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falseQ1TEVA PHARMACEUTICAL INDUSTRIES LTD0000818686--12-3100-0000000ILRepresents an amount less than $0.5 million.Represents an amount less than $1 million.Accumulated goodwill impairment as of March 31, 2021 and December 31, 2020 was approximately $25.6 billion.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.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. 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 Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies to protect its projected operating results for 2021. 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. In 2020, Teva recognized a loss of $27 million in relation with the 2021 hedging program Teva entered into in the second half of 2020. In the first three months of 2021, the positive impact from these derivatives recognized under revenues was $28 million. 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 cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.Including impairments related to exit and disposal activitiesIncludes adjustments for foreign currency translation.Amounts do not include a $67 million gain from foreign currency translation adjustments attributable to non-controlling interests.Amounts do not include a $10 million loss from foreign currency translation adjustments attributable to non-controlling interests.Does not include revenues from ProAir authorized generic, which are included under generic products.As of March 31, 2021, Teva’s shares in American Well Corporation (“American Well”) moved from a Level 2 measurement to Level 1 measurement within the fair value hierarchy, since they are no longer subject to a sale restriction. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
 
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
001-16174
 
 
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Exact name of registrant as specified in its charter)
 
 
 
Israel
 
Not Applicable
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
   
5 Basel Street, Petach Tikva, ISRAEL
 
4951033
(Address of principal executive offices)
 
(Zip code)
+972 (3)
914-8213
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
American Depositary Shares, each representing one Ordinary Share
 
TEVA
 
New York Stock Exchange
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.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller reporting company  
       
Emerging growth company           
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).    Yes  ☐    No  ☒
As of March 31, 2021, the registrant had 1,102,349,072 ordinary 
shares outstanding.
 
 
 

 
INDEX
 
PART I.
 
  
     
     
Item 1.
 
  
     
 
 
  
 
5
 
 
 
  
 
6
 
 
 
  
 
7
 
 
 
  
     
 
 
  
 
9
 
 
 
  
 
10
 
Item 2.
 
  
 
39
 
Item 3.
 
  
 
61
 
Item 4.
 
  
 
61
 
     
PART II.
 
  
     
     
Item 1.
 
  
 
62
 
Item 1A.
 
  
 
62
 
Item 2.
 
  
 
62
 
Item 3.
 
  
 
62
 
Item 4.
 
  
 
62
 
Item 5.
 
  
 
62
 
Item 6.
 
  
 
63
 
 
 
  
 
64
 

 
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
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 (“IQVIA”), 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-Q
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
In addition to historical information, this Quarterly Report on Form
10-Q,
and the reports and documents incorporated by reference in this Quarterly Report on Form
10-Q,
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:
 
   
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;
 
   
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;
 
   
our business and operations in general, including: uncertainty regarding 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; 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;
 
   
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;
 
   
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 (including as a result of potential tax reform in the United States); 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;
 
3

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
 
and other factors discussed in this Quarterly Report on Form
10-Q
and in our Annual Report on Form
10-K
for the year ended December 31, 2020, 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.
 
4

PART I — FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions, except for share data)
(Unaudited)
 
    
March 31,
   
December 31,
 
    
2021
   
2020
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 1,743     $ 2,177  
Accounts receivables, net of allowance for credit losses of $119 million and $126 million as of March 31, 2021 and December 31, 2020
     4,572       4,581  
Inventories
     4,406       4,403  
Prepaid expenses
     942       945  
Other current assets
     652       710  
Assets held for sale
     87       189  
    
 
 
   
 
 
 
Total current assets
     12,401       13,005  
Deferred income taxes
     691       695  
Other
non-current
assets
     524       538  
Property, plant and equipment, net
     6,112       6,296  
Operating lease
right-of-use
assets
     529       559  
Identifiable intangible assets, net
     8,445       8,923  
Goodwill
     20,302       20,624  
    
 
 
   
 
 
 
Total assets
   $ 49,004     $ 50,640  
    
 
 
   
 
 
 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Short-term debt
   $ 2,697     $ 3,188  
Sales reserves and allowances
     4,584       4,824  
Accounts payables
     1,692       1,756  
Employee-related obligations
     526       685  
Accrued expenses
     1,851       1,780  
Other current liabilities
     739       933  
    
 
 
   
 
 
 
Total current liabilities
     12,089       13,164  
Long-term liabilities:
                
Deferred income taxes
     991       964  
Other taxes and long-term liabilities
     2,220       2,240  
Senior notes and loans
     22,288       22,731  
Operating lease liabilities
     441       479  
    
 
 
   
 
 
 
Total long-term liabilities
     25,940       26,414  
    
 
 
   
 
 
 
Commitments and contingencies
, see note 10
                
Total liabilities
     38,029       39,579  
    
 
 
   
 
 
 
Equity:
                
Teva shareholders’ equity:
                
Ordinary shares of NIS 0.10 par value per share; March 31, 2021 and December 31, 2020: authorized 2,495 million shares; issued 1,208 million shares and 1,202 million shares, respectively
     57       57  
Additional
paid-in
capital
     27,474       27,443  
Accumulated deficit
     (10,869     (10,946
Accumulated other comprehensive los
s
     (2,534     (2,399
Treasury shares as of March
 31
, 2021 and December 31, 2020 — 106 million ordinary shares
     (4,128     (4,128
    
 
 
   
 
 
 
       10,000       10,026  
    
 
 
   
 
 
 
Non-controlling
interests
     975       1,035  
    
 
 
   
 
 
 
Total equity
     10,975       11,061  
    
 
 
   
 
 
 
Total liabilities and equity
   $ 49,004     $ 50,640  
    
 
 
   
 
 
 
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
5

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. dollars in millions, except share and per share data)
(Unaudited)
 
    
Three months ended
 
    
March 31,
 
    
2021
   
2020
 
Net revenues
   $ 3,982     $ 4,357  
Cost of sales
     2,104       2,294  
    
 
 
   
 
 
 
Gross profit
     1,878       2,063  
Research and development expenses
     254       221  
Selling and marketing expenses
     585       613  
General and administrative expenses
     290       304  
Intangible assets impairments
     79       649  
Other assets impairments, restructuring and other items
     137       121  
Legal settlements and loss contingencies
     104       (25
Other income
     (5     (13
    
 
 
   
 
 
 
Operating (loss) income
     434       191  
Financial expenses, net
     290       224  
    
 
 
   
 
 
 
Income (loss) before income taxes
     144       (33
Income taxes (benefit)
     62       (59
Share in (profits) losses of associated companies, net
     (3     1  
    
 
 
   
 
 
 
Net income (loss)
     84       25  
Net income (loss) attributable to
non-controlling
interests
     7       (44
    
 
 
   
 
 
 
Net income (loss) attributable to Teva
     77       69  
    
 
 
   
 
 
 
Earnings (loss) per share attributable to ordinary shareholders:
                
Basic
   $ 0.07     $ 0.06  
    
 
 
   
 
 
 
Diluted
   $ 0.07     $ 0.06  
    
 
 
   
 
 
 
Weighted average number of shares (in millions):
                
Basic
     1,099       1,093  
    
 
 
   
 
 
 
Diluted
     1,107       1,096  
    
 
 
   
 
 
 
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
6

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in millions)
(Unaudited)
 
    
Three months ended
 
    
March 31,
 
    
2021
   
2020
 
Net income (loss)
   $ 84     $ 25  
Other comprehensive income (loss), net of tax:
                
Currency translation adjustment
     (208     (560
Unrealized gain (loss) from derivative financial instruments, net
     7       30  
    
 
 
   
 
 
 
Total other comprehensive income (loss)
     (201     (530
    
 
 
   
 
 
 
Total comprehensive income (loss)
     (117     (505
Comprehensive income (loss) attributable to
non-controlling
interests
     (60     (34
    
 
 
   
 
 
 
Comprehensive income (loss) attributable to Teva
   $ (57   $ (471
    
 
 
   
 
 
 
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
7

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
   
Teva shareholders’ equity
             
   
Ordinary shares
                                           
   
Number of
shares (in
millions)
   
Stated
value
   
Additional
paid-in

capital
   
Retained
earnings
(accumulated
deficit)
   
Accumulated
other
comprehensive
(loss)
   
Treasury
shares
   
Total Teva
shareholders’
equity
   
Non-controlling

interests
   
Total
equity
 
   
(U.S. dollars in millions)
 
Balance at December 31, 2020
    1,202       57       27,443       (10,946     (2,399     (4,128     10,026       1,035       11,061  
Net Income (loss)
                            77                       77       7       84  
Other comprehensive income (loss)
                                    (134             (134     (67     (201
Issuance of Shares
    6       *                                                       *  
Stock-based compensation expense
                    31                               31               31  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
    1,208     $ 57     $ 27,474     $ (10,869   $ (2,534   $ (4,128   $ 10,000     $ 975     $ 10,975  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Represents an amount less than $0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
   
Teva shareholders’ equity
             
   
Ordinary shares
                                           
   
Number of
shares (in
millions)
   
