approvals are
required for authorized generics, and brand companies do not face
any other significant barriers to entry into such market. Brand
companies may seek to delay introductions of generic equivalents
through a variety of commercial and regulatory tactics. Many
pharmaceutical companies increasingly have used state and federal
legislative and regulatory means to delay generic (including
biosimilar) competition. These efforts have included pursuing new
patents for existing products to extend patent protection; selling
the brand product as their own generic equivalent (an authorized
generic); using the Citizen Petition process to request amendments
to FDA standards or otherwise delay generic (or biosimilar) drug
approvals; seeking changes to U.S. Pharmacopeia, an organization
which publishes industry recognized compendia of drug standards;
using the legislative and regulatory process to have drugs
reclassified or rescheduled; attaching patent extension amendments
to unrelated federal legislation; and entering into agreements with
pharmacy benefit management companies to block the dispensing of
generic (including biosimilar) products. These actions may increase
the costs and risks of our efforts to introduce generic products
and may delay or prevent such introduction altogether.
In addition, the U.S. Congress and various state legislatures in
the United States have passed, or have proposed passing,
legislation that could have an adverse impact on pharmaceutical
manufacturers’ ability to (i) settle litigation initiated
pursuant to the federal Hatch-Waxman Act and Biologics Price
Competition and Innovation Act (“BPCIA”) and (ii) secure the
full benefit of
regulatory approval status secured under the federal Hatch-Waxman
Act. Hatch-Waxman and BPCIA create various pathways for generic
drug manufacturers to secure accelerated approvals of their
abbreviated new drug applications and abbreviated biologics license
applications. The new laws and proposals from the federal and
state governments could change Hatch-Waxman and BPCIA, as well as
impact the ability of generic manufacturers to accelerate the
launch of their new generic and biosimilar products, and the
ability of brand manufacturers to protect their investments in the
intellectual property associated with their branded specialty and
innovative biologic products. Teva continues to monitor these
legislative developments and advocate for policies that support
both innovation and access to high quality medicines for
patients.
We have experienced,
and may continue to experience, delays in launches of our new
generic products.
Although we believe we have one of the most extensive pipelines of
generic products in the industry, in recent years we were unable to
successfully execute a number of generic launches and these
challenges may continue in the foreseeable future. As a result of
these unsuccessful launches, we may not be able to realize the
economic benefits anticipated in connection with planned launches.
If we cannot execute timely launches of new products, we may not be
able to offset the increasing price erosion on existing products in
the United States
resulting from pricing pressures and accelerated generics approvals
for competing products. Such unsuccessful launches can be caused by
many factors, including the impact of the
COVID-19
pandemic, delays in regulatory approvals, lack of operational or
clinical readiness or patent litigation. Failure or delays to
execute launches of new generic products could have a material
adverse effect on our business, financial condition and results of
operations.
The increase in the
number of competitors targeting generic opportunities and seeking
U.S. market exclusivity for generic versions of significant
products may adversely affect our revenues and profits
Our ability to achieve continued growth and profitability through
sales of generic pharmaceuticals is dependent on our continued
success in challenging patents, developing
non-infringing
products or developing products with increased complexity to
provide opportunities with U.S. market exclusivity or limited
competition.
To the extent that we succeed in being the first to market a
generic version of a product, and particularly if we are the only
company authorized to sell during the
180-day
period of exclusivity in the U.S. market, as provided under the
Hatch-Waxman Act, our sales, profits and profitability can be
substantially increased in the period following the introduction of
such product and prior to a competitor’s introduction of an
equivalent product. Even after the exclusivity period ends, there
is often continuing benefit from having the first generic product
in the market.
However, the number of generic manufacturers targeting significant
new generic opportunities with exclusivity under the Hatch-Waxman
Act, or which are complex to develop, continues to increase.
Additionally, many of the smaller generic manufacturers have
increased their capabilities, level of sophistication and
development resources in recent years. The FDA has also been
limiting the availability of exclusivity periods for new products,
which reduces the economic benefit from being
for generic approvals. The failure to maintain our industry-leading
performance in the United States on
opportunities and to develop and commercialize high complexity
generic products could adversely affect our sales and
profitability.
The
180-day
market exclusivity period is triggered by commercial marketing of
the generic product. However, the exclusivity period can be
forfeited by our failure to obtain tentative or final approval of
our product within a specified statutory period or to launch a
product following final court decisions that are no longer subject
to appeal holding the applicable patents to be invalid,
unenforceable or not infringed. The Hatch-Waxman Act also contains
other forfeiture provisions that may deprive the first “Paragraph
IV” filer of exclusivity if certain conditions are met, some of
which may be outside our control. Accordingly, we may face the risk
that our exclusivity period is forfeited before we are able to
commercialize a product.
We may be unable to
take advantage of the increasing number of high-value
biopharmaceutical opportunities.
We aim to be a global leader in biopharmaceuticals. TRUXIMA, our
first oncology biosimilar product in the United States, launched in
November 2019 and is the first rituximab biosimilar to be approved
in the United States. HERZUMA, a biosimilar to Herceptin
®
(trastuzumab), was launched in the United States in March 2020. In
August 2020, we entered into a partnership agreement with a
biopharmaceutical company, Alvotech, for the exclusive
commercialization in the U.S. of five biosimilar product
candidates. We are developing a product pipeline and manufacturing
capabilities for biosimilar products, which are expected to make up
an increasing proportion of the high-value generic opportunities in
the coming years. The development, manufacture and
commercialization of biopharmaceutical products require specialized
expertise and are very costly and subject to complex regulation,
which is still evolving. Due to the complex process required to
develop biosimilars, obstacles and delays may arise that increase
the cost of development or force us to abandon a potential product
in which we may have invested substantial amounts of time and
resources. We are behind many of our competitors in developing
biopharmaceuticals and will require significant investments and
collaborations with third parties to benefit from these
opportunities. Failure to develop and commercialize
biopharmaceuticals could have a material adverse effect on our
business, financial condition, results of operations and
prospects.
Our specialty
pharmaceutical products face intense competition from companies
that have greater resources and capabilities.
We face intense competition to our specialty pharmaceutical
products. Many of our competitors are larger and/or have
substantially more experience in the development, acquisition and
marketing of branded, innovative and consumer-oriented products.
They may be able to respond more quickly to new or emerging market
preferences or to devote greater resources to the development and
marketing of new products and/or technologies than we can. As a
result, any products and/or innovations that we develop may become
obsolete or noncompetitive before we can recover the expenses
incurred in connection with their development. In addition, we must
demonstrate the benefits of our products relative to competing
products that are often more familiar or otherwise better
established to physicians, patients and third-party payers. If
competitors introduce new products or new variations on their
existing products, our marketed products, even those protected by
patents, may be replaced in the marketplace or we may be required
to lower our prices. For example:
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Our future success depends on our ability to maximize the growth
and commercial success of AUSTEDO. If our revenues derived from
AUSTEDO do not increase as expected, it may have an adverse effect
on our results of operations.
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AJOVY faces strong competition from two products that were
introduced into the market around the same time and are competing
for market share in the same space, as well as from other emerging
competing therapies. Our auto-injector for AJOVY launched in April
2020, but we may still be at a competitive disadvantage in our
ability to sell and market this product compared to competing
products that launched earlier with an auto-injector due to our
late entry into the market.
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COPAXONE faces increasing competition from generic versions in the
U.S. and competing glatiramer acetate products in Europe, as well
as from orally-administered therapies. Following the approval of
generic competition, COPAXONE’s revenues and profitability have
decreased. We expect this trend to continue in the future, which
may have a significant effect on our financial results and cash
flow.
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In addition, our specialty products require much greater use of a
direct sales force than does our core generics business. Our
ability to realize significant revenues from direct marketing and
sales activities depends on our ability to attract and retain
qualified sales personnel. Competition for qualified sales
personnel is intense. We may also need to enter into
co-promotion,
contract sales force or other such arrangements with third parties,
for example, where our own direct sales force is not large enough
or sufficiently well-aligned to achieve maximum market penetration.
Any failure to attract or retain qualified sales personnel or to
enter into third-party arrangements on favorable terms could
prevent us from successfully maintaining current sales levels or
commercializing new innovative and specialty products. Furthermore,
due to the impact of the
COVID-19
pandemic, the ability to promote our new specialty products,
primarily AJOVY and AUSTEDO, has been impacted by less physician
visits by patients and less physician interactions with our sales
personnel as well as the reluctance of physicians to introduce new
medication at a time when access to patients may be
restricted.
If generic or
biosimilar products that compete with any of our specialty products
are approved and sold, sales of our specialty products will be
adversely affected.
In addition to COPAXONE, certain of our other leading specialty
medicines also face patent challenges and impending patent
expirations. For example, in January 2019, we launched our own
ProAir authorized generic in the United States following the launch
of a generic version of Ventolin
®
HFA, another albuterol inhaler. Generic versions of ProAir were
launched in 2020. Eagle has launched a
bendamustine hydrochloride in June 2018, which directly competes
with BENDEKA, in addition to the ANDAs and NDAs that have been
filed by competitors in connection with TREANDA and BENDEKA. The
first date for expected generic ANDA filings on AUSTEDO is in April
2021.
Generic equivalents and biosimilars for branded pharmaceutical
products are typically sold at lower costs than the branded
products. After the introduction of a competing generic product, a
significant percentage of the
prescriptions previously written for the branded product are often
written for the generic version. Legislation enacted in most U.S.
states allows or, in some instances mandates, that a pharmacist
dispense an available generic equivalent when filling a
prescription for a branded product in the absence of specific
instructions from the prescribing physician. Pursuant to the
provisions of the Hatch Waxman Act, manufacturers of branded
products often bring lawsuits to enforce their patent rights
against generic products released prior to the expiration of
branded products’ patents, but it is possible for generic
manufacturers to offer generic products while such litigation is
pending. As a result, branded products typically experience a
significant loss in revenues following the introduction of a
competing generic product, even if subject to an existing patent.
Our specialty products are or may become subject to competition
from generic equivalents because our patent protection expired or
may expire soon. In addition, we may not be successful in our
efforts to extend the proprietary protection afforded our specialty
products through the development and commercialization of
proprietary product improvements and new and enhanced dosage
forms.
Investments in our
pipeline of specialty and other products may not achieve expected
results.
We must invest significant resources to develop specialty medicines
and biosimilars, both through our own efforts and through
collaborations with, and
in-licensing
or acquisition of products from, third parties. We have entered
into, and expect to pursue,
in-licensing,
acquisition and partnership opportunities to supplement and expand
our existing specialty and biosimilar pipeline (e.g., the
transactions with Celltrion, Regeneron and Alvotech).
The development of specialty medicines involves processes and
expertise different from those used in the development of generic
medicines, which increase the risk of failure. For example, the
time from discovery to commercial launch of a specialty medicine
can be 15 years or more and involves multiple stages, including
intensive preclinical and clinical testing and highly complex,
lengthy and expensive approval processes, which vary from country
to country. The longer it takes to develop a new product, the less
time that remains to recover development costs and generate
profits. Specialty medicines currently in development include
fasinumab for osteoarthritic pain, AUSTEDO for dyskinesia in
cerebral palsy, AJOVY for fibromyalgia and risperidone LAI for
schizophrenia.
During each stage, we may encounter obstacles that delay the
development process and increase expenses, potentially forcing us
to abandon a potential product in which we may have invested
substantial amounts of time and resources. These obstacles may
include preclinical failures, difficulty enrolling patients in
clinical trials, delays in completing formulation and other work
needed to support an application for approval, adverse reactions or
other safety concerns arising during clinical testing, insufficient
clinical trial data to support the safety or efficacy of the
product candidate and delays or failure to obtain the required
regulatory approvals for the product candidate or the facilities in
which it is manufactured. For example, in 2020, the development of
AUSTEDO for Tourette syndrome and the development of AJOVY for
post-traumatic headache were both discontinued.
When we enter into partnerships and joint ventures with third
parties, such as our collaborations with Celltrion, Otsuka,
Regeneron and Alvotech, we face the risk that some of these third
parties may fail to perform their obligations or fail to reach the
levels of success that we are relying on to meet our revenue and
profit goals. There is a trend in the specialty pharmaceutical
industry of seeking to “outsource” drug development by acquiring
companies with promising drug candidates and we face substantial
competition from historically innovative companies, as well as
companies with greater financial resources than us, for such
acquisition targets.
Our success depends
on our ability to develop and commercialize additional
pharmaceutical products.
Our financial results depend upon our ability to develop and
commercialize additional generic, specialty and biosimilar products
in a timely manner, particularly in light of the increasing generic
competition to COPAXONE, generic and other competition to our
respiratory products, such as ProAir, and patent challenges and
impending patent expirations facing certain of our other specialty
medicines, such as BENDEKA and
TREANDA. Commercialization requires that we successfully develop,
test and manufacture pharmaceutical products. All of our products
must receive regulatory approval and meet (and continue to comply
with) regulatory and safety standards; if health or safety concerns
arise with respect to a product, we may be forced to withdraw it
from the market. Developing and commercializing additional
pharmaceutical products is also subject to difficulties relating to
the availability, on commercially reasonable terms, of raw
materials, including API and other key ingredients; preclusion from
commercialization by the proprietary rights of others; the costs of
manufacture and commercialization; costly legal actions brought by
our competitors that may delay or prevent development or
commercialization of a new product; and delays and costs associated
with the approval process of the FDA and other U.S. and
international regulatory agencies.
The development and commercialization process, particularly with
respect to specialty and biosimilar medicines, as well as the
complex generic medicines that we increasingly focus on, is both
time-consuming and costly, and involves a high degree of business
risk. Our products currently under development, including fasinumab
for osteoarthritic pain, AUSTEDO for dyskinesia in
cerebral palsy, AJOVY for fibromyalgia and risperidone LAI for
schizophrenia, if and when fully developed and tested, may not
perform as we expect. Necessary regulatory approvals may not be
obtained in a timely manner, if at all, and we may not be able to
produce and market such products successfully and profitably.
Delays in any part of the process or our inability to obtain
regulatory approval of our products could adversely affect our
operating results by restricting or delaying our introduction of
new products.
We depend on the
effectiveness of our patents, confidentiality agreements and other
measures to protect our intellectual property rights.
The success of our specialty medicines business depends
substantially on our ability to obtain patents and to defend our
intellectual property rights. If we fail to protect our
intellectual property adequately, competitors may manufacture and
market products identical or similar to ours. We have been issued
numerous patents covering our specialty medicines, and have filed,
and expect to continue to file, patent applications seeking to
protect newly developed technologies and products in various
countries, including the United States. Currently pending patent
applications may not result in issued patents or be approved on a
timely basis or at all. Any existing or future patents issued to or
licensed by us may not provide us with any competitive advantages
for our products or may be challenged or circumvented by
competitors or governments.
Efforts to defend the validity of our patents are expensive and
time-consuming, and there can be no assurance that such efforts
will be successful. Our ability to enforce our patents also depends
on the laws of individual countries and each country’s practices
regarding the enforcement of intellectual property rights. The loss
of patent protection or regulatory exclusivity on specialty
medicines could materially impact our business, results of
operations, financial condition and prospects.
We also rely on trade secrets, unpatented proprietary
know-how,
trademarks, regulatory exclusivity and continuing technological
innovation that we seek to protect, in part by confidentiality
agreements with licensees, suppliers, employees and consultants.
These measures may not provide adequate protection for our
unpatented technology. If these agreements are breached, it is
possible that we will not have adequate remedies. Disputes may
arise concerning the ownership of intellectual property or the
applicability of confidentiality agreements. Furthermore, our trade
secrets and proprietary technology may otherwise become known or be
independently developed by our competitors or we may not be able to
maintain the confidentiality of information relating to such
products. If we are unable to adequately protect our technology,
trade secrets or proprietary
know-how,
or enforce our intellectual property rights, our results of
operations, financial condition and cash flows could suffer.
Risks related to our substantial indebtedness
We have substantial
debt of $25,919 million as of December 31, 2020, which
has increased our expenses and restricts our ability to incur
additional indebtedness or engage in other transactions.
Our consolidated debt was $25,919 million at December 31,
2020, compared to $26,908 million at December 31, 2019.
