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, 2019~~

March 31, 2020

☐	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~~ 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)

914-8171

(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

~~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

~~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.

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, 2019,~~March 31, 2020, the registrant had

~~1,091,906,300~~

1,095,524,777 ordinary shares outstanding.

Table of Contents

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~INDEX

~~INDEX~~


PART I.	Financial Statements (unaudited)

Item 1.	~~FINANCIAL INFORMATION~~Financial Statements (unaudited)

~~Item 1.~~	~~Financial Statements (unaudited)~~Consolidated Balance Sheets		5

	Consolidated ~~Balance Sheets~~Statements of Income (loss)		5 6

	Consolidated Statements of Comprehensive Income (loss)		6 7

	Consolidated ~~Statements~~statements of ~~Comprehensive Income (loss)~~changes in equity		7 8

	Consolidated ~~statements~~Statements of ~~changes in equity~~Cash Flows		8 9

	~~Consolidated Statements of Cash Flows~~		10

	Notes to Consolidated Financial Statements		11

~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		46

~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~ 10		77

~~Item 4.~~	~~Controls and Procedures~~		77

~~PART II.~~Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		61

Item 4.	Controls and Procedures		61

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		78 62

Item 1A.	Risk Factors		78 62

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		78 62

Item 3.	Defaults Upon Senior Securities		78 63

Item 4.	Mine Safety Disclosures		78 63

Item 5.	Other Information		78 63

Item 6.	Exhibits		79 64

	Signatures	80	65

Table of Contents

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 (formerly IMS Health Inc.), a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “Actavis Generics” are to the generic pharmaceuticals business we purchased from Allergan plc (“Allergan”) on August 2, 2016. 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; ~~competition for our specialty products, especially COPAXONE~~

~~, our leading medicine, which faces competition from existing and potential additional generic versions and orally-administered alternatives; the uncertainty of commercial success of AJOVY~~

~~or AUSTEDO~~

~~; competition from companies with greater resources and capabilities; efforts of pharmaceutical companies to limit the use of generics, including through legislation and regulations;~~ consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; ~~price erosion relating to~~competition for our specialty products, ~~both~~especially COPAXONE

, our leading medicine, which faces competition from existing and potential additional generic versions, competing glatiramer acetate products and ~~increased regulation;~~orally-administered alternatives; the uncertainty of commercial success of AJOVY

or AUSTEDO

; competition from companies with greater resources and capabilities; delays in launches of new products and our ability to achieve expected results from investments in our product pipeline; ~~our~~ ability to ~~take advantage~~develop and commercialize biopharmaceutical products; efforts of ~~high-value opportunities;~~pharmaceutical companies to limit the ~~difficulty~~use of generics, including through legislation and ~~expense of obtaining licenses to proprietary technologies;~~regulations 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 magnitude, duration, and geographic reach of the

COVID-19

pandemic and its impact on our business, financial condition, operations, cash flows, and liquidity and on the economy in general; manufacturing or quality control protocols; interruptions in our supply chain, including due to potential effects of the

COVID-19

pandemic on our operations and business in geographic locations impacted by the pandemic and on the business operations of our customers and suppliers; 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; challenges associated with conducting business globally, including adverse effects of the

COVID-19

pandemic; costs resulting from the extensive governmental regulation to which we are subject or delays in governmental processing time due to modified government operations due to the

COVID-19

pandemic, including effects on product and patent approvals due to the

COVID-19

pandemic; disruptions of information technology systems; and our ability to successfully compete in the marketplace;

our business and operations in general, including: ~~failure to effectively execute~~effectiveness of our restructuring plan announced in December 2017; ~~uncertainties related~~our ability to attract, hire and failure to achieve, the potential benefits and success of our senior management team and organizational structure; harm to our pipeline of future products due to the ongoing review of our R&D programs;retain highly skilled personnel; our ability to develop and commercialize additional pharmaceutical products; ~~potential additional adverse consequences following our resolution with the U.S. government of our FCPA investigation;~~ compliance with anti-corruption sanctions and ~~other~~ trade control laws; manufacturing or quality control ~~problems, which may damage our reputation for quality production and require costly remediation;~~problems; interruptions in our supply chain; disruptions of ~~our or third party~~ information technology ~~systems or~~systems; breaches of our data security; ~~the failure to recruit or retain key personnel;~~ variations in intellectual property ~~laws that may adversely affect our ability to manufacture our products;~~laws; challenges associated with conducting business globally, including adverse effects of political or economic instability, major hostilities or terrorism; significant sales to a limited number of ~~customers in our U.S. market;~~customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; ~~implementation of a new enterprise resource planning system that, if deficient, could materially and adversely affect our operations and/or the effectiveness of our internal controls; and~~ our prospects and opportunities for growth if we sell ~~assets;~~assets and potential difficulties related to the operation of our new global enterprise resource planning (ERP) system;

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

compliance, regulatory and litigation matters, including: increased legal and regulatory action in connection with public concern over the abuse of opioid medications in the U.S. and our ability to reach a final resolution of the remaining opioid-related litigation; costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; ~~increased legal and regulatory action in connection with public concern over the abuse of opioid medications in the U.S.;~~ governmental investigations into S&M practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;

~~Table of Contents~~

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

and other factors discussed in this Quarterly Report on Form

10-Q

and in our Annual Report on Form

10-K

for the year ended December 31, ~~2018,~~2019, 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.

Table of Contents

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,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$
2,165

$
1,782

Trade receivables

5,260

5,822

Inventories

4,850

4,731

Prepaid expenses

1,069

899

Other current assets

437

468

Assets held for sale

24

92

Total current assets

13,805

13,794

Deferred income taxes

317

368

Other
non-current
assets

721

731

Property, plant and equipment, net

6,732

6,868

Operating lease
right-of-use
assets

500

—

Identifiable intangible assets, net

12,435

14,005

Goodwill

24,913

24,917

Total assets

$
59,424

$
60,683

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt

$
2,771

$
2,216

Sales reserves and allowances

6,054

6,711

Trade payables

1,806

1,853

Employee-related obligations

587

870

Accrued expenses

2,335

1,868

Other current liabilities

899

804

Total current liabilities

14,452

14,322

Long-term liabilities:

Deferred income taxes

1,698

2,140

Other taxes and long-term liabilities

1,642

1,727

Senior notes and loans

25,955

26,700

Operating lease liabilities

426

—

Total long-term liabilities

29,721

30,567

Commitments and contingencies
, see note
16

Total liabilities

44,173

44,889

Equity:

Teva shareholders’ equity:

Ordinary shares of NIS
0.10
par value per share; June 30, 2019 and December 31, 2018: authorized
2,495

million shares; issued
1,198

million shares and
1,196

million shares, respectively

56

56

Additional
paid-in
capital

27,258

27,210

Accumulated deficit

(6,752
)

(5,958
)
Accumulated other comprehensive loss

(2,312
)

(2,459
)
Treasury shares as of June
30, 2019 and December 31, 2018 —
107
million ordinary shares and
106
million ordinary shares, respectively

(4,128
)

(4,142
)

14,122

14,707

Non-controlling
interests

1,128

1,087

Total equity

15,251

15,794

Total liabilities and equity

$
59,424

$
60,683


	March 31,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,804		$	1,975
Accounts receivables, net of allowance for credit losses of $127 million and $135 million as of March 31, 2020 and December 31, 2019		5,189			5,676
Inventories		4,290			4,422
Prepaid expenses		977			870
Other current assets		538			434
Assets held for sale		86			87

Total current assets		12,884			13,464
Deferred income taxes		440			386
Other non-current assets		550			591
Property, plant and equipment, net		6,221			6,436
Operating lease right-of-use assets		489			514
Identifiable intangible assets, net		10,256			11,232
Goodwill		24,490			24,846

Total assets	$	55,330		$	57,470

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,630		$	2,345
Sales reserves and allowances		5,662			6,159
Accounts payables		1,710			1,718
Employee-related obligations		540			693
Accrued expenses		1,718			1,869
Other current liabilities		1,061			889

Total current liabilities		12,322			13,674
Long-term liabilities:
Deferred income taxes		912			1,096
Other taxes and long-term liabilities		2,624			2,640
Senior notes and loans		24,473			24,562
Operating lease liabilities		411			435

Total long-term liabilities		28,420			28,733

Commitments and contingencies , see note 10
Total liabilities		40,742			42,407

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; March 31, 2020 and December 31, 2019: authorized 2,495 million shares; issued 1,201 million shares and 1,198 million shares, respectively		56			56
Additional paid-in capital		27,342			27,312
Accumulated deficit		(6,887	)		(6,956	)
Accumulated other comprehensive loss		(2,852	)		(2,312	)
Treasury shares as of March 31, 2020 and December 31, 2019 — 106 million ordinary shares		(4,128	)		(4,128	)

		13,531			13,972

Non-controlling interests		1,057			1,091

Total equity		14,588			15,063

Total liabilities and equity	$	55,330		$	57,470

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

Table of Contents

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,
	2020			2019
Net revenues	$	4,357		$	4,149
Cost of sales		2,294			2,293

Gross profit		2,063			1,856
Research and development expenses		221			261
Selling and marketing expenses		613			648
General and administrative expenses		304			292
Intangible assets impairments		649			469
Other assets impairments, restructuring and other items		121			1
Legal settlements and loss contingencies		(25	)		57
Other income		(13	)		(6	)

Operating (loss) income		191			134
Financial expenses, net		224			218

Income (loss) before income taxes		(33	)		(84	)
Income taxes (benefit)		(59	)		9
Share in (profits) losses of associated companies, net		1			4

Net income (loss)		25			(97	)
Net income ( loss) attributable to non-controlling interests		(44	)		8

Net income (loss) attributable to Teva		69			(105	)

Net income (loss) attributable to ordinary shareholders	$	69		$	(105	)

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	0.06		$	(0.10	)

Diluted	$	0.06		$	(0.10	)

Weighted average number of shares (in millions):
Basic		1,093			1,090

Diluted		1,096			1,090

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

~~CONSOLIDATED STATEMENTS OF INCOME (LOSS)~~

~~(U.S. dollars in millions, except share and per share data)~~

~~(Unaudited)~~

Three months ended
June 30,

Six months ended
June 30,

2019

2018

2019

2018

Net revenues
$
4,337
$
4,701
$
8,632
$
9,766

Cost of sales

2,443

2,668

4,883

5,418

Gross profit

1,893

2,033

3,749

4,348

Research and development expenses

276

290

537

607

Selling and marketing expenses

666

682

1,313

1,420

General and administrative expenses

296

316

589

645

Intangible assets impairment

561
521
1,030

727

Goodwill impairment

—

120

—

300

Other assets impairments, restructuring and other items

101

194

103

695

Legal settlements and loss contingencies

646

20

703

(1,258
)
Other income

(9
)
(96
)
(15
)
(299
)

Operating income (loss)

(644
)
(14
)
(510
)
1,511

Financial expenses, net

206

236

425

507

Income (loss) before income taxes

(850
)
(250
)
(934
)
1,004

Income taxes

(179
)
(76
)
(170
)
(30
)
Share in losses (income) of associated companies, net

—

(8
)
4

66

Net income (loss)

(671
)
(166
)
(768
)
968

Net income attributable to
non-controlling
interests

18

10

26

24

Net income (loss) attributable to Teva

(689
)
(176
)
(794
)
944

Dividends on preferred shares

—

65

—

130

Net income (loss) attributable to ordinary shareholders
$
(689
) $
(241
) $
(794
) $
814

Earnings (loss) per share attributable to ordinary shareholders:

Basic
$
(0.63
) $
(0.24
) $
(0.73
) $
0.80

Diluted
$
(0.63
) $
(0.24
) $
(0.73
) $
0.80

Weighted average number of shares (in millions):

Basic

1,092

1,018

1,091

1,018

Diluted

1,092

1,018

1,091

1,020

~~Amounts may not add up due to rounding.~~

~~The accompanying notes are an integral part of the financial statements.~~

~~Table of Contents~~

~~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,

2019

2018

2019

2018

Net income (loss)
$
(671
) $
(166
) $
(768
) $
968

Other comprehensive income (loss), net of tax:

Currency translation adjustment

86

(711
)
133

(472
)
Unrealized gain (loss) from derivative financial instruments

(10
)
100

37

56

Unrealized gain (loss) from
available-for-sale
securities

1

(1
)
1

(1
)
Unrealized loss on defined benefit plans

(1
)
(2
)
(1
)
(1
)

Total other comprehensive income (loss)

76

(614
)
170

(418
)

Total comprehensive income (loss)

(595
)
(780
)
(598
)
550

Comprehensive income (loss) attributable to
non-controlling
interests

47

(51
)
49

46

Comprehensive income (loss) attributable to Teva
$
(642
) $
(729
) $
(647
) $
504


	Three months ended
	March 31,
	2020			2019
Net income (loss)	$	25		$	(97	)
Other comprehensive income (loss), net of tax:
Currency translation adjustment		(560	)		47
Unrealized gain from derivative financial instruments		30			47

Total other comprehensive income (loss)		(530	)		94

Total comprehensive income (loss)		(505	)		(3	)
Comprehensive income (loss) attributable to non-controlling interests		(34	)		2

Comprehensive income (loss) attributable to Teva	$	(471	)	$	(5	)

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other compre-
hensive (loss)

Treasury
shares

Total Teva
shareholders
’
equity

Non-
controlling
interests

Total equity

(U.S. dollars in millions)

Balance at March 31, 2018**

1,124

54

3,696

23,443

(2,688
)
(1,735
)
(4,149
)
18,621

1,481

20,102

Comprehensive income (loss)

(176
)
(554
)
(730
)
(51
)
(780
)
Stock-based compensation expense

47

47

47

Dividends to preferred shareholders

65

(65
)
—
—
—

Balance at June 30, 2018

1,124
$
54
$
3,760
$
23,426
$
(2,864
) $
(2,289
) $
(4,149
) $
17,938
$
1,430
$
19,368


	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
Comprehensive income (loss)								69			(540	)					(471	)		(34	)		(505	)
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

~~Mandatory convertible preferred shares.~~

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, 2018		1,196		56		27,210			(5,958	)		(2,459	)		(4,142	)		14,707			1,087		15,794
Comprehensive income (loss)									(105	)		100						(5	)		2		(3	)
Issuance of shares		2		*																			*
Issuance of Treasury Shares						(3	)								5			2					2
Stock-based compensation expense						34												34					34
Other						(6	)											(6	)				(6	)

Balance at March 31, 2019		1,198	$	56	$	27,234		$	(6,063	)	$	(2,359	)	$	(4,137	)	$	14,732		$	1,089	$	15,821

Represents an amount less than

**$

~~Following the adoption of ASU 2016-01, the Company recorded a $5 million opening balance reclassification from accumulated other comprehensive income to retained earnings.~~

0.5 million.

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other compre-
hensive (loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling
interests

Total equity

(U.S. dollars in millions)

Balance at March 31, 2019

1,198

56

—

27,234

(6,063
)
(2,359
)
(4,137
)
14,732

1,089

15,821

Comprehensive income (loss)

(689
)
47

(642
)
47

(595
)
Issuance of Shares
**
Issuance of Treasury Shares

(6
)
9

3

3

Stock-based compensation expense

32

32

32

Other

(2
)
(2
)
(2
)
Transactions with non-controlling
interests (8 ) (8 )

Balance at June 30, 2019

1,198
$
56

—
$
27,258
$
(6,752
) $
(2,312
) $
(4,128
) $
14,122
$
1,128
$
15,251

~~Mandatory convertible preferred shares.~~

~~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.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY~~

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS*

Additional
paid-
in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other compre-
hensive (loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling
interests

Total equity

(U.S. dollars in millions)

Balance at December 31, 2017

1,124

54

3,631

23,479

(3,803
)
(1,853
)
(4,149
)
17,359

1,386

18,745

Cumulative effect of new accounting
standard

(5
)
5

Comprehensive income (loss)
944 (441 ) 503 46 550
Dividends to preferred shareholders 129

(129
)
Stock-based compensation expense

77

77

77

Transactions with non-controlling interests (2 ) (2 )

Balance at June 30, 2018

1,124
$
54
$
3,760
$
23,426
$
(2,864
) $
(2,289
) $
(4,149
) $
17,938
$
1,430
$
19,368

~~Mandatory convertible preferred shares.~~

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS*

Additional
paid-
in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other compre-
hensive (loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling
interests

Total equity

(U.S. dollars in millions)

Balance at December 31, 2018

1,196

56

—

27,210

(5,958
)
(2,459
)
(4,142
)
14,707

1,087

15,794

Comprehensive income (loss)

(794
)
147

(647
)
49

(598
)
Issuance of Shares

2
**
Issuance of Treasury Shares

(8
)
14

6

6

Stock-based compensation expense

64

64

64

Transactions with
non-controlling

interests
(8 ) (8 )
Other

(8
)
(8
)
(8
)

Balance at June 30, 2019

1,198
$
56

—
$
27,258
$
(6,752
) $
(2,312
) $
(4,128
) $
14,122
$
1,128
$
15,251

~~Mandatory convertible preferred shares.~~

~~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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)

Six months ended
June 30,

2019

2018

Operating activities:

Net income (loss)
$
(768
) $
968

Adjustments to reconcile net income (loss) to net cash provided by operations:

Net change in operating assets and liabilities

(1,056
)
(1,268
)
Impairment of long-lived assets

1,097

980

Depreciation and amortization

893

986

Deferred income taxes – net and uncertain tax positions
(362
)
(489
)
Stock-based compensation

64

77

Other items
11

44

Net gain from sale of long-lived assets and investments

6

(88
)
Goodwill impairment

—

300

Impairment of equity investment

—

94

In process Research and development
—

54

Net cash provided by (used in) operating activities

(115
)
1,658

Investing activities:

Beneficial interest collected in exchange for securitized trade receivables

746

970

Purchases of property, plant and equipment

(237
)
(299
)
Proceeds from sales of business, investments and long-lived assets
134

841

Other investing activities
59

(11
)
Purchases of investments and other assets

(1
)
(56
)

Net cash provided by investing activities

701

1,445

Financing activities:

Repayment of senior notes and loans and other long-term liabilities

(157
)
(6,289
)
Tax withholding payments made on shares and dividends

(52
)
(22
)
Other financing activities

(13
)
(10
)
Net change in short-term debt

(2
)
(261
)
Proceeds from senior notes and loans, net of issuance costs

—

4,435

Net cash used in financing activities

(224
)
(2,147
)

Translation adjustment on cash and cash equivalents

21

(58
)

Net change in cash and cash equivalents

383

898

Balance of cash and cash equivalents at beginning of period

1,782

963

Balance of cash and cash equivalents at end of period

$
2,165

$
1,861

Non-cash
financing and investing activities:

Beneficial interest obtained in exchange for securitized trade receivables
$
770
$
968


	Three months ended
	March 31,
	2020			2019
Operating activities:
Net income (loss)	$	25		$	(97	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		399			443
Impairment of long-lived assets		724			489
Net change in operating assets and liabilities		(666	)		(805	)
Deferred income taxes – net and uncertain tax positions		(233	)		(33	)
Stock-based compensation		30			34
Net loss (gain) from sale of long-lived assets and investments		24			(2	)
Other items		2			83

Net cash provided by operating activities		305			112

Investing activities:
Beneficial interest collected in exchange for securitized accounts receivables		368			362
Purchases of property, plant and equipment		(128	)		(125	)
Proceeds from sale of long lived assets		6			11
Other investing activities		6			24

Net cash provided by investing activities		252			272

Financing activities:
Repayment of senior notes and loans and other long-term liabilities		(700	)		(126	)
Tax withholding payments made on shares and dividends		—			(52	)
Other financing activities		—			(11	)

Net cash used in financing activities		(700	)		(189	)

Translation adjustment on cash and cash equivalents		(28	)		(4	)

Net change in cash and cash equivalents		(171	)		191
Balance of cash and cash equivalents at beginning of period		1,975			1,782

Balance of cash and cash equivalents at end of period	$	1,804		$	1,973

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	375		$	396

Amounts may not add up due to ~~rounding.~~rounding

The accompanying notes are an integral part of the financial statements.

Table of Contents

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 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 Form

10-K

for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission (“SEC”). Amounts as of December 31, ~~2018~~2019 were derived from the audited balance sheet at that date, 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 COVID-19 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 COVID-19 and the actions taken to contain or treat it, as well as the economic impact on customers and markets. All estimates made by Teva related to the impact of COVID-19 within its financial statements may change in future periods. Actual results could differ from those estimates.

Certain comparative figures have been reclassified to conform to current presentation. The results of operations for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 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.

~~Note 2 –~~b. Significant accounting ~~policies:~~policies

Recently adopted accounting pronouncements

In ~~June 2018,~~March 2020, the FASB issued ASU

~~2018-07~~2020-04

“~~Improvement to Nonemployee Share-Based Payments Accounting.”~~Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This guidance ~~simplifies the~~provides optional expedients and exceptions for applying generally accepted accounting ~~for~~

~~non-employee~~

~~share-based payment transactions.~~principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ~~amendments specify~~guidance applies only to contracts, hedging relationships, and other transactions that ~~ASC 718 applies to all share-based payment transactions in which a grantor acquires goods~~reference LIBOR or ~~services~~another reference rate expected to be ~~used or consumed in a grantor’s own operations by issuing share-based payment awards. Teva adopted the provisions~~discontinued because of ~~this update~~reference rate reform. This guidance is effective for all entities as of ~~January 1, 2019 with~~March 12, 2020 through December 31, 2022. There was no ~~material~~ impact to the Company’s consolidated financial statements for the quarter ended March 31, 2020 as a result of adopting this standard update. The Company will continue to evaluate this guidance to determine the impact it may have in the future on its consolidated financial statements.

~~In August 2017, the FASB issued ASU~~

~~2017-12~~

~~“Derivatives and Hedging—Targeted Improvements to Accounting for Hedging Activities.” This guidance expands and refines hedge accounting for both~~

~~non-financial~~

and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Teva adopted the provisions of this update as of January 1, 2019 with no material impact on its consolidated financial statements.

~~In February 2016, the FASB issued ASU~~

~~2016-02~~

~~“Leases.” The guidance establishes a~~

~~right-of-use~~

model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The guidance became effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

Teva adopted the new accounting standard ASC 842 “Leases” and all the related amendments on January 1, 2019 and used the effective date as Teva’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. Teva did not elect the ‘package of practical expedients’, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard. However, the Company did elect the practical expedient pertaining to the

~~use-of~~

~~hindsight.~~

The new standard also provides practical expedients for an entity’s ongoing accounting. Teva elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means, for those leases, Teva does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Teva also elected the practical expedient to not separate lease and

~~non-lease~~

~~components for all of Teva’s leases, other than leases of real estate.~~

Additionally, following the adoption of the new Lease Standard and in subsequent measurements, Teva applies the portfolio approach to account for the operating lease ROU assets and liabilities for certain car leases and incremental borrowing rates.

The adoption of this standard has a material effect on Teva’s financial statements. The most significant impact is reflected in: (i) the recognition of approximately $553 million ROU assets and $561 million lease liabilities on Teva’s balance sheet for its operating leases of real estate, vehicles and equipment (the difference between the additional lease assets and lease liabilities did not

~~have material impact on~~

the retained earnings), and (ii) the requirement to provide significant new disclosures regarding Teva’s leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a material impact on Teva’s consolidated statements of income and consolidated statements of cash flows. Also, the Company’s accounting for finance leases remained substantially unchanged. See note 20 for further discussion.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Recently issued accounting pronouncements, not yet adopted~~

In April 2019, the FASB issued ASU

2019-04 ~~“Codification~~

“Codification Improvements to Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).

”

This ASU provides clarifications ~~for~~of three topics related to financial instruments accounting. ~~The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating~~Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In November 2018, the FASB issued ASU

2018-18

“Collaborative Arrangements (Topic 808)—Clarifying the interaction between Topic 808 and Topic 606.” The amendments provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606. It also specifically (i) addresses when the participant should be considered a customer in the context of a unit of account, (ii) adds

unit-of-account

guidance in ASC 808 to align with guidance in ASC 606 and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. ~~The guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and should be applied retrospectively. The Company is currently evaluating~~Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-15

“Intangibles—Goodwill and

other—Internal-use

software (Subtopic

350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software. ~~The~~Teva applied the guidance ~~will be effective for fiscal years beginning~~prospectively to all implementation costs incurred after ~~December 15, 2019, although early adoption is permitted. The Company is currently evaluating~~the date of adoption. Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-13

“Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. ~~The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating~~Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In June 2016, the FASB issued ASU

2016-13

“Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ~~The guidance will be effective for~~Teva adopted the ~~fiscal year beginning on~~provisions of this update as of January 1, 2020 ~~including interim periods within that year. Teva is currently evaluating the potential effect of the guidance~~with no impact on its consolidated financial statements.

~~Reclassifications~~

Recently issued accounting pronouncement, not yet adopted

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 the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability 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 ~~prior~~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. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

~~During~~

c. Revision of Previously Reported Consolidated Financial Statements

In connection with the ~~fourth quarter~~preparation of Teva’s consolidated financial statements for the fiscal year ended December 31, 2019, Teva determined that in the full years and interim periods of fiscal years 2017 and 2018, and the ~~Company changed its accounting policy for~~first three quarters of fiscal year 2019, it had an immaterial error in the presentation of ~~royalty payments~~distribution revenues from its Israeli distribution business. This business is part of the International Markets reporting segment and facilitates distribution of Teva and third party products to ~~third parties~~pharmacies, hospitals and other organizations in Israel.

Specifically, the Company concluded that ~~are~~it presented revenues from its Israeli distribution business on a gross basis, although it should have reported such revenues on a net basis. Because Teva has no discretion in establishing prices for any specified goods or services, limited inventory risk and is not ~~involved~~primarily responsible for contract fulfillment, Teva does not meet the criteria for reporting revenues from such business as a principal (on a gross basis), as opposed to as an agent (on a net basis).

The Company evaluated the cumulative impact of this item on its previously issued annual financial statements for 2017 and 2018, and the interim financial statements for 2017, 2018 and the first three quarters of 2019, and concluded that, for the reasons mentioned below, the revisions were not material, individually or in the ~~production~~aggregate, to any of ~~products.~~its previously-issued interim or annual financial statements. Teva ~~previously accounted for royalty payments to such third parties as S&M expenses. Royalties paid to a party that is involved~~has revised its presentation of net revenue and cost of sales in the ~~production process are classified as cost of sales. The Company believes this~~historical consolidated financial statements to reflect the change in ~~accounting policy~~this item, as described in more detail below.

The impact of this revision is ~~preferable~~a decrease in ~~order to be aligned~~net revenues with ~~industry practice of classifying all royalty payments related to currently marketed products~~an offsetting decrease in cost of sales. ~~The Company now reports all royalty payments as cost~~There is no impact on gross profit, operating income or earnings per share. In addition, there is no impact on Teva’s balance sheet or statement of ~~sales. The Company has retrospectively adjusted prior periods to reflect this change and the impact of the change~~cash flows for the ~~first and second quarters of 2018 was an increase in cost of sales of $33 million and $28 million, respectively, with a corresponding decrease in S&M expenses.~~

~~NOTE 3 – Certain transactions:~~

~~Business acquisitions:~~

~~Actavis Generics and Anda acquisitions~~

On August 2, 2016, Teva completed the acquisition of Allergan plc’s (“Allergan”) worldwide generic pharmaceuticals business (“Actavis Generics”). At closing, Teva transferred to Allergan consideration of approximately $33.4 billion in cash and approximately 100.3 million Teva shares.

On October 3, 2016, Teva completed the acquisition of Anda Inc. (“Anda”), a medicines distribution business in the United States, from Allergan, for cash consideration of $500 million. This transaction was related ~~to the Actavis Generics acquisition and, as such, the purchase price accounting and related disclosures were treated on a combined basis.~~periods.

The final cash consideration for the Actavis Generics acquisition was subject to certain net working capital adjustments. On January 31, 2018, Teva and Allergan entered into a settlement agreement and mutual releases for which Allergan made a one-time payment of $703 million to Teva to settle the working capital adjustments under the Master Purchase Agreement, dated July 26, 2015. As the measurement period has ended, this amount was recorded as a gain under legal settlements and loss contingencies in the first quarter of 2018.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Rimsa~~

~~On March 3, 2016, Teva completed~~The following table summarizes the acquisition of Representaciones e Investigaciones Médicas, S.A. de C.V. (“Rimsa”), a pharmaceutical manufacturing and distribution company in Mexico, for $2.3 billion, in a cash free, debt free set of transactions. Teva financed the transaction using cash on hand.