Stated
value
   
Additional
paid-in

capital
   
Retained
earnings
(accumulated
deficit)
   
Accumulated
other
comprehensive
(loss)
   
Treasury
shares
   
Total Teva
shareholders’
equity
   
Non-controlling

interests
   
Total
equity
 
   
(U.S. dollars in millions)
 
Balance at December 31, 2019
    1,198       56       27,312       (6,956     (2,312     (4,128     13,972       1,091       15,063  
Net Income (loss)
                            69                       69       (44     25  
Other comprehensive income (loss)
                                    (540             (540     10       (530
Issuance of shares
    3       *                                                       *  
Stock-based compensation expense
                    30                               30               30  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2020
    1,201     $ 56     $ 27,342     $ (6,887   $ (2,852   $ (4,128   $ 13,531     $ 1,057     $ 14,588  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Represents an amount less than $0.5 million
.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
8

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
 
    
Three months ended
 
    
March 31,
 
    
2021
   
2020
 
Operating activities:
                
Net income (loss)
   $ 84     $ 25  
Adjustments to reconcile net income (loss) to net cash provided by operations:
                
Depreciation and amortization
     376       399  
Impairment of long-lived assets and assets held for sale
     127       724  
Net change in operating assets and liabilities
     (1,076     (666
Deferred income taxes – net and uncertain tax positions
     (11     (233
Stock-based compensation
     31       30  
Net loss (gain) from investments and from sale of long lived assets
     74       24  
Other items
     (10     2  
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     (405     305  
    
 
 
   
 
 
 
Investing activities:
                
Beneficial interest collected in exchange for securitized accounts receivables
     476       368  
Purchases of property, plant and equipment
     (150     (128
Proceeds from sale of business and long lived assets
     138       6  
Proceeds from sale of investments and other investing activities
     44       6  
    
 
 
   
 
 
 
Net cash provided by investing activities
     508       252  
    
 
 
   
 
 
 
Financing activities:
                
Repayment of senior notes and loans and other long-term liabilities
     —         (700
Redemption of convertible senior notes
     (491     —    
Other financing activities
     (2     —    
    
 
 
   
 
 
 
Net cash used in financing activities
     (493     (700
    
 
 
   
 
 
 
Translation adjustment on cash and cash equivalents
     (44     (28
    
 
 
   
 
 
 
Net change in cash and cash equivalents
     (434     (171
Balance of cash and cash equivalents at beginning of period
     2,177       1,975  
    
 
 
   
 
 
 
Balance of cash and cash equivalents at end of period
   $ 1,743     $ 1,804  
    
 
 
   
 
 
 
Non-cash
financing and investing activities:
                
Beneficial interest obtained in exchange for securitized accounts receivables
   $ 488     $ 375  
Amounts may not add up due to roundin
g
The accompanying notes are an integral part of the financial statements.
 
9

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of presentation:
 
 
a.
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form
10-Q
should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”). The
year-end
balance sheet data was derived from the audited consolidated financial statements as of December 31, 2020, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included
.
In the process of preparing the consolidated financial statements, management makes estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The inputs into Teva’s judgments and estimates also consider the economic implications of the
COVID-19
pandemic on its critical and significant accounting estimates, most significantly in relation to sales, reserves and allowances, IPR&D assets, marketed product rights and goodwill, all of which will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the
COVID-19
pandemic and the actions taken to contain or treat it, as well as the economic impact on Teva’s employees, third-party manufacturers and suppliers, customers and markets. All estimates made by Teva related to the impact of the
COVID-19
pandemic within its financial statements may change in future periods. Actual results could differ from those estimates.
The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.
 
 
b.
Significant accounting policies
Recently adopted accounting pronouncements
In March 2020, the FASB issued ASU
2020-04
“Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. There was no impact to the Company’s consolidated financial statements for the period ended March 31, 2021 as a result of adopting this standard update. The Company is continuing to evaluate the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities and has started initial negotiations to transform the facility base rate of its securitization program. However, it is not expected to have a material impact on the consolidated financial results.
In December 2019, the FASB issued ASU
2019-12
“Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes” (the “update”). The amendments in this update simplify the accounting for income taxes by removing the following exceptions in ASC 740: (1) exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to accounting for basis differences for equity method investments when a foreign subsidiary becomes an equity method investment; and (3) exception to accounting for basis differences for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a
year-to-date
loss exceeds the anticipated loss for the year.
In addition, the update also simplifies the accounting for income taxes in certain topics as follows: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a
non-income-based
tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity can elect (rather than be required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or
 
10

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
rates in the annual effective tax rate computation in the interim period that includes the enactment date. Teva adopted the provisions of this update as of January 1, 2021. Based on the Company’s evaluation of the above provisions, the Company notes that items (1) and (4) of this paragraph are not material. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements, not yet adopted
In August 2020, the FASB issued ASU
2020-06
“Debt – Debt with Conversion and Other Options
(Subtopic 470-20)
and Derivatives and
Hedging—Contracts
in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated
financial statements.
NOTE 2 – Certain transactions:
The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.
Alvotech Partnership
In August 2020, Teva 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, including a proposed biosimilar to Humira
®
. 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. Teva paid an upfront payment in the third quarter of 2020 that was recorded as R&D expense. 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. Abbvie recently sued Alvotech for allegedly misappropriating confidential information relating to Humira
®
. Alvotech has disputed these claims.
Eli Lilly and Alder BioPharmaceuticals
In December 2018, Teva entered into an agreement with Eli Lilly resolving the European Patent Office opposition they had filed against Teva’s AJOVY
®
patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.
On January 8, 2018, Teva signed a global license agreement with Alder BioPharmaceuticals (“Alder”). The agreement validates Teva’s intellectual property and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder
received a
non-exclusive
 
license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the United States and worldwide, excluding Japan and Korea. Teva received a $
25
 million upfront payment that was recognized as revenue during the first quarter of
2018
, and a $
25
 million milestone payment in March
2020
that was recognized as revenue in the first quarter of
2020
. The agreement stipulates additional development and commercial milestone payments to Teva of up to $
150
 million, as well as future royalties.
AUSTEDO
®
On September 19, 2017, Teva entered into a partnership agreement with Nuvelution Pharma, Inc. (“Nuvelution”) for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. There are no further plans in this indication following clinical trial results received in February 2020, which failed to meet their primary endpoints. The partnership agreement was terminated on
February 5, 2021.
Otsuka
On May 12, 2017, Teva 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,
if
 
11

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
approved, to commercialize the product in Japan. Otsuka paid Teva an upfront payment of $50 million in consideration for the transaction. Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 million, which was recognized as revenue in the third quarter of 2020. Teva may receive additional milestone payments upon achievement of
certain development and revenue targets. Otsuka will also pay Teva royalties on AJOVY sales in Japan.
Celltrion
In October 2016, Teva and Celltrion, Inc. (“Celltrion”) entered into a collaborative agreement to commercialize Truxima
®
and Herzuma
®
, two biosimilar products for the U.S. and Canadian markets. Teva paid Celltrion $160 million, of which Teva received an aggregate credit of $60 million as
of March 31, 2021.
 
Teva and Celltrion share the profit from
 
the commercialization of these products. These two products, Truxima and Herzuma, were approved by the FDA in November and December
2018
, respectively and were launched in the United States in November
2019
and March
2020
, respectively.
Regeneron
In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of up to $2,230 
million, as well as future royalties. Currently, all non-essential activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA.
Assets and Liabilities Held For Sale:
Certain assets of Teva’s business venture in Japan
Teva operated its business in Japan, which was part of Teva’s International Market segment, through a business venture with The Takeda Pharmaceutical Company Limited (“Takeda”), in which Teva owned a 51% stake and Takeda owned the remaining 49%.
In July 2020
, Teva and Takeda entered into a purchase agreement to sell the majority of the business venture’s generic and operational assets. This transaction was completed on February 1
, 2021
.
Until the closing date Teva accounted for the business venture assets and liabilities that were sold, as held for sale and determined that the fair value less cost of sale did not exceed the carrying value, resulting in an impairment charge
 
of
$
247
 
million in other assets impairments, restructuring and other items recognized in 2020 and in the first quarter of 2021.
Assets held for sale as of March 31, 2021, include the sale of certain OTC assets and manufacturing assets that are expected to be sold within the next year. The OTC assets were sold in April 2021. Assets held for sale as of December 31, 2020, included the Teva-Takeda business venture assets sold during the first quarter of 2021 and the sale of certain OTC assets and other manufacturing assets.
 
12
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
The table below summarizes all Teva assets included as held for sale as of March 31, 2021 and December 31, 2020:
 
    
March 31,
    
December 31,
 
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Inventories
     —          146  
Property, plant and equipment, net and others
     99        312  
Goodwill
     2        27  
Adjustments of assets held for sale to fair value
     (14      (296
    
 
 
    
 
 
 
Total assets of the disposal group classified as held for sale in the consolidated balance sheets
   $ 87      $ 189  
    
 
 
    
 
 
 
 
NOTE 3 – Revenue from contracts with customers:
Disaggregation of revenue
The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues, see note 15.
 
