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falseQ2TEVA PHARMACEUTICAL INDUSTRIES LTD0000818686--12-3100-0000000ILRepresents an amount less than $0.5 million.Accumulated goodwill impairment as of June 30, 2021 and December 31, 2020 was approximately $25.6 billion.Represents an amount less than $1 million.In July 2021, Teva repaid at maturity USD 1,475 million of its 2.2% senior notes.Including impairments related to exit and disposal activitiesIncludes adjustments for foreign currency translation.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 Six months of 2021, the positive impact from these derivatives recognized under revenues was $13 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. 0000818686 2021-01-01 2021-06-30 0000818686 2021-04-01 2021-06-30 0000818686 2020-04-01 2020-06-30 0000818686 2020-01-01 2020-06-30 0000818686 2021-06-30 0000818686 2020-12-31 0000818686 2009-01-31 0000818686 2020-09-01 0000818686 2020-01-01 2020-12-31 0000818686 2017-08-21 2017-08-21 0000818686 2005-02-28 0000818686 2008-07-31 0000818686 2008-08-01 2008-08-31 0000818686 2015-07-15 2015-07-15 0000818686 2010-12-01 2010-12-31 0000818686 2012-08-01 2012-08-31 0000818686 2020-06-30 0000818686 2019-01-01 2019-12-31 0000818686 2020-11-01 2020-11-30 0000818686 2021-01-01 2021-03-31 0000818686 2014-01-01 2014-12-31 0000818686 2020-11-20 2020-11-20 0000818686 2021-07-08 0000818686 2019-12-31 0000818686 2020-03-31 0000818686 2021-03-31 0000818686 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0000818686 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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 June 30, 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
 
No
t 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 June 30, 2021, the registrant had 1,102,885,659 ordinary shares outstanding.
 
 
 

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
INDEX
 
PART I.
 
  
Item 1.
 
  
 
5
 
 
  
 
5
 
 
  
 
6
 
 
  
 
7
 
 
  
 
8
 
 
  
 
10
 
 
  
 
11
 
Item 2.
 
  
 
46
 
Item 3.
 
  
 
76
 
Item 4.
 
  
 
76
 
PART II.
 
  
 
77
 
Item 1.
 
  
 
77
 
Item 1A.
 
  
 
77
 
Item 2.
 
  
 
77
 
Item 3.
 
  
 
77
 
Item 4.
 
  
 
77
 
Item 5.
 
  
 
77
 
Item 6.
 
  
 
78
 
 
  
 
79
 
 
2

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)
 
    
June 30,
   
December 31,
 
    
2021
   
2020
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 2,436     $ 2,177  
Accounts receivables, net of allowance for credit losses of $120 million and $126 million as of June 30, 2021 and December 31, 2020
     4,488       4,581  
Inventories
     4,362       4,403  
Prepaid expenses
     1,022       945  
Other current assets
     484       710  
Assets held for sale
     29       189  
    
 
 
   
 
 
 
Total current assets
     12,822       13,005  
Deferred income taxes
     645       695  
Other
non-current
assets
     530       538  
Property, plant and equipment, net
     6,127       6,296  
Operating lease
right-of-use
assets
     531       559  
Identifiable intangible assets, net
     8,120       8,923  
Goodwill
     20,421       20,624  
    
 
 
   
 
 
 
Total assets
   $ 49,195     $ 50,640  
    
 
 
   
 
 
 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Short-term debt
   $ 3,530     $ 3,188  
Sales reserves and allowances
     4,453       4,824  
Accounts payables
     1,551       1,756  
Employee-related obligations
     511       685  
Accrued expenses
     1,807       1,780  
Other current liabilities
     838       933  
    
 
 
   
 
 
 
Total current liabilities
     12,691       13,164  
Long-term liabilities:
                
Deferred income taxes
     932       964  
Other taxes and long-term liabilities
     2,215       2,240  
Senior notes and loans
     21,602       22,731  
Operating lease liabilities
     444       479  
    
 
 
   
 
 
 