~~Following the closing~~impact of the ~~acquisition, Teva identified issues concerning Rimsa’s~~

~~pre-acquisition~~

~~quality, manufacturing and other practices, at which point Teva began an assessment of the extent~~revision on net revenues and cost of ~~remediation required to return its products to the market. In September 2016, two lawsuits were filed: a~~

~~pre-emptive~~

suit by the Rimsa sellers against Teva and Teva’s lawsuit alleging fraud and breach of contract against the Rimsa sellers. The Rimsa sellers subsequently dismissed their lawsuit and the dismissal was approved by court order on December 20, 2016.

~~On February 15, 2018, Teva and the Rimsa sellers entered into a settlement agreement and mutual releases with respect to Teva’s breach of contract claim, pursuant to which the Rimsa sellers made a~~

~~one-time~~

payment to Teva. Teva’s breach of contract claim was subsequently dismissed by the court. As the measurement period has ended, this payment was recorded as a gain under legal settlements and loss contingenciessales in the ~~first quarter~~consolidated statement of ~~2018.~~ income for the relevant period:


		Net revenues							Cost of sales
		As reported		Adjustment			As revised		As reported		Adjustment			As revised
		(U.S. $ in millions)
2019	Q1		4,295		(146	)		4,149		2,440		(146	)		2,293

~~Assets and Liabilities Held For Sale:~~NOTE 2 – Certain transactions:

~~The table below summarizes the major classes of assets and liabilities included as held for sale as of June 30, 2019 and December 31, 2018:~~

June 30,
2019

December 31,
2018

(U.S. $ in millions)

Property, plant and equipment, net
$
30
$
92

Goodwill

—

51

Adjustments of assets held for sale to fair value

(6
)
(51
)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets
$
24
$
92

~~Other significant agreements:~~

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.

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 IP 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 will receive 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.~~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 milestone payments to Teva of up to ~~$175~~$150 million, as well as future royalties.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

PGT Healthcare Partnership

In July 2018, Teva terminated its joint venture with the Procter & Gamble Company (“P&G”), PGT Healthcare partnership (“PGT”), which the two companies established in 2011 to market

~~over-the-counter~~

~~(“OTC”)~~ OTC medicines. Teva will continue to maintain its OTC business on an independent basis.

As part of the separation, Teva transferred to P&G the shares it held in New Chapter Inc. and ownership rights in an OTC plant located in India. Teva provides certain services to P&G after the separation for a transition period.

During the first quarter of 2018, Teva classified the plant in India as an asset held for sale and recorded an impairment of $64 million under other assets impairments, restructuring and other items. In addition, Teva recorded a write-down of $94 million of its investment in New Chapter Inc. under share in losses of associated companies.

During September 2018, Teva and P&G completed the final net asset distribution as part of the dissolution and Teva recorded a gain of $50 million to reflect the cash payment received from P&G under the dissolution agreement.

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. ~~Nuvelution will fund and manage~~There are no further plans in this indication following clinical ~~development, driving all operational aspects~~trial results received in February 2020, which failed to meet their primary endpoints.

Table of ~~the phase 3 program, and Teva will lead the regulatory process and be responsible for commercialization. Upon and subject~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~U.S. Food and Drug Administration (“FDA”) approval of AUSTEDO for the treatment of Tourette syndrome, Teva will pay Nuvelution a~~Consolidated Financial Statements

~~pre-agreed~~

(Unaudited)

~~amount as compensation for their contribution to the partnership.~~

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. Teva may receive additional milestone payments upon filing with Japanese regulatory authorities, receipt of regulatory approval and achievement of certain revenue targets. Otsuka will also pay Teva royalties on AJOVY sales in Japan.

~~Attenukine~~

~~In December 2016, Teva entered into a license agreement~~ Results for ~~research, development, manufacture~~these trials were received in January 2020 indicating that primary and commercializing of Attenukine technology with a subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”). Teva received a $30 million upfront payment. The agreement stipulates additional milestone payments to Teva of up to $280 million, as well as future royalties.secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects.

Celltrion

In October 2016, Teva and Celltrion, Inc. (“Celltrion”) entered into a collaborative agreement to commercialize ~~Truxima~~TRUXIMA

and ~~Herzuma~~HERZUMA

, two biosimilar products ~~in development~~ for the U.S. and Canadian markets. Teva paid Celltrion $160 million, of which up to $60

million is refundable or ~~creditable under certain circumstances.~~creditable. Teva and Celltrion will 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 equally in the global commercial rights to this product, as well as ongoing associated R&D costs of approximately $1

billion. Teva made an upfront payment of ~~$250~~

$250

million to Regeneron in the third quarter of 2016 as part of the agreement. ~~Milestone~~The agreement stipulates additional development milestone payments ~~of $25 million, $35 million and $60 million were paid in the second quarter of 2017, the first quarter of 2018 and the fourth quarter of 2018, respectively.~~to Regeneron, as well as future royalties.

Table of Contents

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 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


	Three months ended March 31, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of g oods		1,637		1,259		468		187		3,551
Licensing arrangements		31		5	§			1		37
Distribution		379	§			5		—		383
Other		—	§			48		128		176

	$	2,047	$	1,264	$	521	$	317	$	4,149

§	Represents an amount less than $1 million.

The financial data presented in the tables above with respect to prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c.

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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

SR&A to U.S. customers comprised approximately 82% of the Company’s total SR&A as of March 31, 2020,

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, 2020 and 2019 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, 2019	$	87		$	2,895		$	1,109		$	1,342		$	637		$	176		$	6,159		$	6,246
Provisions related to sales made in current year period		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



	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, 2018	$	175		$	3,006		$	1,361		$	1,530		$	638		$	176		$	6,711		$	6,886
Provisions related to sales made in current year period		112			1,350			324			2,320			72			114			4,180			4,292
Provisions related to sales made in prior periods		—			—			1			(5	)		3			(1	)		(2	)		(2	)
Credits and payments		(125	)		(1,613	)		(438	)		(2,413	)		(117	)		(101	)		(4,682	)		(4,807	)
Translation differences		—			(6	)		(1	)		—			—			—			(7	)		(7	)

Balance at March 31, 2019	$	162			2,737		$	1,247		$	1,432		$	596		$	188		$	6,200		$	6,362

Allowance for credit losses

Accounts receivable are recognized net of allowance for credit losses. Allowances for credit losses were $127 million and $135 million as of March 31, 2020 and December 31, 2019, respectively. The decrease is mainly due to currency fluctuations.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
	(U.S. $ in millions)				(U.S. $ in millions)
Finished products	$	2,643	$	2,665	$	2,193	$	2,504
Raw and packaging materials		1,393		1,328		1,306		1,183
Products in process		638		590		650		583
Materials in transit and payments on account		176		148		141		151

Total	$	4,850	$	4,731	$	4,290	$	4,422

NOTE 5 ~~– Property, plant and equipment:~~

~~Property, plant and equipment, net, consisted of the following:~~

June 30,

December 31,

2019

2018

(U.S. $ in millions)

Machinery and equipment
$
5,713
$
5,691

Buildings

3,092

3,143

Computer equipment and other assets

2,129

2,097

Payments on account

526

514

Land

370

351

11,830

11,796

Less—accumulated depreciation

(5,099
)
(4,928
)

Total $
6,732
$
6,868

~~NOTE 6~~ – 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,

2019

2018

2019

2018

2019

2018

(U.S. $ in millions)

Product rights
$
19,995
$
20,361
$
10,043
$
9,565
$
9,952
$
10,796

Trade names

604

606

109

91

496

515

In process research and development

1,988

2,694

—

—

1,988

2,694

Total

$
22,587

$
23,661

$
10,152

$
9,656

$
12,435

$
14,005


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2020		2019		2020		2019		2020		2019
	(U.S. $ in millions)
Product rights	$	19,371	$	19,663	$	10,969	$	10,640	$	8,402	$	9,023
Trade names		595		600		135		126		460		474
In process research and development		1,394		1,735		—		—		1,394		1,735

Total	$	21,361	$	21,998	$	11,104	$	10,766	$	10,256	$	11,232

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~~pharmaceutical products from various therapeutic categories from various acquisitions with a weighted average life of approximately ~~12 years.~~

years. Amortization of intangible assets amounted to ~~$285~~

$258 million and ~~$302~~ $283

million in the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Amortization of intangible assets amounted to $568 million and $612 million in the six months ended June 30, 2019 and 2018, respectively.~~

IPR&D

Teva’s IPR&D are assets that have not yet been approved in major markets. ~~Teva’s~~Teva’s IPR&D is comprised mainly of ~~the following acquisitions and related assets:~~ various generic products ~~(Actavis Generics) – $1,730 million; various generic products (Rimsa) – $47 million; and AUSTEDO – $211~~ from the Actavis Generics acquisition for

$1,333

million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.

~~In the three months ended June~~

~~2019~~

~~, Teva reclassified $19 million of products from IPR&D to product rights following regulatory approval.~~

~~In the first six months of 2019, Teva reclassified~~

~~256~~

~~million of products from IPR&D to product rights following regulatory approval,~~

~~mainly $~~

~~174~~

~~million in connection with methylphenidate ER.~~

Intangible assets ~~impairment~~impairments

Impairments of long-lived intangible assets ~~for~~in the first three months ~~ended on June~~ of

~~30,~~ 2020 and 2019 were

~~2019~~$649 million and $469

million, respectively.

~~2018 were $561 million and $521 million, respectively.~~

Impairments in the

~~second~~

first quarter of

~~2019~~ 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 ~~$365~~$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 ~~acquired from Actavis Generics and~~ primarily marketed in the United States.

Impairments in the first quarter of 2019 consisted of:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

b)(a)

IPR&D assets of ~~$196~~$265 million, mainly due to: (i) ~~$137~~$125 million related to lenalidomide (generic equivalent of Revlimid

) due to modified competition assumptions as a result of settlements between the innovator and other generic filers and (ii) $140 million of other 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 or discount rate) ~~in the United States~~; and ~~(ii)~~

~~$59~~

~~million related to a change in the assumption of the future market share of few products within Teva’s Actavis Generics related pipeline in Europe.~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Impairments of long-lived intangible assets for the six months ended on June~~

~~2019~~

~~and~~

~~2018~~

~~were $1,030 million and $727 million, respectively. Impairments in the first six months of~~

~~2019~~

~~consisted of:~~

(b)

Identifiable product rights of ~~$569~~$204 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~IPR&D assets of $461 million, due to: (i) $277 million of~~

~~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 or discount rate) in the United States and (ii) $125 million related to lenalidomide (generic equivalent of Revlimid

~~) due to modified competition assumptions as a result of settlements between the innovator and other generic filers (iii) $59 million related to a change in~~

~~the~~

~~assumption of the future market share of few products within Teva’s Actavis~~

~~Generics related pipeline in Europe.~~

NOTE 76 – Goodwill:

The changes in the carrying amount of goodwill for the period ended ~~June 30, 2019~~March 31, 2020 were as follows:

North

America

Europe

International

Markets

Other

Total

(U.S. $ in millions)

Balance as of January 1, 2019
(1)
$
11,098
$
8,653
$
2,479
$
2,687
$
24,917

Changes during the period:

Goodwill disposal

(23
)
(5
)
—

—

(28
)
Goodwill adjustments

(13
)

—

—

—

(13
)
Translation differences

16

(32
)
53

—

37

Balance as of June 30, 2019
(1)
$
11,078
$
8,616
$
2,532
$
2,687
$
24,913


	North America			Europe			International Markets			Other		Total
	(U.S. $ in millions)
Balance as of December 3 1, 2019	$	11,091		$	8,536		$	2,532		$	2,687	$	24,846
Changes during the period:
Translation differences		(31	)		(143	)		(182	)		—		(357	)

Balance as of March 31, 2020	$	11,060		$	8,393		$	2,350		$	2,687	$	24,490

~~(1)~~

~~Accumulated goodwill impairment as of June 30, 2019 and January 1, 2019 was approximately $21.0 billion.~~

Teva operates its business through three

reporting

segments: North America, Europe and International Markets. ~~Teva began~~Each of these business segments is a reporting ~~its financial results under this structure in the first quarter of~~

~~2018~~

~~. In addition to these three segments, Teva has other sources of revenues, primarily the~~unit. Additional reporting units include Teva’s production and sale of APIs to third parties ~~certain contract manufacturing services~~(“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 ~~WACC,~~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 ~~could face~~may record an impairment of goodwill allocated to these reporting units in the future.

First Quarter Developments

During the first quarter of ~~2019,~~2020, 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. ~~This includes the International Markets, Medis and Europe reporting units, which had headroom~~

��

~~of 6% or less as of December 31, 2018.~~

As part of this assessment, ~~the Company~~management also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period. ~~In addition,~~

Teva ~~analyzed the aggregate fair value~~evaluated qualitative factors, including expected effects of

COVID-19

on its ~~reporting units, calculated as part~~business. The impact of the ~~annual goodwill impairment test performed in~~

COVID-19

pandemic on Teva’s business has been evaluated and it is not expected to significantly alter the fourth quarter of 2018, compared to its market capitalization. Despite the decrease in share price during the first quarter of 2019 compared to the average share price used to assess the reasonableness of the results of the cash flow projections used for the goodwill impairment analysis in the fourth quarter of 2018, management believed that its fair value assessment was reasonably supported by Teva’s market capitalization.Company’s business model at this time. Based on this assessment, management has concluded that it ~~was~~is not more likely than not that the fair value of any of the reporting units ~~was~~is below its carrying value as of March 31, ~~2019~~2020 and, therefore, no quantitative ~~assessments~~assessment was performed. If circumstances were ~~performed.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes~~ to ~~Consolidated Financial Statements~~

~~(Unaudited)~~

Inchange from Teva’s expectations about the ~~second quarter~~duration or impact of 2019, the Company 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. Certain events and changes in circumstances, reflected in the LRP, indicated that it was

COVID-19,

one or more ~~likely than not that the carrying value of certain reporting~~business units ~~may exceed their fair value. The following analysis was performed based upon the June 30, 2019 assessment:~~

~~International Markets~~

Management noted a further decrease in the profitability projections in the Japanese market related to new price regulation and further generic competition. Consequently, management conducted a quantitative analysis to its International Markets reporting unit,could be impacted, which ~~resulted in no impairment.~~

~~The percentage difference between estimated fair value and estimated carrying value for the International Markets reporting unit is 4%.~~

The Company used a terminal growth rate of 2.3% and a discount rate of 10.74%. If Teva holds all other assumptions constant, a reduction in the terminal value growth rate of 0.4% or an increase in discount rate of 0.3% wouldmay result in an ~~impairment related to its International Markets reporting unit.~~

~~North America~~

~~Management believes that the sharp decline in the Company’s share price, which commenced~~

~~May 2019~~

, was mainly a result of events related to increased publicity surrounding certain litigations in the United States. Management considered the sharp decline in share price as an indication that it was more likely than not that the carrying value of its North America reporting unit exceeded its fair value.

~~Consequently, management conducted a quantitative analysis to its North America reporting unit, which resulted in no~~ impairment.

~~The percentage difference between estimated fair value and estimated carrying value for the North America reporting unit is 9%.~~

~~The Company used a terminal growth rate of 2.0% and a discount rate of 10.0~~

~~If Teva holds all other assumptions constant, a reduction in the terminal value growth rate~~

~~0.9% or an increase in discount rate~~

~~0.6% would result in an impairment related to its North America reporting unit.~~

~~Remaining reporting units~~

After assessing the totality of relevant events and circumstances, Teva determined that it is not more likely than not that the fair value of its remaining reporting units is less than their carrying amount.

~~The percentage difference between estimated fair value and estimated carrying value for the Europe, Medis and TAPI reporting units is 22%, 45% and 15%, respectively.~~

Market Capitalization

Teva analyzed the aggregate fair value of its reporting units, calculated as part of the annual goodwill impairment test performed in the fourth quarter of 2019, compared to its market ~~capitalization in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis.~~capitalization.

~~During the second quarter of~~

At December 31, 2019, ~~Teva noted its~~Teva’s market capitalization was ~~significantly~~ below management’s assessment of the aggregate fair value of ~~its~~the Company’s reporting units. Management ~~analyzed the difference and the underlying factors:~~

Based on research analysts’ reports reviewed by management and responses from certain analysts to Teva’s inquiries, management noted a gap in the sales projections of AJOVY in the Europe and International Markets reporting units. Management concluded that the majority of analysts do not focus on these markets in preparing their financial models and,viewed this as a ~~result, have not~~temporary situation mainly attributed ~~value~~ to ~~the launch potential in these reporting units. Management believes that its fair value assessment relies on more accurate information and therefore no adjustment was incorporated to the fair value.~~

~~Management also noted a difference with regard to sales projections of AUSTEDO in North America resulting in higher fair value as analyzed~~an acute reaction by ~~management compared to Teva’s market capitalization. Management believes that it has more accurate information based on its knowledge of~~ the market ~~and its growth through the remainder of 2019 and therefore no adjustment was incorporated~~primarily related to ~~the fair value.~~

~~Management believes that the remaining difference in fair value is attributable to market concerns regarding certain litigation risks, namely from the~~ opioid and price fixing ~~litigations, and concern surrounding~~litigation risks. Management continues to believe market concerns regarding the ~~company’s cash flow and overall liquidity. Management believes that~~uncertainty of these ~~concerns led to an acute reaction, which resulted in further decline~~matters are impacting its market capitalization. However, developments in the ~~share price. Although ultimately the outcome of the relevant cases will not be known in the near term, developments in these cases, likely to occur through the end of 2019,~~case are expected to clarify the outlook with regards to the opioid litigation, ~~which may~~assuming the proposed settlement framework is finalized in 2020.

During 2020, Teva experienced additional volatility in its share price resulting from the impact of the

COVID-19

pandemic on equity markets and the global economy. Management believes the current market reaction is based upon the lack of information regarding the impact the pandemic might have on Teva’s business and the entire economy. The economic uncertainties in the market related to the

COVID-19

pandemic, along with the uncertainties related to Teva’s litigations, result in a ~~share price recovery. Consequently, management believes that this disparity results from a~~similar gap between book value and market value ~~not reflective~~at the date of this filing as compared to the gap that existed at December 31, 2019. Further, as of the ~~underlying~~date of this filing, the Company’s market capitalization plus a reasonable control premium exceeds its book value. Based on management’s assessment of the developments in the first quarter of 2020 and considering the Company’s current market capitalization as comparable to that of December 31, 2019, management concluded that the estimated fair value of its reporting units ~~and therefore it would be inappropriate to record an impairment charge in the second quarter of 2019 related thereto.~~

more likely than not exceeds its carrying amount.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Management will continue to monitor business conditions, including the impact of

COVID-19,

and ~~potential events or circumstances that could have a negative effect on the estimated fair value of the Company.~~

~~Based on assumptions~~will consider future developments in ~~place at this time, if~~ Teva’s ~~share price does not recover in the near term, this may lead to a~~market capitalization when assessing whether additional goodwill impairment ~~charge of up to an aggregated amount of approximately $5,000 million~~is required in ~~its North America and International Markets reporting units. Future impairment charges, if any, reflecting conditions at that time may be materially different.~~

future periods.

~~NOTE 8 – 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 the diluted loss per share for the three months ended June 30, 2019 and 2018, no account was taken of the potential dilution of the assumed exercise of employee stock options and non-vested RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Additionally, in the three months ended June 30, 2018, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 63 million shares (including shares that were issued due to unpaid dividends until that date), since they had an anti-dilutive effect on loss per share.

On December 17, 2018, the mandatory convertible preferred shares automatically converted into ADSs and all of the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs. As a result of this conversion, Teva issued 70.6 million ADSs in December 2018.

In computing the diluted loss per share for the six months ended June 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and non-vested RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share. Diluted earnings per share for the six months ended June 30, 2018 take into account the potential dilution that could occur upon the exercise of options and non-vested RSUs granted under employee stock compensation plans, using the treasury stock method.

Additionally, in the six months ended June 30, 2018, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 65 million shares (including shares that were issued due to unpaid dividends until that date), since they had an anti-dilutive effect on loss per share.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 97 – ~~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 17.~~

Three months ended June 30, 2019

North America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

1,686

1,173

526

204

3,588

Licensing arrangements

35

10

2

1

48

Distribution

351

§

164

—

515

Other

—

§

49

137

186

$
2,071
$
1,183
$
741
$
342

4,337

~~§ Represents an amount less than $1 million.~~

Three months ended June 30, 2018

North America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods 1,913 1,317 573 186 3,989
Licensing arrangements 30 8 1 2 41
Distribution 320 3 154 — 477
Other — — 61 133 194

$ 2,263 $ 1,328 $ 789 $ 321 $ 4,701

Six months ended June 30, 2019

North America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

3,324

2,433

994

390

7,141

Licensing arrangements

65

15

2

3

85

Distribution

729

§

315

—

1,044

Other

—
§ 97
264

362

$
4,118
$
2,448
$
1,409
$
657
$
8,632

~~§ Represents an amount less than $1 million.~~

Six months ended June 30, 2018

North
America

Europe

International
Markets

Other activities

Total

(U.S. $ in millions)

Sale of goods

4,081

2,746

1,092

365

8,284

Licensing arrangements

62

18

21

4

105

Distribution

651

6

307

—

964

Other

—

—

119

294

413

$
4,794
$
2,770
$
1,539
$
663
$
9,766

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Variable consideration~~

~~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 83% of the Company’s total SR&A as of June 30, 2019, 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, 2019 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, 2018 $ 175 $ 3,006 $ 1,361 $ 1,530 $ 638 $ 176 $ 6,711 $ 6,886
Provisions related to sales made in current year period 229 2,651 548 4,822 148 213 8,427 8,656
Provisions related to sales made in prior periods — 7 — (5 ) 3 (4 ) 1 1
Credits and payments (242 ) (2,975 ) (739 ) (4,936 ) (196 ) (206 ) (9,052 ) (9,294 )
Translation differences — 4 — 2 2 4 12 12

Balance at June 30, 2019 $ 162 $ 2,693 $ 1,170 $ 1,413 $ 595 $ 183 $ 6,054 $ 6,261

~~NOTE 10 – Accumulated other comprehensive loss:~~

~~The components of, and changes within, accumulated other comprehensive losses attributable to Teva are presented in the table below:~~

Net Unrealized Gains (Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale securities

Derivative
financial
instruments

Actuarial
gains (losses)
and prior
service
(costs) credits

Total

(U.S. $ in millions)

Balance as of December 31, 2017*
$
(1,316
) $
1
$
(442
) $
(91
) $
(1,848
)
Other comprehensive income (loss) before reclassifications

(495
) —
42

—

(453
)
Amounts reclassified to the statements of income

—
(1 )
14
1
14

Net other comprehensive income (loss) before tax

(495
)
(1
)
56

1

(439
)
Corresponding income tax —   —   —   (2 ) (2 )
Net other comprehensive income (loss) after tax**

(495
)
(1
)
56

  (1
)
(441
)

Balance as of June 30, 2018
$
(1,811
) $
—
$
(386
) $
(92
) $
(2,289
)

*	~~Following the adoption of ASU~~ ~~2016-01,~~ ~~the Company recorded a $~~ 5 ~~million opening balance reclassification from accumulated other comprehensive income to retained earnings.~~

**	~~Amounts do not include a $~~ 23 ~~million gain from foreign currency translation adjustments attributable to~~ ~~non-controlling~~ ~~interests.~~

Debt obligations:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Net Unrealized Gains (Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale securities

Derivative
financial
instruments

Actuarial
gains (losses)
and prior
service
(costs) credits

Total

(U.S. $ in millions)

Balance as of December 31, 2018
$
(2,055
) $
1
$
(327
) $
(78
) $
(2,459
)

Other comprehensive income (loss) before reclassifications

111

—

22

—

133

Amounts reclassified to the statements of income

—

—

15

—

15

Net other comprehensive income (loss) before tax

111

—

37

—

148

Corresponding income tax —   —   —   (1 ) (1 )

Net other comprehensive income (loss) after tax*

111

—

37

(1
)
147

Balance as of June 30, 2019
$
(1,944
) $
1
$
(290
) $
(79
) $
(2,312
)

*	~~Amounts do not include a $~~ 24 ~~million gain from foreign currency translation adjustments attributable to~~ ~~non-controlling~~ ~~interests.~~

~~NOTE 11 – Debt obligations:~~

a. Short-term debt:

Weighted average interest rate as of
June 30, 2019

Maturity

June 30,
2019

December 31,
2018

(U.S. $ in millions)

Bank and financial institutions

4.25
% — $
1
$
2

Convertible debentures

0.25
%
2026

514

514

Current maturities of long-term liabilities

2,256

1,700

Total short-term debt
$
2,771
$
2,216

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Long-term debt:~~

Weighted average interest
rate as of June 30, 2019

Maturity

June 30,
2019

December 31,
2018

(U.S. $ in millions)

Senior notes EUR 1,660 million

0.38%

2020
$
1,886
$
1,897

Senior notes EUR 1,500 million

1.13%

2024

1,697

1,707

Senior notes EUR 1,300 million

1.25%

2023

1,472

1,480

Senior notes EUR 900 million

4.50%

2025

1,023

1,029

Senior notes EUR 750 million

1.63%

2028

846

850

Senior notes EUR 700 million

3.25%

2022

796

801

Senior notes EUR 700 million

1.88%

2027

794

798

Senior notes USD 3,500 million

3.15%

2026

3,493

3,493

Senior notes USD 3,000 million

2.20%

2021

2,998

2,997

Senior notes USD 3,000 million

2.80%

2023

2,994

2,993

Senior notes USD 1,556 million (1)

1.70%

2019

1,556

1,700

Senior notes USD 2,000 million

4.10%

2046

1,985

1,985

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 844 million

2.95%

2022

858

860

Senior notes USD 789 million

6.15%

2036

782

782

Senior notes USD 700 million

2.25%

2020

700

700

Senior notes USD 613 million

3.65%

2021

619

621

Senior notes USD 588 million

3.65%

2021

587

587

Senior notes CHF 350 million

0.50%

2022

359

356

Senior notes CHF 350 million

1.00%

2025

359

356

Fair value hedge accounting adjustments

9

(9
)

Total senior notes

28,313

28,483

Other long-term debt

1.15%

2026

1

12

Less current maturities

(2,256
)
(1,700
)
Derivative instruments

(9
)
9

Less debt issuance costs

(94
)
(104
)

Total senior notes and loans
$
25,955
$
26,700


						March 31, 2020		December 31, 2019
	Weighted average interest rate as of March 31, 2020			Maturity		March 31, 2020		December 31, 2019
						(U.S. $ in millions)
Convertible debentures		0.25	%		2026	$	514	$	514
Current maturities of long-term liabilities							1,116		1,831

Total short-term debt						$	1,630	$	2,345

Convertible senior debentures

Teva’s 0.25% convertible senior debentures due 2026, with $514 million principal amount outstanding as of March 31, 2020 and December 31,2019, 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 debentures will be able to cause Teva to redeem the debentures on February 1, 2021.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term debt:


	Weighted average interest rate as of March 31, 2020			Maturity		March 31, 2020			December 31, 2019
						(U.S. $ in millions)
Senior notes EUR 1,010 million		0.38	%		2020	$	1,116		$	1,131
Senior notes EUR 1,500 million		1.13	%		2024		1,651			1,673
Senior notes EUR 1,300 million		1.25	%		2023		1,432			1,451
Senior notes EUR 1,000 million		6.00	%		2025		1,105			1,120
Senior notes EUR 900 million		4.50	%		2025		994			1,008
Senior notes EUR 750 million		1.63	%		2028		822			833
Senior notes EUR 700 million		3.25	%		2022		773			784
Senior notes EUR 700 million		1.88	%		2027		771			782
Senior notes USD 3,500 million		3.15	%		2026		3,494			3,494
Senior notes USD 1,475 million		2.20	%		2021		1,474			1,474
Senior notes USD 3,000 million		2.80	%		2023		2,995			2,995
Senior notes USD 2,000 million		4.10	%		2046		1,985			1,985
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		855			856
Senior notes USD 789 million		6.15	%		2036		783			782
Senior notes USD 700 million (1)		2.25	%		2020		—			700
Senior notes USD 613 million		3.65	%		2021		618			618
Senior notes USD 588 million		3.65	%		2021		587			587
Senior notes CHF 350 million		0.50	%		2022		366			361
Senior notes CHF 350 million		1.00	%		2025		366			362

Total senior notes							25,687			26,496
Other long-term debt		1.14	%		2026		1			1
Less current maturities							(1,116	)		(1,831	)
Less debt issuance costs							(98	)		(103	)

Total senior notes and loans						$	24,473		$	24,562

(1)	During the first ~~six months~~quarter of ~~2019, Teva repurchased and canceled approximately $144 million principal amount of its $1,700 million 1.7% senior notes due in July 2019. In July 2019,~~2020, Teva repaid at maturity ~~$1,556~~ $700 million of its ~~1.7%~~2.25% senior notes.