If we are unable to meet our debt service obligations and other
financial obligations, we could be forced to restructure or
refinance our indebtedness and other financial transactions, seek
additional debt or equity capital or sell our assets. We might then
be unable to obtain such financing or capital or sell our assets on
satisfactory terms, if at all. Any refinancing of our indebtedness
could be at significantly higher interest rates, incur significant
transaction fees or include more restrictive covenants. See “Item
7—Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity” and note 9 to our consolidated
financial statements for a detailed discussion of our outstanding
indebtedness.
We may have lower-than-anticipated cash flows in the future, which
could further reduce our available cash. Although we believe that
we will have access to cash sufficient to meet our business
objectives and capital needs, this reduced availability of cash
could constrain our ability to grow our business. We may have
lower-than-anticipated net income in the future. Our revolving
credit facility (“RCF”) contains certain covenants, including
certain limitations on incurring liens and indebtedness and
maintenance of certain financial ratios, including the requirement
to maintain compliance with a net debt to EBITDA ratio, which
becomes more restrictive over time. We borrowed up to
€270 million from our RCF during 2020, which has since been
fully repaid. As of December 31, 2020 and as of the date of
this Annual Report, we did not have any outstanding debt under the
revolving credit facility. Under specified circumstances, including
non-compliance
with any of the covenants and the unavailability of any waiver,
amendment or other modification thereto, we will not be able to
borrow under the RCF. Additionally, violations of the covenants,
under certain circumstances, would result in an event of default in
all borrowings under the RCF and, when greater than a specified
threshold amount as set forth in each series of senior notes is
outstanding, could lead to an event of default under our senior
notes due to cross acceleration provisions.
As of December 31, 2020, we were in compliance with all
applicable financial ratios. We continue to take steps to reduce
our debt levels and improve profitability to ensure continual
compliance with the financial maintenance covenants. If such
covenants will not be met, we believe we will be able to
renegotiate and amend the covenants, or refinance the debt with
different repayment terms to address such situation as
circumstances warrant. Although we have successfully negotiated
amendments to our loan agreements in the past, we cannot guarantee
that we will be able to amend such agreements on terms satisfactory
to us, or at all, if required to maintain compliance in the future.
If we experience lower than required earnings and cash flows to
continue to maintain compliance and efforts could not be
successfully completed on commercially acceptable terms, we may
curtail additional planned spending, may divest additional assets
in order to generate enough cash to meet our debt requirements and
all other financial obligations.
This substantial level of debt and lower levels of cash flow and
earnings have severely impacted our business and resulted in a
restructuring plan between 2017 and 2019.
Our substantial net debt could also have other important
consequences to our business, including, but not limited to:
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making it more difficult for us to satisfy our obligations;
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limiting our ability to borrow additional funds and increasing the
cost of any such borrowing;
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increasing our vulnerability to, and reducing our flexibility to
respond to, general adverse economic and industry conditions;
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limiting our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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placing us at a competitive disadvantage as compared to our
competitors, to the extent that they are not as highly leveraged;
and
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restricting us from pursuing certain business opportunities.
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Additionally, if the
COVID-19
pandemic has a significant impact on our business and financial
results for an extended period of time, our credit losses,
liquidity and cash resources could be negatively impacted. We may
be required to draw down funds from our RCF or pursue additional
sources of financing to fund our operations, such as secured
financing. If we seek secured financing in excess of the limitation
in our debt instruments, we may have to secure our current
outstanding debt as well. Capital and credit markets have been
disrupted by the crisis and foreign exchanges have experienced
increased volatility. As a result, access to additional financing
may be challenging and is largely dependent upon evolving market
conditions and other factors.
We may need to raise
additional funds in the future, which may not be available on
acceptable terms or at all.
We may consider issuing additional debt or equity securities in the
future to refinance existing debt or for general corporate
purposes, including to fund potential acquisitions or investments.
If we issue ordinary equity, convertible preferred equity or
convertible debt securities to raise additional funds, our existing
shareholders may experience dilution, and the new equity or debt
securities may have rights, preferences and privileges senior to
those of our existing shareholders. If we incur additional debt, it
may increase our leverage relative to our earnings or to our equity
capitalization, requiring us to pay additional interest and
potentially lowering our credit ratings. We may not be able to
market such issuances on favorable terms, or at all, in which case,
we may not be able to develop or enhance our products, execute our
business plan, take advantage of future opportunities or respond to
competitive pressures or unanticipated customer requirements.
If our credit
ratings are further downgraded by leading rating agencies, we may
not be able to raise debt or borrow funds in amounts or on terms
that are favorable to us, if at all.
Our credit ratings impact the cost and availability of future
borrowings and, accordingly, our cost of capital. Our ratings at
any time will reflect each rating organization’s then opinion of
our financial strength, operating performance and ability to meet
our debt obligations. In November 2017, Fitch Ratings Inc.
(“Fitch”) downgraded our rating to
non-investment
grade, from
BBB-
to BB, with a negative outlook. On January 12, 2018, Moody’s
Investor Service, Inc. (“Moody’s”) downgraded our rating to
non-investment
grade from Baa3 to Ba2, with a stable outlook. On August 16,
2019, Moody’s revised our rating outlook to negative. On
September 3, 2020, Standard and Poor’s Financial Services LLC
(“Standard and Poor’s”) downgraded our rating from BB to
BB-
due to rising litigation risks, but removed our rating outlook from
CreditWatch back to stable, reflecting recent stabilization of our
revenue and EBITDA.
The downgrade of our ratings to
non-investment
grade by Fitch, Moody’s and Standard & Poor’s limits our
ability to borrow at interest rates consistent with the interest
rates that were available to us prior to such downgrades. This may
limit our ability to sell additional debt securities or borrow
money in the amounts, at the times or interest rates, or upon the
terms and conditions that would have been available to us if our
previous credit ratings had been maintained.
Additional risks related to our business and operations
The widespread
outbreak of an illness or any other communicable disease, or any
other public health crisis, such as the
COVID-19
pandemic, could adversely affect our business, results of
operations and financial condition.
The
COVID-19
pandemic has negatively impacted the global economy, disrupted
global supply chains and created significant volatility and
disruption of financial markets. The virus has spread globally to
multiple countries and regions, including to the United States,
certain European countries, Israel, India and Latin America,
where we currently manufacture most of our products and conduct our
clinical trials. The potential closure of our facilities in these
or other areas in which we operate, or other protectionist measures
or restrictions inhibiting our employees’ ability to access our
facilities, may materially affect our operations, including
potentially interrupting our manufacturing, supply chain, clinical
trial and
pre-commercial
launch activities. The
COVID-19
pandemic may also affect our employees as well as employees and
operations at third-party manufacturers or suppliers that may
result in delays or disruptions in manufacturing and supply. The
COVID-19
pandemic has also led to a new working environment, which may
affect employee wellbeing and engagement, causing stress and fear
of returning to work at the office. This in turn may result in
lower productivity and motivation among employees.
In 2020, we did not experience significant impacts or delays from
the
COVID-19
pandemic on our business operations. We have experienced minimal
delays in clinical trials due to cessation or slow-downs of
recruitment for patient studies and suspended regulatory
inspections, delays in regulatory approvals of new products due to
reduced capacity or
re-prioritization
of regulatory agencies and delays in
pre-commercial
launch activities. In addition, we experienced slightly lower
demand due to less physician and hospital activity in certain
regions and for certain medicines in the second half of 2020
resulting from the impact of the
COVID-19
pandemic. While we expect to be able to continue our operations and
to satisfy the demand for our products, while protecting the health
and safety of our employees and customers, the uncertainty
surrounding the full economic implications of the pandemic may
result in a period of business disruption. Any
COVID-19
related disruption could have a material adverse impact on our
business and our results of operation and financial condition.
Changes in patient behavior resulting in less visits to physicians
and medical facilities, or increased layoffs in the U.S. employment
market, which may affect healthcare benefits coverage, have caused
a decline or slower growth in the number of patients diagnosed with
diseases for which we produce treatments, and if this trend
continues or worsens, our revenues could be adversely affected. In
addition, a recession or market correction resulting from the
spread of
COVID-19
could materially affect our business, the value of our shares and
our access to the capital and credit markets including our
liquidity and cash resources. The new working environment, with
many employees working remotely, has exposed many companies to
cyber-attacks and data security breaches. If such breach were to
occur, it may have a material adverse effect on our business,
operations and reputation.
We have taken precautionary measures, and may take additional
measures, intended to minimize the risk of the
COVID-19
pandemic to our employees and operations. The extent of the impact
of the
COVID-19
pandemic on our operational and financial performance, including
our ability to execute our business strategies in the expected time
frame or at all, will depend on future developments, such as the
duration and spread of the
COVID-19
pandemic and long-term impact on the world’s economy, all of which
are uncertain and cannot be predicted.
Implementation of
ongoing optimization efforts may adversely affect our business,
financial condition and results of operations.
We may face wrongful termination, discrimination or other legal
claims from employees affected by ongoing changes in our workforce.
We may incur substantial costs defending against such claims,
regardless of their merits, and such claims may significantly
increase our severance costs. Additionally, we may see variances in
the estimated severance costs depending on the category of
employees and locations in which severance is incurred.
Upon the proposed divestiture of any facility in connection with
our ongoing plant optimization, we may not be able to divest such
facility at a favorable price or in a timely manner. Any
divestiture that we are unable to complete may cause additional
costs associated with retaining the facility or closing and
disposing of the impacted businesses.
Any workforce reduction and site consolidation may result in the
loss of numerous long-term employees, the loss of institutional
knowledge and expertise, the reallocation of certain job
responsibilities and the disruption of business continuity, all of
which could negatively affect operational efficiencies and our
ability to achieve growth and profitability through the development
and sale of new pharmaceutical products.
We cannot guarantee that, following such efficiency measures, our
business will be more efficient or effective.
Our continued
success depends on our ability to attract, hire and retain highly
skilled key personnel.
Given the size, complexity and global reach of our business and our
multiple areas of focus, we are especially reliant upon our ability
to recruit and retain highly qualified management and other key
employees. Our ability to attract and retain such employees may be
diminished by the financial, legal and regulatory challenges we
have faced in recent years. In addition, the success of our R&D
activity depends on our ability to attract and retain sufficient
numbers of skilled scientific personnel, which may be limited due
to our R&D spending and programs. Any difficulty in recruiting,
hiring, retaining and motivating talented and skilled members of
our organization may delay or prevent the achievement of major
business objectives.
Manufacturing or
quality control problems may damage our reputation for quality
production, demand costly remedial activities and negatively impact
our financial results.
As a pharmaceutical company, we are subject to substantial
regulation by various governmental authorities. For instance, we
must comply with requirements of the FDA, EMA and other healthcare
regulators with respect to the manufacture, labeling, sale,
distribution, marketing, advertising, promotion and development of
pharmaceutical products. Failure to strictly and promptly comply
with these regulations and requirements may damage our reputation
and lead to financial penalties, compliance expenditures associated
with remediation efforts, the recall or seizure of products, total
or partial suspension of production and/or distribution, suspension
of the applicable regulator’s review of our submissions,
enforcement actions, injunctions and criminal prosecution.
We must register our facilities, whether located in the United
States or elsewhere, with the FDA for products sold in the United
States, and with other regulators outside the United States for
products sold outside of the United States. Our products must be
produced in a manner consistent with cGMP, or similar quality and
compliance standards in each territory in which we manufacture. In
addition, the FDA and other agencies periodically inspect our
manufacturing facilities. Following an inspection, an agency may
issue a notice listing conditions that are believed to violate cGMP
or other regulations, or a warning letter for violations of
“regulatory significance” that may result in enforcement action if
not promptly and adequately corrected.
In recent years, regulatory agencies around the world have
increased their scrutiny of pharmaceutical manufacturers. This has
resulted in requests for product recalls, temporary plant shutdowns
to address specific issues and other remedial actions. Our
manufacturing facilities, as well as those of our vendors and
manufacturing partners, have also been the subject of increased
regulatory oversight, leading to increased expenditures required to
ensure compliance with new or more stringent production and quality
control regulations. For information regarding significant
regulatory events, see note 15 to our consolidated financial
statements.
These regulatory actions also adversely affected our ability to
supply various products around the world and to obtain approvals
for new products manufactured at the affected facilities. If any
regulatory body were to require one or more of our significant
manufacturing facilities to cease or limit production, our business
and reputation could be adversely affected. In addition, because
regulatory approval to manufacture a drug is site-specific, the
delay and cost of remedial actions or obtaining approval to
manufacture at a different facility could also have a material
adverse effect on our business, financial condition and results of
operations.
The manufacture of
our products is highly complex, and an interruption in our supply
chain or problems with internal or third party information
technology systems could adversely affect our results of
operations.
Our products are either manufactured at our own facilities or
obtained through supply agreements with third parties. Many of our
products are the result of complex manufacturing processes, and
some require highly
specialized raw materials. Problems may arise during manufacturing
for a variety of reasons, including equipment malfunction, failure
to follow specific protocols and procedures, problems with or
shortages of raw materials, natural disasters, and environmental
factors. For some of our key raw materials, we have only a single,
external source of supply, and alternate sources of supply may not
be readily available. If our supply of certain raw materials or
finished products is interrupted from time to time, or proves
insufficient to meet demand, our cash flows and results of
operations could be adversely impacted. Moreover, the streamlining
of our manufacturing network may result in our product supply
becoming more dependent on a smaller number of specific
manufacturing plants. Our inability to timely manufacture any of
our key products may result in claims and penalties from customers
and could have a material adverse effect on our business, financial
condition and results of operations.
In recent years, medicine shortages have become an increasingly
widespread problem around the world and particularly in Europe. We
are working diligently across our supply chain to ensure continuous
and stable supply. Many European countries are implementing legal
and regulatory measures, such as mandatory stockpiling and high
penalties in order to prevent supply disruptions. Such measures may
lead to substantial monetary losses in case we experience long-term
supply disruptions in the relevant territories.
We also rely on complex shipping arrangements to and from the
various facilities of our supply chain. Customs clearance and
shipping by land, air or sea routes rely on and may be affected by
factors that are not in our full control or are hard to
predict.
In addition, we rely on complex information technology systems,
including Internet-based systems, to support our supply-chain
processes as well as internal and external communications. The size
and complexity of our systems make them potentially vulnerable to
breakdown or interruption, whether due to computer viruses, lack of
system upgrades or other causes that may result in the loss of key
information or the impairment of production and other supply chain
processes. Such disruptions and breaches of security could have a
material adverse effect on our business, financial condition and
results of operation.
Significant
disruptions of our information technology systems could adversely
affect our business.
We rely extensively on information technology systems in order to
conduct business, including some systems that are managed by
third-party service providers. These systems include, but are not
limited to, programs and processes relating to internal and
external communications, ordering and managing materials from
suppliers, converting materials to finished products, shipping
products to customers, processing transactions, summarizing and
reporting results of operations, and complying with regulatory,
legal or tax requirements. These information technology systems
could be damaged or cease to function properly due to the poor
performance or failure of third-party service providers,
catastrophic events, power outages, network outages, failed
upgrades or other similar events. If our business continuity plans
do not effectively resolve such issues on a timely basis, we may
suffer significant interruptions in conducting our business, which
may adversely impact our business, financial condition and results
of operations.
Furthermore, our systems and networks have been, and are expected
to continue to be, the target of advanced cyber-attacks which may
pose a risk to the security of our systems and the confidentiality,
availability and integrity of our data, as well as disrupt our
operations or damage our facilities or those of third parties. As
cybersecurity threats rapidly evolve in sophistication and become
more prevalent, we are continually increasing our attention to
these threats. We assess potential threats and vulnerabilities and
make investments seeking to address them, including ongoing
monitoring and updating of networks and systems, increasing
specialized information security skills, deploying employee
security training and updating our security policies. However,
because the techniques, tools and tactics used in cyber-attacks
frequently change and may be difficult to detect for periods of
time, we may face difficulties in anticipating and implementing
adequate preventative measures or fully mitigating harms after such
an attack. In addition, hardware, software or applications we
develop or procure from third parties may contain defects in design
or manufacture or other problems that could unexpectedly
compromise information security. We outsource administration of
certain functions to vendors that could be targets of
cyber-attacks. Any theft, loss and/or fraudulent use of customer,
employee or proprietary data as a result of a cyber-attack
targeting us or one of our third-party service providers could
subject us to significant litigation, liability and costs, as well
as adversely impact our reputation with customers and regulators,
among others. A significant cyber-attack on our information
technology systems may lead to substantial interruptions in our
business, legal claims and liability, regulatory investigations and
penalties, and reputational damage, which could have a material
adverse effect on our business, financial condition and results of
operations. While we maintain insurance coverage that is designed
to address certain aspects of cyber risks, such insurance coverage
may be insufficient to cover all losses or all types of claims that
may arise in the event we experience a cybersecurity incident, data
security breach or disruption, unauthorized access or failure of
systems.