Total long-term liabilities
     25,193       26,414  
    
 
 
   
 
 
 
Commitments and contingencies
, see note 10
                
Total liabilities
     37,884       39,579  
    
 
 
   
 
 
 
Equity:
                
Teva shareholders’ equity:
                
Ordinary shares of NIS 0.10 par value per share; June 30, 2021 and December 31, 2020: authorized 2,495 million shares; issued 1,209 million shares and 1,202 million shares, respectively
     57       57  
Additional
paid-in
capital
     27,503       27,443  
Accumulated deficit
     (10,662     (10,946
Accumulated other comprehensive loss
     (2,446     (2,399
Treasury shares as of June 30, 2021 and December 31, 2020 — 106 million ordinary shares
     (4,128     (4,128
    
 
 
   
 
 
 
       10,324       10,026  
    
 
 
   
 
 
 
Non-controlling
interests
     987       1,035  
    
 
 
   
 
 
 
Total equity
     11,311       11,061  
    
 
 
   
 
 
 
Total liabilities and equity
   $ 49,195     $ 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
   
Six months ended
 
    
June 30,
   
June 30,
 
    
2021
   
2020
   
2021
   
2020
 
Net revenues
   $ 3,910     $ 3,870     $ 7,892     $ 8,227  
Cost of sales
     2,037       2,107       4,141       4,402  
Gross profit
     1,873       1,763       3,750       3,826  
Research and development expenses
     248       225       501       446  
Selling and marketing expenses
     615       597       1,200       1,210  
General and administrative expenses
     242       264       532       567  
Intangible assets impairments
     195       120       274       768  
Other assets impairments, restructuring and other items
     28       381       165       502  
Legal settlements and loss contingencies
     6       13       110       (12
Other income
     (43     (9     (48     (22
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating income (loss)
     582       173       1,015       364  
Financial expenses, net
     274       223       564       448  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) before income taxes
     308       (51     451       (84
Income taxes (benefit)
     98       (104     159       (163
Share in (profits) losses of associated companies, net
     (11     —         (14     0  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
     221       53       306       78  
Net income (loss) attributable to
non-controlling
interests
     14       (87     21       (131
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) attributable to Teva
     207       140       284       209  
    
 
 
   
 
 
   
 
 
   
 
 
 
Earnings (loss) per share attributable to ordinary shareholders:
                                
Basic
   $ 0.19     $ 0.13     $ 0.26     $ 0.19  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   $ 0.19     $ 0.13     $ 0.26     $ 0.19  
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average number of shares (in millions):
                                
Basic
     1,103       1,096       1,101       1,095  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
     1,109       1,100       1,108       1,098  
    
 
 
   
 
 
   
 
 
   
 
 
 
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
   
Six months ended
 
    
June 30,
   
June 30,
 
    
2021
    
2020
   
2021
   
2020
 
Net income (loss)
   $ 221      $ 53     $ 306     $ 78  
Other comprehensive income (loss), net of tax:
                                 
Currency translation adjustment
     79        144       (130     (416
Unrealized gain (loss) from derivative financial instruments, net
     7        7       14       37  
Unrealized loss on defined benefit plans
     1        —         1       —    
    
 
 
    
 
 
   
 
 
   
 
 
 
Total other comprehensive income (loss)
     87        151       (115     (379
    
 
 
    
 
 
   
 
 
   
 
 
 
Total comprehensive income (loss)
     308        204       191       (301
Comprehensive income (loss) attributable to
non-controlling
interests
     13        (85     (47     (119
    
 
 
    
 
 
   
 
 
   
 
 
 
Comprehensive income (loss) attributable to Teva
   $ 295      $ 289     $ 238     $ (182
    
 
 
    
 
 
   
 
 
   
 
 
 
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 March 31, 2021
 
 
1,208
 
 
 
57
 
 
 
27,474
 
 
 
(10,869
 
 
(2,534
 
 
(4,128
 
 
10,000
 
 
 
975
 
 
 
10,975
 
Net Income (loss)
                         
 
207
 
                 
 