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, 2019~~March 31, 2020 is effectively denominated ~~(taking into consideration cross currency swap agreements)~~ in the following currencies:

66%

in U.S. dollar, ~~62%,~~

31%

in euro ~~35%~~ and

in Swiss ~~franc 3%.~~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~~

$2.3 billion revolving credit facility (“RCF”).

In April 2019, the Company entered into a $2.3

billion unsecured syndicated RCF. The RCF agreement provides for two separate tranches, a

$1.15 billion

ranche A and a $1.15 billion

ranche B. Loans and letters of credit will be available from time to time under each tranche for Teva’s general corporate purposes. Tranche A has a maturity date of April 8, 2022, with two

one-year

extension options, of which ~~replaced the previous~~$1.0 billion

$3 was

~~billion revolving credit facility.~~ extended to April 8, 2023. Tranche B has a maturity date of April 8, 2024.

The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time. The net debt to EBITDA ratio limit is ~~6.25x through December 31, 2019, gradually~~6.0x in the first and second quarters of 2020 and declines to 5.75x in the third and fourth quarters of 2020, and continues to gradually decline over the remaining term of the RCF.

The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~June 30, 2019, no~~March 31, 2020, 0 amounts were ~~outstanding under the RCF. As of the date of this report, $500 million was~~ 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 ~~that~~ these financial statements are issued.

Table of Contents

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 ~~12 – Fair value measurement:~~

Teva’s financial instruments consist mainly of cash and cash equivalents, investment in securities, current and non-current receivables, short-term debt, current and non-current payables, contingent consideration, senior notes and loans, convertible senior debentures and derivatives.

The fair value of the financial instruments included in working capital and non-current receivables and payables approximates their carrying value. The fair value of loans and bank facilities approximates their carrying value, since they bear interest at rates close to the prevailing market rates.

~~Financial instruments measured at fair value~~

The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

~~The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:~~

~~Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.~~

~~Level 2: Observable inputs that are based on inputs not quoted on active markets, but corroborated by market data.~~

~~Level 3: Unobservable inputs are used when little or no market data is available.~~

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value.

~~There were no transfers between Level 1, Level 2 and Level 3 during the first six months of 2019.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Financial items carried at fair value as of June 30, 2019 and December 31, 2018 are classified in the tables below in one of the three categories described above:~~

June 30, 2019

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
401
$
—
$
—
$
401

Cash, deposits and other

1,764

—

—

1,764

Investment in securities:

Equity securities

48

—

—

48

Other, mainly debt securities

5

—

13

18

Derivatives:

Asset derivatives—options and forward contracts

—

14

—

14

Asset derivatives
—interest rate and
cross-currency swaps

85

—

85

Liability derivatives—options and forward contracts
—

(55
)
—

(55
)
Liability derivatives—interest rate and cross-currency swaps
—

(37
)
—

(37
)
Contingent consideration*

—

—

(403
)
(403
)

Total
$
2,218
$
7
$
(390
) $
1,835

December 31, 2018

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
203
$
—
$
—
$
203

Cash, deposits and other

1,579

—

—

1,579

Investment in securities:

Equity securities

51

—

—

51

Other, mainly debt securities

2

—

10

12

Derivatives:

Asset derivatives
—
options and forward contracts

—

18

—

18

Asset derivatives—interest rate and cross-currency swaps
—

58

—

58

Liability derivatives—options and forward contracts
—

(26
)
—

(26
)
Liability derivatives—interest rate and cross-currency swaps
—

(50
)
—

(50
)
Contingent consideration*

—

—

(507
)
(507
)

Total
$
1,835
$
—
$
(497
) $
1,338

*	~~Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.~~

Teva determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration is based on several factors, such as: the cash flows projected from the success of unapproved product candidates; the probability of success of product candidates, including risks associated with uncertainty regarding achievement and payment of milestone events; the time and resources needed to complete the development and approval of product candidates; the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the

~~United States~~

~~and Europe, and the risk adjusted discount rate for fair value measurement.~~

~~The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in earnings.~~

~~Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liability.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:~~

Six months ended
June 30, 2019

(U.S. $ in millions)

Fair value at the beginning of the period
$
(497
)
Revaluation of debt securities

3

Adjustments to provisions for contingent consideration:

Actavis Generics transaction

101

Eagle transaction

(54
)
Settlement of contingent consideration:

Eagle transaction

57

Fair value at the end of the period
$
(390
)

~~Financial instruments not measured at fair value~~

~~Financial instruments measured on a basis other than fair value mostly consist of senior notes and convertible senior debentures and are presented in the table below in terms of fair value:~~

Fair value*

June 30,
2019

December 31,
2018

(U.S. $ in millions)

Senior notes included under senior notes and loans
$
22,770
$
23,560

Senior notes and convertible senior debentures included under short-term debt

2,719

2,140

Total
$
25,489
$
25,700

*	~~The fair value was based on quoted market price.~~

~~NOTE 13~~8 – Derivative instruments and hedging activities:

a.	a. Foreign exchange risk management:

In the first ~~six~~three months of ~~2019,~~2020, approximately ~~49%~~50% 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.~~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 companies ~~in the Group.~~within Teva. The currency hedged items are usually denominated in the following main currencies: the ~~new Israeli shekel (NIS),~~Russian ruble, the euro, ~~(EUR),~~ the Swiss franc, ~~(CHF),~~ the Japanese yen, ~~(JPY),~~ the British pound, ~~(GBP),~~ the Canadian dollar, ~~(CAD),~~ the Polish zloty, ~~(PLN),~~ the Indian rupee ~~(INR)~~ 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 ~~hedges~~hedged against possible fluctuations in foreign ~~subsidiaries~~subsidiaries’ net assets (“net investment hedge”) and ~~entered~~from time to time enters into cross-currency swaps and forward contracts 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:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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, securitizations 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 notional amounts:

~~Derivative instruments notional amounts~~

The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:

June 30,
2019

December 31,
2018

(U.S. $ in millions)

Cross-currency swap—cash flow hedge
$
588
$
588

Cross-currency swap—net investment hedge

1,000

1,000

Interest rate swap—fair value hedge

500

500

$
2,088
$
2,088

d.	~~Derivative instrument outstanding:~~

~~The following table summarizes the classification and fair values of derivative instruments:~~

Fair value

Designated as hedging
instruments

Not designated as hedging
instruments

June 30,
2019

December 31,
2018

June 30,
2019

December 31,
2018

Reported under

(U.S. $ in millions)

Asset derivatives:

Other current assets:

Option and forward contracts
$
—
$
—
$
14
$
18

Other
non-current
assets:

Cross-currency swaps—cash flow hedge

76

58
—
—

Senior notes and loans:

Interest rate swaps—fair value hedge 9 —   —   —

Liability derivatives:

Other current liabilities:

Option and forward contracts

—

—

(55
)
(26
)
Cross-currency swaps—net investment hedge

(37
)
—
—   —
Other taxes and long-term liabilities:

Cross-currency swaps—net investment hedge

—

(41
)
—

—

Senior notes and loans:

Interest rate swaps—fair value hedge

—

(9
)
—

—

~~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

Three month ended,

Three month ended,

June 30,
2019

June 30,
2018**

June 30,
2019

June 30,
2018**

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$ 206 $ 236 $ (76 ) $ 614
Cross-currency swaps—cash flow hedge (1) (1 ) * 4 (28 )
Cross-currency swaps—net investment hedge (2) (7 ) (9 ) 14 (59 )
Interest rate swaps—fair value hedge (3) 1 * — —

*	~~Represents an amount less than $0.5 million.~~


	March 31,		December 31,
	2020		2019
	(U.S. $ in millions)
Cross-currency swap—net investment hedge	$	—	$	1,000

**	~~Comparative figures are based on prior hedge accounting standard.~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Derivative instrument outstanding:

Financial expenses, net

Other comprehensive income

Six month ended,

Six month ended,

June 30,
2019

June 30,
2018**

June 30,
2019

June 30,
2018**

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
425
$
507
$
(170
) $
418

Cross-currency swaps—cash flow hedge (1)

(1
) (1 )
(15
)
(11
)
Cross-currency swaps—net investment hedge (2)

(15
)
(16
)
(6
)
(29
)
Interest rate swaps—fair value hedge (3)

1

*

—

—

The following table summarizes the classification and fair values of derivative instruments:


	Fair value
	Designated as hedging instruments					Not designated as hedging instruments
	March 31, 2020		December 31, 2019			March 31, 2020			December 31, 2019
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—	$	—		$	104		$	32
Liability derivatives:
Other current liabilities:
Cross-currency swaps—net investment hedge		—		(22	)		—			—
Option and forward contracts		—		—			(94	)		(41	)

*	~~Represents an amount less than $0.5 million.~~

**	~~Comparative figures are based on prior hedge accounting standard.~~

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, 2020			March 31, 2019			March 31, 2020			March 31, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	224		$	218		$	(530	)	$	94
Cross-currency swaps—cash flow hedge (1)		—			(1	)		—			(20	)
Cross-currency swaps—net investment hedge (2)		(2	)		(7	)		(21	)	$	(20	)
Interest rate swaps—fair value hedge (3)		—			1			—			—

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 month ended,

Three month ended,

June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
206
$
236
$
(4,337
) $
(4,701
)
Option and forward contracts (4)

34

(24
)
—

—

Option and forward contracts Economic hedge — —   4

(1
)

Financial expenses, net

Net revenues

Six month ended,

Six month ended,

June 30,
2019

June 30, 2018

June 30,
2019

June 30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
425
$
507
$
(8,632
) $
(9,766
)
Option and forward contracts (4)

(7
)
(5
)
—

—

Option and forward contracts Economic hedge —   —   4

(1
)

~~(1)~~

~~With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate.~~


	Financial expenses, net					Net revenues
	Three months ended,					Three months ended,
	March 31, 2020		March 31, 2019			March 31, 2020			March 31, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	224	$	218		$	(4,357	)	$	(4,149	)
Option and forward contracts (4)		24		(42	)		—			—
Option and forward contracts economic hedge (5)		—		—			(60	)		—

(1)

With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate. In the fourth quarter of 2019, Teva terminated cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. The settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial

expenses-net

over the life of the debt as additional interest expense.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

(2)

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. ~~No amounts were reclassified from accumulated other comprehensive income into income related to~~In the ~~sale~~first quarter of ~~a subsidiary.~~2020, these cross-currency swap agreements

expired

. The settlement of these transactions resulted in cash proceeds of $3 million.

(3)

In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500 million notional amount of outstanding debt. With respect to this interest rate swap agreement, Teva recognized a loss which mainly reflects the differences between the fixed interest rate and the floating interest rate. In the third quarter of 2019, Teva terminated this interest rate swap agreement. The settlement of these transactions resulted in a gain position of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial

expenses-net

over the life of the debt as additional interest expense.

(4)

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—~~expenses

net.

(5)

Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, the British pound, the Russian ruble and some other currencies during the quarter for which such instruments are transacted. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. In the first quarter of 2020, the positive impact from these derivatives recognized under revenues was $60 million, partially offset by a $5 million negative impact recognized under cost of sales. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.

Matured forward starting interest rate swaps and treasury lock agreements:

Commencing in the third quarter of 2015, Teva entered into forward starting interest rate swap and treasury lock agreements designated as cash flow hedges of the U.S. dollar debt issuance in July 2016, with respect to $3.75 billion and $1.5 billion notional amounts, respectively. These agreements hedged the variability in anticipated future interest payments due to possible changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. dollar debt issuance in July 2016 (in connection with the closing of the Actavis Generics acquisition).

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Certain ~~of the~~ forward starting interest rate swaps and treasury lock agreements ~~matured during the first half of 2016. In~~were terminated in July 2016 in connection with ~~the~~Teva’s debt ~~issuances, Teva terminated the remaining forward starting interest rate swaps and treasury lock agreements.~~issuances. The termination of these transactions resulted in a loss position of $493 million, of which ~~$242 million were settled on October 7, 2016 and the remaining amount~~ was ~~settled in January 2017. The change in fair value of these instruments~~ recorded in other comprehensive income (loss) ~~will be~~and is amortized under financial

expenses-net

over the life of the debt. ~~Such losses mainly reflect the changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. debt issuance in July 2016.~~

With respect to ~~the~~these forward starting interest rate swaps and treasury lock agreements

losses of $8 million and $7 million were recognized under financial expenses, net for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and losses of $15 million and $14 million were recognized under financial expenses, net for the six months ended June 30, 2019 and 2018.~~respectively.

In the third quarter of ~~2016,~~2019, Teva terminated $500 million interest rate swap agreements designated as a fair value hedge relating to its ~~2.95%~~2.8% senior notes due ~~2022~~2023 with respect to ~~$844 million notional amount and its 3.65% senior notes due 2021 with respect to $450~~$3,000 million notional amount. Settlement of these transactions resulted in ~~a gain position~~cash proceeds of ~~$41~~$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~~debt.

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.

In the first quarter of 2020, a $1,000 million cross currency swap agreement designated as ~~additional interest expense.~~a net investment hedge of Teva’s foreign subsidiaries euro denominated net assets expired. Settlement of these transactions resulted in cash proceeds of $3 million.

With respect to the interest rate

swap and cross-currency

swap agreements, gains of $

2$1 million and $2 million were recognized under financial expenses, net for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and gains of $3 million were recognized under financial expenses, net for the six months ended June 30, 2019 and 2018.~~

respectively.

NOTE 149 – ~~Other assets impairments, restructuring~~Legal settlements and ~~other items:~~

Three months ended
June 30,

Six months ended
June 30,

2019

2018

2019

2018

(U.S. $ in millions)

Impairments of long-lived tangible assets (1) $ 48 $ 27 $ 68 $ 253
Contingent consideration 24 47 (47 ) 55
Restructuring 47 107 79 354
Other (18 ) 13 3 33

Total $ 101 $ 194 $ 103 $ 695

~~(1)~~

~~Including impairments related to exit and disposal activities~~

~~Impairments~~

~~Impairments of property, plant and equipment for the three months ended on June 30, 2019 and 2018 were~~

~~million and $27 million, respectively.~~

~~Impairments of property, plant and equipment for the six months ended on June 30, 2019 and 2018 were $68 million and $253 million, respectively.~~

As a result of Teva’s plant rationalization acceleration in connection with the two-year restructuring plan announced in December 2017, to the extent the Company changes its plans on any given asset and/or the assumptions underlying such plans, there may be additional impairments in the future.loss contingencies:

~~Contingent consideration~~

In the ~~three months ended June 30, 2019,~~first quarter of 2020, Teva recorded

an ~~expense~~income of

~~$24~~$25 million ~~for contingent consideration,~~in legal settlements and loss contingencies, compared to an expense of ~~$47~~

$57 million in the ~~three months ended June 30, 2018. The expenses in the second~~first quarter of 2019 mainly related to an increase in the expected future royalty payments to Eagle Pharmaceuticals, Inc. due to the orphan drug status granted to BENDEKA and the expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid

~~) which was part of the Actavis acquisition.~~

~~In the six months ended June 30, 2019, Teva recorded $47 million of contingent consideration income, compared to $55 million expense in the six months ended June 30, 2018.~~2019. The income in the first ~~six months~~quarter of ~~2019~~2020 was mainly ~~related~~due to a settlement of an action brought against the ~~decrease in the expected royalty payments in connection with lenalidomide (generic equivalent~~sellers of ~~Revlimid~~

~~) which was part of the~~Auden McKenzie (an acquisition made by Actavis ~~acquisition.~~

Generics).

~~Restructuring~~

~~In the three months ended June 30, 2019, Teva recorded $47 million of restructuring expenses, compared to $107 million in the three months ended June 30, 2018.~~

2823

Table of Contents

TEVA ~~PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~In the six months ended June 30, 2019, Teva recorded $79 million of restructuring expenses, compared to $354 million in the six months ended June 30, 2018.~~

~~Since the announcement of its restructuring plan, Teva reduced its global headcount by approximately 11,145 full-time-equivalent employees.~~

~~During the three months ended June~~

~~2019~~

~~and~~

~~2018~~

~~, Teva recorded impairments of property, plant and equipment related to restructuring costs of $21 million and $8 million, respectively.~~

~~During the six months ended June~~

~~2019~~

~~and~~

~~2018~~

~~, Teva recorded~~

~~impairments~~

~~of property, plant and equipment related to restructuring costs of $21 million and $155 million, respectively.~~

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 June 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
36
$
90

Other

11

17

Total
$
47
$
107

Six months ended June 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
56
$
318

Other

23

36

Total
$
79
$
354

~~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, 2019
$
(204
) $
(29
) $
(233
)
Provision

(56
)
(23
)
(79
)
Utilization and other*

67

45

112

Balance as of June 30, 2019
$
(193
) $
(7
) $
(200
)

*	~~Includes adjustments for foreign currency translation.~~

~~Significant regulatory 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 contains four enumerated concerns related to production, quality control, and investigations at this site. Teva is working diligently to remediate the FDA’s concerns in a manner consistent with current good manufacturing practice (CGMP) requirements, and to address those concerns as quickly and as thoroughly as possible. If Teva is unable to remediate the warning letter findings to the FDA’s satisfaction, it may face additional consequences, including 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 $142 million in revenues from this site for the remainder of 2019, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.

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 impurity called NDMA found in valsartan API supplied to Teva by Zhejiang Huahai Pharmaceutical. Since July 2018, Teva has been actively engaged with regulatory agencies around the world in reviewing its valsartan and other sartan products for NDMA and other related impurities and, where necessary, has initiated additional voluntary recalls. The impact of this recall

~~as of June 30, 2019~~

~~on Teva’s financial statements was $55 million, primarily related to inventory reserves~~

~~and returns~~

. Teva expects to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter, for which litigation costs are currently being incurred. Teva may also incur additional customer penalties, impairments and litigation costs going forward.

~~Table of Contents~~

~~TEVA~~ PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~NOTE 15 – Legal settlements and loss contingencies:~~

~~In the second quarter of 2019, Teva recorded an expense of $646 million in legal~~

~~settlements and loss contingencies~~

, compared to $20 million in the second quarter of 2018. The expense in the second quarter of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made

~~for~~

~~certain other opioid cases.~~

~~the first six months of 2019~~

~~, Teva recorded~~

~~an expense of $703 million~~

~~in legal settlements and loss contingencies~~

~~, compared to income of $1,258 million in the first six months of 2018. The expense in the first six months of 2019~~

~~was mainly~~

~~related to the~~

~~$85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases~~

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses was ~~$1,149~~$1,539 million and ~~$562~~$1,580 million, respectively.

NOTE 1610 – 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. ~~Except as described below, Teva does not currently have a reasonable basis to estimate the loss, or range of loss, that is reasonably possible with respect to matters disclosed in this note.~~

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 that the Company has determined no longer meet the materiality threshold for disclosure.

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.

~~For income tax contingencies, see note 15 to Teva’s Annual Report on Form~~

~~10-K~~

~~for the year ended December 31, 2018.~~

Intellectual Property Litigation

From time to time, Teva seeks to develop generic versions of ~~patent-protected~~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.

30Teva 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).

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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.

Table of Contents

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 expiring in June 2015 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.~~interest

or a multiplier for willfulness. Following post-trial motions filed by the parties, on March 28, 2018, the district court issued an opinion overturning the jury verdict and instead found no induced infringement by Teva, thereby finding that Teva did not owe any damages; the district court also denied Teva’s motion seeking to overturn the jury verdict with respect to invalidity. ~~On May 25, 2018,~~The provision that was originally included in the financial statements following the damages verdict in this matter was reversed following the opinion overturning the verdict as the exposure was no longer considered probable. A hearing on an appeal filed by both parties ~~filed an appeal. A hearing is scheduled for~~was held on September 4, ~~2019.~~2019 and Teva awaits the Court’s decision. If the appeal of the district court’s decision is 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. ~~The provision that was included in the financial statements for this matter was reversed as the exposure is no longer considered probable.~~

In 2014, Teva Canada succeeded in its challenge of the bortezomib (the generic equivalent of Velcade

) product and mannitol ester patents under the Patented Medicines (Notice Of Compliance) Regulations (“~~PM(NOC)~~PM

(NOC)”). At the time of Teva’s launch in 2015, annual sales of Velcade were approximately 94 million Canadian dollars. Additionally, Teva commenced an action under Section 8 of ~~PM(NOC)~~PM

(NOC) to recover damages for being kept off of the market during the ~~PM(NOC)~~PM

(NOC) proceedings. Janssen and Millennium filed a counterclaim for infringement of the same two patents as well as a patent covering a process to prepare bortezomib. The product patent expired in October 2015; the other patents expire in January 2022 and March 2025. In 2017, Teva entered into an agreement with Janssen and Millennium which limits the damages payable by either party depending on the outcome of the infringement/impeachment action. As a result, the most Janssen and Millennium could recover is 200 million

Canadian dollars plus post-judgment interest. In June 2018, the court ruled that Janssen and Millennium pay Teva 5 million Canadian dollars in Section 8 damages. Janssen and Millennium filed an

appeal, which was denied by the appellate court on November 4, 2019. On January 3, 2020, Janssen and ~~oral argument in that~~

Millennium applied for leave to appeal ~~is scheduled for September~~

~~2019~~

.to the Canadian Supreme Court. If the decision is ultimately overturned, ~~on appeal,~~ Teva could owe the capped damages set forth above. In addition to the potential damages that could be awarded, Teva could be ordered to cease sales of its bortezomib product.

~~On July 8, 2011, Helsinn sued Teva over its filing of an ANDA to market a generic version of palonosetron IV solution (the generic equivalent of Aloxi~~

~~) and in November 2015, the~~

~~U.S.~~

~~District Court~~

~~for the District~~

of New Jersey ruled against Teva. Teva appealed this decision and, in May 2017, the Federal Circuit Court of Appeals reversed the district court’s ruling and found the asserted patents invalid. In January 2018, full appellate review of that decision was denied. Helsinn filed an appeal with the

~~U.S.~~

Supreme Court, which was granted. On January 22, 2019, the Supreme Court affirmed the appellate court’s decision finding the asserted patent invalid. Helsinn has no further opportunity to appeal this patent decision. Separately, in October 2014, Helsinn filed an additional claim on later-acquired patents. On January 30, 2018, the

~~district court~~

denied Helsinn’s request for a preliminary injunction based on these later acquired patents. Teva launched its generic palonosetron IV solution after obtaining final regulatory approval on March 23, 2018. If Teva ultimately loses the case on the later-acquired patents discussed above, Teva may be ordered to cease sales of its generic product and/or pay damages to Helsinn. Aloxi

~~annual U.S. sales as of November 2017 were $459~~

~~million.~~

~~In July 2015, Janssen sued Actavis and Teva (along with 10 other filers) over their filing of an ANDA to market their abiraterone acetate tablets, 250mg (generic versions of Zytiga~~

). In August 2017, Janssen sued Teva over its ANDA filing to market a 500mg generic version of Zytiga. In both cases, Janssen asserted a method of treatment patent. In January 2018, following a petition for

~~inter partes~~

review, the Patent Trials and Appeals Board (“PTAB”) found the patent to be invalid. In October 2018, the District Court for the District of New Jersey also found the patent to be invalid. Teva launched its generic 250mg product in November 2018. On May 14, 2019, the U.S. Court of Appeals affirmed that Janssen’s patent is invalid. That decision became final on June 20, 2019. Janssen may seek U.S. Supreme Court review of this decision. If Teva ultimately loses this case, Teva may be ordered by the court to cease sales of its generic product and/or pay damages to Janssen. Annual U.S. sales of Zytiga at the time of generic entry were about $

~~1.3~~

~~billion.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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.

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.

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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In June 2013, the

U.S.

Supreme Court held, in Federal Trade Commission 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.

InBeginning in April 2006, certain subsidiaries of Teva were named in a class action lawsuit filed in the U.S. District Court for the Eastern District of ~~Pennsylvania. The case alleges~~Pennsylvania with allegations that the settlement agreements entered into between Cephalon, Inc., now a Teva subsidiary (“Cephalon”), and various generic pharmaceutical companies in late 2005 and early 2006 to resolve patent litigation involving certain finished modafinil products (marketed as PROVIGIL

) were unlawful because they had the effect of excluding generic competition. The ~~case~~cases also ~~alleges~~allege that Cephalon improperly asserted its PROVIGIL patent against the generic pharmaceutical companies. The first lawsuit was filed by a purported class of direct purchasers. Similar complaints were also filed by a purported class of indirect purchasers, certain chain pharmacies and by Apotex, Inc. (collectively, these cases are referred to as the “Philadelphia Modafinil Action”). Separately, Apotex challenged Cephalon’s PROVIGIL patent and, in October 2011, the court found the patent to be invalid and unenforceable based on inequitable conduct. Teva has either settled or reached agreements in principle to settle with all ~~of the~~ plaintiffs in ~~the Philadelphia Modafinil Action. Additionally, Cephalon and Teva reached a settlement with 48 state attorneys general, which was approved~~such cases, except for an action brought by the ~~court on November 7, 2016, and on July 23, 2019, reached a~~State of Louisiana. The settlement with the State of California ~~which~~that was reached in 2019 is still pending final court approval. All settlements entered into in connection with the above proceeding are covered by the settlement fund explained below.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In May 2015,

, Cephalon entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed its claims against Cephalon in the FTC Modafinil Action in exchange for payment of $1.2 billion (less

set-offs

for

prior settlements) by Cephalon and Teva into a settlement fund. The settlement fund does not cover any judgments or settlements outside the United States. Under the ~~Modafi~~

lModafinil Consent Decree, Teva also agreed to certain injunctive relief with respect to the types of settlement agreements Teva may enter into to resolve patent litigation in the United States for a period of ten years. The remaining balance of the settlement fund after consideration of the settlement with the State of California noted above is approximately $19 million. In

February 2019,

, in connection with the settlement of other unrelated

FTC

~~ntitrust~~antitrust lawsuits, as described below, Teva and the FTC agreed to amend certain

non-financial

provisions of the Modafinil Consent Decree and to restart its

ten-year

term.

Additionally, following an investigation initiated by the European Commission in April 2011

~~reg~~

~~arding~~ regarding a modafinil patent settlement in Europe, the European Commission issued a Statement of Objections in July 2017 against both Cephalon and Teva alleging that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil. No final decision regarding ~~infringement~~liability has yet been taken by the European Commission. The sales of modafinil in the European Economic Area during the last full year of the alleged ~~infringement~~breach amounted to ~~EUR~~

€

46.5

million.

In January 2009, the FTC and the State of California filed a complaint for injunctive relief in California federal court alleging that a September 2006 patent lawsuit settlement between Watson Pharmaceuticals, Inc. (“Watson”), ~~now a~~from which Teva ~~subsidiary,~~later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”) relating to AndroGel

1% (testosterone gel) violated the antitrust laws. Additional lawsuits alleging similar claims were later filed by private plaintiffs (including plaintiffs purporting to represent classes of similarly situated claimants as well as retailer plaintiffs filing separately) and the various actions were consolidated in a multidistrict litigation in Georgia federal court. On July 16, 2018, the direct purchaser plaintiffs’ motion for class certification was denied. As a result, the three direct purchasers that had sought class certification can proceed as individual plaintiffs, but any other member of the proposed direct purchaser class will need to file a separate, individual lawsuit if it wishes to participate in the litigation. On February 22, 2019, the FTC stipulated to the dismissal of its claims against Watson, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. Teva also settled with most of the retailer plaintiffs in April 2019. ~~Trial on~~On July 16, 2018, the ~~remaining private~~direct purchaser plaintiffs’ motion for class certification was denied, and in December 2019, Teva reached a settlement agreement with the three direct purchasers that had sought class certification. Settlement amounts were paid in full. In addition, in August 2019, certain other direct-purchaser plaintiffs (who would have been members of the direct purchaser class, had it been certified) filed their own claims ~~has been scheduled to begin~~ in ~~February 2020.~~federal court in Philadelphia, challenging (in one complaint) both the September 2006 settlement between Watson and Solvay referenced above, as well as Teva’s December 2011 settlement with AbbVie involving AndroGel

and TriCor

, referenced below. Annual sales of AndroGel

1% were approximately

~~350~~

$350 million at the time of the settlement and approximately $

~~140~~

$140 million at the time Actavis launched its generic version of AndroGel

1% in November 2015. A provision for this case was included in the financial statements.