A significant data
security breach could adversely affect our business and
reputation.
In the ordinary course of our business, we collect and store
sensitive data in our data centers and on our networks, including
intellectual property, proprietary business information (both ours
and that of our customers, suppliers and business partners) and
personally identifiable information of our employees. We are
subject to laws and regulations governing the collection, use and
transmission of personal information, including health information.
As the legislative and regulatory landscape for data privacy and
protection continues to evolve around the world, there has been an
increasing focus on privacy and data protection issues that may
affect our business, including the U.S.’s federal Health Insurance
Portability and Accountability Act of 1996, as amended (“HIPAA”),
the EU’s General Data Protection Regulation (“GDPR”), California
Consumer Privacy Act (“CCPA”) and other laws and regulations
governing the collection, use, disclosure and transmission of data
in other jurisdictions. Although Teva is not HIPAA-regulated, we do
business with customers who are, and increased focus on compliance
with HIPAA and state laws that govern the privacy and security of
medical data may impact our business.
HIPAA mandates the adoption of specific standards for electronic
transactions and code sets that are used to transmit certain types
of health information. To protect the information transmitted using
the mandated standards and the patient information used in the
daily operations of a covered entity, HIPAA also sets forth federal
rules protecting the privacy and security of protected health
information (“PHI”). The law provides both criminal and civil fines
and penalties for covered entities that fail to comply with HIPAA.
Under HIPAA, covered entities must establish administrative,
physical and technical safeguards to protect the confidentiality,
integrity and availability of electronic PHI maintained or
transmitted by them or by others on their behalf. Covered entities
we engage are in material compliance with the privacy, security and
National Provider Identifier requirements of HIPAA and state laws
that regulate the privacy and security of medical data.
The Health Information Technology for Economic and Clinical Health
(“HITECH”) Act imposed certain of the HIPAA privacy and security
requirements directly upon business associates of covered entities
and significantly increased the monetary penalties for violations
of HIPAA. Regulations also require business associates to notify
covered entities, who in turn must notify affected individuals and
government authorities, of data security breaches involving
unsecured PHI. Since the passage of the HITECH Act, enforcement of
HIPAA violations has increased.
We have procedures in place to detect and respond to data security
incidents. If our efforts to protect the security of information
about our customers, suppliers and employees are unsuccessful, a
significant data security breach may result in costly government
enforcement actions, private litigation and negative publicity
resulting in reputation or brand damage with customers, and our
business, financial condition, results of operations or prospects
could suffer.
Because our
facilities are located throughout the world, we are subject to
varying intellectual property laws that may adversely affect our
ability to manufacture our products.
We are subject to intellectual property laws in all countries where
we have manufacturing facilities. Modifications of such laws or
court decisions regarding such laws may adversely affect us and may
impact our ability to produce and export products manufactured in
any such country in a timely fashion. Additionally, the existence
of third-party patents in such countries, with the attendant risk
of litigation, may cause us to move production to a different
country (potentially leading to significant production delays) or
otherwise adversely affect our ability to export certain products
from such countries.
We have significant
operations globally, including in countries that may be adversely
affected by political or economic instability, major hostilities or
acts of terrorism, which exposes us to risks and challenges
associated with conducting business internationally.
We are a global pharmaceutical company with worldwide operations.
Although approximately 51% of our sales are in the United States
and Western Europe, an increasing portion of our sales and
operational network are located in other regions, such as Latin
America, Central and Eastern Europe and Asia, which may be more
susceptible to political and economic instability. Other countries
and regions, such as the United States and Western Europe, also
face potential instability due to political and other developments.
In addition, in the United States, the executive administration has
discussed, and in some cases implemented, changes with respect to
certain trade policies, tariffs and other government regulations
affecting trade between the United States and other countries. As a
company that manufactures most of its products outside the United
States, a “border adjustment tax” or other restriction on trade, if
enacted, may have a material adverse effect on our business,
financial condition and results of operations. In addition, given
that a significant portion of our business is conducted in the
European Union, including the U.K., the formal change in the
relationship between the U.K. and the European Union caused by the
U.K. referendum to leave the European Union, referred to as
“Brexit,” may pose certain implications to our research, commercial
and general business operations in the U.K. and the European Union,
including the approval and supply of our products. On
December 24, 2020, the United Kingdom and European Union
agreed on a new Trade and Cooperation Agreement and on
December 31, 2020, the United Kingdom formally left the
transition period. The Trade and Cooperation Agreement is
comprehensive, but does not cover all areas of regulation pertinent
to the pharmaceutical industry, so certain complexities remain.
This finalization of the long-term relationship between the United
Kingdom and the European Union will dictate how the European Union
will be impacted and may result in an impact on our business
operations in Europe.
Significant portions of our operations are conducted outside the
markets in which our products are sold, and accordingly we often
import a substantial number of products into such markets. We may,
therefore, be denied access to our customers or suppliers or denied
the ability to ship products from any of our sites as a result of a
closing of the borders of the countries in which we sell our
products, or in which our operations are located, due to economic,
legislative, political and military conditions, including
hostilities and acts of terror, in such countries. In addition,
certain countries have put regulations in place requiring local
manufacturing of goods, while foreign-made products are subject to
pricing penalties or even bans from participation in public
procurement auctions.
We face additional risks inherent in conducting business
internationally, including compliance with laws and regulations of
many jurisdictions that apply to our international operations.
These laws and regulations include data privacy requirements, labor
relations laws, tax laws, competition regulations, import and trade
restrictions, economic sanctions, export requirements, the Foreign
Corrupt Practices Act (“FCPA”), the UK Bribery Act 2010 and other
local laws that prohibit corrupt payments to governmental officials
or certain payments or remunerations to customers. Given the high
level of complexity of these laws, there is a risk that some
provisions may be breached by us, for example through fraudulent or
negligent behavior of individual employees (or third parties acting
on our behalf), our failure to comply with certain formal
documentation requirements, or otherwise. Actions by our employees,
or by third-party intermediaries acting on our behalf, in
violation of such laws, whether carried out in the United States or
elsewhere in connection with the conduct of our business have
exposed us, and may further expose us, to significant liability for
violations of the FCPA or other anti-corruption laws. In 2016, we
paid a monetary fine for FCPA violations and entered into a three
year deferred prosecution agreement with the DOJ, which included
retaining an independent compliance monitor. Violations of these
laws and regulations could result in fines, criminal sanctions
against us, our officers or our employees, requirements to obtain
export licenses, cessation of business activities in sanctioned
countries, implementation of compliance programs and prohibitions
on the conduct of our business. Any such violation could include
prohibitions on our ability to offer our products in one or more
countries and could materially damage our reputation, our brand,
our ability to attract and retain employees, our business, our
financial condition and our results of operations.
Our corporate headquarters and a sizable portion of our
manufacturing activities are located in Israel. Our Israeli
operations are dependent upon materials imported from outside
Israel. Accordingly, our operations could be materially and
adversely affected by acts of terrorism or if major hostilities
were to occur in the Middle East or trade between Israel and its
present trading partners were materially impaired, including as a
result of acts of terrorism in the United States or
elsewhere.
We are subject to
extensive pharmaceutical regulation, which can be costly and
subject our business to disruption, delays and potential
penalties.
We are subject to extensive regulation by the FDA and various other
U.S. federal and state authorities, the EMA and other foreign
regulatory authorities. The process of obtaining regulatory
approvals to market a drug or medical device can be costly and
time-consuming, and approvals might not be granted for future
products, or additional indications or uses of existing products,
on a timely basis, if at all. Delays in the receipt of, or failure
to obtain approvals for, future products, or new indications and
uses, could result in delayed realization of product revenues,
reduction in revenues and substantial additional costs. For
example, in the last three years, we experienced delays in
obtaining anticipated approvals for various generic and specialty
products, and during 2020 the
COVID-19
pandemic caused some delays in approvals due to travel and work
restrictions. We may continue to experience similar delays.
In addition, no assurance can be given that we will remain in
compliance with applicable FDA and other regulatory requirements
once approval or marketing authorization has been obtained for a
product. These requirements include, among other things,
regulations regarding manufacturing practices, product labeling,
and advertising and post marketing reporting, including adverse
event reports and field alerts due to manufacturing quality
concerns. Our facilities are subject to ongoing regulation,
including periodic inspection by the FDA and other regulatory
authorities, and we must incur expense and expend effort to ensure
compliance with these complex regulations. In addition, we are
subject to regulations in various jurisdictions, including the
Federal Drug Supply Chain Security Act in the U.S., the Falsified
Medicines Directive in the EU and many other such regulations in
other countries that require us to develop electronic systems to
serialize, track, trace and authenticate units of our products
through the supply chain and distribution system. Compliance with
these regulations may result in increased expenses for us or impose
greater administrative burdens on our organization, and failure to
meet these requirements could result in fines or other
penalties.
Failure to comply with all applicable regulatory requirements may
subject us to operating restrictions and criminal prosecution,
monetary penalties and other disciplinary actions, including,
sanctions, warning letters, product seizures, recalls, fines,
injunctions, suspension, shutdown of production, revocation of
approvals or the inability to obtain future approvals, or exclusion
from future participation in government healthcare programs. Any of
these events could disrupt our business and have a material adverse
effect on our revenues, profitability and financial
condition.
Healthcare reforms,
and related reductions in pharmaceutical pricing, reimbursement and
coverage, by governmental authorities and third-party payers may
adversely affect our business.
The continuing increase in expenditures for healthcare has been the
subject of considerable government attention almost everywhere we
conduct business. Both private health insurance funds and
government health authorities continue to seek ways to reduce or
contain healthcare costs, including by reducing or eliminating
coverage for certain products and lowering reimbursement levels.
The focus on reducing or containing healthcare costs has been
increased by controversies, political debate and publicity about
prices for pharmaceutical products that some consider excessive,
including Congressional and other inquiries into drug pricing,
including with respect to our specialty medicines, which could have
a material adverse effect on our reputation. In most of the
countries and regions where we operate, including the United
States, Western Europe, Israel, Russia, Japan, certain countries in
Central and Eastern Europe and several countries in Latin America,
pharmaceutical prices are subject to new government policies
designed to reduce healthcare costs, and may be subject to
additional regulatory efforts, funding restrictions, legislative
proposals, policy interpretations, investigations and legal
proceedings regarding pricing practices. These changes frequently
adversely affect pricing and profitability and may cause delays in
market entry. Certain U.S. states have implemented, and other
states are considering, pharmaceutical price controls or patient
access constraints under the Medicaid program, and some
jurisdictions have implemented or are considering price-control
regimes that would apply to broader segments of their populations
that are not Medicaid-eligible. Private third-party payers, such as
health plans, increasingly challenge pharmaceutical product
pricing, which could result in lower prices, lower reimbursement
rates and a reduction in demand for our products. We cannot predict
which additional measures may be adopted or the impact of current
and additional measures on the marketing, pricing and demand for
our products, which could have a material adverse effect on our
business, financial condition and results of operations.
Significant developments that may adversely affect pricing in the
United States include Medicare reforms by Congress and regulatory
changes to Medicare Part B (physician administered drugs) and
Medicare Part D (prescription drug benefit), additional changes to
the Affordable Care Act (“ACA”) under the Biden Administration and
trends in the practices of managed care groups and institutional
and governmental purchasers, including the impact of consolidation
of our customers. In particular, additional pressure to reduce
health care costs in states is critical as the
COVID-19
pandemic strained state healthcare budgets and swelled Medicaid
rolls due to economic downturns and job loss. Many new
Medicaid recipients were previously covered under
employer-sponsored plans.
The branded pharmaceutical industry faces uncertainty regarding
whether the Interim Final Rule (IFR) published on November 27,
2020 by the CMS will survive pending court challenges. Originally
set to be effective January 1, 2021, the IFR imposes a
mandatory Most Favored Nation (MFN) pricing model on fifty
single-source drugs and biologics (including biosimilars)
reimbursed by Medicare Part B, to be administered by the
Centers for Medicare and Medicaid Innovation. PhRMA, the
Biotechnology Industry Organization (BIO), a biotechnology company,
and several patient support groups filed litigation to enjoin the
implementation process and allow for more thoughtful deliberations
over the imposition of drug price control proposals. On
December 28, 2020, the court in the BIO case imposed a preliminary
injunction on implementation of the IFR pending completion of
regulatory notice-and-comment requirements by CMS. Subsequently, on
January 13, 2021 the DOJ and PhRMA agreed to stay their litigation
(which sought a similar national injunction of IFR implementation)
until a final rule based on the IFR is published in the Federal
Register. As a result, while the IFR as published will not go into
effect, CMS could propose pricing changes similar to the IFR in the
future, albeit with more notice and opportunity for stakeholders to
participate in the regulatory process. There is likely to be
consideration of Medicare Part D reform as well, which could impact
pricing policies, such as direct price negotiation between the U.S.
Department of Health and Human Services and manufacturers.
Increased purchasing power of entities that negotiate on behalf of
Medicare, Medicaid, and private sector beneficiaries may result in
increased pricing pressure by influencing the reimbursement
policies of third-party payers. Healthcare reform legislation has
increased the number of patients who have insurance coverage for
our
products, but provisions such as the assessment of a branded
pharmaceutical manufacturer fee and an increase in the amount of
rebates that manufacturers pay for coverage of their drugs by
Medicaid programs may have an adverse effect on us. It is uncertain
how current and future reforms in these areas will influence the
future of our business operations and financial condition. In
addition, “tender systems” for generic pharmaceuticals have been
implemented (by both public and private entities) in a number of
significant markets in which we operate, including in some European
markets, in an effort to lower prices. Under such tender systems,
manufacturers submit bids that establish prices for generic
pharmaceutical products. These measures impact marketing practices
and reimbursement of drugs and may further increase pressure on
reimbursement margins. Certain other countries may consider the
implementation of a tender system. Failing to win tenders or our
withdrawal from participating in tenders, or the implementation of
similar systems in other markets leading to further price declines,
could have a material adverse effect on our business, financial
position and results of operations.
A significant
portion of our revenues is derived from sales to a limited number
of customers.
A significant portion of our revenues is derived from sales to a
limited number of customers. If we were to experience a significant
reduction in or loss of business with one or more such customers,
or if one or more such customers were to experience difficulty in
paying us on a timely basis, our business, financial condition and
results of operations could be materially adversely affected. For a
description of our revenue from our main customers, see note 19 to
our consolidated financial statements.
We may not be able
to find or successfully bid for suitable acquisition targets or
licensing opportunities, or consummate and integrate future
acquisitions.
We may evaluate or pursue potential acquisitions, strategic
alliances and licenses, among other transactions, as part of our
business strategy. Relying on acquisitions, licensing agreements
and other transactions as sources of new specialty, biosimilar and
other products, or as a means of growth, involves risks that could
adversely affect our future revenues and operating results. We may
not be successful in seeking or consummating appropriate
opportunities to enable us to execute our business strategy. We may
not be able to pursue relevant acquisitions and licensing
opportunities due to financial capacity constraints, and we may not
be able to obtain necessary regulatory approvals, including those
of competition authorities, and as a result, or for other reasons,
we may fail to consummate an announced acquisition. We may fail to
integrate acquisitions successfully into our existing business, and
could incur or assume significant debt and unknown or contingent
liabilities, including, among others, patent infringement or
product liability claims. In addition, partners for which we may
enter into licensing or other collaboration agreements may not be
able to perform their responsibilities challenging the ability to
monetize opportunities related to them.
We may decide to
sell assets, which could adversely affect our prospects and
opportunities for growth.
We may from time to time consider selling certain assets if we
determine that such assets are not critical to our strategy or we
believe the opportunity to monetize the asset is attractive or for
various other reasons, including for the reduction of indebtedness.
We closed or divested a significant number of manufacturing plants
and R&D facilities between 2017 and 2019 in connection with our
restructuring plan and may close or divest additional plants and
facilities as part of our ongoing efficiency measures and plant
rationalization process. We have explored and may continue to
explore the sale of certain
non-core
assets. We may fail to identify appropriate opportunities to divest
assets on terms acceptable to us or may fail to transition
employees and continuing operations from disposed businesses
efficiently. If divestiture opportunities are found, consummation
of any such divestiture may be subject to closing conditions,
including obtaining necessary regulatory approvals, including those
of competition authorities, and as a result, or for other reasons,
we may fail to consummate an announced divestiture. Although our
expectation is to engage in asset sales only if they advance or
otherwise support our overall strategy, any such sale could reduce
the size or scope of our business, the durability of our
manufacturing network, our market share in particular markets or
our opportunities with respect to certain markets.