    
Three months ended March 31, 2021
 
    
North
America
    
Europe
    
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     1,668        1,178        440        177        3,463  
Licensing arrangements
     32        14        3        1        49  
Distribution
     289        §        19        —          308  
Other
     §        22        28        111        162  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 1,989      $ 1,214      $ 490      $ 289      $ 3,982  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
§ Represents an amount less than $1 million.
 
    
Three months ended March 31, 2020
 
    
North
America
    
Europe
    
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     1,625        1,370        482        177        3,655  
Licensing arrangements
     25        12        3        1        41  
Distribution
     426        2        6        —          434  
Other
     6        19        74        129        227  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 2,082      $ 1,402      $ 565      $ 307      $ 4,357  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
Variable consideration
Variable consideration mainly includes sales reserves and allowances (“SR&A”), comprised of rebates (including Medicaid and other governmental program discounts), chargebacks, returns and other promotional (including shelf stock adjustments) items. Provisions for prompt payment discounts are netted against accounts receivables.
The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions.
 
13
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
SR&A to U.S. customers comprised approximately 79% of the Company’s total SR&A as of March 31, 2021, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the three months ended March 31, 2021 and 2020 were as follows:
 
 
  
Sales Reserves and Allowances
 
 
 
 
 
  
Reserves
included in
Accounts
Receivable, net
 
 
Rebates
 
 
Medicaid and
other
governmental
allowances
 
 
Chargebacks
 
 
Returns
 
 
Other
 
 
Total reserves
included in SR&A
 
 
Total
 
 
  
(U.S. $ in millions)
 
Balance at December 31, 2020
  
$
80
 
 
$
2,054
 
 
$
828
 
 
$
1,108
 
 
$
686
 
 
$
148
 
 
$
4,824
 
 
$
4,904
 
Provisions related to sales made in current year
  
 
100
 
 
 
1,126
 
 
 
164
 
 
 
2,043
 
 
 
76
 
 
 
23
 
 
 
3,432
 
 
 
3,532
 
Provisions related to sales made in prior periods
  
 
—  
 
 
 
(55
 
 
(11
 
 
6
 
 
 
(40
 
 
(17
 
 
(117
 
 
(117
Credits and payments
  
 
(102
 
 
(1,210
 
 
(188
 
 
(1,987
 
 
(101
 
 
(40
 
 
(3,526
 
 
(3,628
Translation differences
  
 
—  
 
 
 
(17
 
 
(4
 
 
(3
 
 
(3
 
 
(2
 
 
(29
 
 
(29
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2021
  
$
78
 
 
 
1,898
 
 
$
789
 
 
$
1,167
 
 
$
618
 
 
$
112
 
 
$
4,584
 
 
$
4,662
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Reserves
included in
Accounts
Receivable, net
 
 
Rebates
 
 
Medicaid and
other
governmental
allowances
 
 
Chargebacks
 
 
Returns
 
 
Other
 
 
Total reserves
included in SR&A
 
 
Total
 
 
  
(U.S.$ in millions)
 
Balance at December 31, 2019
  
$
87
 
 
$
2,895
 
 
$
1,109
 
 
$
1,342
 
 
$
637
 
 
$
176
 
 
$
6,159
 
 
$
6,246
 
Provisions related to sales made in current year
  
 
102
 
 
 
1,370
 
 
 
233
 
 
 
2,223
 
 
 
139
 
 
 
33
 
 
 
3,998
 
 
 
4,100
 
Provisions related to sales made in prior periods
  
 
—  
 
 
 
(106
 
 
(29
 
 
(16
 
 
(1
 
 
4
 
 
 
(148
 
 
(148
Credits and payments
  
 
(106
 
 
(1,513
 
 
(248
 
 
(2,396
 
 
(112
 
 
(35
 
 
(4,304
 
 
(4,410
Translation differences
  
 
—  
 
 
 
(21
 
 
(2
 
 
(6
 
 
(4
 
 
(10
 
 
(43
 
 
(43
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2020
  
$
83
 
 
 
2,625
 
 
$
1,063
 
 
$
1,147
 
 
$
659
 
 
$
168
 
 
$
5,662
 
 
$
5,745
 
 
 
14

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
 
NOTE 4 – Inventories:
Inventories, net of reserves, consisted of the following:
 
    
March 31,
2021
    
December 31,
2020
 
    
(U.S. $ in millions)
 
Finished products
   $ 2,253      $ 2,378  
Raw and packaging materials
     1,297        1,231  
Products in process
     663        605  
Materials in transit and payments on account
     193        189  
    
 
 
    
 
 
 
Total
   $ 4,406      $ 4,403  
    
 
 
    
 
 
 
NOTE 5 – Identifiable intangible assets:
Identifiable intangible assets consisted of the following:
 
    
Gross carrying amount net of
impairment
    
Accumulated
amortization
    
Net carrying amount
 
    
March 31,
    
December 31,
    
March 31,
    
December 31,
    
March 31,
    
December 31,
 
    
2021
    
2020
    
2021
    
2020
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Product rights
   $ 19,213      $ 19,650      $ 12,019      $ 12,094      $ 7,194      $ 7,556  
Trade names
     610        621        173        165        437        456  
In process research and development
     814        911        —          —          814        911  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 20,637      $ 21,182      $ 12,192      $ 12,259      $ 8,445      $ 8,923  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Product rights and trade names
Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products from various therapeutic categories from various acquisitions with a weighted average life of approximately 10 years.
Amortization of intangible assets was $242 million and $258 million in the three months ended March 31, 2021 and 2020, respectively.
IPR&D
Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is comprised mainly of various generic products from the Actavis Generics acquisition of $780 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
Intangible assets impairments
Impairments of long-lived intangible assets for the three months ended March 31, 2021 and 2020, were $79 million and $649 million, respectively.
 
Impairments in the first quarter of 2021 consisted of:
 
  (a)
IPR&D assets of $51 million related to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and
 
15

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
  (b)
Identifiable product rights of $28 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States.
Impairments in the first quarter of 2020 consisted of:
 
  (a)
IPR&D assets of $331 million, primarily due to: (i) $211 million related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States; and (ii) $106 million related to generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and;
 
  (b)
Identifiable product rights of $318 million, mainly due to: (i) $165 million in Japan in connection with ongoing regulatory pricing reductions and generic competition; and (ii) $138 million due to updated market assumptions regarding price and volume of certain generic products primarily marketed in the United States.
The fair value measurement of the impaired intangible assets in the first three months of 2021 is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The discount rate applied ranged from 7.5% to 9%. A probability of success factor
ranging from
40% to 90% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.
NOTE 6 – Goodwill:
The changes in the carrying amount of goodwill for the period ended March 31, 2021 were as follows:
 
    
North America
    
Europe
   
International
Markets
   
Other
    
Total
 
    
(U.S. $ in millions)
        
Balance as of December 31, 2020 (1)
   $ 6,473      $ 9,102     $ 2,362     $ 2,687      $ 20,624  
Changes during the period:
                                          
Translation differences
     4        (312     (14              (322
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance as of March 31, 2021 (1)
   $ 6,477      $ 8,790     $ 2,348     $ 2,687      $ 20,302  
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
 
(1)
Accumulated goodwill impairment as of March 31, 2021 and December 31, 2020 was approximately $25.6 billion.
Teva operates its business through three reporting segments: North America, Europe and International Markets. Each of these business segments is a reporting unit. Additional reporting units include Teva’s production and sale of APIs to third parties (“Teva API”) and an
out-licensing
platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. The Teva API and Medis reporting units are included under “Other” in the above table. See note 15 for additional segment information.
Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva may recognize an impairment of goodwill allocated to these reporting units in the future.
During the first quarter of 2021, management assessed developments that occurred during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount.
Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, 2021 and, therefore, no quantitative assessment was performed.
 
16

 
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Following the goodwill impairment charge recorded in the third quarter of 2020 in the North America reporting unit, the carrying value of the North America reporting unit equaled its fair value as of September 30, 2020. Therefore, if business conditions or expectations were to change materially, it may be necessary to record further impairment charges to the North America reporting unit in the future.
The other reporting units all have fair value in excess of
 
10
%
over their book values as of March 31, 2021.
NOTE 7 – Debt obligations:
a. Short-term debt:
 
            
March 31,

2021
    
December 31,

2020
 
    
Weighted average interest
rate as of March 31, 2021
   
Maturity
 
                 
(U.S. $ in millions)
 
Convertible senior debentures
     0.25     2026        23        514  
Current maturities of long-term liabilities
 
     2,674        2,674  
      
 
 
    
 
 
 
Total short-term debt
 
   $ 2,697      $ 3,188  
      
 
 
    
 
 
 
Convertible senior debentures
The principal amount of Teva’s 0.25% convertible senior debentures due 2026, was $23 million as of March 31, 2021 and $514 million as of December 31, 2020. These convertible senior debentures include a “net share settlement” feature according to which the principal amount will be paid in cash and in case of conversion, only the residual conversion value above the principal amount will be paid in Teva shares. Due to the “net share settlement” feature, exercisable at any time, these convertible senior debentures are classified in the Balance Sheet under short-term debt. Holders of the convertible senior debentures exercised their optional repurchase right and redeemed $491 million of the convertible senior debentures on February 1, 2021,
which was the date to exercise this right.
 