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. 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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 Lamictal

) entered 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. On March 18, 2019,~~certification, but on April 22, 2020, the ~~appeals court granted the defendants’ petition~~Third Circuit reversed that ruling and remanded for ~~immediate appellate review and the district court has stayed the litigation pending the outcome of the appeal.~~further class certification proceedings. 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~~ direct-purchaser

opt-out

plaintiffs filed complaints with allegations nearly identical to those of the direct ~~purchaser~~purchasers’ class and, in ~~December 2018, both~~August 2019, the district court certified the direct-purchaser class, ~~plaintiffs and indirect-purchaser class plaintiffs filed motions~~although the court has yet to rule on the indirect purchasers’ pending motion for class ~~certification, which remain pending.~~certification. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, which has since been amended, ~~in California state court,~~ 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 ~~Appeal~~Appeals subsequently reversed the decision and review of the Appellate Court decision is now pending before the California Supreme Court. Annual sales of Niaspan

were

~~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.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~In November~~Beginning in 2013, aseveral putative class ~~action was~~actions were filed ~~in Pennsylvania federal court~~ against Actavis, Inc. and certain of its affiliates, alleging that Watson’s 2012 patent lawsuit settlement with Endo Pharmaceuticals Inc. relating to Lidoderm

(lidocaine transdermal patches) violated the antitrust laws. Additional lawsuits containing similar allegations followed on behalf of other classes of putative direct purchaser and end-payer plaintiffs, as well as retailers acting in their individual capacities, and thoseThe cases were consolidated as a multidistrict litigation in federal court in ~~California. On February 21, 2017, the court granted both the indirect purchaser plaintiffs’~~California and ~~the direct purchaser plaintiffs’ motions for class certification. Teva~~were settled ~~the multidistrict litigation with the various plaintiff groups~~ in ~~the first quarter of 2018 and a provision was included in the financial statements.~~2018. The FTC also filed suit to challenge the Lidoderm

settlement, ~~initially bringing antitrust claims against Watson, Endo and Allergan~~although in Pennsylvania federal court in March 2016. The FTC later voluntarily dismissed those claims and refiled them (along with a stipulated order for permanent injunction to settle its claims against Endo) in the same California federal court in which the private multidistrict litigation referenced above was pending. On February 3, 2017, the State of California filed its own complaint against Allergan and Watson, and that complaint was also assigned to the California federal court presiding over the multidistrict litigation. On February 22, 2019, the FTC dismissed its claims against Actavis and Allergan, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. OnIn July ~~23,~~ 2019, Teva ~~and~~also settled a complaint brought by the State of ~~California reached a settlement agreement.~~California. On September 16, 2019,

end-payers

~~Since November 2013, numerous lawsuits have been~~Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan filed their own lawsuit against Watson, and other defendants, in ~~various federal courts by purported classes~~Michigan state court and that lawsuit remains pending. On January 24, 2020, the State of ~~end payers for, and direct purchasers of, Aggrenox~~

(dipyridamole/aspirin tablets) against Boehringer Ingelheim (“BI”), the innovator, and several Teva subsidiaries. The lawsuits allege, among other things, that the settlement agreement between BI and Barr entered into in August 2008 violated the antitrust laws. A multidistrict litigation has been established in the U.S. District Court for the District of Connecticut. On April 11, 2017, the Orange County District AttorneyMississippi filed a ~~complaint for violations of California’s Unfair Competition Law based on~~lawsuit against Teva and Watson in Mississippi state court, which the ~~Aggrenox~~

®defendants have moved to dismiss, which motion remains pending.

~~patent litigation settlement. Teva has settled with the putative classes of direct purchasers and end payers, as well as with the~~

~~opt-out~~

~~direct purchaser plaintiffs, and with two of the~~

~~opt-out~~

end payer plaintiffs. A provision with respect to the settlements was included in the financial statements. The district court overruled certain objections to the end payer settlement, including objections made by the Orange County District Attorney, and approved the settlement. The District Attorney subsequently appealed the court’s approval to the Second Circuit.

~~Opt-outs~~

~~from the end payer class have also appealed certain aspects of the court’s approval order to the U.S. Court of Appeals for the Second Circuit. Those appeals remain pending. Annual sales of Aggrenox~~

~~were approximately $340 million at the time of the settlement and approximately $455 million at the time Teva launched its authorized generic version of Aggrenox~~

~~in July 2015.~~

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~~

end-payers

for, and ~~direct purchasers~~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 payer~~

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. Defendants moved to dismiss~~decision, but on October 8, 2019, the district court dismissed, with prejudice, the direct purchasers’ ~~complaint,~~claims against the generic manufacturers (including Teva, Actavis, and ~~that motion remains pending.~~Watson). At the time of the 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.

In September 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”) as well as Teva in ~~the U.S. District Court for the Eastern District of Pennsylvania~~federal court in Philadelphia alleging that they violated the antitrust laws ~~when they entered~~by entering into a December 2011 settlement agreement to resolve the ~~AndroGel~~

patent litigation on AndroGel

and a supply agreement under which AbbVie agreed to supply Teva with an authorized generic version of TriCor

. ~~The FTC alleges that Teva agreed to delay the entry of its generic testosterone gel product in exchange for entering into the TriCor supply agreement.~~ In May 2015, the court dismissed the FTC’s claim concerning the settlement and supply agreements, and thus dismissed Teva from the case entirely. The FTC proceeded with a separate claim against AbbVie alone and, in June 2018, ~~following~~secured a ~~bench trial, the court held that AbbVie had violated the antitrust laws by filing sham patent infringement lawsuits~~$448 million judgement against ~~both Teva and Perrigo in the underlying AndroGel patent litigation.~~AbbVie. The ~~court ordered AbbVie to pay $448~~

~~million in disgorgement but declined to award injunctive relief. The~~ FTC then filed a notice of appeal, including as to ~~among other things,~~the claims against Teva that had been dismissed by the district ~~court’s May 2015 dismissal of the FTC’s claim against Teva,~~court, but in February 2019, the FTC stipulated to dismiss Teva from its appeal, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. In August 2019, two groups of direct-purchaser plaintiffs filed similar claims against AbbVie and Teva, in the same federal court in Philadelphia where the FTC’s claims had been pending. In December 2019, Teva reached a settlement agreement with one group of plaintiffs. The second group’s claims challenge both Teva’s December 2011 settlement with AbbVie and the September 2006 AndroGel

settlement between Watson and Solvay, referenced above. Those claims remain pending.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In May 2015, a purported class of end payers for Namenda IR

(memantine hydrochloride) filed a lawsuit against Forest Laboratories, LLC (“Forest”), the innovator, and several generic manufacturers, including Teva. ~~The~~In November 2019, two additional plaintiffs filed a similar lawsuit ~~alleges,~~– purportedly as

opt-outs

from the end payers’ class – against the same defendants. These lawsuits allege, among other things, that settlement agreements between Forest and the generic manufacturers to resolve patent litigation over Namenda IR

violated the antitrust laws. Annual sales of Namenda IR

at the time of the settlement were approximately $1.1 billion and approximately $550 million at the time other manufacturers first launched generic versions of Namenda IR

in July 2015.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In January 2019, generic manufacturer Cipla Limited filed a lawsuit against Amgen 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. In March 2019, Cipla Limited amended its complaint to name Teva as an additional defendant, and putative classes of direct-purchaser and

end-payer

plaintiffs have also filed antitrust lawsuits (which have since been consolidated in federal court in Delaware) against Amgen and Teva related to the January 2, 2019 settlement. Both Cipla Limited and the putative class plaintiffs seek damages and injunctive relief and the defendants moved to dismiss their claims on October 15, 2019. Those 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 ~~infringement~~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 December 18, 2017, the CMA issued a Statement of Draft Penalty Calculation. ~~No final decision regarding infringement of competition law has yet been issued.~~ On March 3, 2017 and February 28, 2019, the CMA issued a second ~~statement~~and third statements of objections in respect of certain additional allegations ~~(relating~~relating to the same products and covering part of the same time ~~period~~periods as in the first statement of ~~objections) against Actavis UK, Allergan and certain Auden Mckenzie entities.~~objections. On February ~~28, 2019,~~12, 2020, the CMA issued a ~~third~~supplementary statement of objections ~~with allegations of additional infringements relating to~~effectively combining the ~~supply of 10mg and 20mg hydrocortisone tablets in the U.K against certain Auden Mckenzie entities and others.~~three previously issued statements referenced above. On January 9, 2017,

, Teva completed the sale of Actavis UK to Accord Healthcare Limited, ~~pursuant to~~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

~~2017~~

16, 2016 and March

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 ~~pursuant to the agreement the parties entered into on January~~

~~2018~~

~~. See note~~

~~. In~~in the event of any such fines or ~~damages, Teva expects to assert claims, including claims for breach of warranty, against the sellers of Auden Mckenzie. The terms of the purchase agreement may preclude a full recovery by Teva.~~damages. A liability for this matter has been recorded in ~~purchase accounting related to~~ the ~~acquisition of Actavis Generics.~~financial statements.

Since November 2016, several putative indirect purchaser and direct purchaser class actions were filed in federal courts in Wisconsin, Massachusetts and Florida against Shire U.S., Inc. and Shire LLC (collectively, “Shire”), Actavis and Teva, alleging that Shire’s 2013 patent litigation settlement with Actavis related to the ADHD drug Intuniv

~~(guanfacine) violated various state consumer protection and antitrust laws. All cases are now in Massachusetts federal court. Annual sales of Intuniv~~

~~were approximately~~

~~335~~

~~million at the time of the settlement and approximately $~~

~~327~~

~~million at the time Actavis launched its generic version of Intuniv~~

~~in 2014.~~

), violated the antitrust laws. In March 2019, Cipla Limited amended its complaint to name Teva as an additional defendant, and putative classes of direct-purchaser and end-payer plaintiffs have also filed antitrust lawsuits in U.S. federal district court against Amgen and Teva related to the January 2, 2019 settlement. Both Cipla Limited and the putative class plaintiffs seek damages and injunctive relief. 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.~~

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. ~~Many of these investigations originate through what are known as~~

~~qui tam~~

~~complaints, in which~~In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the ~~government reviews~~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. In May 2018, Teva received a ~~complaint filed under seal by a whistleblower (a “relator”) that alleges violations of~~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. ~~The government considers whether to investigate~~Teva is cooperating with these subpoena requests.

In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the ~~allegations and will, in many cases, issue subpoenas requesting~~Connecticut Attorney General seeking documents and other information ~~including conducting witness interviews. The government must decide whether~~relating to ~~intervene and pursue the claims as the plaintiff. Once~~potential state antitrust law violations. Subsequently, on December 15, 2016, a ~~decision is made~~civil action was brought by the ~~government,~~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 ~~is unsealed. If~~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 ~~government decides~~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 ~~intervene, then~~additional generic products. On November 1, 2019, the ~~relator may decide to pursue the lawsuit on his own without the active participation of the government.~~

~~A number of~~ state attorneys general ~~have~~ filed ~~various actions against Teva and/or certain~~an amended complaint, bringing the total number of ~~its subsidiaries relating to reimbursements or drug price reporting under Medicaid or other programs. Such price reporting is alleged to have caused~~plaintiff states and ~~others~~territories to ~~pay inflated reimbursements for covered drugs.~~54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and ~~its subsidiaries have reached settlements in most of these cases. On October 4, 2018, Teva settled longstanding litigation filed by the State of Illinois against subsidiaries of Teva~~others fixed prices, rigged bids, and ~~Watson for a total settlement amount of $135 million, the majority of which was paid in December 2018. Teva accepted the settlement while denying any liability~~allocated customers and market share with respect to ~~the claims made by the state. Pending the final settlement payment, the Illinois litigation is stayed. In August 2013, judgment was entered in a separate case brought by the State~~certain additional products, many of ~~Mississippi against Watson, pursuant to~~ which ~~Watson was ordered to pay compensatory damages amounting to $12.4 million. In March 2014, the Mississippi court amended the judgment to also include punitive damages~~were not previously at issue in the ~~amount~~Pennsylvania MDL. 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 ~~$17.9 million. The judgment was affirmed in all respects by the Mississippi Supreme Court in January 2018~~various state and has since been satisfied in full. Certain Actavis subsidiaries were dismissed by the trial court in an action brought by the State of Utah. That dismissal was affirmed by the Utah Court of Appeals on February 28, 2019. The State’s time to seek further appellate review has expiredgovernmental entities and ~~the matter is now concluded. A provision for these cases was included in the financial statements.~~

~~Several~~

~~qui tam~~

consumers, civil penalties and costs. All such complaints have been ~~unsealed in recent years as a result of government decisions not~~transferred to ~~participate~~the generic drug multidistrict litigation in the ~~cases. The following is a summary~~Eastern District of ~~certain government investigations,~~

~~qui tam~~

~~actions and related matters.~~Pennsylvania (“Pennsylvania MDL”).

Beginning on March 2, 2016, 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 April 6, 2017, these cases were transferred to the Pennsylvania MDL. Additional cases were transferred to that court and the

352

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~In January 2014, Teva received~~plaintiffs filed consolidated amended complaints on August 15, 2017. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, 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, certain individual plaintiffs commenced a civil ~~investigative demand from~~action in the ~~U.S. Attorney~~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 and the case has been placed in deferred status. On November 13, 2019, several counties in New York commenced a civil action against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaint has been transferred to the Pennsylvania MDL. 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 ~~New York seeking~~Texas. This complaint largely mirrors certain allegations in the complaints in the Pennsylvania MDL. This case has not been transferred to the Pennsylvania MDL.

On March 21, 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents ~~and information from January 1, 2006~~ related to ~~sales, marketing~~Teva’s donations to patient assistance programs. Teva is cooperating in responding to the subpoena.

In December 2016, Teva resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”) with the SEC and ~~promotion~~the DOJ. The settlement included a fine, disgorgement and prejudgment interest, a three-year deferred prosecution agreement (“DPA”) for Teva and the retention of ~~COPAXONE~~

~~and AZILECT~~

~~, focusing on educational and speaker programs. The demand states that~~an independent compliance monitor for a period of three years. In February 2020 the ~~government is investigating possible civil violations~~term of the ~~federal False Claims Act. In March 2015, the docket in this matter and a False Claims Act civil~~

~~qui tam~~

~~complaint concerning this matter were unsealed~~monitorship provided for by the ~~court after~~DPA and Teva’s consent judgement with the ~~government declined~~SEC expired and on March 4, 2020, following Teva’s certification to ~~intervene. In February 2016,~~ the ~~court denied Teva’s motions~~SEC and the DOJ confirming that Teva had complied with its disclosure obligations under the DPA, the DOJ filed a motion to dismiss the ~~False Claims Act claims and instructed~~information filed against Teva at the ~~relators to amend their complaint with additional information. In March 2016,~~time the ~~relators filed an amended complaint. Teva’s motion for summary judgment on all claims~~DPA was ~~denied on February 27, 2019. Trial is scheduled to commence on August 19, 2019 and a provision was included in the financial statements.~~

entered into.

~~In January 2014, a~~

~~qui tam~~

~~complaint was filed in Rhode Island federal court alleging that Teva and several other defendants, including manufacturers of MS drugs and pharmacy benefit managers, violated the False Claims Act. The~~

~~qui tam~~

action was unsealed on April 4, 2018 after the government declined to intervene. The relator alleges that Teva and the other defendants induced fraudulent overpayments for illegitimate “Bona Fide Service Fees” in excess of fair market value to inflate prices for the Medicare Part D program. Teva moved to dismiss the complaint. The DOJ also moved to dismiss the complaint, arguing that it lacked merit and was not in the government’s interest to continue. Both motions are pending.Opioids Litigation

~~In May 2017, a~~

~~qui tam~~

~~action was filed against a number of Teva subsidiaries. The~~

~~qui tam~~

action was unsealed on June 13, 2018 after the government declined to intervene. The relator in the case alleges that Teva violated the False Claims Act by devising and engaging in promotional schemes that violate the Anti-Kickback Statute (“AKS”), resulting in false certifications of compliance with the AKS. Specifically, the relator alleges that Teva paid in-kind remuneration to physicians through reimbursement support and nursing services in order to increase the number of COPAXONE prescriptions. An amended complaint was filed on October 15, 2018. Teva and the DOJ moved to dismiss the case. These motions are pending.

Since May 2014, ~~approximately 2,000~~more than 2,900 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. 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, personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death claims. Furthermore, approximately ~~350~~600 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. In many of these cases, plaintiffs are seeking joint and several damages among all defendants. 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. On October 5, 2018, the magistrate judge in the MDL Opioid Proceeding issued a Report & Recommendation rejecting the first motion to dismiss, except for the common law public nuisance claim, which was dismissed. On December 19, 2018, the District Court overruled defendants’ objections to the Report & Recommendation. On April 1, 2019, the magistrate judge in the MDL Opioid Proceeding issued two Report & Recommendations in which he recommended that the court grant in part and deny in part pending motions to dismiss of the manufacturer, distributor, pharmacy, and generic manufacturing defendants. Specifically, the magistrate judge recommended that The Muscogee (Creek) Nation’s Lanham Act claim be dismissed as to all defendants, and that its claims against the generic manufacturers are partially preempted; he recommended that the motions to dismiss be denied as to the remaining claims. The magistrate judge also recommended that the Blackfeet Tribe of the Blackfeet Indian Reservation’s federal common law public nuisance and Montana Unfair Trade Practices and Consumer Protection Act claims be dismissed, and that its claims against the generic manufacturers are partially preempted; he recommended that the motions to dismiss be denied as to the remaining claims. On June 13, 2019, the District Court adopted the two Report & Recommendations in all respects except those regarding the plaintiffs’ negligence per se claims, for which the District Court overruled the Report & Recommendation and held that Plaintiffs cannot state a claim for negligence per se pursuant to the statutes that the plaintiffs identified. Motions to dismiss in additional similar cases remain pending. Discovery in the MDL Opioid Proceeding for the first track of cases is closed and motions for summary judgment were filed in June 2019. Trial is scheduled for October 2019. Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas and Utah, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Trials

Absent resolutions, trials are expected to proceed in several states in 2020 and 2021. A court in New York had set a date, for a liability trial only, to start in March 2020. However, that trial has been postponed due to the impact of

COVID-19.

A new trial date has not been set. It is also anticipated that a court in California may reset a trial date, most recently scheduled for June 2020, to the second half of 2020. It is difficult to predict when or if trials will occur in 2020 given the current impact of

COVID-19

on the United States and the U.S. judicial system.

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. Management believes that the Oklahoma settlement amount is not likely indicative of the settlement of the other opioid-related litigation due to a variety of distinguishing factors. There is a wide range of potential outcomes given the state governments, subdivisions and other private party suits have made claims for large recoveries, the breadth of the litigation, novel legal theories and numerous defenses raised versus Teva’s willingness to potentially settle for a small fraction of such claimed amounts. 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.~~provision in the second quarter of 2019. Given the relatively early ~~status~~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 4 payments over three years.

Table of Contents

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 framework. The framework is 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 agreement, Teva would provide buprenorphine naloxone (sublingual tablets) with an estimated value of up to approximately $23 billion at wholesale acquisition cost over

ten year period. In addition, Teva would also provide cash payments of up to $250 million over a ten year period. The Company cannot predict if the nationwide settlement framework will be finalized

Following these developments, the Company considered a range of potential settlement outcomes. No single outcome in the range was considered to be more likely than any other outcome; accordingly, in the third quarter of 2019, Teva accrued to the new low end of the range, resulting in an increase in Teva’s previously recorded estimated liability. There was no change in this estimate in the first quarter of 2020.

Separately, on April 27, 2018, Teva received subpoena requests from the ~~DOJ~~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. The Company is ~~complying~~cooperating with ~~this subpoena.~~NYDFS’s inquiry and producing documents in response to the various subpoenas and requests for information. Currently, Teva cannot predict how the nationwide settlement framework agreement (if finalized) will affect these investigations. In addition, a number

~~Table~~ of ~~Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 ~~the~~their outcome at this time.

In addition, several jurisdictions in Canada have initiated litigation regarding opioids alleging similar claims as those in the United States. The cases in Canada are likely to be consolidated and are in their early stages.

~~On June 21~~

~~2016~~

, Teva USA received a subpoena from the 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. Actavis received a similar subpoena in

~~June 2015~~

~~. Teva and Actavis are cooperating with the DOJ subpoena requests. On July~~

~~2016~~

~~, Teva USA received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. In~~

~~2015, Actavis received a similar subpoena from the Connecticut Attorney General.~~

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 same attorneys general filed yet another antitrust complaint against Actavis and Teva, plus other companies and individuals, alleging price-fixing and market allocation as concerns additional generic products. The 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, many of which were not previously at issue in the Pennsylvania MDL. 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”).

~~Beginning on March~~

~~2016~~

, 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 purchaser

~~opt-out~~

~~plaintiffs. These complaints, whi~~

ch 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 April

~~2017~~

~~, these cases were transferred to the Pennsylvania MDL. Additional cases were transferred to that court and the plaintiffs filed consolidated amended complaints on August~~

~~2017~~

~~. On October~~

~~2018~~

~~, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, and on February~~

~~2019~~

, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims. Teva and Actavis deny having engaged in any conduct that would give rise to liability with respect to the above-mentioned complaints.

~~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~~

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. Teva is cooperating with this subpoena.

~~On March~~

21, 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. Teva is cooperating in responding to the subpoena.

In December 2016, Teva resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”) with the SEC and the DOJ. The settlement included a fine, disgorgement and prejudgment interest; a three-year deferred prosecution agreement (“DPA”) for Teva and the retention of an independent compliance monitor for a period of three years. If, during the term of the DPA (approximately three years unless extended), the DOJ determines that Teva has committed a felony under federal law, provided deliberately false or misleading information or otherwise breached the DPA, Teva could be subject to prosecution and additional fines or penalties, including the deferred charges. Following the above resolution with the SEC and DOJ, Teva has had requests for documents and information from various Russian government entities. In addition, on January 14, 2018, Teva entered into an arrangement for the Contingent Cessation of Proceedings pursuant to the Israeli Securities Law with the Government of Israel that ended the investigation of the Israeli government into the conduct that was subject to the FCPA investigation, and provided a payment of approximately $22 million.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 C

~~alifornia~~California against Teva and certain of its current and former officers and directors. ~~After those two~~Those lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut ~~the court appointed the Ontario Teachers’ Pension Plan Board as lead plaintiff~~ (the “Ontario Teachers Securities Litigation”). ~~The~~On December 13, 2019, the lead plaintiff ~~then~~in that action filed ~~a consolidated~~an amended ~~complaint. On April~~

~~2018~~

~~, the court dismissed the case without prejudice.~~

~~The lead~~

~~plaintiff filed a second amended~~ complaint, ~~on June~~

~~2018~~

, purportedly on behalf of purchasers of Teva’s securities between February

2014

and ~~August~~

~~2017~~

.May 10, 2019. The ~~second~~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 issued during the class period.~~materials. The ~~second~~amended complaint ~~seeks unspecified damages, legal fees, interest,~~

~~and costs. Teva and the current and former officer and director defendants filed motions to dismiss the second complaint on September~~

~~2018. Those motions are pending before the court.~~

~~On July 17~~

~~2017~~

, a lawsuit was filed in the U.S. District Court for the Southern District of Ohio derivatively on behalf of the Teva Employee Stock Purchase Plan, and alternatively as a putative class action lawsuit on behalf of individuals who purchased Teva stock through that plan. That lawsuit seeks unspecified damages, legal fees, interest, and costs.

~~The complaint alleges that Teva failed to maintain adequate financial controls~~ In July 2017, August 2017, and June 2019, other putative securities class actions were filed in other federal courts based on ~~the facts underpinning Teva’s FCPA DPA~~similar allegations, and ~~also based on allegations substantially similar to~~ those ~~in the Ontario Teachers Securities Litigation. On November~~

~~2017~~

~~, the court granted Teva’s motion to transfer the litigation~~cases have been transferred to the U.S. District Court for the District of ~~Connecticut where the Ontario Teachers Securities Litigation is pending. On February~~

~~2018, the district court stayed the case pending resolution of the motions to dismiss~~Connecticut. Between August 2017 and January 2020, eighteen complaints were filed ~~in the Ontario Teachers Securities Litigation described above.~~

~~On August 3~~

~~2017~~

~~, a lawsuit was filed in the U.S. District Court for the District of Connecticut by OZ ELS Master Fund, Ltd. and related entities. The complaint asserts that~~against Teva and certain of its current and former officers ~~violated the federal securities laws in connection with Teva’s alleged failure to disclose Teva’s participation in an alleged anticompetitive scheme to fix prices~~ and ~~allocate markets for generic drugs in the United States. On August~~

~~2017~~

~~, the court entered an order deferring all deadlines pending the resolution of the motions to dismiss filed in the Ontario Teachers Securities Litigation described above.~~

~~On August~~

~~and~~

~~2017~~

, Elliot Grodko and Barry Baker filed putative securities class actions in the U.S. District Court for the Eastern District of Pennsylvania purportedly on behalf of purchasers of Teva’s securities between November

~~2016~~

~~and August~~

~~2017~~

seeking unspecified damages, legal fees, interest, and costs. The complaints allege that Teva and certain of its current and former officers violated the federal securities laws and Israeli securities laws by making false and misleading statements in connection with Teva’s acquisition and integration of Actavis Generics. On November

~~2017~~

~~, the court consolidated the Baker and Grodko cases. On April~~

~~2018~~

~~, the court granted Teva’s motion to transfer the consolidated action to the District of Connecticut where the Ontario Teachers Securities Litigation is currently pending.~~

~~Between August 2018 and June 2019, fourteen complaints were filed against Teva and current and former officer and director defendants~~directors seeking unspecified compensatory ~~and rescissory~~ damages, legal fees, costs and expenses. The ~~allegations~~similar claims in these complaints ~~are substantially similar to the allegations in the Ontario Teachers Securities Litigation, but~~ have been brought on behalf of plaintiffs, in various forums across the country, who have indicated that ~~have “opted out”~~ they intend to

“opt-out”

of the ~~putative~~plaintiffs’ class if one is certified in the Ontario Teachers Securities Litigation. ~~The plaintiffs in these “opt-out” cases filed their complaints in~~On March 10, 2020, the Court of Common Pleas of Montgomery County, Pennsylvania, the U.S. District Court for the Eastern District of Pennsylvania and the U.S. District Court for the District of Connecticut. Teva and the current and former officer and director defendants filed or will file motions or stipulations to transfer the cases filed in Pennsylvania to the U.S. District Court for the District of Connecticut, whereconsolidated the Ontario Teachers Securities Litigation ~~is pending. The cases filed in, or transferred to, Connecticut have been or will request to be stayed pending resolution~~with all of the ~~motions to dismiss filed~~above-referenced putative class actions for all purposes and the

“opt-out”

cases for pretrial purposes. The case is now in the Ontario Teachers Securities Litigation described above. On June 21, 2019, the Employees’ Retirement System of the City of St. Petersburg, Florida filed a putative securities class action in the U.S. District Court for the Eastern District of Pennsylvania purportedly on behalf of purchasers of Teva’s securities between August 4, 2017 and May 10, 2019 seeking unspecified damages, legal fees, interest, and costs. The complaint alleges similar claims to the Ontario Teachers Securities Litigation described above.discovery.

Motions to approve derivative actions against certain past and present directors and

officers

have been filed in Israel alleging negligence and recklessness with respect to the acquisition of the Rimsa business and the acquisition of Actavis Generics. Motions for document disclosure prior to initiating derivative actions were filed with respect to ~~executive compensation,~~ several ~~patent~~ settlement agreements, opioids and the U.S. price-fixing investigations. Motions to approve securities class actions against Teva and certain of its current and former directors and officers were filed in Israel based on allegations of improper disclosure of the above-mentioned pricing investigation, as well as lack of disclosure of negative developments in the generic sector, including price erosion with respect to Teva’s products. ~~Other~~Various motions were filed in Israel to approve a derivative action, discovery and a class action related to claims regarding Teva’s above-mentioned FCPA resolution with the SEC and DOJ.