Compliance, regulatory and litigation risks
Our operations are
subject to complex legal and regulatory environments. If we fail to
comply with applicable laws and regulations we may suffer legal
consequences that may have a material effect on our business,
operations or reputation.
We operate around the world in complex legal and regulatory
environments. Any failure to comply with applicable laws, rules and
regulations may result in civil and/or criminal legal proceedings
and lead to fines, damages, mandated compliance programs and other
sanctions and remedies that may materially affect our business and
operations as well as our reputation. In addition, as rules and
regulations change or as interpretations of those rules and
regulations evolve, our prior conduct or that of companies we have
acquired may be investigated.
Examples of rules and regulations impacting our operations include
rules and regulations applicable to the sales and marketing of our
products, competition laws, trade control laws, anti-bribery laws,
privacy laws, compliance with cGMP, labor laws, safety and laws
regarding manufacturing practices, product labeling, advertising
and post marketing reporting including adverse event reports and
field alerts due to manufacturing quality concerns, tax and
financial reporting laws and environmental laws.
We are currently subject to several governmental and civil
proceedings and litigations relating to our pricing and marketing
practices, intellectual property, product liability, competition
matters, opioids, securities disclosure and corporate governance
and environmental matters. These investigations and litigations are
costly and involve a significant diversion of management attention.
Such proceedings are unpredictable and may develop over lengthy
periods of time. An adverse resolution of these proceedings may
result in large monetary fines, damages, additional litigation,
such as securities and derivative actions, and other
non-monetary
sanctions and remedies, such as mandated compliance agreements,
which can be expensive and disruptive to operations.
Public concern over
the abuse of opioid medications, including increased
legal and regulatory action, could negatively affect our
business.
Certain governmental and regulatory agencies are focused on the
abuse of opioid medications in the United States. U.S. federal,
state and local governmental and regulatory agencies are conducting
investigations of us, other pharmaceutical manufacturers and other
supply chain participants with regard to the manufacture, sale,
marketing and distribution of opioid medications. A number of state
attorneys general, including a coordinated multistate effort, are
investigating our sales and marketing of opioids, and we have
received subpoenas from the DOJ seeking documents relating to the
manufacture, marketing and sale of opioid medications. In addition,
we are currently litigating civil claims and administrative actions
brought by various states and political subdivisions as well as
private claimants, against various manufacturers, distributors and
retail pharmacies throughout the United States in connection with
our manufacture, sale and distribution of opioids. Also, several
jurisdictions and consumers in Canada have initiated litigation
regarding opioids alleging similar claims as those in the United
States, and we may be sued in other jurisdictions globally for
similar claims as well. For further information, including on a
nation-wide framework agreement we entered into with a group of
attorney generals, see “Opioids Litigation” in note 12 to our
consolidated financial statements.
In addition to the costs and potential consequences associated with
defending the governmental investigations and legal proceedings,
legislative, regulatory or industry measures to address the misuse
of prescription opioid medications may also affect our business in
ways that we are not able to predict. For example, a number of
states, including New York, have enacted legislation that requires
the payment of assessments or taxes on the sale or distribution of
opioid medications in those states. If other state or local
jurisdictions successfully enact similar legislation and we are not
able to mitigate the impact on our business through operational
changes or commercial arrangements, such legislation in the
aggregate may have a material adverse effect on our business,
financial condition and results of operations.
Furthermore, we utilize controlled substances in certain of our
current products and products in development, and therefore must
meet the requirements of the Controlled Substances Act of 1970 and
related regulations administered by the DEA in the U.S., as well as
the requirements of similar laws and regulations in other countries
where we operate, relating to the manufacture, shipment, storage,
sale, and use of controlled substances. While we are committed to
compliance and have robust compliance systems in place, risk
associated with these laws and regulations cannot be entirely
eliminated by policies and procedures. The DEA and other regulatory
agencies also set annual procurement quotas that limit the
availability of the controlled substances used in certain of our
current products and products in development, and quota levels may
impact our ability to meet commercial demand or complete clinical
trials. In addition, prescription drug abuse and the diversion of
opioids and other controlled substances are the frequent subject of
public attention, which presents significant reputational risk. The
occurrence of any of the above risks could have a material adverse
effect on our business, financial condition, results of operations,
cash flows, and/or share price.
The pharmaceutical
sector is facing increased government scrutiny from competition and
pricing authorities around the world, which may expose us to
significant damages and commercial restrictions that can materially
and adversely affect our business.
We are required to comply with competition laws in the territories
where we do business around the world. Compliance with these laws
has been the subject of increasing focus and activity by regulatory
authorities, both in the United States and Europe, in recent years.
Alleged actions by our employees, in violation of such laws, or
evolving interpretations of competition law as applicable to
certain practices, have exposed us, and may further expose us, to
investigations and legal proceedings, which may result in
significant liability for violations of competition laws, which may
have a material adverse effect on our reputation, business,
financial condition and results of operations.
We are subject to a DOJ civil investigation and a criminal
indictment charging Teva USA with criminal felony Sherman Act
violations, that, if resulting in a conviction or guilty plea,
could have a material adverse effect on our business, including
monetary penalties, debarment from federally funded health care
programs and reputational harm. In addition, we are a party to
numerous civil claims brought by state officials and private
plaintiffs alleging that Teva, together with other pharmaceutical
manufacturers, engaged in conspiracies to fix prices and/or
allocate market share of generic products in the United
States.
We have been involved in numerous litigations involving challenges
to the validity or enforceability of listed patents (including our
own), and therefore settling patent litigations has been and will
likely continue to be an important part of our business. We have
been facing increased scrutiny of our patent settlements, including
from the U.S. Federal Trade Commission (“FTC”) and the European
Commission. Accordingly, we may receive formal or informal requests
from competition law authorities around the world for information
about a particular settlement agreement, and there is a risk that
governmental authorities, customers, other downstream purchasers or
others may commence actions against us alleging violations of
antitrust laws. We are currently defendants in antitrust actions
brought by U.S. states, the European Commission and private
plaintiffs involving numerous settlement agreements and, since
2015, we are subject to a consent decree with the FTC, which
imposes on us certain injunctive reliefs with respect to our
ability to enter into patent settlements in the United States. The
U.S. Congress and certain state legislatures in the United States
have also passed, or proposed passing, legislation that could
adversely impact our ability to settle patent litigations. For
example, the State of California has enacted legislation that
prohibits, with certain exceptions and safe harbors, various types
of patent litigation settlements, and imposes substantial monetary
penalties on companies and individuals who do not comply. Such
legislation creates a risk of significant potential exposure for
settling patent litigations and, in turn, makes it more difficult
to settle in the first place, which could have a material adverse
effect on our business.
Following calls in recent years from policy makers and other
stakeholders in many countries for governmental intervention
against the high prices of certain pharmaceutical products, we are
currently, and may in the future be, subject to governmental
investigations, claims or other legal or regulatory actions
regarding our
pricing and/or other alleged exclusionary practices. These include
U.S. Congressional investigations regarding both our specialty and
generic medicines, the European Commission’s inquiry into COPAXONE
and the U.K. Competition and Markets Authority inquiry regarding
hydrocortisone. Also, in September 2020, the U.S. House Committee
on Oversight and Reform held a hearing focused on pricing of
branded medications, which focused in part on historic pricing of
COPAXONE in the U.S. It is not possible to predict the ultimate
outcome of any such investigations, claims or proceedings or what
other investigations or lawsuits or regulatory responses may result
from such assertions, which could have a material adverse effect on
our reputation, business, financial condition and results of
operations. See note 12 to our consolidated financial statements
for more information on our material investigations, proceedings
and litigations relating to competition law and governmental
investigations.
Third parties may
claim that we infringe their proprietary rights and may prevent us
from manufacturing and selling some of our products, and we have
sold and may in the future elect to sell products prior to the
final resolution of outstanding patent litigation, and, as a
result, we could be subject to liability for damages in the United
States, Europe and other markets where we do business.
Our ability to introduce new products depends in large part upon
the success of our challenges to patent rights held by third
parties or our ability to develop
non-infringing
products. Based upon a variety of legal and commercial factors, we
may elect to sell a product even though patent litigation is still
pending, either before any court decision is rendered or while an
appeal of a lower court decision is pending. The outcome of such
patent litigation could, in certain cases, materially adversely
affect our business. For example, we launched a generic version of
Protonix
®
(pantoprazole) despite pending litigation with the company that
sells the brand versions, which we eventually settled in 2013 for
$1.6 billion. For further details, see note 12 to our
consolidated financial statements.
If we sell products prior to a final court decision, whether in the
United States, Europe or elsewhere, and such decision is adverse to
us, we could be required to cease selling the infringing products,
causing us to lose future sales revenue from such products and to
face substantial liabilities for patent infringement, in the form
of either payment for the innovator’s lost profits or a royalty on
our sales of the infringing products. These damages may be
significant, and could materially adversely affect our business. In
the United States, in the event of a finding of willful
infringement, the damages assessed may be up to three times the
profits lost by the patent owner. Because of the discount pricing
typically involved with generic pharmaceutical products, patented
brand products generally realize a significantly higher profit
margin than generic pharmaceutical products. As a result, the
damages assessed may be significantly higher than our profits. In
addition, even if we do not suffer damages, we may incur
significant legal and related expenses in the course of
successfully defending against infringement claims.
We may be
susceptible to significant product liability claims that are not
covered by insurance.
Our business inherently exposes us to claims for injuries allegedly
resulting from the use of our products. As our portfolio of
available products expands, particularly with new specialty
products, we may experience increases in product liability claims
asserted against us.
Teva maintains an insurance program, which may include commercial
insurance, self-insurance (including direct risk retention), or a
combination of both approaches, in amounts and on terms that it
believes are reasonable and prudent in light of its business and
related risks. Teva sells, and will continue to sell,
pharmaceutical products that are not covered by its product
liability insurance. In addition, it may be subject to claims for
which insurance coverage is denied, as well as claims that exceed
its policy limits. Product liability coverage for pharmaceutical
companies is becoming more expensive and increasingly difficult to
obtain. As a result, Teva may not be able to obtain the type and
amount of insurance it desires, or any insurance on reasonable
terms, in the markets in which it operates. For details regarding
our current material product liability cases, see note 12 to our
consolidated financial statements.
Any failure to
comply with the complex reporting and payment obligations under the
Medicare and Medicaid programs may result in further litigation or
sanctions, in addition to those that we have announced in previous
years.
The U.S. laws and regulations regarding Medicare and/or Medicaid
reimbursement and rebates and other governmental programs are
complex. Some of the applicable laws may impose liability even in
the absence of specific intent to defraud. The subjective decisions
and complex methodologies used in making calculations under these
programs are subject to review and challenge, and it is possible
that such reviews could result in material changes. A number of
state attorney generals and others have filed lawsuits alleging
that we and other pharmaceutical companies reported inflated
average wholesale prices, leading to excessive payments by Medicare
and/or Medicaid for prescription drugs. In addition, the U.S.
government has alleged violations of the federal Anti-Kickback
Statute, and related causes of action under the federal False
Claims Act and state law in connection with Teva’s donations to
patient assistance programs. Such allegations could, if proven or
settled, result in additional monetary penalties (beyond the
lawsuits we have already settled) and possible exclusion from
Medicare, Medicaid and other programs. In addition, we are notified
from time to time of governmental investigations regarding drug
reimbursement or pricing issues. See “Government Investigations and
Litigation Relating to Pricing and Marketing” in note 12 to our
consolidated financial statements. Certain parts of Medicare
benefits are under scrutiny, as the U.S. Congress looks for ways to
reduce government spending on prescription medicines.
Sanctions and other
trade control laws create the potential for significant
liabilities, penalties and reputational harm.
As a company with global operations, we may be subject to national
laws as well as international treaties and conventions controlling
imports, exports,
re-export,
transfer and diversion of goods (including finished goods,
materials, APIs, packaging materials, other products and machines),
services and technology. These include import and customs laws,
export controls, trade embargoes and economic sanctions,
restrictions on sales to parties that are listed on (or are owned
or controlled by one or more parties listed on) denied party watch
lists and anti-boycott measures (collectively “Customs and Trade
Controls”). Applicable Customs and Trade Controls are administered
by Israel’s Ministry of Finance, the U.S. Treasury’s Office of
Foreign Assets Control (OFAC), the U.S. Department of Commerce,
other U.S. agencies and multiple other agencies of other
jurisdictions around the world where we do business. Customs and
Trade Controls relate to a number of aspects of our business,
including most notably the sales of finished goods and API as well
as the licensing of our intellectual property. Compliance with
Customs and Trade Controls has been the subject of increasing focus
and activity by regulatory authorities, both in the United States
and elsewhere, in recent years, and requirements under applicable
Customs and Trade Controls in general, change frequently. Although
we have policies and procedures designed to address compliance with
Customs and Trade Controls, actions by our employees, by
third-party intermediaries (such as distributors and wholesalers)
or others acting on our behalf in violation of relevant laws and
regulations may expose us to liability and penalties for violations
of Customs and Trade Controls and accordingly may have a material
adverse effect on our reputation and our business, financial
condition and results of operations.
Our failure to
comply with applicable environmental laws and regulations worldwide
could adversely impact our business and results of
operations.
We are subject to laws and regulations concerning the environment,
safety matters, regulation of chemicals and product safety in the
countries where we manufacture and sell our products or otherwise
operate our business. These requirements include regulation of the
handling, manufacture, transportation, storage, use and disposal of
materials, including the discharge of pollutants into the
environment. If we fail to comply with these laws and regulations,
we may be subject to enforcement proceedings including fines and
penalties. In the normal course of our business, we are also
exposed to risks relating to possible releases of hazardous
substances into the environment, which could cause environmental or
property damage or personal injuries, and which could require
remediation of contaminated soil and groundwater. Under certain
laws, we may be required to remediate
contamination at certain of our properties, regardless of whether
the contamination was caused by us or by previous occupants or
users of the property.
Additional financial risks
Because we have
substantial international operations, our sales and profits may be
adversely affected by currency fluctuations and restrictions as
well as credit risks.
In 2020, approximately 48% of revenues were denominated in
currencies other than the U.S. dollar. As a result, we are subject
to significant foreign currency risks, including repatriation
restrictions in certain countries, and may face heightened risks as
we enter new markets. An increasing proportion of our sales,
particularly in Latin America, Central and Eastern European
countries and Asia, are recorded in local currencies, which exposes
us to the direct risk of devaluations, hyperinflation or exchange
rate fluctuations. Exchange rate movements during 2020 in
comparison with 2019, including hedging effects, negatively
impacted overall revenues by $33 million and operating income
(loss) by $56 million. The imposition of price controls or
restrictions on the conversion of foreign currencies could also
have a material adverse effect on our financial results.
In particular, although the majority of our net sales and operating
costs is recorded in, or linked to, the U.S. dollar, our reporting
currency, in 2020 we incurred a substantial amount of operating
costs in currencies other than the U.S. dollar.
As a result, fluctuations in exchange rates between the currencies
in which such costs are incurred and the U.S. dollar may have a
material adverse effect on our results of operations, the value of
balance sheet items denominated in foreign currencies and our
financial condition.
We use derivative financial instruments and “hedging” techniques to
manage our balance sheet and operating income net exposure to
currency exchange rate fluctuations in the major foreign currencies
in which we operate. However, not all of our potential exposure is
covered, and some elements of our consolidated financial
statements, such as our equity position, are not fully protected
against foreign currency exposures. Therefore, our exposure to
exchange rate fluctuations could have a material adverse effect on
our financial results.
Our intangible
assets may continue to lead to significant impairments in the
future.