1
7

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
b. Long-term debt:
 
    
Weighted average interest
rate as of March 31,
2021
   
Maturity
    
March 31,
2021
    
December 31,
2020
 
                 
(U.S. $ in millions)
 
Senior notes EUR 1,500 million
     1.13     2024        1,752        1,839  
Senior notes EUR 1,300 million
     1.25     2023        1,520        1,595  
Senior notes EUR 1,000 million
     6.00     2025        1,172        1,230  
Senior notes EUR 900 million
     4.50     2025        1,054        1,107  
Senior notes EUR 750 million
     1.63     2028        873        916  
Senior notes EUR 700 million
     3.25     2022        820        861  
Senior notes EUR 700 million
     1.88     2027        818        860  
Senior notes USD 3,500 million
     3.15     2026        3,495        3,495  
Senior notes USD 1,475 million
     2.20     2021        1,474        1,472  
Senior notes USD 3,000 million
     2.80     2023        2,997        2,996  
Senior notes USD 2,000 million
     4.10     2046        1,986        1,986  
Senior notes USD 1,250 million
     6.00     2024        1,250        1,250  
Senior notes USD 1,250 million
     6.75     2028        1,250        1,250  
Senior notes USD 1,000 million
     7.13     2025        1,000        1,000  
Senior notes USD 844 million
     2.95     2022        851        853  
Senior notes USD 789 million
     6.15     2036        783        783  
Senior notes USD 613 million
     3.65     2021        615        616  
Senior notes USD 588 million
     3.65     2021        587        586  
Senior notes CHF 350 million
     0.50     2022        372        397  
Senior notes CHF 350 million
     1.00     2025        372        398  
                     
 
 
    
 
 
 
Total senior notes
 
     25,041        25,490  
Other long-term debt
     0.90     2026        1        1  
Less current maturities
 
     (2,674      (2,674
Less debt issuance costs
 
     (80      (86
      
 
 
    
 
 
 
Total senior notes and loans
 
   $ 22,288      $ 22,731  
                     
 
 
    
 
 
 
Long-term debt was issued by several indirect wholly-owned subsidiaries of the Company and is fully and unconditionally guaranteed by the Company as to payment of all principal, interest, discount and additional amounts, if any.
Long-term debt as of March 31, 2021 is effectively denominated in the following currencies: 61% in U.S. dollar, 36% in euro and 3% in Swiss franc.
Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $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. Tranche A had a maturity date of April 8, 2022, of which an amount of $1.065 billion was extended twice, initially to April 8, 2023 and then to April 8, 2024. Tranche B has a maturity date of April 8, 2024. Loans and letters of credit will be available from time to time under each tranche for Teva’s general corporate purposes.
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 was 5.50x through March 31, 2021, gradually declines to 5.00x in the third and fourth quarters of 2021, 4.50x in the first quarter of 2022, and continues to gradually decline over the remaining term of the RCF to 3.50x in the first quarter of 2023.
 
The RCF can be used for general corporate purposes, including repaying existing debt. As of March 31, 2021, and as of the date of this Quarterly Report on Form
10-Q,
no amounts were outstanding under the RCF. Based on current and forecasted results, the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date these financial statements are
issued.
 
18

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Under specified circumstances, including
non-compliance
with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, the Company 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 the Company’s senior notes due to cross acceleration provisions.
Teva expects that it will continue to have sufficient cash resources to support its debt service payments and all other financial obligations within one year from the date that these financial statements are issued.
NOTE 8 – Derivative instruments and hedging activities:
a. Foreign exchange risk management:
In the first three months of 2021, approximately 48% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks.
The Company enters into forward exchange contracts, purchases and writes options in order to hedge the currency exposure on balance sheet items, revenues and expenses. In addition, the Company takes measures to reduce exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the subsidiaries within Teva. The currency hedged items are usually denominated in the following main currencies: the euro, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar, the Polish zloty, the Indian rupee and other European and Latin American currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.
The Company may choose to hedge against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and entered into cross currency swaps and forward contracts in the past in order to hedge such an exposure.
Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.
b. Interest risk management:
The Company raises capital through various debt instruments, including straight notes that bear a fixed or variable interest rate, bank loans and convertible debentures. In some cases, the Company has swapped from a fixed to a floating interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.
c.
Derivative instruments outstanding: 
The following table summarizes the classification and fair values of derivative instruments:
 
    
Fair value
 
    
Not designated as hedging

instruments
 
    
March 31,

2021
    
December 31,

2020
 
Reported under
  
(U.S. $ in millions)
 
Asset derivatives:
                 
Other current assets:
                 
Option and forward contracts
   $ 63      $ 24  
Liability derivatives:
                 
Other current liabilities:
                 
Option and forward contracts
     (23      (79
 
1
9

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
The table below provides information regarding the location and amount of
pre-tax
(gains) losses from derivatives designated in fair value or cash flow hedging relationships:
 
    
Financial expenses, net
    
Other comprehensive
income (loss)
 
    
Three months ended,
    
Three months ended,
 
    
March 31,

2021
    
March 31,
2020
    
March 31,

2021
    
March 31,
2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
   $ 290      $ 224      $ (201    $ (530
Cross-currency swaps—net investment hedge (1)
     —          (2      —          (21
The table below provides information regarding the location and amount of
pre-tax
(gains) losses from derivatives not designated as hedging instruments:
 
    
Financial expenses, net
    
Net revenues
 
    
Three months ended,
    
Three months ended,
 
    
March 31,

2021
    
March 31,
2020
    
March 31,

2021
    
March 31,
2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
   $ 290      $ 224      $ (3,982    $ (4,357
Option and forward contracts (2)
     (70      24        —          —    
Option and forward contracts economic hedge (3)
     —          —          (28      (60
 
(1)
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.
(2)
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.
(3)
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 Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies to protect its projected operating results for 2021. 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. In 2020, Teva recognized a loss of $27 million in relation with the 2021 hedging program Teva entered into in the second half of 2020. In the first three months of 2021, the positive impact from these derivatives recognized under revenues was $28 million. 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 cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.  
 
20

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
d. Amortizations due to terminated derivative instruments:
Forward starting interest rate swaps and treasury lock agreements
In 2015, Teva entered into forward starting interest rate swaps and treasury lock agreements to protect the Company from interest rate fluctuations in connection with a future debt issuance the Company was planning. These forward starting interest rate swaps and treasury lock agreements were terminated in July 2016 upon the debt issuance. The termination of these transactions resulted in a loss position of $493 million, which was recorded in other comprehensive income (loss) and is amortized under financial expenses, net over the life of the debt
.
With respect to these forward starting interest rate swaps and treasury lock agreements, losses of $8 million were recognized under financial expenses, net for
each of  
the three months ended March 31, 2021 and 2020.
Fair value hedge
In the third quarter of 2016, Teva terminated interest rate swap agreements designated as a fair value hedge relating to its 2.95% senior notes due 2022 with respect to $844 million notional amount and its 3.65% senior notes due 2021 with respect to $450 million notional amount. Settlement of these transactions resulted in a gain position of $41 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.
In the third quarter of 2019, Teva terminated $500 million interest rate swap agreements designated as a fair value hedge relating to its 2.8% senior notes due 2023 with respect to $3,000 million notional amount. Settlement of these transactions resulted in cash proceeds 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.
Cash flow hedge
In the fourth quarter of 2019, Teva terminated $588 million cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. 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.
With respect to the interest rate swap and cross-currency swap agreements, no gains were recognized for the three months ended March 31, 2021, compared to gains of $1 million recognized under financial expenses, net for the three months ended March 31, 2020.
NOTE 9 – Legal settlements and loss contingencies:
Legal settlements and loss contingencies for the first quarter of 2021 
 were
$104 million, compared to an income of $25 million in the first quarter of 2020. The expense in the first quarter of 2021 was mainly due to the provision for the carvedilol patent litigation (see note 10). The income in the first quarter of 2020 was mainly due to proceeds received following a settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics).
As of March 31, 2021 and December 31, 2020, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses and other taxes and long-term liabilities was $1,730 million and 1,625 million, respectively.
 
NOTE 10 –
Commitments and contingencies:
General
From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, as described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva generally believes that it has meritorious defenses to the actions brought against it and vigorously pursues the defense or settlement of each such action.
 