The parties have reached an agreement in principle to settle these proceedings and the settlement was approved by the Tel Aviv District Court on April 6, 2020.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

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.

NOTE 11 – Income taxes:

In the first quarter of 2020, Teva recognized a tax benefit of $59 million, on

pre-tax

loss of $33 million. In the first quarter of 2019, Teva recognized a tax expense of $9 million, on

pre-tax

loss of $84 million. Teva’s tax rate for the first quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate

on its ongoing business operations.

The statutory Israeli corporate tax rate is 23% in 2020. 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 nonrecurring 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

July 2020

. A final and binding decision against Teva in this case may lead to an impairment in the amount of $136 million.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 12 – Other assets impairments, restructuring and other items:


	Three months ended
	March 31,
	2020		2019
	(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	75	$	20
Contingent consideration		6		(71	)
Restructuring		39		32
Other		—		20

Total	$	121	$	1

(1)	Including impairments related to exit and disposal activities.

Impairme

nts

Impairments of tangible assets for the first three months of 2020

and 2019

were

$75 million and $20 million, respectively.

The impairments in the first three months of 2020

are mainly related to plant rationalization.

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 plant rationalization plan.

Contingent consideration

In the three months ended March 31, 2020, Teva recorded an expense

million for contingent consideration, compared to an income of

$71

million

in the three months ended March 31, 2019. The income in the first quarter of 2019 was mainly related to a decrease in royalty payments expected in connection with lenalidomide (generic equivalent of Revlimid

) which was part of the Actavis Generics acquisition.

Restructuring

In the three months ended March 31, 2020, Teva

recorded $

million of restructuring expenses, compared

to $

million

in the three months ended March 31, 2019. The expenses in the first quarter of 2020 were primarily related to 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,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	33	$	20
Other		6		12

Total	$	39	$	32

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, 2020	$	(208	)	$	(7	)	$	(215	)
Provision		(33	)		(6	)		(39	)
Utilization and other*		69			6			75
Balance as of March 3 1 , 2020	$	(172	)	$	(7	)	$	(179	)

*	Includes adjustments for foreign currency translation.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Significant regulatory 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

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 that the site continues to be classified as OAI

. If Teva is unable to remediate the findings to the FDA’s satisfaction, it may face additional consequences. These would potentially include 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

$230

million in revenues

from this site in 2020, 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 found in valsartan API supplied to Teva by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with regulatory agency requests around the world 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. The aggregate direct impact of the sartan recalls on Teva’s 2018 and 2019 financial statements was

$54 million,

primarily related to inventory write-downs and returns. As a result of this loss, Teva initiated negotiations with Huahai and in December 2019, Teva reached a settlement with Huahai resolving its claims related to certain sartan API supplied by Huahai to Teva. Under the settlement agreement, Huahai agreed to compensate Teva for some of the direct losses suffered by Teva and provide Teva 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. Teva expects additional expenses and loss of revenues and profits in connection with this matter going forward.

NOTE 1713 – Earnings (Loss) per share:

In computing diluted earnings per share for the three months ended 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, using the treasury stock method. No account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on earnings per share.

In computing diluted loss per share for the three months ended March 31, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and

non-vested

RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Basic and diluted earnings per share were $0.06 in the first quarter of 2020, compared to basic and diluted loss per share of $0.10 in the first quarter of 2019.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 14 – Accumulated other comprehensive loss:

The components of, and changes within, accumulated other comprehensive losses attributable to Teva are presented in the table below:


	Net Unrealized Gains (Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)
Balance as of December 31, 2019	$	(1,794	)	$	—	$	(420	)	$	(98	)	$	(2,312	)

Other comprehensive income (loss) before reclassifications		(570	)		—		22			—			(548	)
Amounts reclassified to the statements of income		—			—		8			—			8

Net other comprehensive income (loss) before tax		(570	)		—		30			—			(540	)

Net other comprehensive income (loss) after tax*		(570	)		—		30			—			(540	)

Balance as of March 31, 2020	$	(2,364	)	$	—	$	(390	)	$	(98	)	$	(2,852	)

*	Amounts do not include a $10 million loss from foreign currency translation adjustments attributable to non-controlling interests.


	Net Unrealized Gains (Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)

Balance as of December 31, 2018	$	(1,878	)	$	1	$	(504	)	$	(78	)	$	(2,459	)

Other comprehensive income (loss) before reclassifications		53					40			—			93
Amounts reclassified to the statements of income		—			—		7			—			7

Net other comprehensive income (loss) before tax		53			—		47			—			100

Net other comprehensive income (loss) after tax*		53			—		47						100

Balance as of March 31, 2019	$	(1,825	)	$	1	$	(457	)	$	(78	)	$	(2,359	)

*	Amounts do not include a $6 million loss from foreign currency translation adjustments attributable to non-controlling interests.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

~~The Company began reporting its financial results under this structure in the first quarter of 2018. This change was reflected through retroactive revision of prior period segment information.~~

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.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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.~~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 7.

Segment information:


	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	)

Segment profit	$	550		$	502		$	156


	Three months ended March 31,
	2019
	North America			Europe			International Markets *
	(U.S. $ in millions)
Revenues	$	2,047		$	1,264		$	521
Gross profit		1,039			730			269
R&D expenses		165			66			22
S&M expenses		268			215			115
G&A expenses		112			48			36
Other (income) expense		(4	)		(1	)		—

Segment profit	$	498		$	403		$	97

*	The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c for additional information.

~~a. Segment information:~~

Three months ended June 30, 2019

North America

Europe

International Markets

(U.S. $ in millions)

Revenues
$
2,071
$
1,183
$
741

Gross profit

1,067

674

312

R&D expenses

175

70

24

S&M expenses

269

216

119

G&A expenses

117

70

34

Other (income) expense
2

1

(1
)

Segment profit
$
504
$
316
$
136

Three months ended June 30, 2018

North America

Europe

International Markets

(U.S. $ in millions)

Revenues
$
2,263
$
1,328
$
789

Gross profit

1,179

727

328

R&D expenses

182

73

25

S&M expenses

272

233

130

G&A expenses

103

78

37

Other (income)
expense

(100
)
(3
)
(3
)

Segment profit
$ 722 $
346
$ 139

Six months ended June 30,
2
019

North America

Europe

International Markets

(U.S. $ in millions)

Revenues $ 4,118 $ 2,448 $ 1,409
Gross profit 2,107 1,404 582
R&D expenses 340 136 46
S&M expenses 537 431 234
G&A expenses 230 119 70
Other (income) expense (2 ) (1 ) (1 )

Segment profit $ 1,001 $ 719 $ 233

Six months ended June 30,
2018

North America

Europe

International Markets

(U.S. $ in millions)

Revenues $ 4,794 $ 2,770 $ 1,539
Gross profit 2,582 1,519 641
R&D expenses 370 146 49
S&M expenses 548 483 264
G&A expenses 229 169 78
Other (income) expense (202 ) (2 ) (11 )

Segment profit $ 1,637 $ 723 $ 261

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended March 31, 2020 and 2019:


	Three months ended March 31,
	2020			2019
	(U.S. $ in millions)
North America profit	$	550		$	498
Europe profit		502			403
International Markets profit		156			97

Total reportable segments profit		1,208			998
Profit of other activities		36			21

Total segments profit		1,244			1,019
Amounts not allocated to segments:
Amortization		258			283
Other assets impairments, restructuring and other items		121			1
Intangible asset impairments		649			469
Legal settlements and loss contingencies		(25	)		57
Other unallocated amounts		49			75
Consolidated operating income (loss)		191			134
Financial expenses, net		224			218
Consolidated income (loss) before income taxes	$	(33	)	$	(84	)

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three months ended March 31, 2020 and 2019:


North America	Three months ended March 31,
	2020		2019
	(U.S. $ in millions)
Generic products	$	952	$	966
AJOVY		29		20
AUSTEDO		122		74
BENDEKA/TREANDA		105		122
COPAXONE		198		208
ProAir*		59		59
QVAR		45		64
Anda		426		379
Other		146		155

Total	$	2,082	$	2,047

*	Does not include revenues from the ProAir authorized generic, which are included under generic products.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

(U.S. $ in millions)

(U.S. $ in millions)

North America profit $ 504 $ 722 $ 1,001 $ 1,637
Europe profit 316 346 719 723
International Markets profit 136 139 233 261

Total segment profit 956 1,207 1,954 2,621
Profit of other activities 55 31 76 52

1,011 1,238 2,029 2,673
Amounts not allocated to segments:
Amortization 285 302 568 612
Other assets impairments, restructuring and other items 101 194 103 695
Goodwill impairment — 120 — 300
Intangible asset impairments 561 521 1,030 727
(Gain) loss on divestitures, net of divestitures related costs (9 ) 10 (9 ) (83 )
Other R&D expenses § — § 22
Costs related to regulatory actions taken in facilities 12 4 16 5
Legal settlements and loss contingencies 646 20 703 (1,258 )
Other unallocated amounts 59 81 129 142

Consolidated operating income (loss) (644 ) (14 ) (510 ) 1,511

Financial expenses, net 206 236 425 507

Consolidated income (loss) before income taxes
$
(850
)

$
(250
)

$
(934
)

$
1,004


Europe	Three months ended March 31,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,032	$	919
COPAXONE		109		114
Respiratory products		106		91
AJOVY		4		—
Other		151		140

Total	$	1,402	$	1,264

§	~~Represents an amount less than $1 million.~~

~~b. Segment revenues by major products and activities:~~

~~The following tables present revenues by major products and activities for the three months~~

~~and the six months ended June 30, 20~~

~~19 and 2018:~~

Three months ended
June 30,

2019

2018

(U.S. $ in millions)

North America

Generic products $ 946 $ 947
COPAXONE 274 464
TREANDA/BENDEKA 115 160
ProAir* 65 115
QVAR 60 30
AJOVY 23 —
AUSTEDO 96 44
Anda 351 320
Other 141 183
Total $ 2,071 $ 2,263

International markets *	Three months ended March 31,
	2020		2019
	(U.S. $ in millions)
Generic products	$	449	$	441
COPAXONE		12		13
Other		104		67

Total	$	565	$	521

~~Does not include~~The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales ~~of ProAir authorized generic, which are included under generics.~~in the consolidated financial statements. See note 1c for additional information.

Six months ended

June 30,

2019

2018

(U.S. $ in millions)

North America

Generic prod
uct
s

$
1,913

$
2,035

COPAXONE

482

940

TREANDA/BENDEKA

229

341

ProAir*

123

245

QVAR

124

137

AJOVY

43

—

AUSTEDO

171

74

Anda

729

651

Other

305

372

Total

$
4,118

$
4,794

*	~~Does not include sales of ProAir authorized generic, which are included under generics.~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated ~~Financial~~Financial Statements

(Unaudited)

Three months ended
June 30,

2019

2018

(U.S. $ in millions)

Europe

Generic products

$
844

$
907

COPAXONE

107

140

Respiratory products

89

106

Other

143

175

Total

$
1,183

$
1,328

Six months ended
June 30,

2019

2018

(U.S. $ in millions)

Europe

Generic products
$
1,763
$
1,904

COPAXONE

221

293

Respiratory products

181

219

Other 283 354
Total $ 2,448 $ 2,770

Three months ended
June 30,

2019

2018

(U.S. $ in millions)

International markets

Generic products
$
489
$
537

COPAXONE

13

22

Distribution

164

154

Other

75

76

Total
$
741
$
789

Six months ended
June 30,

2019

2018

(U.S. $ in millions)

International markets

Generic products
$
930
$
1,025

COPAXONE

27

38

Distribution

315

307

Other

137

168

Total
$
1,409
$
1,539

NOTE 16 – Fair value measurement:

A significant portion of Teva’s revenues, and a higher proportion of the profits, come from the manufacture and sale of patent-protected pharmaceuticals. Many of Teva’s specialty medicines are covered by several patents that expire at different times. Nevertheless, once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, Teva no longer has patent exclusivity on these products, and subject to regulatory approval, generic pharmaceutical manufacturers are able to produce and market similar (or purportedly similar) products and sell them for a lower price. The launch of generic competition, even in the form of non-equivalent products, can result in a substantial decrease in revenues for a particular specialty medicine in a very short time. Any expiration or loss of such intellectual property rights could therefore significantly adversely affect Teva’s results of operations and financial condition.

~~NOTE 18 – Other income:~~Financial items carried at fair value as of March 31, 2020 and December 31, 2019 are classified in the tables below in one of the three categories of fair value levels:

Three months ended June 30,
Six months ended June 30,

2019

2018
2019 2018

(U.S. $ in millions)
(U.S. $ in millions)
Gain (loss) on divestitures, net of divestitures related costs (1)
$
9

(10
) $ 9 83
Section 8 and similar payments (2)

—

95
— 194
Gain (loss) on sale of assets

(5
)
1
(4 ) 9
Other, net

5

10
11 13

Total other income
$
9
$
96
$ 15 $ 299


	March 31, 2020
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	260	$	—		$	—		$	260
Cash, deposits and other		1,544		—			—			1,544
Investment in securities:
Equity securities		31		—			—			31
Other, mainly debt securities		2		—			12			14
Derivatives:
Asset derivatives—options and forward contracts		—		104			—			104
Liability derivatives—options and forward contracts		—		(94	)		—			(94	)
Contingent consideration*		—		—			(435	)		(435	)

Total	$	1,837	$	10		$	(423	)	$	1,424


	December 31, 2019
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	577	$	—		$	—		$	577
Cash, deposits and other		1,398		—			—			1,398
Investment in securities:
Equity securities		42		—			—			42
Other, mainly debt securities		2		—			12			14
Derivatives:
Asset derivatives—options and forward contracts		—		32			—			32
Liability derivatives—options and forward contracts		—		(41	)		—			(41	)
Liability derivatives—interest rate and cross-currency swaps		—		(22	)		—			(22	)
Contingent consideration*		—		—			(460	)		(460	)

Total	$	2,019	$	(31	)	$	(448	)	$	1,540

~~(1)~~*

~~Mainly related to the divestment of the women’s health business and the dissolution of PGT~~Contingent consideration represents liabilities recorded at fair value in ~~2018.~~connection with acquisitions.

A probability of success factor ranging from 80% to 100% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from 8% to 9

%. The weighted average discount rate, calculated based on the relative fair value of our contingent consideration obligations, was 8.6%.

The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in earnings.

Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liability.

The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended March 31, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(448	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(5	)
Eagle transaction		(1	)
Settlement of contingent consideration:
Eagle transaction		31

Fair value at the end of the period	$	(423	)

Financial instruments not measured at fair value

Financial instruments measured on a basis other than fair value mostly consist of senior notes and convertible senior debentures and are presented in the table below in terms of fair value (level 1 inputs):


	Fair value*
	March 31,		December 31,
	2020		2019
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	21,960	$	22,686
Senior notes and convertible senior debentures included under short-term debt		1,583		2,318

Total	$	23,543	$	25,004

~~(2)~~*

~~Section 8 of the Patented Medicines (Notice of Compliance) Regulation relates to recoveries of lost revenue related to patent infringement proceedings in Canada.~~Based on quoted market price. See note 7 for carrying value.

Table of Contents

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~NOTE 19 – Income taxes:~~

~~In the second quarter of~~

~~2019~~

~~, Teva recognized a tax benefit of $179 million, or 21%, on~~

~~pre-tax~~

~~loss of $850 million. In the second quarter of~~

~~2018~~

~~, Teva recognized a tax benefit of $76 million, or 30%, on~~

~~pre-tax~~

~~loss of $250 million. Teva’s tax rate for the second quarter of~~

~~2019~~

~~was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.~~

~~In the first six months of~~

~~2019~~

~~, Teva recognized a tax benefit of $170 million, or 18%, on pre-tax loss of $934 million. In the first six months of~~

~~2018~~

~~, Teva recognized a tax benefit of $30 million on pre-tax income of $1,004 million. Teva’s tax rate for the first six months of~~

~~2019~~

~~was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.~~

The statutory Israeli corporate tax rate is 23% in 2019. 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.

~~NOTE 20 – Leases:~~

~~Leases prior to the adoption of the new Lease Standard~~

Teva leases real estate, cars and equipment for use in its operations, which are classified as operating leases. In addition to rent, the leases may require Teva to pay directly for fees, insurance, maintenance and other operating expenses. Rental expense for the six months ended June 30, 2018 and the 12 months ended December 31, 2018, was $90 million and $175 million, respectively. The Company also has capital leases for properties.

~~Leases following the adoption of the new Lease Standard~~

~~Teva adopted the new accounting standard ASC 842 “Leases” and all the related amendments on January 1, 2019 and used the effective date as Teva’s date of initial application.~~

Teva determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC 842-10-25-2. If any of these five criteria is met, Teva classifies the lease as a finance lease. Otherwise, Teva classifies the lease as an operating lease. When determining lease classification, Teva’s approach in assessing two of the mentioned criteria is: (i) generally 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) generally 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset.

~~Operating leases are included in operating lease~~

~~right-of-use~~

(“ROU”) assets, other current liabilities, and operating lease liabilities in the consolidated balance sheets. Finance leases are included in property, plant and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets. Finance leases of land include long-term leasehold rights in various locations, with useful lives between 30 and 99 years.

ROU assets represent Teva’s right to use an underlying asset for the lease term and lease liabilities represent Teva’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Teva uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments.

For finance leases, Teva recognizes interest on the lease liability separately from amortization of the ROU assets in the statement of comprehensive income. For operating leases, lease expenses are recognized on a straight-line basis over the lease term.

The new standard also provides practical expedients for an entity’s ongoing accounting. Teva elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means that for those leases, Teva does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition, but recognizes lease expenses over the lease term on a straight line basis. Teva also elected the practical expedient to not separate lease and

~~non-lease~~

~~components for all of Teva’s leases, other than leases of real estate.~~

~~Lease terms will include options to extend or terminate the lease when it is reasonably certain that Teva will exercise or not exercise the option to renew or terminate the lease.~~

Teva’s lease agreements have remaining lease terms ranging from 1 year to 80 years. Some of these agreements include options to extend the leases for up to 15 years and some include options to terminate the leases immediately. Certain leases also include options to purchase the leased property.

~~The depreciable life of leasehold improvements is limited by the expected lease term, unless there is a transfer of title or a purchase option for the leased asset reasonably certain of exercise.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Some of~~

~~Teva’s~~

vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. Teva’s lease agreements do not contain any material residual value guarantees.

~~Teva does not believe the new Lease Standard will have a notable impact on its liquidity. The new standard will have no impact on Teva’s debt-covenant compliance under its RCF.~~

~~Teva rents out or subleases certain real estate to third parties, which has an immaterial impact on Teva’s consolidated financial statements.~~

~~The components of operating lease cost for the three months ended and six months ended June 30, 2019 were as follows:~~

Three months ended
June 30,

Six months
ended
June 30,

2019

(U.S. $ in millions)

Operating lease cost:

Fixed payments and variable payments that depend
on an index or rate
$
36
$
78

Variable lease payments not included in the lease liability

2

4

Short-term lease cost

1

3

Total operating lease cost
$
39

$
85

~~Supplemental cash flow information related to operating leases was as follows:~~

Six months ended

June 30,
2019

(U.S. $ in millions)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
$
79

Right-of-use
assets obtained in exchange for lease obligations
(non-
cash):

Operating leases
$
46

~~Supplemental balance sheet information related to operating leases was as follows:~~

June 30,

2019

(U.S. $ in millions)

Operating leases:

Operating lease ROU assets
$
500

Other current liabilities

120

Operating lease liabilities

426

Total operating lease liabilities
$
546


	~~June 30,~~ ~~2019~~
~~Weighted average remaining lease term~~
~~Operating leases~~		~~7.7 years~~
~~Weighted average discount rate~~
~~Operating leases~~		~~5.9~~	%

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Maturities of operating lease liabilities were as follows:~~

June 30,
2019

(U.S. $ in millions)

2019 (excluding the six months ended June 30, 2019)
$
87

2020

124

2021

100

2022

78

2023

58

2024 and thereafter

266

Total operating lease payments
$
713

Less: imputed interest

167

Present value of lease liabilities
$
546

December 31,
2018

(U.S. $ in millions)

2019
$
193

2020

154

2021

118

2022

91

2023

66

2024 and thereafter
283

Total lease payments
$
905

As of June 30, 2019, Teva has additional operating leases for office space, which have yet to commence, with undiscounted future payments of $94 million. These operating leases will commence during fiscal year 2020 with lease terms of 9 to 12 years.

As of June 30, 2019, Teva’s total finance lease assets and finance lease liabilities are $78 million and $27 million, respectively. The difference between those amounts is mainly due to prepaid payments.

~~Table of Contents~~

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a global pharmaceutical company, committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health. Our mission is to be a global leader in generics, specialty medicines and biopharmaceuticals, improving the lives of patients.

We operate worldwide, with headquarters in Israel and a significant presence in the United States, Europe and many other markets around the world. Our key strengths include our world-leading generic medicines expertise and portfolio, focused specialty medicines portfolio and global infrastructure and scale.

Teva was incorporated in Israel on February 13, 1944 and is the successor to a number of Israeli corporations, the oldest of which was established in 1901.

Our Business Segments

We operate our business through three segments: North America, Europe and International Markets. Each business segment manages our entire product portfolio in its region, including generics, specialty ~~medicines~~ and OTC products. This structure enables strong alignment and integration between operations, commercial regions, R&D and our global marketing and portfolio function, optimizing our product lifecycle across therapeutic areas.

In addition to these three segments, we have other activities, primarily the sale of ~~APIs~~API to third parties, ~~and~~ certain contract manufacturing ~~services.~~services and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis.

The

COVID-19

Pandemic

~~In December 2017,~~As a leading global pharmaceutical company, Teva provides essential medicines to millions of patients around the world every day. Our priorities remain focused on the health and well-being of our employees and on our responsibility to continue to provide our medicines to the nearly 200 million patients who depend on us every day.

Our industry plays a critical role, particularly during such challenging times. We are working with governments to do all they can, in partnership with our industry, to maintain the development, production, supply and distribution of high quality medicines for patients worldwide during this unprecedented global health crisis.

Business Continuity

The supply chain supporting our key products – specialty, generics and API – remains largely uninterrupted, and with adequate product inventory across our network. Additionally, based on analysis of potential scenarios, we ~~announced~~currently have inventory and redundancy plans in place to address potential shortfalls, if any. We are closely monitoring the evolving situation in our key manufacturing locations and commercial markets, and are accordingly adapting our business continuity plans. All our facilities that research, manufacture, order, pack, distribute and provide critical customer and patient services are currently functioning to meet demand for essential medicines for patients throughout the world.

Teva has worked since the early days of the

COVID-19

pandemic to support efforts of governments and health services to curb the impact of the virus. Our global manufacturing network has been tirelessly focused on securing and scaling production of both API and finished doses for potential treatments that may prove essential in treating the condition nearly everywhere Teva does business. Teva will continue to work with governments and international organizations throughout the world to support emerging needs related to this crisis, while doing everything possible to also continue to supply our vast portfolio of medicines to patients.

R&D and New Launches

We do not expect a ~~comprehensive restructuring plan~~material impact on our ongoing clinical research programs and product launches as a result of the

COVID-19

pandemic; however, if the pandemic continues for an extended period of time, we may experience delays in clinical trials due to cessation of recruitment for patient studies and suspended regulatory inspections, delays in regulatory approvals of new products due to reduced capacity or

re-prioritization

of regulatory agencies and delays in

pre-commercial

launch activities. All of our new product launches have been risk-assessed based on upcoming manufacturing and regulatory inspections.

Workforce Policy and Measures

Our employees across all aspects of our business are safeguarding the continuity of our activities and we are committed to supporting their efforts and caring for their personal health and safety. We are enacting appropriate measures to ensure the safe supply and transport of our medicines and APIs, and have established measures intended to ~~significantly reduce~~ensure our ~~cost base, unify~~sites remain open, allowing us to maintain our business, R&D and ~~simplify~~manufacturing operations. We have reduced the number of people in our ~~organization~~facilities to only those who are essential and ~~improve business performance, profitability, cash flow generation and productivity. This plan is intended~~may not work remotely. By doing our part to reduce proximity to one another, we hope to better protect our ~~total cost base by $3 billion~~overall workforce, and ultimately, the communities in which we live.

Table of Contents

As we work through this health crisis, we are starting to plan our strategy for returning to usual operations at all organizational levels, under guiding principles to protect our business, maximize organizational productivity and efficiency while simultaneously ensuring a safe workplace.

Trends

We have limited insight into the extent to which our business may be impacted by the ~~end~~

COVID-19

pandemic and there are many unknowns facing our industry and society at large. At this stage of ~~2019.~~

the pandemic, we are not experiencing material delays in development, production and distribution of medicines or disruptions in our supply chains; however, longer term affects cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. We are experiencing increasing demand for certain medicines, as would be expected during a global crisis of this nature, and cannot assess whether such increased demand is the result of stocking by wholesalers or patients. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will see a compensating effect during the remainder of the year, but we do not currently anticipate a material negative impact on our 2020 financial results due to the evolving global pandemic.

Highlights

Significant highlights in the ~~second~~first quarter of ~~2019~~2020 included:

Revenues in the ~~second~~first quarter of ~~2019~~2020 were ~~$4,337~~$4,357 million, ~~a decrease~~an increase of 8%5%, ~~or 5%~~ in both U.S. dollar and local currency terms, compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to ~~generic competition to COPAXONE~~

~~, as well as declines in~~higher revenues from ~~TREANDA~~

~~/BENDEKA~~

~~, certain other specialty products~~generics and OTC sales in ~~the United States, our~~ Europe, ~~segment and Japan, partially offset by~~ higher revenues from AUSTEDO

~~, AJOVY~~and Anda in North America and higher revenues from our International Markets segment, partially offset by lower revenues from generics in the U.S. and lower revenues from QVAR

and ~~QVAR~~BENDEKA

/TREANDA

in ~~the United States.~~

North America.

Our North America segment generated revenues of ~~$2,071~~$2,082 million and profit of ~~$504~~$550 million in the ~~second~~first quarter of ~~2019.~~2020. Revenues ~~decreased~~increased by 8%2% compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to ~~a decline~~an increase in revenues ~~from COPAXONE, TREANDA/BENDEKA~~of AUSTEDO and ~~certain other specialty products,~~Anda as well as a milestone payment related to our anti-CGRP intellectual property, partially offset by ~~higher~~lower revenues from ~~our Anda business,~~ QVAR, ~~AUSTEDO~~ BENDEKA/TREANDA, COPAXONE

and ~~AJOVY.~~generic products. Profit ~~decreased~~increased by ~~30%~~10%, mainly due to the changes in revenues described ~~above and the non-recurrence of other income, as well as cost reductions and efficiency measures as part of the restructuring plan.~~

above.

Our Europe segment generated revenues of ~~$1,183~~$1,402 million and profit of ~~$316~~$502 million in the ~~second~~first quarter of ~~2019.~~2020. Revenues ~~decreased~~increased by 11%~~, or 5% in~~. In local currency terms, revenues increased by 13% compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to higher demand for certain products resulting from the impact of the

COVID-19

pandemic on purchasing patterns as well as continuing growth in generics and new generic product launches, partially offset by price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to ~~the entry of~~ competing glatiramer acetate ~~products and the termination of the PGT joint venture, partially offset~~products. Profit increased by ~~new generic product launches. Profit decreased by 9%~~25%, mainly due to ~~the changes in~~higher revenues and ~~the impact of currency fluctuations, partially offset by cost reductions and efficiency measures as part of the restructuring plan.~~

lower expenses.

Our International Markets segment generated revenues of ~~$741~~$565 million and profit of ~~$136~~$156 million in the ~~second~~first quarter of ~~2019.~~2020. Revenues ~~decreased~~increased by ~~6%,~~8% in U.S. dollars or 2%5% in local currency terms, ~~and profit decreased by 2%~~ compared to the ~~second~~first quarter of ~~2018.~~2019. The ~~decrease~~increase in revenues ~~and profit~~ was mainly due to higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in ~~Japan resulting~~Japan. The revenues in the first quarter of 2020 included $35 million from ~~generic competition~~a positive hedging impact. Profit increased by 61%, mainly due to ~~off-patent products, partially offset by~~ higher sales ~~in Russia~~ and ~~cost reductions and efficiency measures as part of~~ the ~~restructuring plan.~~

positive impact from hedging activity.