We regularly review our long-lived assets, including identifiable
intangible assets, goodwill and property, plant and equipment, for
impairment. Goodwill and acquired indefinite life intangible assets
are subject to impairment review on an annual basis and whenever
potential impairment indicators are present. Other long-lived
assets are reviewed when there is an indication that impairment may
have occurred. The amount of goodwill, identifiable intangible
assets and property, plant and equipment on our consolidated
balance sheet may increase following acquisitions or other
collaboration agreements. Changes in market conditions or other
changes in the future outlook of value may lead to further
impairments in the future. In addition, the potential divestment of
assets, including the closure or divestment of manufacturing plants
and R&D facilities, headquarters and other office locations,
may lead to additional impairments. Future events or decisions may
lead to asset impairments and/or related charges. For assets that
are not impaired, we may adjust the remaining useful lives. Certain
non-cash
impairments may result from a change in our strategic goals,
business direction or other factors relating to the overall
business environment. Any significant impairment could have a
material adverse effect on our results of operations. See notes 6
and 7 in our consolidated financial statements, for descriptions of
impairments of intangible assets and goodwill in recent
periods.
Our tax liabilities
could be larger than anticipated.
We are subject to tax in many jurisdictions, and significant
judgment is required in determining our provision for income taxes.
Likewise, we are subject to audit by tax authorities in many
jurisdictions. In such
audits, our interpretation of tax legislation may be challenged and
tax authorities in various jurisdictions may disagree with, and
subsequently challenge, the amount of profits taxed in such
jurisdictions under our inter-company agreements.
Although we believe our estimates are reasonable, the ultimate
outcome of such audits and related litigation could be different
from our provision for taxes and may have a material adverse effect
on our consolidated financial statements and cash flows.
The base erosion and profit shifting (“BEPS”) project undertaken by
the Organization for Economic Cooperation and Development (“OECD”)
may have adverse consequences to our tax liabilities. The BEPS
project contemplates changes to numerous international tax
principles, as well as national tax incentives, and these changes,
when adopted by individual countries, could adversely affect our
provision for income taxes. The first wave of BEPS recommendations
is being implemented by countries in specific national tax laws,
and the OECD is currently working on further initiatives that may
further change current international tax principles. It remains
difficult to predict the magnitude of the effect of such new rules
on our financial results.
The termination or
expiration of governmental programs or tax benefits, or a change in
our business, could adversely affect our overall effective tax
rate.
Our tax expenses and the resulting effective tax rate reflected in
our consolidated financial statements may increase over time as a
result of changes in corporate income tax rates, other changes in
the tax laws of the various countries in which we operate or
changes in our product mix or the mix of countries where we
generate profit. We have benefited, and currently benefit, from a
variety of Israeli and other government programs and tax benefits
that generally carry conditions that we must meet in order to be
eligible to obtain such benefits. If we fail to meet the conditions
upon which certain favorable tax treatment is based, we would not
be able to claim future tax benefits and could be required to
refund tax benefits already received. Additionally, some of these
programs and the related tax benefits are available to us for a
limited number of years, and these benefits expire from time to
time.
Any of the following could have a material effect on our overall
effective tax rate:
| |
• |
|
some government programs may be discontinued, or the applicable tax
rates may increase;
|
| |
• |
|
we may be unable to meet the requirements for continuing to qualify
for some programs and the restructuring plan may lead to the loss
of certain tax benefits we currently receive;
|
| |
• |
|
these programs and tax benefits may be unavailable at their current
levels;
|
| |
• |
|
upon expiration of a particular benefit, we may not be eligible to
participate in a new program or qualify for a new tax benefit that
would offset the loss of the expiring tax benefit; or
|
| |
• |
|
we may be required to refund previously recognized tax benefits if
we are found to be in violation of the stipulated conditions.
|
Shareholder rights
and responsibilities as a shareholder are governed by Israeli law,
which differs in some material respects from the rights and
responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary
shares are governed by our articles of association and by Israeli
law. These rights and responsibilities differ in some material
respects from the rights and responsibilities of shareholders of
U.S. corporations. In particular, a shareholder of an Israeli
company has a duty to act in good faith and in a customary manner
in exercising his or her rights and performing his or her
obligations towards the company and other shareholders, and to
refrain from abusing his or her power in the company, including,
among other things, in voting at a general meeting of shareholders
on matters such as
amendments to a company’s articles of association, increases in a
company’s authorized share capital, mergers and acquisitions and
related party transactions requiring shareholder approval. In
addition, a shareholder who is aware that it possesses the power to
determine the outcome of a shareholder vote or to appoint or
prevent the appointment of a director or executive officer in the
company has a duty of fairness toward the company. There is limited
case law available to assist in understanding the nature of this
duty or the implications of these provisions. These provisions may
be interpreted to impose additional obligations and liabilities on
holders of our ordinary shares that are not typically imposed on
shareholders of U.S. corporations.
Provisions of
Israeli law and our articles of association may delay, prevent or
make difficult an acquisition of us, prevent a change of control
and negatively impact our share price.
Israeli corporate law regulates acquisitions of shares through
tender offers and mergers, requires special approvals for
transactions involving directors, officers or significant
shareholders, and regulates other matters that may be relevant to
these types of transactions. Furthermore, Israeli tax
considerations may make potential acquisition transactions
unappealing to us or to some of our shareholders. For example,
Israeli tax law may subject a shareholder who exchanges his or her
ordinary shares for shares in a foreign corporation to taxation
before disposition of the investment in the foreign corporation.
These provisions of Israeli law may delay, prevent or make
difficult an acquisition of our company, which could prevent a
change of control and, therefore, depress the price of our
shares.
In addition, our articles of association contain certain provisions
that may make it more difficult to acquire us, such as provisions
that provide for a classified board of directors and that our Board
of Directors may issue preferred shares. These provisions may have
the effect of delaying or deterring a change in control of us,
thereby limiting the opportunity for shareholders to receive a
premium for their shares and possibly affecting the price that some
investors are willing to pay for our securities.
Our ADSs and
ordinary shares are traded on different markets and this may result
in price variations.
Our ADSs have been traded in the United States since 1982, and
since 2012 on the New York Stock Exchange (the “NYSE”), and our
ordinary shares have been listed on the TASE since 1951. Trading in
our securities on these markets takes place in different currencies
(our ADSs are traded in U.S. dollars and our ordinary shares are
traded in New Israeli Shekels), and at different times (resulting
from different time zones, different trading days and different
public holidays in the United States and Israel). As a result, the
trading prices of our securities on these two markets may differ
due to these factors. In addition, any decrease in the price of our
securities on one of these markets could cause a decrease in the
trading price of our securities on the other market.
It may be difficult
to enforce a
non-Israeli
judgment against us, our officers and our directors.
We are incorporated in Israel. Certain of our executive officers
and directors and our outside auditors are not residents of the
United States, and a substantial portion of our assets and the
assets of these persons are located outside the United States.
Therefore, it may be difficult for an investor, or any other person
or entity, to enforce against us or any of those persons in an
Israeli court a U.S. court judgment based on the civil liability
provisions of the U.S. federal securities laws. It may also be
difficult to effect service of process on these persons in the
United States. Additionally, it may be difficult for an investor,
or any other person or entity, to enforce civil liabilities under
U.S. federal securities laws in original actions filed in
Israel.
|
|
UNRESOLVED STAFF COMMENTS
|
We own or lease 86 manufacturing and R&D facilities, occupying
approximately 25.2 million square feet. As of
December 31, 2020, our manufacturing and R&D facilities
are used by our business segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
5,125 |
|
|
|
|
|
32 |
|
|
|
12,300 |
|
|
|
|
|
35 |
|
|
|
7,769 |
|
|
|
|
|
|
|
|
|
|
|
Worldwide Total Manufacturing and R&D Facilities
|
|
|
86 |
|
|
|
25,194 |
|
In addition to the manufacturing facilities discussed above, we
maintain numerous office, distribution and warehouse facilities
around the world.
We generally seek to own our manufacturing and R&D facilities,
although some, principally in
non-U.S.
locations, are leased. Office, distribution and warehouse
facilities are often leased.
We are committed to maintaining all of our properties in good
operating condition and repair, and the facilities are well
utilized.
In Israel, our principal executive offices and corporate
headquarters recently relocated from Petach-Tikva to Tel
Aviv-Jaffa. Our executive offices in Petach-Tikva are leased until
December 2021 and we have an operating lease for the office space
in Tel Aviv-Jaffa for an initial term of twelve and a half years,
with an option for three extensions.
In North America, our principal executive offices are our U.S.
headquarters in Parsippany, New Jersey. In Europe, our principal
executive offices are in Amsterdam, the Netherlands.
We are continuing the ongoing review and optimization of our
manufacturing and supply network, which may include closures and/or
divestment of manufacturing plants around the world.
ITEM 3.
LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in “Item
8—Financial Statements—Note 12b.—Contingencies” and is
incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
American Depositary Shares (“ADSs”)
Our ADSs, which have been traded in the United States since 1982,
were admitted to trade on the Nasdaq National Market in October
1987 and were subsequently traded on the Nasdaq Global Select
Market. On May 30, 2012, we transferred the listing of our
ADSs to the New York Stock Exchange (the “NYSE”). The ADSs
are
quoted under the symbol “TEVA.” Citibank, N.A. serves as depositary
for the ADSs. Each ADS represents one ordinary share.
Various other stock exchanges quote derivatives and options on our
ADSs under the symbol “TEVA.”
Our ordinary shares have been listed on the Tel Aviv Stock Exchange
(“TASE”) since 1951.
The number of record holders of ADSs at
December 31, 2020 was 2,747.
The number of record holders of ordinary shares at
December 31, 2020 was 185.
The number of record holders is based upon the actual number of
holders registered on our books at such date and does not include
holders of shares in “street names” or persons, partnerships,
associations, corporations or other entities identified in security
position listings maintained by depository trust companies.
We have not paid dividends on our ordinary shares or ADSs since
December 2017.
Unregistered Sales of Equity Securities and Use of Proceeds
Set forth below is a performance graph comparing the cumulative
total return (assuming reinvestment of dividends), in U.S. dollars,
for the calendar years ended December 31, 2016, 2017, 2018,
2019 and 2020, of $100 invested on December 31, 2015 in the
Company’s ADSs, the Standard & Poor’s 500 Index and the
Dow Jones U.S. Pharmaceuticals Index.
| * |
$100 invested on December 31, 2015 in stock or index—including
reinvestment of dividends. Indexes calculated on
month-end
basis. |
ITEM 6. SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(U.S. dollars in millions, except share and per share amounts)
|
|
Income Statement Data:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,659 |
|
|
|
16,887 |
|
|
|
18,271 |
|
|
|
21,853 |
|
|
|
21,464 |
|
|
|
|
|
8,933 |
|
|
|
9,351 |
|
|
|
9,975 |
|
|
|
11,237 |
|
|
|
9,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,726 |
|
|
|
7,537 |
|
|
|
8,296 |
|
|
|
10,615 |
|
|
|
11,653 |
|
Research and development expenses
|
|
|
997 |
|
|
|
1,010 |
|
|
|
1,213 |
|
|
|
1,778 |
|
|
|
2,077 |
|
Selling and marketing expenses
|
|
|
2,498 |
|
|
|
2,614 |
|
|
|
2,916 |
|
|
|
3,395 |
|
|
|
3,583 |
|
General and administrative expenses
|
|
|
1,173 |
|
|
|
1,192 |
|
|
|
1,298 |
|
|
|
1,451 |
|
|
|
1,390 |
|
Intangible assets impairment
|
|
|
1,502 |
|
|
|
1,639 |
|
|
|
1,991 |
|
|
|
3,238 |
|
|
|
589 |
|
|
|
|
|
4,628 |
|
|
|
— |
|
|
|
3,027 |
|
|
|
17,100 |
|
|
|
900 |
|
Other asset impairments, restructuring and other items
|
|
|
479 |
|
|
|
423 |
|
|
|
987 |
|
|
|
1,836 |
|
|
|
830 |
|
Legal settlements and loss contingencies
|
|
|
60 |
|
|
|
1,178 |
|
|
|
(1,208 |
) |
|
|
500 |
|
|
|
899 |
|
|
|
|
|
(40 |
) |
|
|
(76 |
) |
|
|
(291 |
) |
|
|
(1,199 |
) |
|
|
(769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,572 |
) |
|
|
(443 |
) |
|
|
(1,637 |
) |
|
|
(17,484 |
) |
|
|
2,154 |
|
|
|
|
|
834 |
|
|
|
822 |
|
|
|
959 |
|
|
|
895 |
|
|
|
1,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,406 |
) |
|
|
(1,265 |
) |
|
|
(2,596 |
) |
|
|
(18,379 |
) |
|
|
824 |
|
|
|
|
|
(168 |
) |
|
|
(278 |
) |
|
|
(195 |
) |
|
|
(1,933 |
) |
|
|
521 |
|
Share in (profits) losses of associated companies, net
|
|
|
(138 |
) |
|
|
13 |
|
|
|
71 |
|
|
|
3 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,099 |
) |
|
|
(1,000 |
) |
|
|
(2,472 |
) |
|
|
(16,449 |
) |
|
|
311 |
|
Net income (loss) attributable to
non-controlling
interests |
|
|
(109 |
) |
|
|
(2 |
) |
|
|
(322 |
) |
|
|
(184 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Teva
|
|
|
(3,990 |
) |
|
|
(999 |
) |
|
|
(2,150 |
) |
|
|
(16,265 |
) |
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on preferred shares
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
260 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ordinary shareholders
|
|
|
(3,990 |
) |
|
|
(999 |
) |
|
|
(2,399 |
) |
|
|
(16,525 |
) |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to ordinary
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.64 |
) |
|
|
(0.91 |
) |
|
|
(2.35 |
) |
|
|
(16.26 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.64 |
) |
|
|
(0.91 |
) |
|
|
(2.35 |
) |
|
|
(16.26 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095 |
|
|
|
1,091 |
|
|
|
1,021 |
|
|
|
1,016 |
|
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095 |
|
|
|
1,091 |
|
|
|
1,021 |
|
|
|
1,016 |
|
|
|
961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per ordinary share
|
|
|
— |
|
|
|
— |
|
|
$ |
0.51 |
|
|
$ |
1.36 |
|
|
$ |
1.36 |
|
|
(a) |
For a discussion of items that affected the comparability of
results for the years 2020 and 2019, refer to “Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(U.S. dollars in
millions)
|
|
Financial assets (cash, cash equivalents and investment in
securities)
|
|
|
2,478 |
|
|
|
2,033 |
|
|
|
1,846 |
|
|
|
1,060 |
|
|
|
1,949 |
|
Identifiable intangible assets, net
|
|
|
8,923 |
|
|
|
11,232 |
|
|
|
14,005 |
|
|
|
17,640 |
|
|
|
21,487 |
|
|
|
|
|
20,624 |
|
|
|
24,846 |
|
|
|
24,917 |
|
|
|
28,414 |
|
|
|
44,409 |
|
Working capital (operating assets minus liabilities)
|
|
|
662 |
|
|
|
74 |
|
|
|
(186 |
) |
|
|
(384 |
) |
|
|
303 |
|
|
|
|
|
50,640 |
|
|
|
57,470 |
|
|
|
60,683 |
|
|
|
70,615 |
|
|
|
93,057 |
|
Short-term debt, including current maturities
|
|
|
3,188 |
|
|
|
2,345 |
|
|
|
2,216 |
|
|
|
3,646 |
|
|
|
3,276 |
|
Long-term debt, net of current maturities
|
|
|
22,731 |
|
|
|
24,562 |
|
|
|
26,700 |
|
|
|
28,829 |
|
|
|
32,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,919 |
|
|
|
26,908 |
|
|
|
28,916 |
|
|
|
32,475 |
|
|
|
35,800 |
|
|
|
|
|
11,061 |
|
|
|
15,063 |
|
|
|
15,794 |
|
|
|
18,745 |
|
|
|
34,993 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a global pharmaceutical company, committed to helping
patients around the world to access affordable medicines and
benefit from innovations to improve their health. Our mission is to
be a global leader in generics, specialty medicines and
biopharmaceuticals, improving the lives of patients.
We operate worldwide, with headquarters in Israel and a significant
presence in the United States, Europe and many other markets around
the world. Our key strengths include our world-leading generic
medicines expertise and portfolio, focused specialty medicines
portfolio and global infrastructure and scale.
Teva was incorporated in Israel on February 13, 1944 and is
the successor to a number of Israeli corporations, the oldest of
which was established in 1901.
We operate our business through three segments: North America,
Europe and International Markets. Each business segment manages our
entire product portfolio in its region, including generics,
specialty and OTC products. This structure enables strong alignment
and integration between operations, commercial regions, R&D and
our global marketing and portfolio function, optimizing our product
lifecycle across therapeutic areas.