207
 
 
 
14
 
 
 
221
 
Other comprehensive income (loss)
                                 
 
88
 
         
 
88
 
 
 
(1
 
 
87
 
Issuance of Shares
 
 
1
 
 
 
*
 
                                 
 
*
 
         
 
*
 
Stock-based compensation expense
                 
 
29
 
                         
 
29
 
         
 
29
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
 
 
1,209
 
 
$
57
 
 
$
27,503
 
 
$
(10,662
 
$
(2,446
 
$
(4,128
 
$
10,324
 
 
$
987
 
 
$
11,311
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Represents an amount less than $0.5 million.
 
   
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 March 31, 2020
    1,201       56       27,342       (6,887     (2,852     (4,128     13,531       1,057       14,588  
Net Income (loss)
                            140                       140       (87     53  
Other comprehensive income (loss)
                                    149               149       2       151  
Issuance of Shares
    1       *                                                       *  
Stock-based compensation expense
                    32                               32               32  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
    1,202     $ 57     $ 27,374     $ (6,747   $ (2,703   $ (4,128   $ 13,852     $ 972     $ 14,824  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Represents an amount less than $0.5 million.
 
   
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)
                         
 
284
 
                 
 
284
 
 
 
21
 
 
 
306
 
Other comprehensive income (loss)
                                 
 
(47
         
 
(47
 
 
(68
 
 
(115
Issuance of Shares
 
 
6
 
 
 
*
 
                                 
 
*
 
         
 
*
 
Stock-based compensation expense
                 
 
60
 
                         
 
60
 
         
 
60
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
 
 
1,209
 
 
$
57
 
 
$
27,503
 
 
$
(10,662
 
$
(2,446
 
$
(4,128
 
$
10,324
 
 
$
987
 
 
$
11,311
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
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 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)
                             
 
209
 
                 
 
209
 
 
 
(131
 
 
78
 
Other comprehensive income (loss)
                                     
 
(391
         
 
(391
 
 
12
 
 
 
(379
Issuance of shares
  
 
4
 
  
 
*
 
                                   
 
*
 
         
 
*
 
Stock-based compensation expense
                    
 
62
 
                          
 
62
 
         
 
62
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
  
 
1,202
 
  
$
57
 
  
$
27,374
 
  
$
(6,747
 
$
(2,703
 
$
(4,128
 
$
13,852
 
 
$
972
 
 
$
14,824
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
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.
 
9

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
 
    
Six months ended
 
    
June 30,
 
    
2021
   
2020
 
Operating activities:
                
Net income (loss)
   $ 306     $ 78  
Adjustments to reconcile net income (loss) to net cash provided by operations:
                
Depreciation and amortization
     681       781  
Impairment of long-lived assets and assets held for sale
     354       1,120  
Net change in operating assets and liabilities
     (1,679     (1,002
Deferred income taxes – net and uncertain tax positions
     5       (502
Stock-based compensation
     60       62  
Net loss (gain) from investments and from sale of long lived assets
     93       24  
Other items
     (7     17  
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     (187     578  
    
 
 
   
 
 
 
Investing activities:
                
Beneficial interest collected in exchange for securitized accounts receivables
     881       769  
Purchases of property, plant and equipment
     (263     (259
Proceeds from sale of business and long lived assets
     254       45  
Proceeds from sale of investments 
     153       9  
Other investing activities
 
 
 
(36
)
 
 
 
 
1
 
    
 
 
   
 
 
 
Net cash provided by investing activities
     989       565  
    
 
 
   
 
 
 
Financing activities:
                
Repayment of senior notes and loans and other long-term liabilities
     —         (700
Redemption of convertible senior notes
     (491     —    
Other financing activities
     (3     (3 )
    
 
 
   
 
 
 
Net cash used in financing activities
     (494     (703
    
 
 
   
 
 
 
Translation adjustment on cash and cash equivalents
     (49     (13
    
 
 
   
 
 
 
Net change in cash and cash equivalents
     259       427  
Balance of cash and cash equivalents at beginning of period
     2,177       1,975  
    
 
 
   
 
 
 
Balance of cash and cash equivalents at end of period
   $ 2,436     $ 2,402  
    
 
 
   
 
 
 
Non-cash
financing and investing activities:
                
Beneficial interest obtained in exchange for securitized accounts receivables
   $ 878     $ 728  
Amounts may not add up due to rounding
The accompanying notes are an integral part of the financial statements.
 