~~Intangible asset impairments~~Impairment of identifiable intangible assets were ~~$561~~$649 million in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~$521~~$469 million in the ~~second~~first quarter of ~~2018. The impairment~~2019. Impairment expenses in the ~~second~~first quarter of ~~2019~~2020 related to IPR&D assets were ~~related to~~$331 million and identifiable product rights ~~of $365 million and IPR&D assets of $196~~were $318 million. ~~The~~

No goodwill impairments were recorded in the first quarters of both 2020 and 2019.

We recorded expenses of $121 million for other asset impairments, restructuring and other items in the first quarter of 2020, compared to expenses of $1 million in the first quarter of 2019.

In the first quarter of 2020, we recorded an income of $25 million in legal settlements and loss contingencies, compared to an expense of $57 million in the first quarter of 2019. The income in the first quarter of 2020 was mainly related to ~~products acquired from~~a settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis ~~Generics.~~

Generics).

Operating ~~loss~~income was ~~$644~~$191 million in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~$14~~$134 million in the ~~second~~first quarter of ~~2018.~~2019. The increase in ~~operating loss~~the first quarter of 2020 was mainly due to ~~lower~~higher profit ~~from~~in our ~~operating~~Europe, International Markets and North America segments and ~~an increase in~~income from legal settlements (compared to an expense in the first quarter of 2019), partially offset by higher intangible asset impairments and ~~loss contingencies expenses.~~higher other assets impairments, restructuring and other items in the first quarter of 2020.

Table of Contents

Financial expenses were $224 million in the first quarter of 2020, compared to $218 million in the first quarter of 2019. Financial expenses in the first quarter of 2020 were mainly comprised of interest expenses of $241 million. Financial expenses in the first quarter of 2019 were mainly comprised of interest expenses of $227 million.

In the first quarter of 2020, we recognized a tax benefit of $59 million, on

pre-tax

loss of $33 million. In the first quarter of 2019, we recognized a tax expense of $9 million, on

pre-tax

loss of $84 million. Our tax rate for the first quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate

its ongoing business operations

Exchange rate movements between the ~~second~~first quarter of 2020 and the first quarter of 2019, ~~and the second quarter~~net of ~~2018~~hedging, negatively impacted overall revenues by ~~$125~~$3 million and positively impacted operating income by ~~$41~~$27 million.

~~Table of Contents~~

As of ~~June 30, 2019,~~March 31, 2020, our debt was ~~$28,726~~$26,103 million, compared to ~~$28,624~~$26,908 million as of ~~March~~December 31, 2019. ~~The increase~~This decrease was mainly due to repayment at maturity of our $700 million 2.25% senior notes, as well as exchange ~~rates~~rate fluctuations.

Cash flow used in operating activities during the second quarter of 2019 was $227 million, compared to cash flow generated from operating activities of $162 million in the second quarter of 2018. The decrease in cash flow in the second quarter of 2019 was mainly due to lower revenues, timing of certain customer payments and credits and payments of U.S. customer rebates paid this quarter, primarily related to managed care and Medicaid.

Cash flow generated from operating activities during the first quarter of 2020 was $305 million, compared to $112 million in the ~~second~~first quarter of ~~2019, net~~2019. This increase in cash flow in the first quarter of 2020 was mainly due to higher operating profit in each of our three segments, as well as lower performance incentive payments to employees paid in the first quarter of 2020, compared to the amounts paid in the first quarter of 2019.

generated from operating activities, including significant consumption of inventories.

Results of Operations

Comparison of Three Months Ended ~~June 30, 2019~~March 31, 2020 to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth, for the periods indicated, certain financial data derived from our financial ~~statements:~~statements, presented according to generally accepted accounting principles in the United States (“U.S. GAAP”), presented as percentages of net revenues, and the percentage change for each item as compared to the previous year:

Percentage of Net Revenues
Three Months Ended
June 30,

Percentage
Change

2019

2018

2019
-
2018

%

%

%

Net revenues

100

100

(8
)
Gross profit

44

43

(7
)
Research and development expenses

6

6

(5
)
Selling and marketing expenses

15

15

(2
)
General and administrative expenses

7

7

(6
)
Intangible assets impairment

13

11

8

Goodwill impairment

—

3

(100
)
Other assets impairments, restructuring and other items

2

4

(48
)
Legal settlements and loss contingencies

15

§

—

Other income

§

(2
)
—

Operating income

(15
)
§

—

Financial expenses, net

5

5

(13
)
Income (loss) before income taxes

(20
)
(5
)
240

Income taxes

(4
)
(2
)
135

Share in losses (income) of associated companies, net

§

§

—

Net income attributable to non-controlling interests

§

§

—

Net income (loss) attributable to Teva

(16
)
(4
)
292

Dividends on preferred shares

—

1

(100
)
Net income (loss) attributable to ordinary shareholders

(16
)
(5
)
186


	Percentage of Net Revenues Three Months Ended March 31,						Percentage Change
	2020			2019			2020 - 2019
	%			%			%
Net revenues		100			100			5
Gross profit		47			45			11
Research and development expenses		5			6			(15	)
Selling and marketing expenses		14			16			(5	)
General and administrative expenses		7			7.0			4
Intangible assets impairments		15			11			38
Other assets impairments, restructuring and other items		3			§			NA
Legal settlements and loss contingencies		(1	)		1			NA
Other income (loss)		§			§			115
Operating income		4			3			43
Financial expenses, net		5			5			3
Income (loss) before income taxes		(1	)		(2	)		(61	)
Income taxes (benefit)		(1	)		§			—
Share in losses (profits) of associated companies, net		§			§			NA
Net income attributable to non-controlling interests		(1	)		§			NA
Net income (loss) attributable to Teva		2			(3	)		—
Net income (loss) attributable to ordinary shareholders		2			(3	)		—

§	Represents an amount less than 0.5%.

Table of Contents

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
2,071

100.0
% $
2,263

100.0
%
Gross profit

1,067

51.5
%
1,179

52.1
%
R&D expenses

175

8.5
%
182

8.0
%
S&M expenses

269

13.0
%
272

12.0
%
G&A expenses

117

5.6
%
103

4.6
%
Other (income) expense

2

§

(100
)
(4.4
%)

Segment profit*
$
504

24.3
% $
722

31.9
%


	Three months ended March 31,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,082		100	%	$	2,047		100.0	%
Gross profit		1,062		51.0	%		1,039		50.8	%
R&D expenses		146		7.0	%		165		8.1	%
S&M expenses		251		12.1	%		268		13.1	%
G&A expenses		118		5.6	%		112		5.5	%
Other (income) expense		(2	)	§			(4	)	§

Segment profit*	$	550		26.4	%	$	498		24.3	%

*	Segment profit does not include amortization and certain other items.

§	Represents an amount less than 0.5%.

~~Table of Contents~~

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$2,071~~$2,082 million, ~~a decrease~~an increase of ~~$192~~$36 million, or 8%2%, compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to ~~a decline~~an increase in revenues of ~~COPAXONE, TREANDA/BENDEKA~~AUSTEDO and ~~certain other specialty products,~~Anda as well as a milestone payment related to our anti-CGRP intellectual property (see note 2 to our consolidated financial statements), partially offset by ~~higher~~lower revenues from ~~our Anda business,~~ QVAR, ~~AUSTEDO~~BENDEKA/TREANDA, COPAXONE and ~~AJOVY.~~generic products.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended
June 30,

Percentage
Change

2019

2018

2019-2018

(U.S. $ in millions)

Generic products
$
946
$
947

§

COPAXONE

274

464

(41
%)
TREANDA/BENDEKA

115

160

(28
%)
ProAir*

65

115

(44
%)
QVAR

60

30

103
%
AJOVY

23

—

NA

AUSTEDO

96

44

117
%
Anda

351

320

10
%
Other

141

183

(23
%)

Total
$
2,071
$
2,263

(8
%)


	Three months ended March 31,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	952	$	966		(1	%)
AJOVY		29		20		44	%
AUSTEDO		122		74		64	%
BENDEKA/TREANDA		105		122		(14	%)
COPAXONE		198		208		(5	%)
ProAir*		59		59		1	%
QVAR		45		64		(29	%)
Anda		426		379		13	%
Other		146		155		(6	%)

Total	$	2,082	$	2,047		2	%

*	Does not include ~~sales of~~revenues from the ProAir authorized generic, which are included under ~~generics.~~generic products.

§	~~Represents an amount less than 0.5%.~~

Generic products

revenues in our North America segment (including biosimilars) in the ~~second~~first quarter of ~~2019~~2020 were ~~$946~~$952 million, ~~flat~~a decrease of 1% compared to the ~~second~~first quarter of ~~2018,~~2019. This decrease was mainly due to ~~new generic product launches, offset by market dynamics, including product mix and~~ price erosion in our ~~U.S. generics business.~~product portfolio and lower royalty income, offset by an increase in revenues from launches of new products, including TRUXIMA and from our ProAir

authorized generic due to higher demand related to the

COVID-19

pandemic.

Table of Contents

Among the most significant generic products we sold in North America in the ~~second~~first quarter of ~~2019~~2020 were albuterol sulfate inhalation aerosol (ProAir HFA authorized generic of our specialty product), epinephrine ~~injection~~injectable solution (the generic equivalent of EpiPen

and EpiPen Jr.

), ~~solifenacin succinate tablets~~TRUXIMA (the biosimilar to Rituxan

), lidocaine transdermal patch (the generic equivalent of ~~Vesicare~~Lidoderm Patch

)~~, albuterol sulfate inhalation aerosol (ProAir~~

~~HFA authorized generic of Teva’s specialty product),~~ and amphetamine salt tablets (the generic equivalent of Adderall IR

)~~, and lidocaine transdermal patch~~.

We launched HERZUMA for Injection (the ~~generic equivalent of Lidoderm Patch~~biosomilar to Herceptin

). in the United States in March 2020. HERZUMA and TRUXIMA were also launched in Canada in January 2020 and February 2020, respectively. On May 4, 2020, TRUXIMA became available in the U.S. for the treatment of rheumatoid arthritis, granulomatosis with polyangiitis (Wegener’s Granulomatosis) and microscopic polyangiitis.

In the ~~second~~first quarter of ~~2019,~~2020, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~404~~389 million total prescriptions (based on trailing twelve months), representing ~~11%~~10.4% of total U.S. generic prescriptions according to IQVIA data.

~~COPAXONE~~AJOVY

revenues in our North America segment in the first quarter of 2020 were $29 million, an increase of $9 million, or 44% compared to the first quarter of 2019, mainly due to growth in volume in the first quarter of 2020. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults. On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S., which became commercially available in April 2020. In addition, AJOVY was approved in Canada on April 14, 2020.

On May 12, 2017, we entered into a license and collaboration agreement with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY in Japan and, once approved, to commercialize the product in Japan. 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.

AJOVY is also in clinical development to evaluate safety and efficacy in the treatment of post traumatic headache and fibromyalgia.

AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States. Applications for patent term extensions have been submitted in various markets around the world. An additional patent relating to the use of AJOVY in the treatment of migraine is issued in the United States and will expire in 2035. This patent is also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

We have filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly has also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the Patent Trial and Appeal Board issued decisions on the first six IPRs, finding the six patents invalid as being obvious. On April 21, 2020, we filed notices of appeal in connection with these decisions. On March 31, 2020 the Patent Trial and Appeal Board issued a decision upholding the 3 method of treatment patents. The litigation stay ended following the issuance of the most recent IPR decisions, and the parties are proceeding with the litigation. In addition, we have entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO

revenues in our North America segment in the ~~second~~first quarter of ~~2019 decreased~~2020 increased by ~~41%~~64%, to ~~$274~~$122 million, compared to $74 million in the ~~second~~first quarter of ~~2018,~~2019. This increase was mainly due to ~~generic competition~~growth in volume in the ~~United States.~~first quarter of 2020.

~~COPAXONE revenues~~In April 2017, AUSTEDO was approved by the FDA and launched in the United States ~~were $260 million in~~for the ~~second quarter~~treatment of ~~2019.~~chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia.

~~Revenues~~We do not have further plans for the development of ~~COPAXONE~~AUSTEDO for the treatment of Tourette syndrome in ~~our North America segment were 69% of global COPAXONE revenues in the second quarter of 2019, compared to 74% in the second quarter of 2018.~~

COPAXONE global sales accounted for approximately 9% of our global revenues in the second quarter of 2019 and a significantly higher percentage of our profits and cash flow from operations during this period.

~~The FDA approved generic versions of COPAXONE 40 mg/mL in October 2017 and February 2018 and a second generic version of COPAXONE 20 mg/mL in October 2017~~pediatric patients in the United ~~States. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved~~States, which was being developed under a partnership agreement with Nuvelution Pharma, Inc. (“Nuvelution”), following clinical trial results received in February 2020, which failed to meet their primary endpoints.

AUSTEDO is protected in the ~~European Union.~~United States by five Orange Book patents expiring between 2031 and 2033 and in Europe by two patents expiring in 2029.

COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various jurisdictions. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by the Opposition Division of the European Patent Office in April 2019.

The market for MS treatments continues to develop, particularly with the approvals of generic versions of COPAXONE discussed above, as well as additional generic versions expected to be approved in the future. Oral treatments for MS, such as Tecfidera

~~, Gilenya~~

~~and Aubagio~~

~~, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies.~~

~~Table of Contents~~

BENDEKA

and

TREANDA

combined revenues in our North America segment in the ~~second~~first quarter of ~~2019~~2020 decreased by ~~28%~~14% to ~~$115~~$105 million, compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to ~~lower volumes~~the emergence of alternative novel therapies and ~~lower pricing, resulting partly~~continued competition from ~~the June 2018 launch of~~ Belrapzo

ready-to-dilute

bendamustine hydrochloride byproduct from Eagle Pharmaceuticals, Inc. (“Eagle”)).

Table of Contents

In July 2018, Eagle prevailed in its suit ~~in the U.S. district court~~ against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. ~~The FDA has appealed the district court’s~~On March 13, 2020, this decision ~~but barring a reversal by~~was upheld in the appellate ~~court,~~court. As a result, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. It is unclear whether the FDA or the intervening generic defendants will further appeal this ruling. In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In ~~addition,~~consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses. In September 2019, a patent infringement action against four of the five ANDA filers for generic versions of BENDEKA was tried in the United States District Court for the District of Delaware. On April 27, 2020, the District Court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe these patents. As a result, the ANDA filers should be enjoined until these patents expire in 2031.

Additionally, in July 2018, Teva and Eagle filed suit against Hospira, Inc. (“Hospira”) related to its 505(b)(2) new drug application (“NDA”) referencing BENDEKA in the U.S. District Court for the District of Delaware. Hospira’s

30-month

stay expires in December 2020. On December 16, 2019, the Delaware District Court dismissed the case against Hospira on all but one of the asserted patents, which expires in 2031. Trial against Hospira on that patent is scheduled to begin on November 15, 2021.

We have U.S. Orange Book patents for TREANDA expiring between 2026 and 2031. One 505(b)(2) NDA was filed for a liquid version of bendamustine and 21 ANDAs were filed for generic versions of the lyophilized form of TREANDA. We have reached final settlements with all 22 filers, providing for the launch of generic versions of TREANDA prior to patent expiration.

COPAXONE

revenues in our North America segment in the first quarter of 2020 decreased by 5% to $198 million, compared to the first quarter of 2019, mainly due to generic competition in the United States.

, Gilenya

and Aubagio

, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus

ProAir

revenues in our North America segment in the ~~second~~first quarter of ~~2019 decreased by 44% to $65~~2020 were $59 million, flat compared to the ~~second~~first quarter of ~~2018, mainly due to lower volumes as well as lower net pricing.~~2019. In January 2019, we launched our own ProAir authorized generic in the United States following the launch of a generic version of Ventolin

HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in “generic products” above. ProAir is the ~~second-largest~~fourth-largest short-acting beta-agonist in the market, with an exit market share of ~~25.3% (45.8%~~15.5% (37.5% including our ProAir HFA authorized ~~generic)~~generic, making our overall albuterol product the largest in the market) in terms of total number of prescriptions for albuterol inhalers during the ~~second~~first quarter of ~~2019,~~2020, compared to ~~44.4%~~27.6% in the ~~second~~first quarter of ~~2018.~~2019. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo ~~Pharmaceuticals~~Company plc (“Perrigo”), under which Perrigo is now permitted to launch its generic product. In February 2020, Perrigo obtained FDA approval of its generic product and announced initial release of limited supplies. In November 2017, we settled another patent challenge to ProAir HFA with Lupin Pharmaceuticals, Inc. (“Lupin”), et al. permitting Lupin to launch its generic product on September 23, 2019, or earlier under certain circumstances. ~~To date, no generic competition has been launched.~~

QVAR

revenues in our North America segment in the ~~second~~first quarter of ~~2019 increased~~2020 decreased by ~~103%~~29% to ~~$60~~$45 million, compared to the ~~second~~first quarter of ~~2018, which was a transition period~~2019, mainly due to ~~the launch of QVAR~~

~~RediHaler™.~~increased price competition and lower volumes. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of ~~20.2%~~20.8% in terms of total number of prescriptions during the ~~second~~first quarter of ~~2019,~~2020, compared to ~~24.2%~~21.7% in the ~~second~~first quarter of ~~2018.~~

~~AJOVY~~

revenues in our North America segment in the second quarter of 2019 were $23 million. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults. In April 2019, the European Medicines Agency (“EMA”) granted a Marketing Authorization for AJOVY in the European Union in a centralized process.

AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States, with possibility for extension in various markets. An additional patent relating to the use of AJOVY in the treatment of migraine is issued in the United States and will expire in 2035. This patent is also pending in other countries. AJOVY is protected by regulatory exclusivity for 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

~~inter partes~~

review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation, and as a result the litigation in the district court has been stayed pending resolution of the IPRs. In addition, we have entered into separate agreements with Alder Biopharmaceuticals and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

~~AUSTEDO~~

~~revenues in our North America segment in the second quarter of 2019 increased by 117%, to $96 million, compared to $44 million in the second quarter of 2018.~~

AUSTEDO was approved by the FDA and launched in April 2017 in the United States for the treatment of chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia.

2019.

Anda

revenues in our North America segment in the first quarter of 2020 increased by ~~10%~~13% to ~~$351~~$426 million, compared to $379 million in the ~~second~~first quarter of 2019, ~~compared to the second quarter of 2018,~~ mainly due to higher ~~volumes.~~volume increases primarily related to the

COVID-19

pandemic. Anda, our distribution business in the United States, distributes generic, specialty and OTC pharmaceutical products from various third party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the secondary distribution market by maintaining high inventory levels for a broad offering of products, competitive pricing and offering next day delivery throughout the United States.

Table of Contents

Product Launches and Pipeline

In the ~~second~~first quarter of ~~2019,~~2020, we launched the generic version of the following branded products in North America:

Product Name

Brand Name

Launch
Date

Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))
*

Fluoxetine tablets, USP 20 mg

—

April
$
56

Testosterone gel, metered 1.62% CIII

AndroGel
®
April
$
755

1.62
[CIII]
%

Solifenacin succinate tablets, 5 mg & 10 mg

Vesicare
®
April
$
946

Ambrisentan tablets, 5 mg & 10 mg

Letairis
®
May
$
254

Erlotinib tablets, 100 mg & 150 mg

Tarceva
®
May
$
188

Mesalamine delayed-release capsules, 400 mg

Delzicol
®
May
$
130

Ranolazine extended-release tablets, 500 mg & 1000 mg

Ranexa
®
May
$
950

Aspirin and extended-release dipyridamole capsules, 25 mg/200 mg **

Aggrenox
®
June
$
168

Desmopressin acetate injection, USP, 4 mcg/mL**

DDAVP
®
June
$
58

Albendazole tablets, USP, 200 mg

Albenza
®
June
$
85

Bosentan tablets, 62.5 mg & 125 mg

Tracleer
®
June
$
84

Doxylamine succinate and pyridoxine hydrochloride delayed-release tablets, 10 mg/10 mg

Diclegis
®
June
$
151

Penicillamine capsules, USP, 250 mg

Cuprimine
®
June
$
130

1% Sodium hyaluronate injection

***

June
$
—

Product Name

Brand Name

Launch

Date

Total Annual U.S.

Branded Sales at Time

of Launch

(U.S. $ in millions
(IQVIA))

Doxepin tablets, 3 mg & 6 mg

Silenor

January

HERZUMA

(trastuzumab-pkrb) for injection, 150 mg/vial & 420 mg/vial

Herceptin

®**

March

3,042

*	The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or ~~re-launch.~~ re-launch

**	~~Product was re-launched.~~Biosimilar.

~~***~~

~~Approved via 515(d)(1)(B)(ii) regulatory pathway for medical devices; not equivalent to a brand product.~~

Our generic products pipeline in the United States includes, as of ~~June 30, 2019, 256~~March 31, 2020, 242 product applications awaiting FDA approval, including 8679 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended March 31, ~~2019~~2020 exceeding ~~$111~~$119 billion, according to IQVIA. Approximately 70% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to ~~101~~90 of these products, or ~~123~~112 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$74~~$77 billion in U.S. brand sales for the twelve months ended March 31, ~~2019,~~2020, according to IQVIA.

IQVIA reported brand sales are one of the many indicators of future potential value of a launch, but equally important are the mix and timing of competition, as well as cost effectiveness. The potential advantages of being the first filer with respect to some of these products may be subject to forfeiture, shared exclusivity or competition from

so-called ~~“authorized~~

“authorized generics,” which may ultimately affect the value derived.

In the ~~second~~first quarter of ~~2019,~~2020, we ~~received~~did not receive any tentative approvals for generic ~~equivalents of the products listed in the table below, excluding overlapping applications.~~equivalents. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a

30-month

regulatory stay lapses or a

180-day

exclusivity period awarded to another manufacturer either expires or is forfeited.


~~Generic Name~~	~~Brand Name~~			~~Total U.S. Annual Branded~~ ~~Market (U.S. $~~ in millions (IQVIA))*
~~Icatibant injection, 30 mg/3 mL~~		~~Firazyr~~	®	$	~~318~~
~~Sorafenib tablets, 200 mg~~		~~Nexavar~~	®	$	55

*	~~For the twelve months ended in the calendar quarter immediately prior to the receipt of tentative approval.~~

~~Table of Contents~~

Below is a description of key products in our specialty pipeline as of ~~June 30, 2019:~~March 31, 2020:


Product	Potential Indication(s)		Route of Administration	Development Phase (date entered phase 3)			Comments
CNS, Neurology and Neuropsychiatry

AUSTEDO (deutetrabenazine)	Tourette syndrome		Oral			~~3 (December 2017)~~No further plans in this indication.
		Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and be responsible for commercialization.
	Dyskinesia in cerebral palsy		Oral		3 ~~(January~~(September 2019)
~~TV-46000 (risperidone LAI)~~	~~Schizophrenia~~		~~LAI~~		~~3 (April 2018)~~

TV-46000 (risperidone LAI)	Schizophrenia		Subcutaneous	3 (April 2018)

Table of Contents

Product

Potential

Indication(s)

Route of
Administration

Development Phase
(date entered phase 3)

Comments

Migraine and Pain

fremanezumab (anti CGRP)

Post traumatic

headache

Subcutaneous

fibromyalgia

Subcutaneous

~~Fasinumab~~fasinumab

Osteoarthritis pain

Subcutaneous

3 (March 2016)

Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”).

In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W).

Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

~~Chronic lower~~

~~back pain~~

~~Subcutaneous~~

~~3 (December 2017)~~

Respiratory

~~CINQAIR/CINQAERO~~

~~Severe asthma with~~

~~eosinophilia~~

~~Subcutaneous~~

~~3 (August 2015)~~

~~In January 2018, we announced that the phase 3 study did not meet its primary endpoint. We are reviewing the full data to determine next steps.~~

ProAir

~~ProAir e-RespiClick™~~ e-RespiClick

™

Bronchospasm and exercise induced bronchitis

Oral inhalation

Approved by FDA

(December 2018)

AirDuo

Digihaler

TM®

Treatment of asthma in patients aged 12 years and older

Oral inhalation

Approved by FDA

~~(July~~ (July 2019)

~~Oncology~~

~~Truxima (formerly CT-P10)~~ArmonAir

DigiHaler

~~(biosimilar to~~

~~Rituxan~~

~~US)~~Treatment of asthma in patients aged 12 years and older

Oral inhalation

Approved by FDA (February 2020)

~~(November 2018)~~

~~Approved in~~

~~Canada (April~~

~~2019)~~

~~Herzuma (formerly CT-P06)~~GoResp

DigiHaler

/ DuoResp

DigiHaler

~~(biosimilar to~~

~~Herceptin~~

~~US)~~Treatment of asthma in patients aged 12 years and older and COPD

Oral inhalation

~~Approved by~~Under regulatory review

~~FDA (December~~

~~2018)~~

~~Table of Contents~~

North America Gross Profit

Gross profit from our North America segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$1,067~~$1,062 million, ~~a decrease~~an increase of 9%2%, compared to ~~$1,179~~$1,039 million in the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~lower~~the change in mix of revenues, ~~from COPAXONE,~~ as ~~well as a decline in sales of certain other specialty products, partially offset by increases in sales of AUSTEDO, QVAR and AJOVY.~~discussed above.

Gross profit margin for our North America segment in the ~~second~~first quarter of ~~2019 decreased~~2020 increased to ~~51.5%~~51.0%, compared to ~~52.1%~~50.8% in the ~~second~~first quarter of ~~2018. The decrease was mainly due to lower revenues from COPAXONE and certain other specialty products, partially offset by improved gross profit margin of generic products.~~2019.

North America R&D Expenses

R&D expenses relating to our North America segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$175~~$146 million, a decrease of 4%12%, compared to ~~$182~~$165 million in the ~~second~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~second~~first quarter of ~~2019,~~2020, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

North America S&M Expenses

S&M expenses relating to our North America segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$269~~$251 million, a decrease of 1%6%, compared to ~~$272~~$268 million in the ~~second~~first quarter of ~~2018. The~~2019. This decrease was mainly due to cost reductions and efficiency ~~measures as part of the restructuring plan, partially offset by increased expenses related to AJOVY.~~measures.

North America G&A Expenses

G&A expenses relating to our North America segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$117~~$118 million, an increase of ~~14%~~5%, compared to ~~$103~~$112 million in the ~~second~~first quarter of ~~2018. The increase was mainly due to legal expenses, partially offset by cost reductions and efficiency measures as part of the restructuring plan.~~2019.

North America Other Income (Expense)

Other ~~expenses~~income from our North America segment in the ~~second~~first quarter of ~~2019~~2020 was $2 million, compared to other income of ~~$100~~$4 million in the ~~second~~first quarter of ~~2018. The income in the second quarter of 2018 was mainly due to legal recovery of lost profits, where U.S. patent infringement litigation had previously prevented a product’s sales.~~2019.

North America Profit

Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Table of Contents

Profit from our North America segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$504~~$550 million, ~~a decrease~~an increase of ~~30%~~10%, compared to ~~$722~~$498 million in the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was ~~mainly~~ due to higher revenues and lower ~~revenues from COPAXONE,~~expenses as well as a decline in sales of certain other specialty products and the non-recurrence of other income, partially offset by increases in sales of AUSTEDO and QVAR, as well as cost reductions and efficiency measures as part of the restructuring plan.discussed above.