In addition to these three segments, we have other activities,
primarily the sale of API to third parties, certain contract
manufacturing services and an
out-licensing
platform offering a portfolio of products to other pharmaceutical
companies through our affiliate Medis.
As a leading global pharmaceutical company, Teva provides essential
medicines to millions of patients around the world every
day. Our priorities remain focused on the health and
well-being of our employees and on our responsibility to continue
to provide our medicines to the nearly 200 million patients
who depend on us every day.
Our industry plays a critical role, particularly during such
challenging times. We are working with governments to do all they
can, in partnership with our industry, to maintain the development,
production, supply and distribution of high quality medicines for
patients worldwide during this unprecedented global health
crisis.
The supply chain supporting our key products – specialty, generics
and API – remains largely uninterrupted, and with adequate product
inventory across our network. Additionally, based on analysis
of potential scenarios, we currently have inventory and redundancy
plans in place to address potential shortfalls, if any. We are
closely monitoring the evolving situation in our key manufacturing
locations and commercial markets as well as key products, and are
accordingly adapting our business continuity plans. All our
facilities that research, manufacture, order, pack, distribute and
provide critical customer and patient services are currently
functioning to meet demand for essential medicines for patients
throughout the world.
Teva has worked since the early days of the
COVID-19
pandemic to support efforts of governments and health services to
curb the impact of the virus. Our global manufacturing network has
been tirelessly focused on securing and scaling production of both
API and finished doses for potential treatments that were proven
essential or may prove essential in treating the condition nearly
everywhere Teva does business. Teva will continue to work with
governments and international organizations throughout the world to
support emerging needs related to this crisis, while doing
everything possible to also continue to supply our vast portfolio
of medicines to patients.
We do not expect a material impact on our ongoing clinical research
programs and product launches as a result of the
COVID-19
pandemic; however, we have experienced minimal delays in clinical
trials due to cessation or slow-downs of recruitment for patient
studies and suspended regulatory inspections, delays in regulatory
approvals of new products due to reduced capacity or
re-prioritization
of regulatory agencies and delays in
pre-commercial
launch activities. We may experience further delays if the pandemic
continues for an extended period of time. All of our new product
launches have been risk-assessed based on upcoming manufacturing
and regulatory inspections.
Workforce Policy and
Measures
Our employees across all aspects of our business are safeguarding
the continuity of our activities and we are committed to supporting
their efforts while caring for their personal health and safety. We
are enacting appropriate measures to ensure the safe supply and
transport of our medicines and APIs, and have established measures
intended to ensure our sites remain open, allowing us to maintain
our business, R&D and manufacturing operations. We have reduced
the number of people in our facilities to enable social distancing.
By doing our part to reduce physical proximity to one another, we
hope to better protect our overall workforce, and ultimately, the
communities in which we live.
As we work through this health crisis, we continue to adapt our
strategy for returning to usual operations at all organizational
levels as events develop, under guiding principles to protect our
business and maximize organizational productivity and efficiency,
while simultaneously ensuring a safe workplace.
We are still not experiencing material delays in development,
production and distribution of medicines or disruptions in our
supply chains; however, longer term effects cannot be predicted at
this time and would depend on the duration and severity of the
pandemic and the restrictive measures put in place to control its
impact. In the first quarter of 2020, we experienced increasing
demand for certain medicines, as would be expected during a global
crisis of this nature. We saw a compensating effect with lower
demand for certain medicines during the second quarter of 2020 and
continuing slightly lower demand due to less physician and hospital
activity in certain regions and for certain medicines in the second
half of 2020. Although no one can predict future demand for
pharmaceutical products, market dynamics or the scope or duration
of the financial and other challenges arising from the pandemic, it
is possible that we will continue to see variable demand in 2021,
but we do not currently anticipate a material negative impact on
our 2021 financial results due to the ongoing global
pandemic.
Significant highlights of 2020 included:
| |
• |
|
Our revenues in 2020 were $16,659 million, a decrease of 1% in
both U.S. dollar and local currency terms, compared to 2019, mainly
due to a decline in revenues from certain oncology products,
COPAXONE and certain respiratory products, partially offset by
higher revenues from AUSTEDO and AJOVY. The decline in revenues was
also affected by reduced demand for certain products resulting from
the impact of the
COVID-19
pandemic. |
| |
• |
|
Our North America segment generated revenues of $8,447 million
and profit of $2,421 million in 2020. Revenues decreased by 1%
compared to 2019, mainly due to a decline in revenues from
COPAXONE, BENDEKA/TREANDA and certain other specialty products,
partially offset by higher revenues from AUSTEDO, AJOVY and our
U.S. generics business. Our North America segment has experienced
some reductions in volume due to less physician and hospital
activity during the
COVID-19
pandemic, but has also experienced increase in demand for certain
products related to the treatment of
COVID-19
|
| |
and its symptoms.
In addition, the ability to promote our new specialty products,
primarily AJOVY and AUSTEDO, has been impacted by less physician
visits by patients and less physician interactions by our sales
personnel. Profit increased by 7%, mainly due to higher gross
profit margin and lower R&D expenses. |
| |
• |
|
Our Europe segment generated revenues of $4,757 million and
profit of $1,331 million in 2020. Revenues decreased by 1%, or
2% in local currency terms compared to 2019, mainly due to price
declines for our oncology products as a result of generic
competition and a decline in COPAXONE revenues due to competing
glatiramer acetate products, partially offset by the launch of
AJOVY. Revenues from generic products were flat, due to a decline
in doctor and hospital visits by patients resulting in fewer
prescriptions during the second half of 2020 due to the
COVID-19
pandemic, partially offset by new generic product launches. The
COVID-19
pandemic caused significant fluctuations in customer stocking
throughout 2020, which mostly offset each other by
year-end.
Profit increased by 1%, mainly due to lower S&M expenses. |
| |
• |
|
Our International Markets segment generated revenues of
$2,154 million and profit of $474 million in 2020.
Revenues decreased by 4%, or flat in local currency terms compared
to 2019, with higher revenues in most markets offsetting the lower
sales in Japan and loss of revenues from divested businesses in
Israel. Revenues in 2020 were also impacted by reduced demand for
certain products and higher demand for other products, resulting
from the impact of the
COVID-19
pandemic. In addition, the
COVID-19
pandemic has led to a decline in doctor and hospital visits by
patients resulting in fewer prescriptions during 2020. Profit
increased by 2%, mainly due to higher revenues in most markets and
lower S&M expenses, partially offset by lower sales in
Japan. |
| |
• |
|
Our revenues from other activities in 2020 were
$1,302 million, flat compared to 2019. In local currency
terms, revenues decreased by 1%.
|
| |
• |
|
Impairments of identifiable intangible assets were
$1,502 million and $1,639 million in the years ended
December 31, 2020 and 2019, respectively. See note 6 to our
consolidated financial statements.
|
| |
• |
|
We recorded a goodwill impairment charge of $4,628 million
related to our North America reporting unit in the year ended
December 31, 2020. See note 7 to our consolidated financial
statements.
|
| |
• |
|
We recorded expenses of $479 million for other asset
impairments, restructuring and other items in 2020, compared to
expenses of $423 million in 2019. See note 15 to our
consolidated financial statements.
|
| |
• |
|
In 2020, we recorded an expense of $60 million in legal
settlements and loss contingencies, compared to $1,178 million
in 2019. See note 11 to our consolidated financial
statements.
|
| |
• |
|
Operating loss was $3,572 million in 2020, compared to an
operating loss of $443 million in 2019. The increase in
operating loss in 2020 was mainly due to goodwill impairment
charges, partially offset by lower provisions in connection with
legal settlements and loss contingencies, as well as higher profit
in our North America segment.
|
| |
• |
|
Financial expenses were $834 million in 2020, compared to
$822 million in 2019. Financial expenses in 2020 were mainly
comprised of interest expenses of $963 million, partially
offset by gains on revaluations of marketable securities of
$85 million (see note 20 to our consolidated financial
statements) as well as a gain of $26 million resulting from
our hedging and derivatives activities. Financial expenses in 2019
were mainly comprised of interest expenses of
$881 million.
|
| |
• |
|
In 2020, we recognized a tax benefit of $168 million, or 4%,
on a
pre-tax
loss of $4,406 million. In 2019, we recognized a tax benefit
of $278 million, or 22%, on a
pre-tax
loss of $1,265 million. Our tax rate for 2020 was lower than
in 2019, mainly due to goodwill impairments that did not have a
corresponding tax effect. |
| |
• |
|
Exchange rate movements during 2020, including hedging effects, in
comparison with 2019, negatively impacted revenues by
$33 million and operating income (loss) by
$56 million.
|
| |
• |
|
As of December 31, 2020, our debt was $25,919 million,
compared to $26,908 million as of December 31, 2019. This
decrease was mainly due to senior notes repaid at maturity with
cash generated during the year, partially offset by exchange rate
fluctuations.
|
| |
• |
|
Cash flow generated from operating activities was
$1,216 million in 2020, compared to $748 million in 2019.
This increase was mainly due to higher profit in our North America
segment during 2020.
|
| |
• |
|
During 2020, we generated free cash flow of $2,110 million,
which we define as comprising $1,216 million in cash flow
generated from operating activities, $1,405 million in
beneficial interest collected in exchange for securitized accounts
receivables and $67 million in proceeds from sale of property,
plant and equipment and intangible assets, partially offset by
$578 million in cash used for capital investments. The
increase in 2020 compared to 2019, resulted mainly from higher cash
flow generated from operating activities, partially offset by less
cash generated from sales of assets and higher capital
investments.
|
In August 2020, we entered into a partnership agreement with
biopharmaceutical company Alvotech for the exclusive
commercialization in the U.S. of five biosimilar product
candidates. The initial pipeline for this partnership contains
biosimilar candidates addressing multiple therapeutic areas. Under
this agreement, Alvotech is responsible for the development,
registration and supply of the biosimilar product candidates and
Teva will exclusively commercialize the products in the United
States. We paid an upfront payment in the third quarter of 2020
that was recorded as R&D expenses. During the fourth quarter of
2020, we accrued additional amounts due to the high probability
that additional milestone payments will be paid in 2021. Additional
development and commercial milestone payments of up to
$450 million, as well as royalty payments, may be payable by
Teva over the next few years. Teva and Alvotech will share profit
from the commercialization of these biosimilars.
The discussion that follows includes a comparison of our results of
operations and liquidity and capital resources for fiscal years
2020 and 2019. For a comparison of our results of operations and
financial condition for fiscal years 2019 and 2018, see “Item
7—Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of our 2019 Annual Report on Form
10-K,
filed with the SEC on February 21, 2020.
The following table presents revenues, expenses and profit for our
North America segment for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(U.S. $ in millions / % of Segment Revenues)
|
|
|
|
|
$ |
8,447 |
|
|
|
100 |
% |
|
$ |
8,542 |
|
|
|
100.0 |
% |
|
|
|
|
4,489 |
|
|
|
53.1 |
% |
|
|
4,350 |
|
|
|
50.9 |
% |
|
|
|
|
622 |
|
|
|
7.4 |
% |
|
|
652 |
|
|
|
7.6 |
% |
|
|
|
|
1,013 |
|
|
|
12.0 |
% |
|
|
1,021 |
|
|
|
12.0 |
% |
|
|
|
|
443 |
|
|
|
5.2 |
% |
|
|
439 |
|
|
|
5.1 |
% |
|
|
|
|
(10 |
) |
|
|
§ |
|
|
|
(14 |
) |
|
|
§ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,421 |
|
|
|
28.7 |
% |
|
$ |
2,252 |
|
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
Segment profit does not include amortization and certain other
items.
|
| § |
Represents an amount less than 0.5%.
|
Our North America segment includes the United States and Canada.
Revenues from our North America segment in 2020 were
$8,447 million, a decrease of $95 million, or 1%,
compared to 2019, mainly due to a decline in revenues from
COPAXONE, BENDEKA/TREANDA and certain other specialty products,
partially offset by higher revenues from AUSTEDO, AJOVY and our
U.S. generics business. Our North America segment has experienced
some reductions in volume due to less physician and hospital
activity during the
COVID-19
pandemic, but has also experienced increase in demand for certain
products related to the treatment of
COVID-19
and its symptoms. In addition, the ability to promote our new
specialty products, primarily AJOVY and AUSTEDO, has been impacted
by less physician visits by patients and less physician
interactions by our sales personnel.
Revenues by Major
Products and Activities
The following table presents revenues for our North America segment
by major products and activities for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
4,010 |
|
|
$ |
3,963 |
|
|
|
1 |
% |
|
|
|
|
134 |
|
|
|
93 |
|
|
|
45 |
% |
|
|
|
|
637 |
|
|
|
412 |
|
|
|
55 |
% |
|
|
|
|
415 |
|
|
|
496 |
|
|
|
(16 |
%) |
|
|
|
|
884 |
|
|
|
1,017 |
|
|
|
(13 |
%) |
|
|
|
|
241 |
|
|
|
274 |
|
|
|
(12 |
%) |
|
|
|
|
179 |
|
|
|
250 |
|
|
|
(28 |
%) |
|
|
|
|
1,462 |
|
|
|
1,492 |
|
|
|
(2 |
%) |
|
|
|
|
485 |
|
|
|
546 |
|
|
|
(11 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,447 |
|
|
$ |
8,542 |
|
|
|
(1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
Does not include revenues from the ProAir authorized generic, which
are included under generic products.
|
revenues in our North America segment (including biosimilars) in
2020 increased by 1% to $4,010 million, compared to 2019,
mainly due to higher revenues from TRUXIMA (the biosimilar to
Rituxan
®
), our ProAir authorized generic and new generic product launches,
partially offset by lower revenues from other generic
products.
Among the most significant generic products we sold in North
America in 2020 were TRUXIMA, albuterol sulfate inhalation aerosol
(our ProAir
authorized generic), emtricitabine and tenofovir disoproxil
fumarate tablets (the generic equivalent of Truvada
®
), epinephrine injectable solution (the generic equivalent of
EpiPen
®
and EpiPen Jr.
®
) and lidocaine transdermal patch (the generic equivalent of
Lidoderm Patch
®
).
For more information on our generic products, including
biosimilars, see “Item 1—Business—Our Product Portfolio and
Business Offering—Generic Medicines.”
In 2020, we led the U.S. generics market in total prescriptions and
new prescriptions, with approximately 348 million total
prescriptions (based on trailing twelve months), representing 9.6%
of total U.S. generic prescriptions according to IQVIA data.
revenues in our North America segment in 2020 increased by 45% to
$134 million, compared to 2019, mainly due to growth in
volume. In 2020, AJOVY’s exit market share in the United Stated in
terms of total number of prescriptions was 20%, compared to 17% in
2019.
For more information on AJOVY, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty Medicines—AJOVY.”
revenues in our North America segment in 2020 increased by 55% to
$637 million, compared to 2019. This increase was mainly due
to growth in volume.
For more information on AUSTEDO, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty Medicines—AUSTEDO.”
and
combined revenues in our North America segment in 2020 decreased by
16% to $415 million, compared to 2019, mainly due to the
emergence of alternative novel therapies and continued competition
from Belrapzo
®
(a
bendamustine hydrochloride product from Eagle).
For more information on BENDEKA and TREANDA, see “Item
1—Business—Our Product Portfolio and Business Offering—Specialty
Medicines—Oncology.”
revenues in our North America segment in 2020 decreased by 13% to
$884 million, compared to 2019, mainly due to generic
competition in the United States.
For more information on COPAXONE, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty
Medicines—COPAXONE.”
(HFA and RespiClick) revenues in our North America segment in 2020
decreased by 12% to $241 million, compared to 2019. In January
2019, we launched our own ProAir authorized generic in the United
States, following the launch of a generic version of Ventolin
®
HFA, another albuterol inhaler. Revenues from our ProAir authorized
generic are included in “generic products” above. In 2020, ProAir
was the fourth largest short-acting beta-agonist in the market,
with an exit market share of 10.2% in terms of total number of
prescriptions for albuterol inhalers, compared to 23.3% in 2019.
The exit market share including our ProAir authorized generic is
40.1%, making our overall albuterol product the largest in the
market, compared to 45.8% in 2019. Generic versions of ProAir were
launched in 2020.