10

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 and six months ended June 30, 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 June 30, 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 of operations, financial position or cash flows.
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 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.
 
11

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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 results of operations, financial position or cash flows.
Recently issued accounting pronouncements, not yet adopted
I
n 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 adoption of this guidance will not have a significant impact on the Company’s consolidated financial statements.
 
12

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as R&D expenses. 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. In March 2021, Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira
®
. Alvotech has disputed these claims. In addition, there is pending patent litigation between Abbvie and Alvotech.
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 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. On June 23, 2021, AJOVY was approved in Japan.
 
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.
 
13

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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. No additional milestone payments are expected.
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.
General
Assets held for sale as of June 30, 2021 include certain manufacturing assets that are expected to be sold within the next year. Assets held for sale as of December 31, 2020 included the Teva-Takeda business venture assets sold during the first quarter of 2021, certain OTC assets sold during the second quarter of 2021 and other manufacturing assets.
The table below summarizes all Teva assets included as held for sale as of June 30, 2021 and December 31, 2020:
 
    
June 30,
    
December 31,
 
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Inventories
     7        146  
Property, plant and equipment, net and others
     55        312  
Goodwill
     9        27  
Adjustments of assets held for sale to fair value
     (42      (296
    
 
 
    
 
 
 
Total assets of the disposal group classified as held for sale in the consolidated balance sheets
   $ 29      $ 189  
    
 
 
    
 
 
 
14

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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 June 30, 2021
 
    
North

America
    
Europe
   
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     1,621        1,185       462        198        3,465  
Licensing arrangements
     9        7       2        1        19  
Distribution
     316        §       15        —          330  
Other
     (2)        (8     7        99        96  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
     $ 1,943      $ 1,184     $ 485      $ 298      $ 3,910  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
 
 
§ Represents an amount less than $1 million.
 
    
Three months ended June 30, 2020
 
    
North
America
    
Europe
   
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
  
 
1,658
 
 
 
1,000
 
 
 
457
 
  
 
211
 
  
 
3,326
 
Licensing arrangements
  
 
17
 
 
 
3
 
 
 
1
 
  
 
1
 
  
 
22
 
Distribution
  
 
374
 
 
 
—  
 
 
 
7
 
  
 
—  
 
  
 
381
 
Other
  
 
(2)
 
 
 
(2
 
 
23
 
  
 
123
 
  
 
141
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
    
$
2,047
 
 
$
1,001
 
 
$
488
 
  
$
335
 
  
$
3,870
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
 
    
Six months ended June 30, 2021
 
    
North

America
   
Europe
    
International
Markets
    
Other

activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     3,289       2,363        902        374        6,928  
Licensing arrangements
     40       21        5        2        68  
Distribution
     605       §        34        —          639  
Other
     (2)       14        35        210        257  
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
 
     $ 3,932     $ 2,398      $ 975      $ 587      $ 7,892  
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
 
 
 
§ Represents an amount less than $1 million.
 
15

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
    
Six months ended June 30, 2020
 
    
North
America
    
Europe
    
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     3,283        2,370        939        388        6,981  
Licensing arrangements
     42        15        4        2        63  
Distribution
     800        2        13        —          815  
Other
     4        17        97        252        369  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 4,129      $ 2,404      $ 1,053      $ 642      $ 8,227  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
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.
SR&A to U.S. customers comprised approximately 78% of the Company’s total SR&A as of June 30,
2021
, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the six months ended June 30, 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
    
192
 
 
2,139
 
391
 
3,995
 
143
      
177
    6,845   7,037  
Provisions related to sales made in prior periods
    
(5
)
(82
)
(35
)
(11
)
(40
)
    