~~Table of Contents~~

~~ERP Implementation~~

Teva is in the process of implementing a company-wide enterprise resource planning (“ERP”) system in the U.S. to upgrade certain operational and financial processes. ERP implementation is a complex and time-consuming project. As with any new information system we implement, this application, along with the internal controls over financial reporting included in this process, has required testing for effectiveness and management has made appropriate efforts in this regard. In connection with this ERP implementation, we are updating our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. We do not expect that the ERP implementation will have an adverse effect on our business. However, if the design or implementation of our new ERP system is deficient, it could adversely affect our operations, such as manufacturing or distribution, and/or the effectiveness of our internal controls.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three months ended June 30,
	2019				2018					Three months ended March 31,
	(U.S. $ in millions / % of Segment Revenues)									2020					2019
										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,183	100.0	%	$	1,328		100.0	%	$	1,402		100	%	$	1,264		100	%
Gross profit		674	56.9	%		727		54.7	%		823		58.7	%		730		57.8	%
R&D expenses		70	5.9	%		73		5.5	%		55		3.9	%		66		5.2	%
S&M expenses		216	18.3	%		233		17.5	%		202		14.4	%		215		17.0	%
G&A expenses		70	5.9	%		78		5.9	%		66		4.7	%		48		3.8	%
Other (income) expense		1	§			(3	)	§			(1	)	§			(1	)	§

Segment profit*	$	316	26.7	%	$	346		26.1	%	$	502		35.8	%	$	403		31.9	%

*	Segment profit does not include amortization and certain other items.

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$1,183~~$1,402 million, ~~a decrease~~an increase of 11% or ~~$145~~$138 million, compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased~~increased by 5%13%, mainly due to higher demand for certain products resulting from the impact of the

COVID-19

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three months ended June 30,				Percentage Change			Three months ended March 31,				Percentage Change
	2019		2018		2018-2019			2020		2019		2019-2020
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	844	$	907		(7	%)	$	1,032	$	919		12	%
COPAXONE		107		140		(24	%)		109		114		(4	%)
Respiratory products		89		106		(16	%)		106		91		16	%
AJOVY									4		—		NA
Other		143		175		(18	%)		151		140		7	%

Total	$	1,183	$	1,328		(11	%)	$	1,402	$	1,264		11	%

Generic products

revenues in our Europe segment in the ~~second~~first quarter of ~~2019,~~2020, including OTC products, ~~decreased~~increased by 7%12% to ~~$844~~$1,032 million, compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues increased by 16% compared to the first quarter of 2019, mainly due to higher demand for certain products resulting from the impact of the

COVID-19

pandemic on purchasing patterns as well as continuing growth in generics and new generic product launches. We estimate that the impact of the

COVID-19

pandemic on advanced purchasing patterns was approximately $100 million.

COPAXONE

revenues in our Europe segment in the first quarter of 2020 decreased by 4% to $109 million, compared to the first quarter of 2019. In local currency terms, revenues decreased by 1% ~~compared to the second quarter of 2018,~~, mainly due to price reductions and a decline in volume resulting from competing glatiramer acetate products, partially offset by higher demand due to the ~~loss of revenues from the termination~~impact of the ~~PGT joint venture and volume decline due to specific market conditions~~

COVID-19

pandemic on purchasing patterns.

COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various European ~~Union countries, partially offset~~jurisdictions. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by ~~new generic product launches.~~the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.

Table of Contents

~~COPAXONE~~

Respiratory products

revenues in our Europe segment in the ~~second~~first quarter of ~~2019 decreased~~2020 increased by ~~24%~~16% to ~~$107~~$106 million, compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased~~increased by ~~19%~~20%, mainly due to ~~price reductions resulting from~~higher demand attributed to the ~~entry~~impact of ~~competing glatiramer acetate products.~~the

COVID-19

pandemic.

~~Revenues of COPAXONE~~

AJOVY

revenues in our Europe segment ~~were 27% of global COPAXONE revenues~~ in the ~~second~~first quarter of ~~2019, compared to 22%~~2020 were $4 million.

AJOVY was granted a Marketing Authorization in the ~~second quarter of 2018.~~

European Union by the European Medicines Agency (“EMA”) in a centralized process in April 2019. We commenced launching AJOVY in certain European markets in May 2019 and are moving forward with plans to launch in other European countries. In October 2019, we received approval from the EMA for AJOVY’s auto-injector submission in the European Union and we commenced launch in March 2020. For ~~further~~ information about ~~COPAXONE,~~AJOVY patent protection, see “—North America Revenues—Revenues by Major Product” above.

~~Respiratory products~~

revenues in our Europe segment in the second quarter of 2019 decreased by 16% to $89 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 11%, mainly due to lower sales in the United Kingdom.

Product Launches and Pipeline

As of ~~June 30, 2019,~~March 31, 2020, our generic products pipeline in Europe included ~~384~~88 generic approvals relating to 4927 compounds in ~~101~~49 formulations, ~~and~~no EMA approvals received. In addition, approximately ~~1,326~~1,115 marketing authorization applications pending approval in 37 European countries, relating to ~~144~~119 compounds in ~~296 formulations in 30 countries.~~236 formulations. No applications are pending with the EMA.

~~Table of Contents~~

For information regarding our specialty pipeline and launches in the ~~second~~first quarter of ~~2019,~~2020, see “—North America Segment —Product Launches and ~~Pipeline.”~~Pipeline” above.

Europe Gross Profit

Gross profit from our Europe segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$674~~$823 million, ~~a decrease~~an increase of 7%13% compared to ~~$727~~$730 million in the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~a decline in COPAXONE~~higher revenues, ~~and the impact of currency fluctuations, partially offset by new generic product launches.~~as discussed above.

Gross profit margin for our Europe segment in the ~~second~~first quarter of ~~2019~~2020 increased to ~~56.9%~~58.7%, compared to ~~54.7%~~57.8% in the ~~second~~first quarter of ~~2018. The~~2019. This increase was mainly due to a favorable mix of generic products and lower ~~cost of goods sold related to the termination of the PGT joint venture and network optimization.~~inventory write-offs.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$70~~$55 million, a decrease of 4%17% compared to ~~$73~~$66 million in the ~~second~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~second~~first quarter of ~~2019,~~2020, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$216~~$202 million, a decrease of 7%6% compared to ~~$233~~$215 million in the ~~second~~first quarter of ~~2018. The~~2019. This decrease was mainly due to ~~cost reductions~~lower marketing and ~~efficiency measures as part of~~travel costs attributed to travel restrictions related to the ~~restructuring plan.~~

COVID-19

pandemic.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$70~~$66 million, ~~a decrease~~an increase of ~~10%~~37% compared to ~~$78~~$48 million in the ~~second~~first quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.~~2019.

Europe Profit

Profit of our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Profit from our Europe segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$316~~$502 million, ~~a decrease~~an increase of 9%25%, compared to ~~$346~~$403 million in the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~lower~~higher revenues and ~~the impact~~lower expenses as discussed above.

Table of ~~currency fluctuations, partially offset by impact of cost reductions and efficiency measures as part of the restructuring plan.~~Contents

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended June 30,

2019

2018

(U.S. $ in millions / % of
Segment Revenues)

Revenues
$
741

100.0
% $
789

100.0
%
Gross profit

312

42.1
%
328

41.5
%
R&D expenses

24

3.2
%
25

3.2
%
S&M expenses

119

16.1
%
130

16.4
%
G&A expenses

34

4.7
%
37

4.7
%
Other (income) expense

(1
)
§

(3
)
§

Segment profit*
$
136

18.3
% $
139

17.6
%


	Three months ended March 31,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	565		100	%	$	521	100	%
Gross profit		305		54.0	%		269	51.7	%
R&D expenses		15		2.7	%		22	4.2	%
S&M expenses		106		18.8	%		115	22.0	%
G&A expenses		34		6.0	%		36	6.8	%
Other (income) expense		(6	)	(1.1	%)		—	§

Segment profit*	$	156		27.6	%	$	97	18.6	%

*	Segment profit does not include amortization and certain other items.

§	Represents an amount less than 0.5%.

**	The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

International Markets Revenues

Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical market. Our key international markets are ~~Israel,~~ Japan, Russia and ~~Russia.~~Israel. The countries in ~~this category range from~~our International Markets segment include highly regulated, pure generic markets, such as Israel, ~~to hybrid markets, such as Japan, to~~ branded generics oriented markets, such as Russia and certain ~~Commonwealth of Independent States (CIS),~~ Latin ~~American~~America markets and ~~Asia Pacific markets.~~hybrid markets such as Japan.

~~Table of Contents~~

Revenues from our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$741~~$565 million, ~~a decrease~~an increase of ~~$48~~$44 million, or 6%8%, compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased 2%~~increased by 5% compared to the ~~second~~first quarter of ~~2018,~~2019, mainly due to higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in ~~Japan, partially offset by higher~~Japan. The revenues in the first quarter of 2020 included $35 million from a positive hedging impact, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in ~~Russia.~~the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended
June 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
489
$
537

(9
%)
COPAXONE

13

22

(40
%)
Distribution

164

154

6
%
Other

75

76

(1
%)

Total
$
741
$
789

(6
%)


	Three months ended March 31,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	449	$	441		2	%
COPAXONE		12		13		(11	%)
Other		104		67		57	%

Total	$	565	$	521		8	%

*	The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

Table of Contents

Generic products

revenues in our International Markets segment in the ~~second~~first quarter of ~~2019,~~2020, which include OTC products, ~~decreased~~increased by 9%2% to ~~$489~~$449 million, compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased~~increased by 4%6%, mainly due to higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in Japan resulting from generic competition to

off-patented ~~products, partially offset by higher sales in Russia.~~

products.

COPAXONE

revenues in our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 decreased by ~~40%~~11% to $12 million, compared to $13 million ~~compared to~~in the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues decreased by ~~28%.~~

~~For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.~~

~~Distribution~~

~~revenues in our International Markets segment in the second quarter of 2019 increased by 6% to $164 million, compared to the second quarter of 2018. In local currency terms, revenues increased by 7%~~1%.

International Markets Gross Profit

Gross profit from our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$312~~$305 million, ~~a decrease~~an increase of 5%13% compared to ~~$328~~$269 million in the ~~second~~first quarter of ~~2018.~~2019.

Gross profit margin for our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 increased to ~~42.1%~~54.0%, compared to ~~41.5%~~51.7% in the ~~second~~first quarter of ~~2018. The~~2019. This increase was mainly due to ~~lower cost of goods~~higher sales and ~~portfolio optimization, mainly in Russia and Israel.~~the positive impact from the hedging activity discussed above.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$24~~$15 million, a decrease of 6%31% compared to ~~$25~~$22 million in the ~~second~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~second~~first quarter of ~~2019,~~2020, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 were ~~$119~~$106 million, a decrease of 8% compared to ~~$130~~$115 million in the ~~second~~first quarter of ~~2018. The~~2019. This decrease was mainly due to ~~cost reductions and efficiency measures as part of the restructuring plan.~~a decline in distribution fees paid in Japan.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 were $34 million, a decrease of 7%5% compared to ~~$37~~$36 million in the ~~second~~first quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.~~2019.

International Markets Profit

Profit of our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Profit from our International Markets segment in the ~~second~~first quarter of ~~2019~~2020 was ~~$136~~$156 million, ~~a decrease~~an increase of 2%61%, compared to ~~$139~~$97 million in the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~lower sales in Japan resulting from generic competition to off-patent products, partially offset by~~ higher sales ~~in Russia~~ and ~~cost reductions and efficiency measures as part of~~ the ~~restructuring plan.~~positive impact from the hedging activity discussed above.

~~Table of Contents~~

Other Activities

We have other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.

Our revenues from other activities in the ~~second~~first quarter of ~~2019~~2020 were ~~$342~~$307 million, ~~an increase~~a decrease of 6%3% compared to the ~~second~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~increased~~decreased by ~~10%, mainly due to higher revenues from API sales to third parties.~~2%.

API sales to third parties in the ~~second~~first quarter of ~~2019~~2020 were ~~$204~~$177 million, ~~an increase~~a decrease of ~~10%~~5%, in both U.S. dollar and local currency terms, compared to the ~~second~~first quarter of ~~2018.~~2019. This decrease was mainly due to timing of certain orders and divestment of certain activities.

Teva Consolidated Results

The

data presented with respect to revenues, gross profit, R&D expenses, S&M expenses, G&A expenses and operating income (loss) for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

Revenues

Revenues in the ~~second~~first quarter of ~~2019~~2020 were ~~$4,337~~$4,357 million, ~~a decrease~~an increase of ~~8%, or~~ 5% in both U.S. dollar and local currency terms, compared to the ~~second~~first quarter of ~~2018,~~2019. This increase was mainly due to ~~generic competition to COPAXONE, as well as declines in~~higher revenues from ~~TREANDA/BENDEKA, certain other specialty products~~generics and OTC sales in ~~the United States, our~~ Europe, ~~segment and Japan, partially offset by~~ higher revenues from AUSTEDO ~~AJOVY~~ and ~~QVAR~~Anda in North America and higher revenues from our International Markets segment, partially offset by lower revenues from generics in the ~~United States.~~U.S. and lower revenues from QVAR and BENDEKA/TREANDA in North America. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the ~~second~~first quarter of ~~2019~~2020, net of hedging, negatively impacted revenues by ~~$125~~$3 million compared to the ~~second~~first quarter of ~~2018.~~2019. See note 8d to our consolidated financial statements.

Table of Contents

Gross Profit

Gross profit in the ~~second~~first quarter of ~~2019~~2020 was ~~$1,893~~$2,063 million, ~~a decrease~~an increase of 7%11% compared to the ~~second~~first quarter of ~~2018. The decrease~~2019. This increase was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit as a percentage of revenues was ~~43.7%~~47.3% in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~43.2%~~44.7% in the ~~second~~first quarter of ~~2018.~~2019.

The increase in gross profit as a percentage of revenues was mainly due to ~~lower amortization expenses and~~ higher profitability in each of our three segments, primarily higher revenues from AUSTEDO, a favorable mix of generic products in North America, a favorable mix of generic products in Europe ~~mainly due to the termination of the PGT joint venture,~~and International Markets and a positive impact from our hedging activity, partially offset by higher revenues from Anda, which has lower ~~profitability in North America, resulting mainly from a decline in COPAXONE revenues due to generic competition.~~profitability.

Research and Development (R&D) Expenses

Net R&D expenses in the ~~second~~first quarter of ~~2019~~2020 were ~~$276~~$221 million, a decrease of 5%15% compared to the ~~second~~first quarter of ~~2018.~~2019.

Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.

Our R&D activities for specialty products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) life cycle management and post-approval studies for marketed products; and (v) indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects, such as the costs of internal administration, infrastructure and personnel.

In the ~~second~~first quarter of ~~2019,~~2020, our R&D expenses ~~were~~related primarily ~~related~~ to ~~generic products in our North America segment, as well as~~ specialty product candidates in the pain, migraine, headache and respiratory therapeutic areas, with additional activities in selected other ~~areas.~~areas and generic products.

Our lower R&D expenses in the ~~second~~first quarter of 2020, compared to the first quarter of 2019, ~~compared to~~resulted primarily from the ~~second quarter~~life cycle and stage of ~~2018 primarily resulted from pipeline optimization and project terminations and related headcount reductions.~~various projects.

R&D expenses as a percentage of revenues were ~~6.4%~~5.1% in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~6.2%~~6.3% in the ~~second~~first quarter of ~~2018.~~2019.

~~Table of Contents~~

Selling and Marketing (S&M) Expenses

S&M expenses in the ~~second~~first quarter of ~~2019~~2020 were ~~$666~~$613 million, a decrease of 2%5% compared to the ~~second~~first quarter of ~~2018.~~2019. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were ~~15.4%~~14.1% in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~14.5%~~15.6% in the ~~second~~first quarter of ~~2018.~~2019.

General and Administrative (G&A) Expenses

G&A expenses in the ~~second~~first quarter of ~~2019~~2020 were ~~$296~~$304 million, ~~a decrease~~an increase of 6%4% compared to the ~~second~~first quarter of 2018. Our G&A expenses were primarily the result of the factors discussed above under “—North America Segment— G&A Expenses,” “—Europe Segment— G&A Expenses” and “—International Markets Segment— G&A Expenses.”2019.

G&A expenses as a percentage of revenues were ~~6.8%~~7.0% in the ~~second~~first quarter of ~~2019,~~2020, flat compared to ~~6.7% in~~ the ~~second~~first quarter of ~~2018.~~2019.

Intangible Asset Impairments

We recorded expenses of ~~$561~~$649 million for identifiable intangible asset impairments in the ~~second~~first quarter of ~~2019,~~2020, compared to expenses of ~~$521~~$469 million in the ~~second~~first quarter of ~~2018.~~2019. See note 5 to our consolidated financial statements.

Goodwill Impairment

No goodwill impairments were recorded in the first quarters of both 2020 and 2019. See note 6 to our consolidated financial statements.

~~Goodwill Impairment~~52

Table of Contents

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $121 million for other asset impairments, restructuring and other items in the ~~second~~first quarter of ~~2019, there were no goodwill impairments recorded,~~2020, compared to ~~a goodwill impairment~~expenses of ~~$120~~$1 million in the ~~second~~first quarter of ~~2018. The goodwill impairment in the second quarter of 2018 was mainly attributable to goodwill associated with our Rimsa reporting unit (now included in our International Markets reporting unit).~~2019. See note 712 to our consolidated financial statements.

~~Other Assets Impairments, Restructuring and Other Items~~

We recorded expenses of $101 million for other assets impairments, restructuring and other items in the second quarter of 2019, compared to expenses of $194 million in the second quarter of 2018. See note 14 to our consolidated financial statements.

Significant regulatory events

In July 2018, the FDA completed an inspection of our manufacturing plant in Davie, Florida in the United States, and issued a Form FDA-483 to the site. In October 2018, the FDA notified us that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, we received a warning letter from the FDA that ~~contains~~contained four additional enumerated concerns related to production, quality control and investigations at this site. We ~~are~~have been working diligently to ~~remediate~~address the FDA’s concerns in a manner consistent with current good manufacturing practice ~~(CGMP)~~(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 we received a letter from the FDA dated April 24, 2020 notifying us that the site continues to be classified as OAI. If we are unable to remediate the ~~warning letter~~ findings to the FDA’s satisfaction, we may face additional ~~consequences, including~~consequences. These would potentially include 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. We expect to generate approximately ~~$142~~$230 million in revenues from this site ~~for the remainder of 2019,~~in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the ~~facility.~~facility, however delays in FDA approvals of future products from the site may occur.

In July 2018, we 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 found in valsartan API supplied to us by Zhejiang Huahai ~~Pharmaceutical.~~Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, we have been actively engaged with regulatory ~~agencies~~agency requests around the world in reviewing our ~~valsartan~~sartan and other ~~sartan~~ products ~~for~~to determine whether NDMA ~~and~~and/or other related nitrosamine impurities ~~and, where~~are present in specific products. Where necessary, we have initiated additional voluntary recalls. The aggregate direct impact of ~~this recall as of June 30, 2019~~the sartan recalls on our 2018 and 2019 financial statements was ~~$55~~$54 million, primarily related to inventory ~~reserves~~write-downs and returns. ~~We expect~~As a result of this loss, we initiated negotiations with Huahai and in December 2019, we reached a settlement with Huahai resolving our claims related to ~~continue~~certain sartan API supplied by Huahai to ~~experience loss~~Teva. Under the settlement agreement, Huahai agreed to compensate Teva for some of ~~revenues~~the direct losses suffered by Teva and ~~profits in connection with this matter.~~provide Teva prospective cost reductions for API. The settlement does not release Huahai from liability for any losses we 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. We~~matter, which may ~~also incur~~lead to additional customer penalties, impairments and litigation ~~costs~~costs. We expect additional expenses and loss of revenues and profits in connection with this matter going forward.

Restructuring

In the ~~second~~first quarter of ~~2019,~~2020, we recorded ~~$47~~$39 million of restructuring expenses, compared to ~~$107~~$32 million in the ~~second~~first quarter of ~~2018.~~2019. The expenses in the ~~second~~first quarter of ~~2019~~2020 were primarily related to ~~headcount reductions across all functions as part~~residual expenses of the restructuring plan announced in 2017.

~~The two-year restructuring plan announced in 2017 is intended to reduce our total cost base by $3 billion by the end of 2019.~~

~~Table of Contents~~

~~Since the announcement, we reduced our global headcount by approximately 11,145 full-time-equivalent employees.~~

Legal Settlements and Loss Contingencies

In the ~~second~~first quarter of ~~2019,~~2020, we recorded an ~~expense~~income of ~~$646~~$25 million in legal settlements and loss contingencies, compared to ~~$20~~an expense of $57 million in the ~~second~~first quarter of ~~2018.~~2019. The ~~expense~~income in the ~~second~~first quarter of ~~2019~~2020 was mainly ~~related~~due to a settlement of an action brought against the ~~$85 million settlement paid in the opioid litigation brought~~sellers of Auden McKenzie (an acquisition made by ~~the Oklahoma Attorney General and an estimated provision made for certain other opioid cases. See note 16 to our consolidated financial statements.~~Actavis Generics).

Other Income

Other income in the ~~second~~first quarter of ~~2019~~2020 was $9$13 million, compared to ~~$96~~$6 million in the ~~second~~first quarter of ~~2018. Other income in the second quarter of 2018 was primarily the result of legal recovery of lost profits, where U.S. patent infringement litigation had previously prevented a product’s sales.~~2019.

Operating Income (Loss)

Operating ~~loss~~income was ~~$644~~$191 million in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~$14~~operating income of $134 million in the ~~second~~first quarter of ~~2018.~~2019.

Operating ~~loss~~income as a percentage of revenues was ~~14.8%~~4.4% in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~0.3%~~3.2% in the ~~second~~first quarter of ~~2018. The~~2019. This increase was mainly due to ~~legal settlements and loss contingencies expenses, lower~~higher profit in our Europe, International Markets and North America ~~segment~~segments and income from legal settlements (compared to an expense in the first quarter of 2019), partially offset by higher intangible asset impairments ~~partially offset by goodwill impairment in the second quarter of 2018 which did not recur in the second quarter of 2019~~ and ~~lower~~higher other assets impairments, restructuring and other ~~items.~~items in the first quarter of 2020.

Financial Expenses, Net

Financial expenses were ~~$206~~$224 million in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~$236~~$218 million in the ~~second~~first quarter of ~~2018.~~2019. Financial expenses in the ~~second~~first quarter of 2020 and 2019 were mainly comprised of interest expenses of ~~$226 million. Financial expenses in the second quarter~~$241 million and $227 million, respectively.

Table of ~~2018 were mainly comprised of interest expenses of $231 million.~~Contents

Three months ended
June 30,

2019

2018

(U.S. $ in millions)

North America profit
$
504
$
722

Europe profit

316

346

International Markets profit

136

139

Total segment profit

956

1,207

Profit of other activities

55

31

1,011

1,238

Amounts not allocated to segments:

Amortization

285

302

Other assets impairments, restructuring and other items

101

194

Goodwill impairment

—

120

Intangible asset impairments

561

521

Gain on divestitures, net of divestitures related costs

(9
)
10

Other R&D expenses

§

—

Costs related to regulatory actions taken in facilities

12

4

Legal settlements and loss contingencies

646

20

Other unallocated amounts

59

81

Consolidated operating income (loss)

(644
)
(14
)

Financial expenses, net

206

236

Consolidated income (loss) before income taxes
$
(850
) $
(250
)

§	~~Represents an amount less than $1 million.~~


	Three months ended March 31,
	2020			2019
	(U.S. $ in millions)
North America profit	$	550		$	498

Europe profit		502			403
International Markets profit		156			97

Total reportable segments profit		1,208			998
Profit of other activities		36			21

Total segments profit		1,244			1,019
Amounts not allocated to segments:
Amortization		258			283
Other assets impairments, restructuring and other items		121			1
Intangible asset impairments		649			469
Legal settlements and loss contingencies		(25	)		57
Other unallocated amounts		49			75

Consolidated operating income (loss)		191			134

Financial expenses, net		224			218

Consolidated income (loss) before income taxes	$	(33	)	$	(84	)

~~Table of Contents~~

Tax Rate

In the ~~second~~first quarter of 2020, we recognized a tax benefit of $59 million, on

pre-tax

loss of $33 million. In the first quarter of 2019, we recognized a tax ~~benefit~~expense of ~~$179~~$9 million, ~~or 21%,~~ on

pre-tax

loss of ~~$850 million. In the second quarter of 2018, we recognized a tax benefit of $76 million, or 30%, on pre-tax loss of $250~~$84 million. Our tax rate for the ~~second~~first quarter of ~~2019~~2020 was mainly affected by impairments ~~amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.~~

in jurisdictions in which tax rates are higher than Teva’s average tax rate on its ongoing business operations.

The statutory Israeli corporate tax rate is 23% in ~~2019.~~2020. Our tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.

Share inIn Losses (Income) of Associated Companies, Net

~~We had no share~~Share in ~~income~~losses of associated companies, net in the ~~second~~first quarter of ~~2019,~~2020 was $1 million, compared to $8$4 million in the ~~second~~first quarter of ~~2018.~~2019.

Net Income (Loss)

Attributable to Teva

Net ~~loss~~income attributable to Teva ~~was $689 million in the second quarter of 2019, compared to $176 million in the second quarter of 2018.~~

~~Net loss~~and net income attributable to ordinary shareholders ~~was $689~~were $69 million in the ~~second~~first quarter of ~~2019,~~2020, compared to net loss of ~~$241~~$105 million in the ~~second~~first quarter of ~~2018.~~2019.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were ~~1,092~~1,096 million and ~~1,018~~1,090 million shares, respectively.

non-vested

In computing diluted loss per share for the three months ended ~~June 30,~~March 31, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and

non-vested

RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 63 million shares (including shares that were issued due to unpaid dividends until that date) for the three months ended June 30, 2018, since they had an anti-dilutive effect on loss per share.

~~On December 17, 2018, the mandatory convertible preferred shares automatically converted into ADSs and all~~

Table of ~~the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs. As a result of this conversion, we issued 70.6 million ADSs in December 2018.~~Contents

Diluted ~~loss~~earnings per share ~~was $0.63~~were $0.06 in the ~~second~~first quarter of ~~2019,~~2020, compared to diluted loss per share of ~~$0.24~~$0.10 in the ~~second~~first quarter of ~~2018.~~2019.

Share Count for Market Capitalization

We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and performance share units (“PSUs”) and the conversion of our convertible senior debentures, in each case, at period end.

As of ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,107~~1,118 million and ~~1,109~~1,107 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the ~~second~~first quarter of ~~2019,~~2020, approximately 50% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, new Israeli shekel, Canadian dollar ~~Polish zloty, Argentinean peso, Turkish lira~~ and Russian ruble) impact our results.

During the ~~second~~first quarter of ~~2019,~~2020, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on a quarterly average compared to quarterly average basis): Argentinian peso by ~~47%, Turkish lira by 26%, Hungarian forint by 8%~~37%, euro by ~~6%,~~3% and British pound by ~~6%, Polish zloty by 6%, Russian ruble by 4%, Indian rupee by 4%, Canadian dollar by 4%, Swiss franc by~~ 2%,. The following main currencies relevant to our operations increased in value against the U.S. dollar: new Israeli shekel by 1%4% and Japanese yen by 1%.

As a result, exchange rate movements during the ~~second~~first quarter of ~~2019~~2020, net of hedging, negatively impacted overall revenues by ~~$125~~$3 million and positively impacted our operating income by ~~$41~~$27 million, in comparison with the ~~second~~first quarter of ~~2018.~~2019. In the first quarter of 2020, the positive hedging impact recognized under revenues was $60 million, partially offset by a $5 million negative impact recognized under cost of sales. Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

~~Table of Contents~~

~~Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018~~

The factors used to explain quarterly changes on a year-over-year basis are also generally relevant to a comparison of the results for the six months ended June 30, 2019 and 2018. Additional factors affecting the six months comparison are described below.