For more information on ProAir and our Digihaler portfolio, see
“Item 1—Business—Our Product Portfolio and Business
Offering—Specialty Medicines—Respiratory.”
revenues in our North America segment in 2020 decreased by 28% to
$179 million, compared to 2019. This decrease was mainly due
to lower volume. In 2020, QVAR maintained its second-place position
in the inhaled corticosteroids category in the United States,
with an exit market share of 17.4% in terms of total number of
prescriptions, compared to 20.5% in 2019.
revenues from third parties in our North America segment in 2020
decreased by 2% to $1,462 million, compared to 2019.
Product Launches and
Pipeline
In 2020, we launched the generic version of the following branded
products and biosimilars in the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))
(1)
|
|
Doxepin tablets, 3 mg & 6 mg
|
|
Silenor
®
|
|
January |
|
$ |
50 |
|
HERZUMA
®
(trastuzumab-pkrb) for injection, 150 mg/vial & 420
mg/vial
(2)
|
|
Herceptin
®
|
|
March |
|
$ |
3,042 |
|
Deferasirox Tablets, 180mg
|
|
Jadenu
®
|
|
April |
|
$ |
53 |
|
Romidepsin Injection, 27.5mg/5.5 mL (5mg/mL)
(3)
|
|
(3)
|
|
April |
|
|
— |
|
Vigabatrin for Oral Solution, USP, 500mg
|
|
Sabril
®
|
|
May |
|
$ |
254 |
|
Everolimus Tablets, 2.5mg, 5mg & 7.5mg
|
|
Anfinitor
®
|
|
June |
|
$ |
401 |
|
Imiquimod Cream 3.75%
(4)
|
|
Zyclara
®
|
|
July |
|
$ |
24 |
|
Sildenafil for Oral Suspension
|
|
Revatio
®
|
|
August |
|
$ |
121 |
|
PEG-3350,
Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium
Ascorbate, and Ascorbic Acid for Oral Solution
|
|
MoviPrep
®
|
|
August |
|
$ |
10 |
|
Tobramycin Inhalation Solution, USP
|
|
Bethkis
®
|
|
September |
|
$ |
42 |
|
Dimethyl Fumarate Delayed-Release Capsules
|
|
Tecfidera
®
|
|
September |
|
$ |
3,788 |
|
Efavirenz, Emtricitabine and Tenofovir Disoproxil Fumarate
Tablets
|
|
Atripla
®
|
|
September |
|
$ |
578 |
|
Emtricitabine and Tenofovir Disoproxil Fumarate Tablets,
200mg/300mg
|
|
Truvada
®
|
|
September |
|
$ |
2,872 |
|
Methylphenidate Hydrochloride Extended-Release Capsules
|
|
Aptensio
XR
®
|
|
October |
|
$ |
38 |
|
|
|
|
Entereg
®
|
|
December |
|
$ |
92 |
|
|
|
|
Colcrys
®
|
|
December |
|
$ |
415 |
|
|
(1) |
The figures presented are for the twelve months ended in the
calendar quarter immediately prior to our launch or
re-launch.
|
|
(3) |
Approved via 505(b)(2) regulatory pathway; not equivalent to a
brand product.
|
As of December 31, 2020, our generic products pipeline in the
United States includes 213 product applications awaiting FDA
approval, including 75 tentative approvals. This total reflects all
pending ANDAs, supplements for product line extensions and
tentatively approved applications and includes some instances where
more than one application was submitted for the same reference
product. Excluding overlaps, the branded products underlying these
pending applications had U.S. sales for the twelve months ended
September 30, 2020 exceeding $110 billion, according to
IQVIA. Approximately 70% of pending applications include a
paragraph IV patent challenge and we believe we are first to file
with respect to 80 of these products, or 104 products including
final approvals where launch is pending a settlement agreement or
court decision. Collectively, these first to file opportunities
represent over $78 billion in U.S. brand sales for the twelve
months ended September 30, 2020, according to IQVIA.
IQVIA reported brand sales are one of the many indicators of future
potential value of a launch, but equally important are the mix and
timing of competition, as well as cost effectiveness. The potential
advantages of being the first filer with respect to some of these
products may be subject to forfeiture, shared exclusivity or
competition from
so-called
“authorized generics,” which may ultimately affect the value
derived.
In 2020, we received tentative approvals for generic equivalents of
the products listed in the table below, excluding overlapping
applications. A “tentative approval” indicates that the FDA has
substantially completed its review of an application and final
approval is expected once the relevant patent expires, a court
decision is reached, a
30-month
regulatory stay lapses or a
180-day
exclusivity period awarded to another manufacturer either expires
or is forfeited.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Annual Branded
Market (U.S. $
in millions (IQVIA))*
|
|
Eliglustat Capsules, 84mg
|
|
Cerdela
®
|
|
$ |
111 |
|
Icosapent Capsules, 500mg & 1000mg
|
|
Vascepa
®
|
|
$ |
972 |
|
|
|
|
Opsumit
®
|
|
$ |
590 |
|
Pemetrexed Disodium Injection, 100mg vial
|
|
Alimta
®
|
|
$ |
255 |
|
Apixaban Tablets, 2.5 mg and 5 mg
|
|
Eliquisr
®
|
|
$ |
11,445 |
|
|
|
|
Esbriet
®
|
|
$ |
540 |
|
|
|
|
Mycamine
®
|
|
$ |
125 |
|
| * |
For the twelve months ended in the calendar quarter immediately
prior to the receipt of tentative approval.
|
For a description of our specialty product pipeline, see “Item
1—Business—Our Product Portfolio and Business Offering—Specialty
Medicines” above.
North America Gross
Profit
Gross profit from our North America segment in 2020 was
$4,489 million, an increase of 3% compared to
$4,350 million in 2019. This increase was mainly due to higher
revenues from AUSTEDO, partially offset by lower revenues from
COPAXONE.
Gross profit margin for our North America segment in 2020 increased
to 53.1%, compared to 50.9% in 2019. This increase was mainly due
to higher revenues from AUSTEDO and a favorable mix of generic
products.
North America
R&D Expenses
R&D expenses relating to our North America segment in 2020 were
$622 million, a decrease of 5% compared to $652 million
in 2019.
For a description of our R&D expenses in 2020, see “—Teva
Consolidated Results—Research and Development (R&D) Expenses”
below.
North America
S&M Expenses
S&M expenses relating to our North America segment in 2020 were
$1,013 million, a decrease of 1% compared to
$1,021 million in 2019.
North America
G&A Expenses
G&A expenses relating to our North America segment in 2020 were
$443 million, an increase of 1% compared to $439 million
in 2019.
North America Other
Income
Other income from our North America segment in 2020 was
$10 million, compared to $14 million in 2019. Other
income in 2020 was mainly comprised of Section 8 recoveries in
Canada.
Profit from our North America segment consists of gross profit less
R&D expenses, S&M expenses, G&A expenses and any other
income related to this segment. Segment profit does not include
amortization and certain other items.
Profit from our North America segment in 2020 was
$2,421 million, an increase of 7% compared to
$2,252 million in 2019. This increase was mainly due to higher
gross profit margin and lower R&D expenses, as discussed
above.
The following table presents revenues, expenses and profit for our
Europe segment for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(U.S. $ in millions /
% of Segment Revenues)
|
|
|
|
|
$ |
4,757 |
|
|
|
100 |
% |
|
$ |
4,795 |
|
|
|
100 |
% |
|
|
|
|
2,666 |
|
|
|
56.0 |
% |
|
|
2,704 |
|
|
|
56.4 |
% |
|
|
|
|
247 |
|
|
|
5.2 |
% |
|
|
262 |
|
|
|
5.5 |
% |
|
|
|
|
830 |
|
|
|
17.4 |
% |
|
|
890 |
|
|
|
18.6 |
% |
|
|
|
|
261 |
|
|
|
5.5 |
% |
|
|
239 |
|
|
|
5.0 |
% |
|
|
|
|
(3 |
) |
|
|
§ |
|
|
|
(5 |
) |
|
|
§ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,331 |
|
|
|
28.0 |
% |
|
$ |
1,318 |
|
|
|
27.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
Segment profit does not include amortization and certain other
items.
|
| § |
Represents an amount less than 0.5%.
|
Our Europe segment includes the European Union and certain other
European countries. Revenues from our Europe segment in 2020 were
$4,757 million, a decrease of $38 million, or 1%,
compared to 2019. In local currency terms, revenues decreased by
2%, mainly due to price declines for our oncology products as a
result of generic competition and a decline in COPAXONE revenues
due to competing glatiramer acetate products, partially offset by
the launch of AJOVY. Revenues from generic products were flat, due
to a decline in doctor and hospital visits by patients resulting in
fewer prescriptions during the second half of 2020 due to the
COVID-19
pandemic, partially offset by new generic product launches. The
COVID-19
pandemic caused significant fluctuations in customer stocking
throughout 2020, which mostly offset each other by
year-end.
Revenues by Major
Products and Activities
The following table presents revenues for our Europe segment by
major products and activities for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
3,513 |
|
|
$ |
3,470 |
|
|
|
1 |
% |
|
|
|
|
31 |
|
|
|
3 |
|
|
|
852 |
% |
|
|
|
|
400 |
|
|
|
432 |
|
|
|
(7 |
%) |
|
|
|
|
353 |
|
|
|
354 |
|
|
|
§ |
|
|
|
|
|
459 |
|
|
|
536 |
|
|
|
(14 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,757 |
|
|
$ |
4,795 |
|
|
|
(1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| § |
Represents an amount less than 0.5%.
|
revenues in our Europe segment in 2020, including OTC products,
increased by 1% to $3,513 million, compared to 2019. In local
currency terms, revenues were flat, due to a decline in doctor and
hospital visits by patients resulting in fewer prescriptions during
the second half of 2020 due to the
COVID-19
pandemic, partially offset by new generic product launches. The
COVID-19
pandemic caused significant fluctuations in customer stocking
throughout 2020, which mostly offset each other by
year-end.
revenues in our Europe segment in 2020 were $31 million,
compared to $3 million in 2019, mainly due to launches and
reimbursements in additional European countries.
For more information on AJOVY, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty Medicines—AJOVY.”
revenues in our Europe segment in 2020 decreased by 7% to
$400 million, compared to 2019. In local currency terms,
revenues decreased by 9%, mainly due to price reductions resulting
from competing glatiramer acetate products.
For more information on COPAXONE, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty
Medicines—COPAXONE.”
revenues in our Europe segment in 2020 were $353 million, flat
compared to $354 million in 2019. In local currency terms,
revenues decreased by 1%.
Product Launches and
Pipeline
As of December 31, 2020, our generic products pipeline in
Europe included 500 generic approvals relating to 71 compounds in
149 formulations, no EMA approvals received. In addition,
approximately 1,105 marketing authorization applications pending
approval in 37 European countries, relating to 133 compounds in 270
formulations. No applications are pending with the EMA.
For a description of our specialty product pipeline, see “Item
1—Business—Our Product Portfolio and Business Offering—Specialty
Medicines” above.
Gross profit from our Europe segment in 2020 was
$2,666 million, a decrease of 1% compared to
$2,704 million in 2019. This decrease was mainly due to lower
revenues from COPAXONE and other specialty products, partially
offset by the launch of AJOVY.
Gross profit margin for our Europe segment in 2020 decreased to
56.0%, compared to 56.4% in 2019. This decrease was mainly due to
the change in product mix.
R&D expenses relating to our Europe segment in 2020 were
$247 million, a decrease of 6% compared to $262 million
in 2019.
For a description of our R&D expenses in 2020, see “—Teva
Consolidated Results—Research and Development (R&D) Expenses”
below.
S&M expenses relating to our Europe segment in 2020 were
$830 million, a decrease of 7% compared to $890 million
in 2019. This decrease was mainly due to lower marketing and travel
costs attributed to restrictions related to the
COVID-19
pandemic.
G&A expenses relating to our Europe segment in 2020 were
$261 million, an increase of 9% compared to $239 million
in 2019.
Profit of our Europe segment consists of gross profit less R&D
expenses, S&M expenses, G&A expenses and any other income
related to this segment. Segment profit does not include
amortization and certain other items.
Profit from our Europe segment in 2020 was $1,331 million, an
increase of 1% compared to $1,318 million in 2019. The
increase was mainly due to lower S&M expenses, as described
above.
International Markets Segment
The following table presents revenues, expenses and profit for our
International Markets segment for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(U.S. $ in millions /
% of Segment Revenues)
|
|
|
|
|
$ |
2,154 |
|
|
|
100 |
% |
|
$ |
2,246 |
|
|
|
100 |
% |
|
|
|
|
1,096 |
|
|
|
50.9 |
% |
|
|
1,167 |
|
|
|
51.9 |
% |
|
|
|
|
70 |
|
|
|
3.3 |
% |
|
|
88 |
|
|
|
3.9 |
% |
|
|
|
|
427 |
|
|
|
19.8 |
% |
|
|
481 |
|
|
|
21.4 |
% |
|
|
|
|
136 |
|
|
|
6.3 |
% |
|
|
138 |
|
|
|
6.1 |
% |
|
|
|
|
(11 |
) |
|
|
(0.5 |
%) |
|
|
(3 |
) |
|
|
§ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
474 |
|
|
|
22.0 |
% |
|
$ |
464 |
|
|
|
20.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
Segment profit does not include amortization and certain other
items.
|
| § |
Represents an amount less than 0.5%.
|
International
Markets Revenues
Our International Markets segment includes all countries in which
we operate other than those in our North America and Europe
segments. The International Markets segment includes more than 35
countries, covering a substantial portion of the global
pharmaceutical market. Our key international markets are Japan,
Russia and Israel. The countries in our International Markets
segment include highly regulated, pure generic markets, such as
Israel, branded generics oriented markets, such as Russia and
certain Latin American markets, and hybrid markets, such as
Japan.
Revenues from our International Markets segment in 2020 were
$2,154 million, a decrease of $92 million, or 4%,
compared to 2019. In local currency terms, revenues were flat
compared to 2019, with higher revenues in most markets offsetting
the lower sales in Japan and loss of revenues from divested
businesses in Israel. Revenues in 2020 were also impacted by
reduced demand for certain products and higher demand for other
products, resulting from the impact of the
COVID-19
pandemic. In addition, the
COVID-19
pandemic has led to a decline in doctor and hospital visits by
patients resulting in fewer prescriptions during 2020.
Revenues by Major
Products and Activities
The following table presents revenues for our International Markets
segment by major products and activities for the past two
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
1,792 |
|
|
$ |
1,893 |
|
|
|
(5 |
%) |
|
|
|
|
53 |
|
|
|
63 |
|
|
|
(16 |
%) |
|
|
|
|
309 |
|
|
|
291 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,154 |
|
|
$ |
2,246 |
|
|
|
(4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues in our International Markets segment in 2020, which
include OTC products, decreased by 5% to $1,792 million,
compared to 2019. In local currency terms, revenues were flat,
mainly due to lower revenues in Japan resulting from regulatory
price reductions and generic competition to
off-patented
products, offset by higher revenues in most other markets. Revenues
in 2020 were also impacted by reduced demand for certain products
and higher demand for other products, resulting from the impact of
the
COVID-19
pandemic. In addition, the
COVID-19
pandemic has led to a decline in doctor and hospital visits by
patients resulting in fewer prescriptions during 2020.
revenues in our International Markets segment in 2020 decreased by
16% to $53 million, compared to 2019. In local currency terms,
revenues decreased by 4%.
For more information on COPAXONE, see “Item 1—Business—Our Product
Portfolio and Business Offering—Specialty
Medicines—COPAXONE.”
On May 12, 2017, we entered into a license and collaboration
agreement with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing
Otsuka with an exclusive license to conduct phase 2 and 3 clinical
trials for AJOVY in Japan and, once approved, to commercialize the
product in Japan. On July 29, 2020, Otsuka submitted an
application to obtain manufacturing and marketing approval for
AJOVY in Japan. As a result, Otsuka paid Teva a milestone payment
of $15 million in the third quarter of 2020, which was
recorded as revenue under “Other” in the table above.
International
Markets Gross Profit
Gross profit from our International Markets segment in 2020 was
$1,096 million, a decrease of 6% compared to
$1,167 million in 2019.
Gross profit margin for our International Markets segment in 2020
decreased to 50.9%, compared to 51.9% in 2019. This decrease was
mainly due to lower revenues in Japan resulting from regulatory
price reductions and generic competition to
off-patented
products.
International
Markets R&D Expenses
R&D expenses relating to our International Markets segment in
2020 were $70 million, a decrease of 20% compared to
$88 million in 2019.