(23
)
  (191 ) (196 )
Credits and payments
    
(196
)
(2,355
)
(362
)
(3,934
)
(186
)
    
 (176
)
  (7,013 ) (7,209 )
Translation differences
    
 
 
 
(8
)
(3
)
(1
)
(1
)
    
1
    (12 ) (12 )
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance at June 30, 2021
   $ 71        1,748      $ 819      $ 1,157      $ 602      $ 127      $ 4,453      $ 4,524  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
16
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
    
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
     193       2,588       434       4,325       216       50       7,613       7,806  
Provisions related to sales made in prior periods
     —         (191     (105     (15     18       —         (293     (293
Credits and payments
     (206     (3,064     (505     (4,416     (211     (64     (8,260     (8,466
Translation differences
     —         (9     —         (2     (2     (5     (18     (18
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
   $ 74       2,219     $ 933     $ 1,234     $ 658     $ 157     $ 5,201     $ 5,275  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
NOTE 4 – Inventories:     
Inventories, net of reserves, consisted of the following:
 
    
June 30,
2021
    
December 31,
2020
 
    
(U.S. $ in millions)
 
Finished products
   $ 2,223      $ 2,378  
Raw and packaging materials
     1,333        1,231  
Products in process
     642        605  
Materials in transit and payments on account
     164        189  
    
 
 
    
 
 
 
Total
   $ 4,362      $ 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
 
    
June 30,
    
December 31,
    
June 30,
    
December 31,
    
June 30,
    
December 31,
 
    
2021
    
2020
    
2021
    
2020
    
2021
    
2020
 
    
(U.S. $ in millions)
 
Product rights
   $ 19,226      $ 19,650      $ 12,171      $ 12,094      $ 7,055      $ 7,556  
Trade names
     648        621        219        165        429        456  
In process research and development
     636        911        —          —          636        911  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 20,510      $ 21,182      $ 12,390      $ 12,259      $ 8,120      $ 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.
 
17
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Amortization of intangible assets was $173 million and $249 million in the three months ended June 30, 2021 and 2020,
respectively. 
Amortization of intangible assets was $414 million and $507
 
million in the six months ended June 30, 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 $601 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
In the first six months of 2021, Teva reclassified $162 million of products from IPR&D to product rights, of which $123
 
million were reclassified in connection with lenalidomide
 
(generic equivalent of Revlimid®).
Intangible assets impairments
Impairments of long-lived intangible assets for the three months ended June 30, 2021 and 2020, were $195 million and $120 million, respectively.
Impairments in the second quarter of 2021 consisted of:
 
  (a)
Identifiable product rights of $168 million due to: (i) $30 million related to lenalidomide (generic equivalent of Revlimid
®
), resulting from modified competition assumptions as a result of settlements between the innovator and other generic filers, and (ii) $138 million, mainly related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States; and
 
  (b)
IPR&D assets of $27 million due 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.
Impairments in the second quarter of 2020 consisted of:
 
  (a)
Identifiable product rights of $103 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics; and
 
  (b)
IPR&D assets of
$17 
million, mainly due 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 or discount rate).
Impairments of long-lived intangible assets for the six months ended June 30, 2021 and 2020, were $274 million and $768 million, respectively.
Impairments in the first six months of 2021 consisted of:
 
  (a)
Identifiable product rights of $196 million due to: (i) $30 million related to lenalidomide (generic equivalent of Revlimid
®
), resulting from modified competition assumptions as a result of settlements between the innovator and other generic filers, and (ii) $166 million, mainly related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States; and
 
  (b)
IPR&D assets of
$78 
million, due 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.
Impairments in the first six months of 2020 consisted of:
 
 
  (a)
Identifiable product rights of $420 million, mainly due to: (i) $232 
million due to updated market assumptions regarding price and volume of products acquired from Actavis Generics; and (ii)
$165
 
million in Japan in connection with ongoing regulatory pricing reductions and generic competition; and 
 