2
1

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters where the exposures were fully resolved in the prior year, or determined to no longer meet the materiality threshold for disclosure, or were substantially resolved. In the first quarter of 2021, Teva has removed the bortezomib intellectual property litigation as it was fully resolved during 2020. In addition, Teva has removed PROVIGIL
®
, lidocaine patch and the memantine hydrochloride antitrust matters exposures, which are no longer considered material risks to the results of operations and cash flows of the Company as they were substantially resolved in prior periods.
If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.
In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.
Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA (formerly IMS Health Inc.) data.
Intellectual Property Litigation
From time to time, Teva seeks to develop generic versions of patent-protected pharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.
Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic version even though litigation is still pending. To the extent Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva, which could be material to its results of operations and cash flows in a given period.
Teva could also be sued for patent infringement outside of the context of the Hatch-Waxman Act. For example, Teva could be sued for patent infringement after commencing sales of a product. In addition, for biosimilar products, Teva could be sued according to the “patent dance” procedures of the Biologics Price Competition and Innovation Act (BPCIA).
The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty and it may also be able, in certain circumstances, to be compensated for its lost profits. The amount of a reasonable royalty award would generally be calculated based on the sales of Teva’s product. The amount of lost profits would generally be based on the lost sales of the patentee’s product. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.
Teva is also involved in litigation regarding patents in other countries where it does business, particularly in Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.
 
22

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In July 2014, GlaxoSmithKline (“GSK”) sued Teva in Delaware federal court for infringement of a patent directed to using carvedilol in a
specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of
GSK’s Coreg®) 
i
n September 2007. A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of
 
$
235.5
 
million, not including pre- or post-judgment interest or a multiplier for willfulness. Thereafter, the judge overturned the jury verdict, finding no induced infringement by Teva and that Teva did not owe any damages. On October 2, 2020, in a two-to-one decision, the Court of Appeals for the Federal Circuit, overturned the judge’s ruling and reinstated the jury verdict. Teva’s request for rehearing was granted, and the October 2020 decision was vacated. On February 23, 2021, the same three-judge panel of the Federal Circuit heard additional oral argument on the issue of whether there is enough evidence to support the jury’s verdict of induced infringement during the period from January 8, 2008 through April 30, 2011 (the “skinny label” period). If further appeals are decided against Teva, the case would be remanded to the district court for it to consider Teva’s other legal and equitable defenses that have not yet been considered by the district court. In the first quarter of 2021, Teva recognized a provision based on its offer to settle such matter.
Product Liability Litigation
Teva’s business inherently exposes it to potential product liability claims. Teva maintains a program of insurance, 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. However, Teva sells, and will continue to sell, pharmaceuticals 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 all of its markets.
Teva and its subsidiaries are parties to litigation relating to previously unknown nitrosamine impurities discovered in certain products. The discovery led to a global recall of single and combination valsartan medicines around the world starting in July 2018 and to subsequent recalls on other products. The nitrosamine impurities in valsartan are allegedly found in the active pharmaceutical ingredient (API) supplied by multiple API manufacturers. Teva’s products allegedly at issue in the various nitrosamine-related litigations pending in the United States include valsartan, losartan, metformin and ranitidine. There are currently two Multi-District Litigations (“MDL”) pending in the United States District Courts against Teva and numerous other manufacturers. One MDL is pending in the United States District Court for the District of New Jersey for valsartan, losartan and irbesartan. Teva is not named in complaints with respect to irbesartan. The second MDL is pending in the United States District Court for the Southern District of Florida for ranitidine. The lawsuits against Teva in the MDLs consist of individual personal injury and/or product liability claims and economic damages claims brought by consumers and end payors on behalf of purported classes of other consumers and end payors as well as medical monitoring class claims. Defendants’ motions to dismiss in the valsartan, losartan and irbesartan MDL were denied in part and granted in part, allowing plaintiffs to file amended complaints. On December 31, 2020, the court in the ranitidine MDL granted the generic defendants’ motion to dismiss on the grounds of preemption and deficient pleading, allowing plaintiffs to re-plead certain claims. Certain plaintiffs appealed the decision. Plaintiffs in the ranitidine MDL filed amended complaints, and on March 24, 2021, defendants moved to dismiss those amended complaints on largely the same grounds as the first round of motions to dismiss. In addition to these MDLs, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic manufacturers’ metformin products. A motion to dismiss in that consolidated action is pending. Similar lawsuits are pending in Canada and Germany.
Competition Matters
As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva obtained a license to market a generic version of the drug, often years before the patents expire.
 
2
3

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Teva and its subsidiaries have increasingly been named as defendants in cases that allege antitrust violations arising from such settlement agreements. The plaintiffs in these cases, which are usually direct and indirect purchasers of pharmaceutical products, and often assert claims on behalf of classes of all direct and indirect purchasers, typically allege that (1) Teva received something of value from the innovator in exchange for an agreement to delay generic entry, and (2) significant savings could have been realized if there had been no settlement agreement and generic competition had commenced earlier. These class action cases seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the generic price allegedly would have been and disgorgement of profits, which are automatically tripled under the relevant statutes, plus attorneys’ fees and costs. The alleged damages generally depend on the size of the branded market and the length of the alleged delay, and can be substantial—potentially measured in multiples of the annual brand sales—particularly where the alleged delays are lengthy or branded drugs with annual sales in the billions of dollars are involved.
Teva believes that its settlement agreements are lawful and serve to increase competition, and has defended them vigorously. In Teva’s experience to date, these cases have typically settled for a fraction of the high end of the damages sought, although there can be no assurance that such outcomes will continue.
In June 2013, the U.S. Supreme Court held, in Federal Trade Commission (“FTC”) v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws. This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.
In May 2015, Cephalon Inc., a Teva subsidiary (“Cephalon”), entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed antitrust claims against Cephalon related to certain finished modafinil products (marketed as PROVIGIL
®
) in exchange for Cephalon and Teva agreeing to, among other things, abide by certain restrictions and limitations, for a period of ten years, when entering into settlement agreements to resolve patent litigation in the United States. Those restrictions and limitations were further refined in connection with the settlement of other unrelated FTC antitrust lawsuits, as described below, and the term of the Modafinil Consent Decree was extended until 2029.
In November 2020, the European Commission issued a final decision in its proceedings against both Cephalon and Teva, finding that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil, and imposed fines totaling
 
60.5
 
million
on Teva and Cephalon. Teva and Cephalon filed an appeal against the decision in February 2021. A provision for this matter was included in the financial statements.
Teva and its affiliates have been named as defendants in lawsuits alleging that multiple patent litigation settlement agreements relating to AndroGel
®
1% (testosterone gel)
 
violate the antitrust laws. The first of these lawsuits (the “Georgia AndroGel Litigation”) was filed in January 2009 in California federal court, and later transferred to Georgia federal court, with the FTC and the State of California, and later private plaintiffs challenging a September 2006 patent litigation settlement between Watson Pharmaceuticals, Inc. (“Watson”), from which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”). The second lawsuit (the “Philadelphia AndroGel Litigation”) was filed by the FTC in 
September 2014 in federal court in Philadelphia, challenging Teva’s December 2011 patent litigation settlement with AbbVie. The FTC stipulated to
dismiss Teva from both litigations, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. On July 16, 2018,
the direct purchaser plaintiffs’ motion for class certification in the Georgia AndroGel Litigation was denied and Teva later settled with most of the
retailer plaintiffs in the Georgia AndroGel Litigation as well as the three direct purchasers that had sought class certification and on January 7, 2021,
Teva settled all claims with the remaining retailer plaintiff in the Georgia AndroGel Litigation, thus leaving no remaining claims in the Georgia
AndroGel Litigation. In August 2019, certain other direct-purchaser plaintiffs (who would have been members of the direct purchaser class in the
Georgia AndroGel Litigation, had it been certified) filed their own claims in the federal court in Philadelphia (where the Philadelphia AndroGel
Litigation has been pending), challenging (in one complaint) both the September 2006 settlement between Watson and Solvay, and the December 2011
 
settlement between Teva and AbbVie. Those claims remain pending. Annual sales of AndroGel
®
1% were approximately
 
$
350
 
million at the time of the
earlier Watson/Solvay settlement and approximately
 
$
140
 
million at the time Actavis launched its generic version of AndroGel
®
1% in November 2015. A provision for these matters was included in the financial statements.
 