For a description of our R&D expenses in 2020, see “—Teva
Consolidated Results—Research and Development (R&D) Expenses”
below.
International
Markets S&M Expenses
S&M expenses relating to our International Markets segment in
2020 were $427 million, a decrease of 11% compared to
$481 million in 2019. This decrease was mainly due to lower
marketing and travel costs attributed to restrictions related to
the
COVID-19
pandemic.
International
Markets G&A Expenses
G&A expenses relating to our International Markets segment in
2020 were $136 million, flat compared to $138 million in
2019.
International
Markets Profit
Profit of our International Markets segment consists of gross
profit less R&D expenses, S&M expenses, G&A expenses
and any other income related to this segment. Segment profit does
not include amortization and certain other items.
Profit from our International Markets segment in 2020 was
$474 million, an increase of 2% compared to $464 million
in 2019. This increase was mainly due to higher revenues in most
markets and lower S&M expenses, partially offset by lower sales
in Japan, as discussed above.
We have other sources of revenues, primarily the sale of APIs to
third parties, certain contract manufacturing services and an
out-licensing
platform offering a portfolio of products to other pharmaceutical
companies through our affiliate Medis. Our other activities are not
included in our North America, Europe or International Markets
segments described above.
Our revenues from other activities in 2020 were
$1,302 million, flat compared to 2019. In local currency
terms, revenues decreased by 1%.
API sales to third parties in 2020 were $774 million, an
increase of 3% in both U.S. dollar and local currency terms.
Teva Consolidated Results
Revenues in 2020 were $16,659 million, a decrease of 1%, in
both U.S. dollar and local currency terms, compared to 2019, mainly
due to a decline in revenues from certain oncology products,
COPAXONE and certain respiratory products, partially offset by
higher revenues from AUSTEDO and AJOVY. The decline in revenues was
also affected by reduced demand for certain products resulting from
the impact of the
COVID-19
pandemic. See “—North America Revenues,” “—Europe Revenues,”
“—International Markets Revenues” and “—Other Activities”
above.
Exchange rate movements during 2020, including hedging effects,
negatively impacted revenues by $33 million, compared to
2019.
Gross profit in 2020 was $7,726 million, an increase of 3%
compared to 2019. This increase was mainly a result of the factors
discussed above under “—North America Gross Profit,” “—Europe Gross
Profit” and “—International Markets Gross Profit.”
Gross profit as a percentage of revenues was 46.4% in 2020,
compared to 44.6% in 2019.
This increase in gross profit as a percentage of revenues was
mainly due to higher profitability in North America, resulting from
higher revenues from AUSTEDO and AJOVY, higher gross profit margin
in our U.S. generics business, partially offset by a decline in
COPAXONE revenues due to generic competition.
Selling and Marketing (S&M) Expenses
S&M expenses in 2020 were $2,498 million, a decrease of 4%
compared to 2019. Our S&M expenses were primarily the result of
the factors discussed above under “—North America Segment— S&M
Expenses,” “—Europe Segment— S&M Expenses” and “—International
Markets Segment— S&M Expenses.”
S&M expenses as a percentage of revenues were 15.0% in 2020,
compared to 15.5% in 2019.
Research and Development (R&D) Expenses
Our R&D activities for generic products in each of our segments
include both (i) direct expenses relating to product
formulation, analytical method development, stability testing,
management of bioequivalence and other clinical studies and
regulatory filings; and (ii) indirect expenses, such as costs
of internal administration, infrastructure and personnel.
Our R&D activities for specialty and biosimilar products in
each of our segments include costs of discovery research,
preclinical development, early- and late-clinical development and
drug formulation, clinical trials and product registration costs.
These expenditures are reported net of contributions received from
collaboration partners. Our spending takes place throughout the
development process, including (i) early-stage projects in
both discovery and preclinical phases; (ii) middle-stage
projects in clinical programs up to phase 3; (iii) late-stage
projects in phase 3 programs, including where a new drug
application is currently pending approval; (iv) post-approval
studies for marketed products; and (v) indirect expenses, such
as costs of internal administration, infrastructure and
personnel.
Net R&D expenses for 2020 were $997 million, a decrease of
1% compared to 2019.
In 2020, our R&D expenses were primarily related to specialty
product candidates in the pain, neuropsychiatry and respiratory
therapeutic areas, with additional activities in selected other
areas and generic products including biosimilars.
Our lower R&D expenses in 2020, compared to 2019, resulted
primarily from project milestone timing and pipeline
optimization.
R&D expenses as a percentage of revenues were 6.0% in both 2020
and 2019.
General and Administrative (G&A) Expenses
G&A expenses in 2020 were $1,173 million, a decrease of 2%
compared to 2019.
G&A expenses as a percentage of revenues were 7.0% in 2020,
flat compared to 2019.
Identifiable Intangible Asset Impairments
We recorded expenses of $1,502 million for identifiable
intangible asset impairments in 2020, compared to expenses of
$1,639 million in 2019. See note 6 to our consolidated
financial statements.
We recorded a goodwill impairment charge of $4,628 million
related to our North America reporting unit in the year ended
December 31, 2020. No goodwill impairment charge was recorded
in 2019. See note 7 to our consolidated financial statements.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $479 million for other asset
impairments, restructuring and other items in 2020, compared to
expenses of $423 million in 2019. For further details, as well
as a description of significant regulatory and other events, see
note 15 to our consolidated financial statements.
Legal Settlements and Loss Contingencies
In 2020, we recorded an expense of $60 million in legal
settlements and loss contingencies, compared to $1,178 million
in 2019. The expenses in 2020 were mainly related to a fine imposed
by the European Commission in relation to a 2005 patent settlement
agreement and an increase of a reserve for certain product
liability claims in the United States, partially offset by proceeds
received following a settlement of the FCPA derivative proceedings
in Israel and settlement of an action brought against the sellers
of Auden McKenzie (an acquisition made by Actavis Generics). The
expenses in 2019 were mainly related to an estimated provision
recorded in connection with potential settlement of the opioid
cases.
Other income in 2020 was $40 million, compared to
$76 million in 2019. See note 16 to our consolidated financial
statements.
Operating loss was $3,572 million in 2020, compared to
operating loss of $443 million in 2019.
Operating loss as a percentage of revenues was 21.4% in 2020,
compared to 2.6% in 2019. The increase in operating loss in 2020
was mainly due to goodwill impairment charges, partially offset by
lower provisions in connection with legal settlements and loss
contingencies, as well as higher profit in our North America
segment.
Financial expenses were $834 million in 2020, compared to
$822 million in 2019.
Financial expenses in 2020 were mainly comprised of interest
expenses of $963 million, partially offset by gains on
revaluations of marketable securities of $85 million (see note
20 to our consolidated financial statements) as well as a gain of
$26 million resulting from our hedging and derivatives
activities. Financial expenses in 2019 were mainly comprised of
interest expenses of $881 million.
The following table presents a reconciliation of our segment
profits to Teva’s consolidated operating income (loss) and to
consolidated income (loss) before income taxes for the past two
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
$ |
2,421 |
|
|
$ |
2,252 |
|
|
|
|
|
1,331 |
|
|
|
1,318 |
|
International Markets profit
|
|
|
474 |
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
Total reportable segments profit
|
|
|
4,225 |
|
|
|
4,034 |
|
Profit (loss) of other activities
|
|
|
163 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,388 |
|
|
|
4,142 |
|
Amounts not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020 |
|
|
|
1,113 |
|
Other asset impairments, restructuring and other items
|
|
|
479 |
|
|
|
423 |
|
|
|
|
|
4,628 |
|
|
|
— |
|
Intangible asset impairments
|
|
|
1,502 |
|
|
|
1,639 |
|
Gain on divestitures, net of divestitures related costs
|
|
|
(8 |
) |
|
|
(50 |
) |
Other R&D expenses (income)
|
|
|
37 |
|
|
|
(15 |
) |
Costs related to regulatory actions taken in facilities
|
|
|
23 |
|
|
|
45 |
|
Legal settlements and loss contingencies
|
|
|
60 |
|
|
|
1,178 |
|
Other unallocated amounts
|
|
|
219 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss)
|
|
|
(3,572 |
) |
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
834 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) before income taxes
|
|
$ |
(4,406 |
) |
|
$ |
(1,265 |
) |
|
|
|
|
|
|
|
|
|
|
In 2020, we recognized a tax benefit of $168 million, or 4%,
on a
pre-tax
loss of $4,406 million.
In 2019, we recognized a tax benefit of $278 million, or 22%,
on a
pre-tax
loss of $1,265 million. Our tax rate for 2020 was lower than
in 2019, mainly due to goodwill impairments that did not have a
corresponding tax effect.
The statutory Israeli corporate tax rate was 23% in 2020. Our tax
rate differs from the Israeli statutory tax rate mainly due to
generation of profits in various jurisdictions in which tax rates
are different than the Israeli tax rate, tax benefits in Israel and
other countries, as well as infrequent or nonrecurring items with
no corresponding tax effect, or with a tax rate that is different
from the Israeli tax rate.
Share In (Profits) Losses of Associated Companies, Net
Share in profits of associated companies, net was $138 million
in 2020, compared to share in losses of $13 million in 2019.
Our share in profits of associated companies, net in 2020 was
mainly due to a gain of $134 million reflecting the difference
between the book value of our investment in American Well
Corporation and its fair value as of the date it completed its
initial public offering in September 2020 (see note 20 to our
consolidated financial statements).
Net Income (Loss) Attributable to Teva
Net loss was $3,990 million in 2020, compared to a net loss of
$999 million in 2019.
Diluted Shares Outstanding and Earnings (Loss) Per Share
The weighted average diluted shares outstanding used for the fully
diluted share calculation for 2020 and 2019 was 1,095 million
and 1,091 million shares, respectively.
In computing diluted loss per share for the twelve months ended
December 31, 2020 and 2019, no account was taken of the
potential dilution that could occur upon the exercise of options
and
non-vested
RSUs granted under employee stock compensation plans and
convertible senior debentures, since they had an anti-dilutive
effect on loss per share.
Diluted loss per share was $3.64 for the year ended
December 31, 2020, compared to diluted loss per share of $0.91
for the year ended December 31, 2019.
Share Count for Market Capitalization
We calculate share amounts using the outstanding number of shares
(i.e., excluding treasury shares) plus shares that would be
outstanding upon the exercise of options and vesting of RSUs and
performance share units (“PSUs”) and the conversion of our
convertible senior debentures, in each case, at period end.
As of December 31, 2020 and 2019, the fully diluted share
count for purposes of calculating our market capitalization was
approximately 1,117 million and 1,108 million,
respectively.
Impact of Currency Fluctuations on Results of Operations
In 2020, approximately 48% of our revenues were denominated in
currencies other than the U.S. dollar. Since our results are
reported in U.S. dollars, we are subject to significant foreign
currency risks. Accordingly, changes in the rate of exchange
between the U.S. dollar and local currencies in the markets in
which we operate (primarily the euro, Israeli shekel, Japanese yen,
British pound, Russian ruble, Canadian dollar, Swiss franc, Indian
rupee and Polish zloty) impact our results.
During 2020, the following main currencies relevant to our
operations decreased in value against the U.S. dollar (each on an
annual average compared to annual average basis): the Argentinian
peso by 33%, the Brazilian real by 23%, the Turkish lira by 18%,
the Chilean peso by 11% and the Russian ruble by 10%. The following
main currencies relevant to our operations increased in value
against the U.S. dollar: the Swiss franc by 6%, the Israeli shekel
by 4%, the Swedish krona by 3%, the Japanese yen by 2% and the euro
by 2%.
As a result, exchange rate movements during 2020, including hedging
effects, negatively impacted overall revenues by $33 million
and negatively impacted our operating income by $56 million in
comparison with 2019. In 2020, the positive hedging impact
recognized under revenues was $15 million, partially offset by
a positive impact of $1 million recognized under cost of
sales, in comparison with 2019. Hedging transactions against future
projected revenues and expenses are recognized on the balance sheet
at their fair value on a quarterly basis, while the foreign
exchange impact on the underlying revenues and expenses may occur
in subsequent quarters. See note 10 to our consolidated financial
statements.
Commencing in the third quarter of 2018, the cumulative inflation
in Argentina exceeded 100% or more over a
3-year
period. Although this triggered highly inflationary accounting
treatment, it did not have a material impact on our results of
operations.
Liquidity and Capital Resources
Total balance sheet assets were $50,640 million as of
December 31, 2020, compared to $57,470 million as of
December 31, 2019.
Our working capital balance, which includes accounts receivables
net of SR&A, inventories, prepaid expenses and other current
assets, accounts payables, employee-related obligations, accrued
expenses and other current liabilities, was $662 million as of
December 31, 2020, compared to $74 million as of
December 31, 2019.
Cash investment in property, plant and equipment in 2020 was
$578 million, compared to $525 million in 2019.
Depreciation was $537 million in 2020, compared to
$609 million in 2019.
Cash and cash equivalents and short-term and long-term investments,
as of December 31, 2020, were $2,478 million, compared to
$2,033 million as of December 31, 2019. This increase was
mainly due to cash flow generated during the year, partially offset
by debt repayments as discussed below.
Our cash on hand that is not used for ongoing operations is
generally invested in bank deposits, as well as liquid securities
that bear fixed and floating rates.
Our principal sources of short-term liquidity are our cash on hand,
existing cash investments, liquid securities and available credit
facilities, primarily our $2.3 billion unsecured syndicated
revolving credit facility entered into in April 2019 (“RCF”).
The RCF agreement provides for two separate tranches, a
$1.15 billion tranche A and a $1.15 billion tranche B.
Loans and letters of credit will be available from time to time
under each tranche for Teva’s general corporate purposes. Tranche A
has a maturity date of April 8, 2022, with two
one-year
extension options, of which $1.065 billion were extended to
April 8, 2023. Tranche B has a maturity date of April 8,
2024.
The RCF contains certain covenants, including certain limitations
on incurring liens and indebtedness and maintenance of certain
financial ratios, including the requirement to maintain compliance
with a net debt to EBITDA ratio, which becomes more restrictive
over time. The net debt to EBITDA ratio limit is 5.75x in the
fourth quarter of 2020 and declines to 5.50x in the first and
second quarters of 2021, 5.00x in the third and fourth quarters of
2021, and continues to gradually decline over the remaining term of
the RCF.
The RCF can be used for general corporate purposes, including
repaying existing debt. As of December 31, 2020 and as of the
date of this Annual Report on Form
10-K,
no amounts were outstanding under the RCF. Based on current and
forecasted results, we expect that we will not exceed the financial
covenant thresholds set forth in the RCF within one year from the
date the financial statements are issued.
Under specified circumstances, including
non-compliance
with any of the covenants described above and the unavailability of
any waiver, amendment or other modification thereto, we will not be
able to borrow under the RCF. Additionally, violations of the
covenants, under the above-mentioned circumstances, would result in
an event of default in all borrowings under the RCF and, when
greater than a specified threshold amount as set forth in each
series of senior notes is outstanding, could lead to an event of
default under our senior notes due to cross acceleration
provisions.
We expect that we will continue to have sufficient cash resources
to support our debt service payments and all other financial
obligations within one year from the date that the financial
statements are issued.
2020 Debt Balance and Movements
As of December 31, 2020, our debt was $25,919 million,
compared to $26,908 million as of December 31, 2019.
This decrease was mainly due to senior notes repaid at maturity
with cash generated during the year, partially offset by exchange
rate fluctuations.
In March 2020, we repaid at maturity our $700 million 2.25%
senior notes.
In July 2020, we repaid at maturity our €1,010 million 0.375%
senior notes.
During 2020 we borrowed up to €270 million from our RCF, which
was fully repaid before year end.
Our debt as of December 31, 2020 was effectively denominated
in the following currencies: 65% in U.S. dollars, 32% in euros and
3% in Swiss francs.
The portion of total debt classified as short-term as of
December 31, 2020 was 12%, compared to 9% as of
December 31, 2019, due to a reclassification of upcoming
maturities in 2021.
Our financial leverage was 70% as of December 31, 2020,
compared to 64% as of December 31, 2019.
Our average debt maturity was approximately 5.8 years as of
December 31, 2020, compared to 6.4 years as of
December 31, 2019.
On February 1, 2021, $491 million of our 0.25%
convertible senior debentures, due 2026 were redeemed by holders.
See note 9 of our consolidated financial statements.
2019 Debt Balance and Movements