18
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
 
(b)
IPR&D assets of $348 million, primarily due to: (i) $211 million related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States following clinical trial results received in February 2020, which failed to meet their primary endpoints; and (ii) $117 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.
The fair value measurement of the impaired intangible assets in the first six 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 7.25% to 10%. A probability of success factor ranging from 20% 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 June 30, 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:
                                          
Goodwill reclassified as assets held for sale
             
(7
                    
(7
Translation differences
    
12
      
(198
   
(10
            
(196
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance as of June 30, 2021 (1)
   $
6,485
     $
8,897
    $
2,352
    $
2,687
     $
20,421
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
 
(1)
Accumulated goodwill impairment as of June 30, 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 record an impairment of goodwill allocated to these reporting units in the future. The current projections related to AUSTEDO are a significant assumption in Teva’s future projections. Additionally, certain parts of its business volumes were impacted by the COVID-19 pandemic. Management continues to analyze the expected pace of recovery of volumes and the related impact of the COVID-19 pandemic on Teva’s business.

First Quarter Developments
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.
 
19
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Second Quarter Developments
During the second quarter of 2021, Teva completed its long-range planning (“LRP”) process. The LRP is part of Teva’s internal financial planning and budgeting processes and is discussed and reviewed by Teva’s management and its board of directors.
Additionally, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test with the assistance of an independent valuation expert. Based on this analysis, no goodwill impairment charge was recorded during the second quarter of 2021. Changes to Teva’s current assessment regarding the impact of the
COVID-19
pandemic on its projections and its long-term forecast related to AUSTEDO could result in future impairments.
NOTE 7 – Debt obligations:
a. Short-term debt:
 
                                 
    
Weighted average interest
rate as of June 30, 2021
   
Maturity
    
June 30,

2021
    
December 31,

2020
 
                 
(U.S. $ in millions)
 
Convertible senior debentures
    
0.25
   
2026
    
$

23
    
$
514
 
Current maturities of long-term liabilities (1)
 
    
3,507
      
2,674
 
                     
 
 
    
 
 
 
Total short-term debt
 
   $
3,530
     $
3,188
 
                     
 
 
    
 
 
 
 
(1)
In July 2021, Teva
repaid $
1,475 million of its 2.2
% senior notes at maturity.
Convertible senior debentures
The principal amount of Teva’s 0.25% convertible senior debentures due 2026, was $23 million as of June 30, 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.
b. Long-term debt:
 
                                 
    
Weighted average interest
rate as of June 30, 2021
   
Maturity
    
June 30,

2021
   
December 31,
2020
 
                 
(U.S. $ in millions)
 
Senior notes EUR 1,500 million
    
1.13
   
2024
    
$
1,780
    
$
1,839
 
Senior notes EUR 1,300 million
    
1.25
   
2023
      
1,544
      
1,595
 
Senior notes EUR 1,000 million
    
6.00
   
2025
      
1,190
      
1,230
 
Senior notes EUR 900 million
    
4.50
   
2025
      
1,071
      
1,107
 
Senior notes EUR 750 million
    
1.63
   
2028
      
885
      
916
 
Senior notes EUR 700 million
    
3.25
   
2022
      
832
      
861
 
Senior notes EUR 700 million
    
1.88
   
2027
      
832
      
860
 
Senior notes USD 3,500 million
    
3.15
   
2026
      
3,495
      
3,495
 
Senior notes USD 1,475 million (1)
    
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
      
614
      
616
 
Senior notes USD 588 million
    
3.65
   
2021
      
588
      
586
 
Senior notes CHF 350 million
    
0.50
   
2022
      
380
      
397
 
Senior notes CHF 350 million
    
1.00
   
2025
      
381
      
398
 
                     
 
 
    
 
 
 
Total senior notes
 
    
25,183
      
25,490
 
Other long-term debt
    
1.10
   
2026
      
1
      
1
 
Less current maturities
 
    
(3,507
    
(2,674
Less debt issuance costs
 
    
(75
    
(86
                     
 
 
    
 
 
 
Total senior notes and loans
 
   $
21,602
     $
22,731
 
                     
 
 
    
 
 
 
 
(
1)
In July 2021, Teva repaid 
$
1,475 million of its 2.2
% senior notes at maturity. 
 