24
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
In December 2011, three groups of plaintiffs sued Wyeth and Teva for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving extended release venlafaxine (generic Effexor XR
®
) entered into in November 2005. The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the U.S. District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In October 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases, after which the parties agreed that the court’s reasoning applied equally to the indirect purchaser cases. Plaintiffs appealed and, in August 2017, the Third Circuit reversed the district court’s decision and remanded for further proceedings. In March 2020, the district court temporarily stayed discovery and referred the case to mediation, and discovery remains stayed. Annual sales of Effexor XR
®
were approximately $2.6 billion at the time of settlement and at the time Teva launched its generic version of Effexor XR
®
in July 2010.
In February 2012, two purported classes of direct-purchaser plaintiffs sued GSK and Teva in New Jersey federal court for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving lamotrigine
(generic Lamicta
l
®
)
 
e
ntered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the court dismissed the case, but in June 2015, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further proceedings. In December 2018, the district court granted the direct-purchaser plaintiffs’ motion for class certification, but on April 22, 2020, the Third Circuit reversed that ruling and remanded for further class certification proceedings. On April 9, 2021, the district court denied the direct purchaser plaintiffs’ renewed motion for class certification. Annual sales of
Lamictal
®
 
were approximately
 
$
950
 million at the time of the settlement and approximately $
2.3
 
billion at the time Teva launched its generic version of Lamictal
®
in July 2008.
In April 2013, purported classes of direct purchasers of, and end payers for, Niaspan
®
(extended release niacin) sued Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005, to resolve patent
 
litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual direct-purchaser
opt-out
plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ class. In August 2019, the district court certified the direct-purchaser class, but in June 2020, the court denied the indirect purchasers’ motion for class certification without prejudice. On September 4, 2020, the indirect purchasers filed a renewed motion for class certification, which remains pending. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, which has since been amended, alleging violations of state law. Defendants moved to strike the District Attorney’s claims for restitution and civil penalties to the extent not limited to alleged activity occurring in Orange County. The Superior Court denied that motion. The Court of Appeals subsequently reversed the decision and in June 2020, the California Supreme Court reversed the Court of Appeals’ decision, allowing the District Attorney’s claims to proceed. Annual sales of Niaspan
®
were approximately
 
$
416
 million at the time of the settlement and approximately $
1.1
 billion at the time Teva launched its generic version of Niaspan
®
in September 2013
.
Since January 2014, numerous lawsuits have been filed in the U.S. District Court for the Southern District of New York by purported classes of
end-payers
for, and direct-purchasers of, Actos
®
and Actoplus Met (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers, including Teva, Actavis and Watson. The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers violated the antitrust laws. The court dismissed the
end-payers’
lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time following the Second Circuit’s decision, but on October 8, 2019, the district court dismissed, with prejudice, the direct purchasers’ claims against the generic manufacturers (including Teva, Actavis, and Watson). At the time of Teva’s settlement, annual sales of Actos
®
and Actoplus Met were approximately $3.7 billion and approximately $500 million, respectively. At the time Teva launched its authorized generic version of Actos
®
and Actoplus Met in August 2012, annual sales of Actos
®
and Actoplus Met were approximately $2.8 billion and approximately $430 million,
respectively.
 
25

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In January 2019, generic manufacturer Cipla Limited filed a lawsuit against Amgen, which was later amended to include Teva as a defendant, in Delaware federal court, alleging, among other things, that a January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar
®
), violated the antitrust laws. On August 14, 2020, Cipla Limited agreed to dismiss its claims against Teva, with prejudice, and those claims have since been dismissed. Putative classes of direct-purchaser and
end-payer
plaintiffs have also filed antitrust lawsuits (which have since been coordinated in federal court in Delaware) against Amgen and Teva related to the January 2, 2019 settlement. On July 22, 2020, a magistrate judge recommended that plaintiffs’ claims be dismissed and on November 30, 2020, the district court overruled the magistrate judge’s recommendation, denied Teva’s motion to dismiss in part, and instructed plaintiffs to file amended complaints, which plaintiffs filed on February 16, 2021. Teva again moved to dismiss those complaints on March 30, 2021, based on plaintiffs’ failure to allege both (a) that the settlement violated the antitrust laws and (b) that the settlement caused any actual injury to plaintiffs, and Teva’s motions remain pending. Annual sales of Sensipar
®
in the United States were approximately
 
$1.4 
 billion at the time Teva launched its generic version of Sensipar
®
in December 2018, and at the time of the January 2, 2019 settlement.
On December 16, 2016, the U.K. Competition and Markets Authority (“CMA”) issued a statement of objections (a provisional finding of breach of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and certain Auden Mckenzie entities alleging competition law breaches in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. On March 3, 2017 and February 28, 2019, the CMA issued second and third statements of objections in respect of certain additional allegations relating to the same products and covering part of the same time periods as in the first statement of objections. On February 12, 2020, the CMA issued a Supplementary Statement of Objections effectively combining the three previously issued statements referenced above and a Statement of Draft Penalty Calculation was issued on October 28, 2020. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 16, 2016 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. A liability for this matter has been recorded in the financial statements.
In March 2021, following the 2019 European Commission’s inspection of Teva and subsequent request for information, the European Commission opened a formal antitrust investigation to assess whether Teva may have abused a dominant position by delaying the market entry and uptake of medicines that compete with COPAXONE
®
. Annual sales of COPAXONE in the European Economic Area for the past year were
approximately $380 million.
Between September 1, 2020 and December 20, 2020, separate plaintiffs purporting to represent putative classes of direct and indirect purchasers and
opt-out
retailer purchasers of Bystolic
®
(nebivolol hydrochloride) filed separate complaints in the U.S. District Court for the Southern District of New York against several generic manufacturers, including Teva, Actavis, and Watson, alleging, among other things, that the settlement agreements these generic manufacturers entered into with Forest Laboratories, Inc., the innovator, to resolve patent litigation over Bystolic
®
violated the antitrust laws. The cases were coordinated and on March 15, 2021, plaintiffs filed amended complaints. Annual sales of Bystolic
®
in the United States were
approximately $700 million at the time of Watson’s 2013 settlement with Forest.
Government Investigations and Litigation Relating to Pricing and Marketing
Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States.
In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. On August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three count indictment charging Teva USA with criminal felony Sherman Act violations. See No.
20-cr-200
(E.D. Pa.). The indictment alleges Teva USA participated in a conspiracy with certain other generic drug manufacturers to maintain and fix prices, allocate customers, and other alleged antitrust offenses concerning the sale of generic drugs, including Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream
E-Cream,
Gel, and Ointment), Warfarin, Etodolac (IR), Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. A tentative trial date is yet to be scheduled. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business, including monetary penalties and debarment from federally funded health care programs.
 
26

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.
In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. Subsequently, on December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law alleging price fixing of generic products in the United States. That complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these attorneys general filed yet another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional products. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA in a similar complaint relating to dermatological generics products. In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general November 1, 2019 amended complaint, referenced above, along with three complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints. Teva moved the court to reconsider that ruling, and the motion was granted on February 9, 2021. As a result, the attorneys’ general November 1, 2019 amended complaint is not expected to be among the bellwether complaints in the Pennsylvania MDL.
Beginning on March 2, 2016, and continuing through December 2020, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct and indirect purchaser
opt-out
plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, pending as of that date, and on February 15, 2019, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims. On July 18, 2019, and again on May 6, 2020, certain individual plaintiffs commenced a civil action in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaint has been filed in either action and, both cases have been placed in deferred status. On November 13, 2019, and again on August 24, 2020, certain counties in New York commenced civil actions against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaints have been transferred to the Pennsylvania MDL. On December 15, 2020, several additional New York counties filed suit in New York state court raising similar allegations, and the case was removed to federal court on March 26, 2021. On March 1, 2020, Harris County in Texas filed a complaint against several generic manufacturers including Teva and Actavis in the District Court for the Southern District of Texas, which has been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic drug products to the detriment of a class of private payors. The action is in its early stages.
In March 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Subsequently, in August 2020, the U.S. Attorney’s
 
27

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
office in Boston, Massachusetts brought a civil action in the U.S. District Court for the District of Massachusetts alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law. It is alleged that Teva caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients. An adverse judgment may involve damages, civil penalties and injunctive remedies. On October 19, 2020, Teva filed a motion to dismiss the complaint on the grounds that it fails to state a claim, and that motion remains pending. Additionally, on January 8, 2021, Humana, Inc. filed an action against Teva in the United States District Court for the Middle District of Florida based on the allegations raised in the August 2020 complaint filed by the U.S. Attorney’s Office in Boston. On April 2, 2021 Teva filed a motion to dismiss the claims on the grounds that the claims are time-barred and/or insufficiently pled, and that action remains pending.
Opioids Litigation
Since May 2014, more than 3,000 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of cities, counties, states, other governmental agencies, tribes and private plaintiffs (including various putative class actions of individuals) in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”) and many of the cases filed in state court have been removed to federal court and consolidated into the MDL Opioid Proceeding. Two cases that were included in the MDL Opioid Proceeding were recently transferred back to federal district court for additional discovery,
pre-trial
proceedings and trial. Those cases are: City of Chicago v. Purdue Pharma L.P. et al., No.
14-cv-04361
(N.D. Ill.) and City and County of San Francisco v. Purdue Pharma L.P. et al., No.
18-cv-07591-CRB
(N.D. Cal.). Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas, Utah and West Virginia, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Complaints asserting claims under similar provisions of different state law, generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ
®
and FENTORA
®
. The complaints also assert claims related to Teva’s generic opioid products. In addition, over 950 personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death claims in over 600 complaints, nearly all of which are consolidated in the MDL Opioid Proceeding. Furthermore, approximately 700 complaints have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify multiple billions of dollars in the aggregate as alleged damages. The individual personal injury plaintiffs further seek
non-economic
damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants.
On April 19, 2021, a bench trial in California (The People of the State of California, acting by and through Santa Clara County Counsel James R. Williams, et. al. v. Purdue Pharma L.P., et. al.) commenced with Teva and other defendants focused on the marketing of branded opioids. Absent resolutions, additional trials are expected to proceed in several states in 2021.
In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for
 
$85 million. The settlement did not include any admission of violation of law for any of the claims or allegations made. As the Company demonstrated a willingness to settle part of the litigation, for accounting purposes, management considered a portion of opioid-related cases as probable and, as such, recorded an estimated provision in the second quarter of 2019. Given the relatively early stage of the cases, management viewed no amount within the range to be the most likely outcome. Therefore, management recorded a provision for the reasonably estimable minimum amount in the assessed range for such opioid-related cases in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”
On October 21, 2019, Teva reached a settlement with the two plaintiffs in the MDL Opioid Proceeding that was scheduled for trial for the Track One case, Cuyahoga and Summit Counties of Ohio. Under the terms of the settlement, Teva will provide the two counties with opioid treatment medication, buprenorphine naloxone (sublingual tablets), known by the brand name Suboxone
®
, with a value of $25 million at wholesale acquisition cost and distributed over three years to help in the care and treatment of people suffering from addiction, and a cash payment in the amount of $20 million, to be paid in four
 
payments over three years.
 