20
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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 June 30, 2021 is effectively denominated in the following currencies: 63% in U.S. dollar, 34% 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 June 30, 2021, gradually declines to 5.00x in the third and fourth quarters of 2021, 4.50x in the first and second quarters 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 June 30, 2021, no amounts were outstanding under the RCF. During July 2021, 
$500 
million was drawn down 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. 
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 six months of 2021, approximately 47% 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.
 
21
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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
 
    
June 30,

2021
    
December 31,

2020
 
Reported under
  
(U.S. $ in millions)
 
Asset derivatives:
                 
Other current assets:
                 
Option and forward contracts
   $ 30      $ 24  
Liability derivatives:
                 
Other current liabilities:
                 
Option and forward contracts
     (25      (79
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,
 
    
June 30,

2021
    
June 30,
2020
   
June 30,

2021
    
June 30,

2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
   $ 274      $ 223     $ 87      $ 151  
Cross-currency swaps - net investment hedge (1)
     —          —         —          —    
 
22

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)

 
  
Financial expenses, net
 
  
Other comprehensive income (loss)
 
 
  
Six months ended,
 
  
Six months ended,
 
 
  
June 30,

2021
 
  
June 30,

2020
 
  
June 30,

2021
 
  
June 30,

2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are r
e
corde
d
  
$
564
 
  
$
448
 
  
$
(115
  
$
(379
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,
 
    
June 30,

2021
    
June 30,
2020
    
June 30,

2021
    
June 30,
2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
   $ 274      $ 223      $ (3,910    $ (3,870
Option and forward contracts (2)
     27        13        —          —    
Option and forward contracts economic hedge (3)
     —          —          15        20  
 
 
  
Financial expenses, net
 
  
Net revenues
 
 
  
Six months ended,
 
  
Six months ended,
 
    
June 30,

2021
    
June 30,

2020
    
June 30,

2021
    
June 30,

2020
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
  
$
564
 
  
$
448
 
  
$
(7,892
  
$
(8,227
Option and forward contracts (2)
  
 
(43
  
 
37
 
  
 
  
 
  
 
  
 
Option and forward contracts economic hedge (3
)
  
 
  
 
  
 
  
 
  
 
(13
  
 
(40
 
(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
.
 
23

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
(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 six months of 2021, the positive impact from these derivatives recognized under revenues was
 
$13 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.
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 June 30, 2021 and 2020, respectively, and losses of
$16 
million were recognized under financial expenses, net for each of the six months ended June 30, 2021 and 2020, respectively.
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, 
gains of
$1 
million were recognized under financial expenses, net for each of the three months ended June 30, 2021 and 2020, respectively, and gains of
$1 million and $2 million were recognized under financial expenses, net for the six months ended June 30, 2021 and 2020, respectively.
NOTE 9 – Legal settlements and loss contingencies:
In the second quarter of 2021, Teva recorded an expense of $6 million in legal settlements and loss contingencies, compared to $13 million in the second quarter of 2020. The expense in the second quarter of 2020 was mainly due to an increase in a provision for settlement of certain product liability claims in the United States and other minor provisions, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel.
 
24 

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In the first six months of 2021, Teva recorded an expense of $110 million in legal settlements and loss contingencies, compared to income of $12 
million in the first six months of 2020. The expense in the first six months of 2021 was mainly due to the provision for the carvedilol patent litigation (see note 10).
The income in the first six months of 2020 was mainly due to proceeds received following a settlement of the FCPA derivative proceedings in Israel and settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics), partially offset by an increase in a provision for settlement of certain products liability claims in the United States and other minor provisions.
As of June 30, 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 $1,737 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.
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, o
r
 determined to no longer meet the materiality threshold for disclosure, or were substantially resolved.
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.
 
2
5

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
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.
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
®
) in 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, Tev