28

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Also on October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement. This nationwide settlement was designed to provide a mechanism by which the Company attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this nationwide settlement, Teva would provide buprenorphine naloxone (sublingual tablets) with an estimated value of up to approximately
$23 billion at wholesale acquisition cost over a ten year period. In addition, Teva would also provide cash payments of up to $250 million over a ten year
period.
During the passage of time since then, the Company has continued to negotiate the terms and conditions of a nationwide settlement. There are many complex financial and legal issues still outstanding, including indemnification claims by Allergan against the Company, arising from the acquisition of the Actavis Generics business. Since negotiations are ongoing, the Company cannot predict if a settlement will be finalized.
The Company considered a range of potential settlement outcomes. The current provision remains a reasonable estimate of the ultimate costs if a settlement is finalized based on the Company’s most recent offer to settle. However, if not finalized for the entirety of the cases, a reasonable upper end of a range of loss cannot be determined. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and
non-monetary
relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows.
Separately, on April 27, 2018, Teva received subpoena requests from the United States Attorney’s office in the Western District of Virginia and the Civil Division seeking documents relating to the manufacture, marketing and sale of branded opioids. In August 2019, Teva received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York for documents related to the Company’s anti-diversion policies and procedures and distribution of its opioid medications, in what the Company understands to be part of a broader investigation into manufacturers’ and distributors’ monitoring programs and reporting under the Controlled Substances Act. In September 2019, Teva received subpoenas from the New York State Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. Following a Statement of Charges and Notice of Hearing filed by the NYDFS, a hearing is currently scheduled to take place in June 2021. Currently, Teva cannot predict how a nationwide settlement (if finalized) will affect these investigations and administrative actions. In addition, a number of state attorneys general, including a coordinated multistate effort, have initiated investigations into sales and marketing practices of Teva and its affiliates with respect to opioids. Other states are conducting their own investigations outside of the multistate group. Teva is cooperating with these ongoing investigations and cannot predict their outcome at this time.
In addition, several jurisdictions and consumers in Canada have initiated litigation regarding opioids alleging similar claims as those in the United States. The cases in Canada may be consolidated and are in their early stages.
Shareholder Litigation
On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. Those lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut (the “Ontario Teachers Securities Litigation”). On December 13, 2019, the lead plaintiff in that action filed an amended complaint, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and May 10, 2019. The amended complaint asserts that Teva and certain of its current and former officers and directors violated federal securities and common laws in connection with Teva’s alleged failure to disclose pricing strategies for various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering materials. The amended complaint seeks unspecified damages, legal fees, interest, and costs. In July 2017, August 2017, and June 2019, other putative securities class actions were filed in other federal courts based on similar allegations, and those cases have been transferred to the U.S. District Court for the District of Connecticut. Between August 2017 and October 2020, twenty complaints were filed against Teva and certain of its current and former officers and directors seeking unspecified compensatory damages, legal fees, costs and expenses. The similar claims in these complaints have been brought on behalf of plaintiffs, in various forums across the country, who have indicated that they intend to
“opt-out”
of the Ontario Teachers Securities Litigation. On March 10, 2020, the Court consolidated the Ontario Teachers Securities Litigation with all of the above-referenced putative class actions for all purposes and the
“opt-out”
cases for pretrial purposes. The case is now in discovery. Pursuant to that
 
29

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
consolidation order, plaintiffs in several of the
“opt-out”
cases filed amended complaints on May 28, 2020. On January 22, 2021, the Court dismissed the
“opt-out”
plaintiffs’ claims arising from statements made prior to the five year statute of repose, but denied Teva’s motion to dismiss their claims under Israeli laws. Those
“opt-out”
plaintiffs moved for reconsideration, which was denied on March 30, 2021. The Ontario Teachers Securities Litigation plaintiffs’ Motion for Class Certification and Appointment of Class Representatives and Class Counsel was granted on March 9, 2021, to which Teva has sought an appeal. That motion is pending. Motions to approve securities class actions were also filed in the Tel Aviv District Court in Israel with similar allegations to those made in the Ontario Teachers Securities Litigation
.
On September 23, 2020, a putative securities class action was filed in the U.S. District Court for the Eastern District of Pennsylvania against Teva and certain of its former officers alleging, among other things, violations of Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule
10b-5.
The complaint, purportedly filed on behalf of persons who purchased or otherwise acquired Teva securities between October 29, 2015 and August 18, 2020, alleges that Teva and certain of its former officers violated federal securities laws by allegedly making false and misleading statements regarding the commercial performance of COPAXONE, namely, by failing to disclose that Teva had caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients, which allegedly impacted COPAXONE’s commercial success and the sustainability of its revenues and resulted in the above referenced August 2020 False Claims Act complaint filed by the DOJ. The securities class action complaint seeks unspecified damages, legal fees, interest, and costs. The case is in its preliminary stages, and on March 15, 2021, plaintiffs filed amended complaints. On March 26, 2021, the Court appointed lead plaintiff and lead counsel, and instructed that the lead plaintiff can file an amended complaint by May 25, 2021. A motion to approve a securities class action was also filed in the Central District Court in Israel, which has been stayed pending the U.S. litigation, with similar allegations to those made in the above complaint filed in the U.S. District Court for the Eastern District of Pennsylvania.
Motions to approve derivative actions against certain past and present directors and officers have been filed in Israeli Courts alleging negligence and recklessness with respect to the acquisition of the Rimsa business, the acquisition of Actavis Generics and the patent settlement relating to Lidoderm
®
. Motions for document disclosure prior to initiating derivative actions were filed with respect to several U.S. and EU settlement agreements, opioids, the U.S. price-fixing investigations and allegations related to the DOJ’s complaint regarding Copaxone patient assistance program in the U.S. In October 2020, Teva filed a notice with the Tel Aviv District Court to settle the derivative proceeding with regard to the acquisition of Actavis Generics and two related actions, including the derivative proceedings related to allegations in connection with the Lidoderm
®
patent settlement agreement. 
Environmental Matters
Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.
Although liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the allocation of
clean-up
and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent factors. Teva’s potential liability varies greatly at each of the sites; for some sites the costs of the investigation,
clean-up
and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other sites, Teva has taken an active role in identifying those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of
clean-up
costs from insurers, indemnitors, former site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged violations of federal, state, commonwealth or local requirements at some of Teva’s facilities may result in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of operations) and the recovery of certain costs and natural resource damages, and may require that corrective actions and enhanced compliance measures be
implemented.
 
30

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Other Matters
On February 1, 2018, former shareholders of Ception Therapeutics, Inc., a company that was acquired by and merged into Cephalon in 2010, prior to Cephalon’s acquisition by Teva, filed breach of contract and other related claims against the Company, Teva USA and Cephalon in the Delaware Court of Chancery. Among other things, the plaintiffs allege that Cephalon breached the terms of the 2010 Ception-Cephalon merger agreement by failing to exercise commercially reasonable efforts to develop and commercialize CINQAIR
®
(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the
 
milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). Defendants moved to dismiss the complaint and on December 28, 2018, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract. Trial in this matter is currently scheduled for
June 2022.
 
NOTE 11 – Income taxes:
In the first quarter of 2021, Teva recognized a tax expense
of
$62 million, on
pre-tax
income of $144 million. In the first quarter of 2020, Teva recognized a tax benefit of $59 
million, on
pre-tax
loss of
$33 million.
Teva’s tax rate for the first quarter of 2021 was mainly affected by legal settlements, impairments and amortization in jurisdictions in which tax rates are lower than Teva’s average tax rate on its ongoing business operations.
The statutory Israeli corporate tax rate is 23% in 2021.
Teva’s 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
non-recurring
items.
Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. Trial in this case is scheduled to begin in May 2021. A final and binding decision against Teva in this case may lead to an asset write off of
$140 million.
The Israeli tax authorities issued tax assessment decrees for 2008-2012 and 2013-2016, challenging the Company’s positions on several issues. Teva has protested the 2008-2012 and 2013-2016 decrees before the Central District Court in Israel. The Company believes it has adequately provided for these items, however, adverse results could be material.
NOTE 12 – Other assets impairments, restructuring and other items:
 
    
Three months ended
 
    
March 31,
 
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Impairments of long-lived tangible assets (1)
   $ 48      $ 75  
Contingent consideration
     3        6  
Restructuring
     81        39  
Other
     4        —    
    
 
 
    
 
 
 
Total
   $ 137      $ 121  
    
 
 
    
 
 
 
 
(1)
Including impairments related to exit and disposal activities
 
Impairments
Impairments of tangible assets for the three months ended March 31, 2021 and 2020 were $48 million and $75 
million, respectively. The impairment for the three months ended March 31, 2021 was mainly related to certain assets in Europe.
 
31

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Teva may record additional impairments in the future, to the extent it changes its plans on any given asset and/or the assumptions underlying such plans, as a result of its network consolidation activities.
Contingent consideration
In the three months ended March 31, 2021, Teva recorded an expense of $3 million for contingent consideration, compared to an expense of $6 million in the three months ended March 31, 2020.
Restructuring
In the three months ended March 31, 2021, Teva recorded $81 million of restructuring expenses, compared to $39 million in the three months ended March 31, 2020.
The expenses for the three months ended March 31, 2021 were primarily related to network consolidation activities and residual expenses of the restructuring plan announced in 2017.
The following tables provide the components of costs associated with Teva’s restructuring plan, including other costs associated with Teva’s restructuring plan and recorded under different items:
 
 
    
Three months ended March 31,
 
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Restructuring
                 
Employee termination
   $ 79      $ 33  
Other
     2        6  
    
 
 
    
 
 
 
Total
   $ 81      $ 39  
    
 
 
    
 
 
 
The following table provides the components of and changes in the Company’s restructuring accruals:
 
    
Employee termination
costs
    
Other
    
Total
 
    
(U.S. $ in millions )
 
Balance as of January 1, 2021
   $ (115    $ (7    $ (122
Provision
     (79      (2      (81
Utilization and other*
     33        2        35  
    
 
 
    
 
 
    
 
 
 
Balance as of March 31, 2021
   $ (161    $ (7    $ (168
    
 
 
    
 
 
    
 
 
 
 
 
  
Employee termination
costs
 
  
Other
 
  
Total
 
 
  
(U.S. $ in millions )
 
Balance as of January 1, 2020
  
$
(208
  
$
(7
  
$
(215
Provision
  
 
(33
  
 
(6
  
 
(39
Utilization and other*
  
 
69
 
  
 
6
 
  
 
75
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Balance as of March 31, 2020
  
$
(172
  
$
(7
  
$
(179
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
*
Includes adjustments for foreign currency translation.
 
Significant regulatory and other events
In July 2018, the FDA completed an inspection of Teva’s manufacturing plant in Davie, Florida in the United States, and issued a Form
FDA-
483
to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, Teva received a warning letter from the FDA that contained four additional enumerated concerns related to production, quality control and investigations at this site. Teva has been working diligently to address the FDA’s concerns in a manner consistent with current good manufacturing practice (cGMP) requirements as quickly and as thoroughly as possible. An FDA follow up inspection occurred in January 2020, resulting in some follow up findings and Teva received a letter from the FDA dated April 24, 2020 notifying it that the site continues to be classified as OAI. If Teva is unable to remediate the findings to the FDA’s satisfaction, Teva may face additional consequences. These would potentially include continued delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write-offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate approximately $125 
million in revenues from this site during the remainder of 2021, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility, however, delays in FDA approvals of future products from the site may occur
.
In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA
 
32

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
found in valsartan API supplied by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls. In December 2019, Teva reached a settlement with Huahai resolving Teva’s claims related to certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses Teva may incur as a result of third party personal injury or product liability claims relating to the sartan API at issue. In addition, multiple lawsuits have been filed in connection with this matter, which may lead to additional customer penalties, impairments and litigation costs.
In the second quarter of 2020, Teva’s operations in its manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. During the second half of 2020, Teva has completed partial remediation of this issue and has restarted limited supply from its Goa facilities. The site experienced some additional delays in first quarter of 2021 due to labor related issues. The impact to Teva’s financial results for the three months ended March 31, 2021 was immaterial, however, if the full remediation takes longer than expected there may be further loss of sales, customer penalties or impairments to related assets.
NOTE 13 – Earnings (Loss) per share:
Basic earnings and loss per share are computed by dividing net results attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding (including fully vested restricted share units (“RSUs”)) during the period, net of treasury shares.
In computing diluted earnings per share for the three months ended March 31, 2021 and March 31, 2020, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and
non-vested
RSUs granted under employee stock compensation plans. No account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on earnings per share.
Basic and diluted earnings per share were $0.07 for the three months ended March 31, 2021, compared to basic and diluted earnings per share of $0.06 for the three months ended March 31, 2020.
NOTE 14 – Accumulated other comprehensive income (loss):
The components of, and changes within, accumulated other comprehensive income (loss) attributable to Teva are presented in the table below:
 
    
Net Unrealized Gains (Losses)
   
Benefit Plans
       
    
Foreign
currency
translation
adjustments
   
Derivative
financial
instruments
   
Actuarial gains
(losses) and
prior service
(costs) credits
   
Total
 
    
(U.S. $ in millions)
 
Balance as of December 31, 2020, net of taxes
   $ (1,919   $ (363   $ (117   $ (2,399
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss) before reclassifications
     (174     —         —         (174
Amounts reclassified to the statements of income
     —         9               9  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net other comprehensive income (loss) before tax
     (174     9       —         (165
    
 
 
   
 
 
   
 
 
   
 
 
 
Corresponding income tax
     33       (2     —         31  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net other comprehensive income (loss) after tax*
     (141     7       —         (134
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance as of March 31, 2021, net of taxes
  
$
(2,060
 
$
(356
 
$
(117
 
$
(2,534
    
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Amounts do not include a $67 million
 loss from foreign currency 
translation adjustments attributable to
non-controlling
interests
.
 
33

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
    
Net Unrealized Gains (Losses)
    
Benefit Plans
        
    
Foreign
currency
translation
adjustments
    
Derivative
financial
instruments
    
Actuarial gains
(losses) and
prior service
(costs) credits
    
Total
 
    
(U.S. $ in millions)
 
Balance as of December 31, 2019, net of taxes
   $ (1,794    $ (420    $ (98    $ (2,312
    
 
 
    
 
 
    
 
 
    
 
 
 
Other comprehensive income (loss) before reclassifications
     (573      22        —          (551
Amounts reclassified to the statements of income
     —          8        —          8  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net other comprehensive income (loss) before tax
     (573      30        —          (543
    
 
 
    
 
 
    
 
 
    
 
 
 
Corresponding income tax
     3        —          —          3  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net other comprehensive income (loss) after tax*
     (570      30        —          (540
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance as of March 31, 2020, net of taxes
   $ (2,364    $ (390    $ (98    $ (2,852
    
 
 
    
 
 
    
 
 
    
 
 
 
 
*
Amounts do not include a $10 million loss from foreign currency translation adjustments attributable to
non-controlling
interests
.
 
NOTE 15 – Segments:
Teva operates its business and reports its financial results in three segments:
 
  (a)
North America segment, which includes the United States and Canada.
 
  (b)
Europe segment, which includes the European Union and certain other European countries.
 
  (c)
International Markets segment, which includes all countries other than those in the North America and Europe segments.
In addition to these three segments, Teva has 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 its affiliate Medis.
Teva’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the three identified reportable segments, namely North America, Europe and International Markets, to make decisions about resources to be allocated to the segments and assess their performance.
Segment profit is comprised of gross profit for the segment less R&D expenses, S&M expenses, G&A expenses and other income related to the segment. Segment profit does not include amortization and certain other items.
Teva manages its assets on a company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review asset information by reportable segment and, therefore, Teva does not report asset information by reportable segment.
Teva’s CEO may review its strategy and organizational structure from time to time. Any changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 3 and
note 6.
 
34

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
a.
Segment information:
 
 
    
Three months ended March 31,
 
    
2021
 
    
North America
    
Europe
    
International Markets
 
    
(U.S. $ in millions)
 
Revenues
   $ 1,989      $ 1,214      $ 490  
Gross profit
     1,074        688        260  
R&D expenses
     160        66        18  
S&M expenses
     229        214        96  
G&A expenses
     111        70        26  
Other income
     (3      §        (2
    
 
 
    
 
 
    
 
 
 
Segment profit
   $ 577      $ 338      $ 122  
    
 
 
    
 
 
    
 
 
 
 
§ Represents an amount less than $1 million.
 
    
Three months ended March 31,
 
    
2020
 
    
North America
    
Europe
    
International Markets
 
    
(U.S. $ in millions)
 
Revenues
   $ 2,082      $ 1,402      $ 565  
Gross profit
     1,062        823        305  
R&D expenses
     146        55        15  
S&M expenses
     251        202        106  
G&A expenses
     118        66        34  
Other income
     (2      (1      (6