~~The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements:~~

Percentage of Net Revenues

Percentage
Change
2019
-
2018

Six Months Ended
June 30,

2019

2018

%

%

%

Net revenues

100.0

100.0

(12
)
Gross profit

43.4

44.5

(14
)
Research and development expenses

6.2

6.2

(12
)
Selling and marketing expenses

15.2

14.5

(7
)
General and administrative expenses

6.8

6.6

(9
)
Other asset impairments, restructuring and other items

1.2

7.1

(85
)
Goodwill impairment

—

3

—

Legal settlements and loss contingencies

8.1

(12.9
)
—

Other income

(0.2
)
(3.1
)
(95
)
Operating income (loss)

(5.9
)
15.6

—

Financial expenses, net

4.9

5.2

(16
)
Income (loss) before income taxes

(10.8
)
10.4

—

Tax benefit

(2.0
)
(0.3
)
466

Share in (profits) losses of associated companies, net

§

0.7

—

Net income (loss) attributable to non-controlling interests

(0.3
)
0.2

—

Net income (loss) attributable to Teva

(9.2
)
9.7

—

Dividends on preferred shares

—

1.3

—

Net income (loss) attributable to ordinary shareholders

(9.2
)
8.3

—

§	~~Represents an amount less than 0.5%.~~

~~Segment Information~~

~~North America Segment~~

~~The following table presents revenues, expenses and profit for our North America segment for the six months ended June 30, 2019 and 2018:~~

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
4,118

100.0
% $
4,794

100.0
%
Gross profit

2,107

51.2
%
2,582

53.9
%
R&D expenses

340

8.3
%
370

7.7
%
S&M expenses

537

13.0
%
548

11.4
%
G&A expenses

230

5.6
%
229

4.8
%
Other (income) expense

(2
)
§

(202
)
(4.2
%)

Segment profit*
$
1,001

24.3
% $
1,637

34.1
%

*	~~Segment profit does not include amortization and certain other items.~~

§	~~Represents an amount less than 0.5%.~~

~~Table of Contents~~

~~North America Revenues~~

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first six months of 2019 were $4,118 million, a decrease of $676 million, or 14%, compared to the first six months of 2018.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our North America segment by major products and activities for the six months ended June 30, 2019 and 2018:~~

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,913
$
2,035

(6
%)
COPAXONE

482

940

(49
%)
TREANDA/BENDEKA

229

341

(33
%)
ProAir*

123

245

(50
%)
QVAR

124

137

(10
%)
AJOVY

43

—

N/A

AUSTEDO

171

74

130
%
Anda

729

651

12
%
Other

305

372

(18
%)

Total
$
4,118
$
4,794
(14 %)

*	~~Does not include sales of ProAir authorized generic, which are included under generics.~~

~~Table of Contents~~

~~North America Gross Profit~~

~~Gross profit from our North America segment in the first six months of 2019 was $2,107 million, a decrease of 18%, compared to $2,582 million in the first six months of 2018.~~

~~Gross profit margin for our North America segment in the first six months of 2019 decreased to 51.2% from 53.9% in the first six months of 2018.~~

~~North America R&D Expenses~~

~~R&D expenses relating to our North America segment in the first six months of 2019 were $340 million, a decrease of 8%, compared to $370 million in the first six months of 2018.~~

~~North America S&M Expenses~~

~~S&M expenses relating to our North America segment in the first six months of 2019 were $537 million, a decrease of 2%, compared to $548 million in the first six months of 2018.~~

~~North America G&A Expenses~~

~~G&A expenses relating to our North America segment in the first six months of 2019 were $230 million, flat compared to the first six months of 2018.~~

~~North America Other Income~~

~~Other income from our North America segment in the first six months of 2019 was $2 million, compared to $202 million in the first six months of 2018.~~

~~North America Profit~~

~~Profit from our North America segment in the first six months of 2019 was $1,001 million, a decrease of 39%, compared to $1,637 million in the first six months of 2018.~~

~~Table of Contents~~

~~Europe Segment~~

~~The following table presents revenues, expenses and profit for our Europe segment for the six months ended June 30, 2019 and 2018:~~

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
2,448

100
% $
2,770

100
%
Gross profit

1,404

57.4
%
1,519

54.9
%
R&D expenses

136

5.5
%
146

5.3
%
S&M expenses

431

17.6
%
483

17.5
%
G&A expenses

119

4.8
%
169

6.1
%
Other (income) expense

(1
)
§

(2
)
§

Segment profit*
$
719

29.4
% $
723

26.1
%

*	~~Segment profit does not include amortization and certain other items.~~

§	~~Represents an amount less than 0.5%.~~

~~Europe Revenues~~

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first six months of 2019 were $2,448 million, a decrease of 12% or $322 million, compared to the first six months of 2018. In local currency terms, revenues decreased by 5% compared to the first six months of 2018.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our Europe segment by major products and activities for the six months ended June 30, 2019 and 2018:~~

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,763
$
1,904

(7
%)
COPAXONE

221

293

(25
%)
Respiratory products

181

219

(18
%)
Other

283

354

(20
%)

Total
$
2,448
$
2,770

(12
%)

~~Table of Contents~~

~~Europe Gross Profit~~

~~Gross profit from our Europe segment in the first six months of 2019 was $1,404 million, a decrease of 8% compared to $1,519 million in the first six months of 2018.~~

~~Gross profit margin for our Europe segment in the first six months of 2019 increased to 57.4% from 54.9% in the first six months of 2018.~~

~~Europe R&D Expenses~~

~~R&D expenses relating to our Europe segment in the first six months of 2019 were $136 million, a decrease of 7% compared to $146 million in the first six months of 2018.~~

~~Europe S&M Expenses~~

~~S&M expenses relating to our Europe segment in the first six months of 2019 were $431 million, a decrease of 11% compared to $483 million in the first six months of 2018.~~

~~Europe G&A Expenses~~

~~G&A expenses relating to our Europe segment in the first six months of 2019 were $119 million, a decrease of 30% compared to $169 million in the first six months of 2018.~~

~~Europe Profit~~

~~Profit from our Europe segment in the first six months of 2019 was $719 million, flat compared to the first six months of 2018.~~

~~International Markets Segment~~

~~The following table presents revenues, expenses and profit for our International Markets segment for the six months ended June 30, 2019 and 2018:~~

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of
Segment Revenues)

Revenues
$
1,409

100.0
% $
1,539

100.0
%
Gross profit

582

41.3
%
641

41.6
%
R&D expenses

46

3.2
%
49

3.2
%
S&M expenses

234

16.6
%
264

17.2
%
G&A expenses

70

5.0
%
78

5.1
%
Other (income) expense

(1
)
§

(11
)
(0.7
%)

Segment profit*
$
233

16.5
% $
261

17.0
%

*	~~Segment profit does not include amortization and certain other items.~~

§	~~Represents an amount less than 0.5%.~~

~~International Markets Revenues~~

Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first six months of 2019 were $1,409 million, a decrease of $130 million, or 8%, compared to the first six months of 2018. In local currency terms, revenues decreased by 3% compared to the first six months of 2018.

~~Table of Contents~~

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our International Markets segment by major products and activities for the six months ended June 30, 2019 and 2018:~~

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
930
$
1,025

(9
%)
COPAXONE

27

38

(31
%)
Distribution

315

307

3
%
Other

137

168

(19
%)

Total
$
1,409
$
1,539

(8
%)

~~International Markets Gross Profit~~

~~Gross profit from our International Markets segment in the first six months of 2019 was $582 million, a decrease of 9% compared to $641 million in the first six months of 2018.~~

Gross profit margin for our International Markets segment in the first six months of 2019 decreased to 41.3%, from 41.6% in the first six months of 2018. The decrease was mainly due to lower sales in Japan, partially offset by higher sales in Russia.

~~International Markets R&D Expenses~~

~~R&D expenses relating to our International Markets segment in the first six months of 2019 were $46 million, a decrease of 7% compared to $49 million in the first six months of 2018.~~

~~International Markets S&M Expenses~~

~~S&M expenses relating to our International Markets segment in the first six months of 2019 were $234 million, a decrease of 11% compared to $264 million in the first six months of 2018.~~

~~International Markets G&A Expenses~~

~~G&A expenses relating to our International Markets segment in the first six months of 2019 were $70 million, a decrease of 10% compared to $78 million in the first six months of 2018.~~

~~International Markets Profit~~

~~Profit from our International Markets segment in the first six months of 2019 was $233 million, compared to $261 million in the first six months of 2018.~~

~~Table of Contents~~

~~Other Activities~~

~~Our revenues from other activities in the first six months of 2019 decreased by 1% to $658 million, compared to the first six months of 2018. In local currency terms, revenues increased by 2%.~~

~~API sales to third parties in the first six months of 2019 increased by 7%, in both U.S. dollar and local currency terms, to $390 million, compared to the first six months of 2018.~~

~~Teva Consolidated Results~~

~~Revenues~~

~~Revenues in the first six months of 2019 were $8,632 million, a decrease of 12% or 9% in local currency terms, compared to the first six months of 2018.~~

~~Exchange rate movements during the first six months of 2019 compared to the first six months of 2018 negatively impacted revenues by $301 million.~~

~~Gross Profit~~

~~Gross profit in the first six months of 2019 was $3,749 million, a decrease of $599 million compared to the first six months of 2018.~~

~~Gross profit as a percentage of revenues was 43.4% in the first six months of 2019, compared to 44.5% in the first six months of 2018.~~

~~Research and Development (R&D) Expenses~~

~~Net R&D expenses in the first six months of 2019 were $537 million, a decrease of 12% compared to the first six months of 2018.~~

~~R&D expenses as a percentage of revenues were 6.2% in the first six months of 2019, flat compared to the first six months of 2018.~~

~~Table of Contents~~

~~Selling and Marketing (S&M) Expenses~~

~~S&M expenses in the first six months of 2019 were $1,313 million, a decrease of 7% compared to the first six months of 2018.~~

~~S&M expenses as a percentage of revenues were 15.2% in the first six months of 2019, compared to 14.5% in the first six months of 2018.~~

~~General and Administrative (G&A) Expenses~~

~~G&A expenses in the first six months of 2019 were $589 million, a decrease of 9% compared to the first six months of 2018.~~

~~G&A expenses as a percentage of revenues were 6.8% in the first six months of 2019, compared to 6.6% in the first six months of 2018.~~

~~Intangible Asset Impairments~~

We recorded expenses of $1,030 million for identifiable intangible asset impairments in the first six months of 2019, compared to expenses of $727 million in the first six months of 2018. See note 6 to our consolidated financial statements.

~~Goodwill Impairment~~

In the first six months of 2019, there were no goodwill impairments recorded, compared to a $300 million goodwill impairment charge recorded in the first six months of 2018. See note 7 to our consolidated financial statements.

~~Other Asset Impairments, Restructuring and Other Items~~

We recorded expenses of $103 million for other asset impairments, restructuring and other items in the first six months of 2019, compared to expenses of $695 million in the first six months of 2018. See note 14 to our consolidated financial statements.

~~Table of Contents~~

~~Legal Settlements and Loss Contingencies~~

In the first six months of 2019, we recorded an expense of $703 million in legal settlements and loss contingencies, compared to an income of $1,258 million in the first six months of 2018. The expense in the first six months of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases. See note 16 to our consolidated financial statements.

~~Other Income~~

~~Other income in the first six months of 2019 was $15 million, compared to $299 million in the first six months of 2018.~~

~~Other income as a percentage of revenues was 0.2% in the first six months of 2019, compared to 3.1% in the first six months of 2018.~~

~~Operating Income (Loss)~~

~~Operating loss was $510 million in the first six months of 2019, compared to an operating income of $1,511 million in the first six months of 2018.~~

~~Financial Expenses, Net~~

~~Financial expenses were $425 million in the first six months of 2019, compared to $507 million in the first six months of 2018.~~

Financial expenses in the first six months of 2019 were mainly comprised of interest expenses of $454 million, partially offset by $27 million of interest income. Financial expenses in the first six months of 2018 were mainly comprised of interest expenses of $449 million and $60 million of early redemption charges and accelerated amortization related to the repayment of senior notes and term loans in the first quarter of 2018.

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the six months ended June 30, 2019 and 2018:

Six months ended
June 30,

2019

2018

(U.S. $ in millions)

North America profit
$
1,001
$
1,637

Europe profit

719

723

International Markets profit

233

261

Total segment profit

1,954

2,621

Profit of other activities

76

52

2,029

2,673

Amounts not allocated to segments:

Amortization

568

612

Other asset impairments, restructuring and other items

103

695

Goodwill impairment

—

300

Intangible asset impairments

1,030

727

Gain on divestitures, net of divestitures related costs

(9
)
(83
)
Other R&D expenses

§

22

Costs related to regulatory actions taken in facilities

16

5

Legal settlements and loss contingencies

703

(1,258
)
Other unallocated amounts

129

142

Consolidated operating income (loss)

(510
)
1,511

Financial expenses, net

425

507

Consolidated income (loss) before income taxes
$
(934
) $
1,004

§	~~Represents an amount less than $1 million.~~

~~Table of Contents~~

~~Tax Rate~~

In the first six months of 2019, we recognized a tax benefit of $170 million, on pre-tax loss of $934 million. In the first six months of 2018, we recognized a tax benefit of $30 million, on pre-tax income of $1,004 million. Our tax rate for the first six months of 2019 was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.

~~Share in Losses (Income) of Associated Companies, Net~~

~~Share in losses of associated companies, net in the first six months of 2019 was $4 million, compared to share in losses of $66 million in the first six months of 2018.~~

~~Net Income (Loss)~~

~~Net loss attributable to Teva was $794 million in the first six months of 2019, compared to net income attributable to Teva of $944 million in the first six months of 2018.~~

~~Net loss attributable to ordinary shareholders was $794 million in the first six months of 2019, compared to net income of $814 million in the first six months of 2018.~~

~~Diluted Shares Outstanding and Earnings (Loss) per Share~~

The weighted average diluted shares outstanding used for the fully diluted share calculation for the six months ended June 30, 2019 and 2018 were 1,091 million and 1,020 million shares, respectively.

In computing diluted loss per share for the six months ended June 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and non-vested RSUs granted under employee stock compensation plans and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Diluted earnings per share for the six months ended June 30, 2018 take into account the potential dilution that could occur upon the exercise of options and non-vested RSUs granted under employee stock compensation plans, using the treasury stock method.

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 65 million shares (including shares that may be issued due to unpaid dividends to date) for the six months ended June 30, 2018, since they had an anti-dilutive effect on loss per share.

~~Diluted loss per share was $0.73 in the first six months of 2019, compared to diluted earnings per share of $0.80 in the first six months of 2018.~~

~~Impact of Currency Fluctuations on Results of Operations~~

In the first six months of 2019, approximately 49% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results. During the first six months of 2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinean peso by 48%, Turkish lira by 27%, Russian ruble by 9%, Hungarian forint by 9%, Polish zloty by 8%, euro by 7%, British pound by 6%, Indian rupee by 6%, Canadian dollar by 4%, new Israeli shekel by 3% and Japanese yen by 1% (all compared on a six-monthly average basis).

As a result, exchange rate movements during the first six months of 2019 negatively impacted overall revenues by $301 million and our operating income by $91 million, in comparison to the first six months of 2018.

Liquidity and Capital Resources

Total balance sheet assets were ~~$59,424~~$55,330 million as of ~~June 30, 2019,~~March 31, 2020, compared to ~~$59,854~~$57,470 million as of ~~March~~December 31, 2019.

Our working capital balance, which includes ~~trade~~accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, ~~trade~~accounts payables, employee-related obligations, accrued expenses and other current liabilities, was ~~$65 million as of June 30, 2019, compared to $59~~$302 million as of March 31, 2020, compared to $74 million as of December 31, 2019.

~~Trade receivables as of June 30, 2019 were $5,260 million, compared to $5,108 million~~Employee-related obligations, as of March 31, 2020, were $540 million, compared to $693 million as of December 31, 2019. The ~~increase~~decrease in the ~~second~~first quarter of ~~2019~~2020 was mainly due to ~~timing of sales within the quarter and timing of issuance of credit memos~~performance incentive payments to ~~customers. SR&A as of June 30, 2019 was $6,054 million, compared to $6,200 million as of March 31,~~employees for 2019. The reduction in the second quarter of 2019 is attributable to the payout of certain rebates, primarily managed care and Medicaid for prior periods. Payments exceed new provisions for the current period due to a decline in sales resulting in overall reduction to the liability.

~~Table of Contents~~

Accrued expenses as of June 30, 2019, were $2,335 million, compared to $1,869 million as of March 31, 2019. The increase in the second quarter of 2019 was mainly due to provisions made under legal settlements and loss contingencies.

~~Investment~~Cash investment in property, plant and equipment in the ~~second~~first quarter of ~~2019~~2020 was approximately ~~$112~~$128 million, compared to ~~$125~~$119 million in the ~~first~~fourth quarter of 2019. Depreciation in the ~~second~~first quarter of ~~2019~~2020 was ~~$153~~$141 million, compared to ~~$152~~$153 million in the ~~first~~fourth quarter of 2019.

Cash and cash equivalents and short-term and long-term investments as of ~~June 30, 2019~~March 31, 2020 were ~~$2,232~~$1,850 million, compared to ~~$2,040~~$2,033 million as of ~~March~~December 31, 2019.

The ~~increase~~decrease in the ~~second~~first quarter of ~~2019~~2020 was mainly due to repayment at maturity of our $700 million 2.25% senior note in March 2020, partially offset by cash generated during the quarter.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion unsecured syndicated revolving credit facility entered into in April 2019 (“~~RCF”~~RCF��).

InThe RCF agreement provides for two separate tranches, a $1.15 billion tranche A and a $1.15 billion tranche B. Loans and letters of credit will be available from time to time under each tranche for Teva’s general corporate purposes. Tranche A has a maturity date of April ~~2019, we entered into~~8, 2022, with two

one-year

extension options, of which $1.0 billion were extended to April 8, 2023. Tranche B has a ~~$2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion revolving credit facility.~~ maturity date of April 8, 2024.

Table of Contents

The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~June 30, 2019,~~March 31, 2020, no amounts were ~~outstanding under the RCF. As of the date of this report, $500 million was~~ outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date ~~that~~ the financial statements are issued.

Under specified circumstances, including

non-compliance

with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under our senior notes due to cross acceleration provisions.

We expect that we will continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that the financial statements are issued.

Debt Balance and Movements

~~During the first quarter of 2019, we repurchased and canceled approximately $126 million principal amount of our $1,700 million 1.7% senior notes due July 2019.~~

~~During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our $1,574 million 1.7% senior notes due July 2019.~~

In ~~July 2019,~~March 2020, we repaid at maturity our ~~$1,556~~$700 million ~~1.7%~~2.25% senior notes.

Our debt as of ~~June 30, 2019~~March 31, 2020 was effectively denominated in the following currencies: ~~66%~~64% in U.S. dollars, ~~32%~~33% in euros and 2%3% in Swiss francs.

The portion of total debt classified as short-term as of ~~June 30, 2019~~March 31, 2020 was ~~10%~~6%, ~~similar~~compared to ~~March~~9% as of December 31, 2019.

Our financial leverage was ~~65% as of June 30, 2019, a slight increase compared to~~ 64% as of March 31, 2020, similar to the financial leverage as of December 31, 2019.

Our average debt maturity was approximately ~~6.3 years as of June 30, 2019, compared to~~ 6.6 years as of March 31, 2020, compared to 6.4 years as of December 31, 2019.

Total Equity

Total equity was ~~$15,251 million as of June 30, 2019, compared to $15,821~~$14,588 million as of March 31, 2020, compared to $15,063 million as of December 31, 2019. ~~The~~This decrease was mainly due to ~~net loss~~a negative impact of ~~$671~~$560 million ~~partially offset by $86 million in~~from exchange rate ~~fluctuations in the second quarter of 2019.~~fluctuations.

Exchange rate fluctuations affected our balance sheet, as approximately 36% of our net assets in the ~~second~~first quarter of ~~2019~~2020 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to ~~March~~December 31, 2019, changes in currency rates had a ~~positive~~negative impact of ~~$86~~$560 million on our equity as of ~~June 30, 2019,~~March 31, 2020, mainly due to the changes in value against the U.S. dollar of: the ~~Japanese yen~~Mexican peso by ~~3%, the euro by 1%~~26%, the Russian ruble by 4%28%, the Canadian dollar by 8%, the Polish zloty by 8%, the British pound by 3%6%, Indian rupee by 6%, the ~~Canadian dollar~~Chilean peso by 2%4%, Croatian kuna by 4% and the ~~Polish zloty~~euro by 3%2%. All comparisons are on a

quarter-end

basis.

~~Table of Contents~~

Cash Flow

Cash flow generated from operating activities during the first quarter of 2020 was $305 million, compared to $112 million in the ~~second~~first quarter of ~~2019, net~~2019. The increase in the first quarter of 2020 was mainly due to higher operating profit in each of our three segments, as well as lower performance incentive payments to employees paid in the first quarter of 2020 compared to the amounts paid in the first quarter of 2019.

During the first quarter of 2020, we generated free cash ~~received for capital investments and~~flow of $551 million, which we define as comprising $305 million in cash flow generated from operating activities, $368 million in beneficial interest collected in exchange for securitized ~~trade~~accounts receivables ~~was $168 million, compared to $559~~and $6 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $128 million in cash used for capital investment. During the ~~second~~first quarter of ~~2018. The decrease~~2019, we generated free cash flow of $360 million, comprising $112 million in cash flow ~~was~~generated from operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables and $11 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $125 million in cash used for capital investment. The increase in the first quarter of 2020 resulted mainly ~~due to the reasons mentioned above.~~from higher cash flow generated from operating activities, including significant consumption of inventories.

Dividends

We have not paid dividends on our ordinary shares or ADSs since December 2017.

Table of Contents

Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities.

In September 2016, we entered into an agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. We paid Regeneron $250 million upfront and will share equally with Regeneron in the global commercial benefits of this product, as well as ongoing associated R&D costs of approximately $1.0 billion. ~~Milestone~~The agreement stipulates additional development milestone payments ~~of $25 million, $35 million and $60 million were paid in the second quarter of 2017, the first quarter of 2018 and the fourth quarter of 2018, respectively.~~to Regeneron, as well as future royalties.

In October 2016, we entered into an exclusive partnership with Celltrion to commercialize two of Celltrion’s biosimilar products in development for the U.S. and Canadian markets. We paid Celltrion $160 million, of which up to $60 million is refundable or ~~creditable under certain circumstances.~~creditable. We will share the profit from the commercialization of these products with Celltrion. These two products, ~~Truxima~~TRUXIMA and ~~Herzuma,~~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.

In September 2017, we entered into a partnership agreement with Nuvelution for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. ~~Nuvelution will fund and manage~~There are no further plans in this indication following clinical ~~development, driving all operational aspects of the phase 3 program, and we will lead the regulatory process and be responsible for commercialization. Upon and subject~~trial results received in February 2020, which failed to ~~FDA approval of AUSTEDO for Tourette syndrome, we will pay Nuvelution a pre-agreed return.~~meet their primary endpoints.

We are committed to pay royalties to owners of

know-how,

partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

~~2019~~2020 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form

10-K

for the year ended December 31, ~~2018, other than as set forth below.~~

2019.

~~For a description of our new revolving credit facility entered into in April 2019, see “—Liquidity and Capital Resources” above.~~Supplemental

Non-GAAP

~~Supplemental Non-GAAP~~ Income Data

We utilize certain

non-GAAP

financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize the

non-GAAP

measures:

our management and Board of Directors use the

non-GAAP

measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management;

our annual budgets are prepared on a

non-GAAP

basis; and

senior management’s annual compensation is derived, in part, using these

non-GAAP

measures. While qualitative factors and judgment also affect annual bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, which is based on the

non-GAAP

presentation set forth below.

~~Table of Contents~~

Non-GAAP

financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such

non-GAAP

data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP,

non-GAAP

measures may not be comparable with the calculation of similar measures for other companies. These

non-GAAP

financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using

non-GAAP

financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

Investors should consider

non-GAAP

financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In arriving at our

non-GAAP

presentation, we exclude items that either have a

non-recurring

impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

Table of Contents

amortization of purchased intangible assets;

legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and scope;

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

acquisition- or ~~divestment-related~~divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventory

step-up

and

in-process

R&D acquired in development arrangements;

expenses related to our equity compensation;

significant

one-time

financing costs and devaluation losses;

~~deconsolidation charges;~~

unusual tax items;

other awards or settlement amounts, either paid or received;

other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, such as inventory write-offs or related consulting costs, or other unusual events; and

corresponding tax effects of the foregoing items.

The following tables present supplemental

non-GAAP

data, in U.S. dollar, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts:

Three months ended
June 30,

Six months ended
June 30,

2019

2018

2019

2018

(U.S. $ in millions)

Gain on divestitures, net of divestitures related costs

(9
)
10

(9
)
(83
)
Amortization of purchased intangible assets

285

302

568

612

Restructuring expenses

47

107

79

354

Equity compensation expenses

35

47

69

77

Costs related to regulatory actions taken in facilities

12

4

16

5

Acquisition, integration and related expenses

—

3

2

5

Other R&D expenses

—

—

—

22

Contingent consideration

24

47

(47
)
55

Legal settlements and loss contingencies

646

20

703

(1,258
)
Goodwill impairment

—

120

—

300

Impairment of long-lived assets

609

548

1,097

980

Other non-GAAP items

6

44

60

93

Financial expense (income)

8

(2
)
6

66

Minority interest

(8
)
(12
)
(16
)
(20
)
Impairments of equity investments

—

—

—

94

Corresponding tax effect

(312
)
(203
)
(429
)
(368
)

Table of Contents

The following table presents the GAAP measures, related

non-GAAP

adjustments and the corresponding

non-GAAP

amounts for the applicable periods:

Three months ended June 30, 2019

U.S. $ and shares in millions (except per share amounts)

Excluded for non-GAAP measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Legal
settlements
and loss
contin-
gencies

Impair-
ment
of long-
lived
assets

Restruc-
turing
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compen-
sation

Contin-
gent
conside-
ration

Gain on
sale of
business

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non-
GAAP

Cost of Sales

2,443

249

12

7

26

2,149



R&D expenses

276

6

—

271

S&M expenses

666

35

10

621

G&A expenses

296

12

(2
)
286

Other (income) expenses

(9
)
(9
)
(0
)

Legal settlements and loss contingencies

646

646

—

Other assets impairments, restructuring and other items

101

48

47

24

(18
)
—

Intangible assets impairment

561

561

—

Financial expenses, net

206

8

198

Income taxes

(179
)
(312
)
134

Net income (loss) attributable to non-controlling interests

18

(8
)
26

Total reconciled items

285

646

609

47

12

35

24

(9
)
6

(0
)
(312
)

EPS—Basic

(0.63
)
1.23

0.60

EPS—Diluted

(0.63
)
1.23

0.60


	Three Months Ended March 31, 2020
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP			Amortization of purchased intangible assets		Legal settlements and loss contingencies			Impairment of long lived assets		Other R&D expenses			Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Other non- GAAP items		Other items			Non-GAAP
Cost of sales		2,294			223												4		6				15					2,046
R&D expenses		221										(4	)						5				—					221
S&M expenses		613			35														9				—					570
G&A expenses		304																	10				4					290
Other (income) expense		(13	)																				0					(13	)
Legal settlements and loss contingencies		(25	)				(25	)																				—
Other assets impairments, restructuring and other items		121								75					39						6		1					—
Intangible assets impairments		649								649																		—
Financial expenses, net		224																							11			213
Income taxes		(59	)																						(234	)		175
Share in losses of associated companies – net		1																							—			1
Net income (loss) attributable to non-controlling interests		(44	)																						(63	)		20

Total reconciled items					258		(25	)		724		(4	)		39		4		30		6		20		(286	)

EPS - Basic		0.06																							0.70			0.76
EPS - Diluted		0.06																							0.70			0.76

The

~~The~~ non-GAAP

diluted weighted average number of shares was ~~1,093~~1,096 million for the three months ended ~~June 30, 2019.~~

March 31, 2020.

Table of Contents

Three months ended June 30, 2018

U.S. $ and shares in millions (except per share amounts)

Excluded for non-GAAP measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Legal
settlements
and loss
contin-
gencies

Impair-
ment
of long-
lived
assets

Acquisition,
integration
and related
expenses

Restruc-
turing
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compens-
ation

Contin-
gent
conside-
ration

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non-
GAAP

Cost of Sales

2,668

261

4

9

32

2,362

R&D expenses

290

9

—

281



S&M expenses

682

41

12

(5
)
634

G&A expenses

316

17

7

292

Other (income) expenses

(96
)
10

(106
)

Legal settlements and loss contingencies

20

20

—

Other assets impairments, restructuring and other items

194

27

3

107

47

10

—

Intangible assets impairment

521

521

—

Goodwill impairment

120

120

—

Financial expenses, net

236

(2
)
238

Income taxes

(76
)
(203
)
127

Share in losses (income) of associated companies, net

(8
)
—

(8
)

Net income (loss) attributable to non-controlling interests

10

(12
)
22

Total reconciled items

302

20

668

3

107

4

47

47

54

(14
)
(203
)

EPS—Basic

(0.24
)
1.02

0.78

EPS—Diluted

(0.24
)
1.02

0.78


	Three Months Ended March 31, 2019
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP			Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Acquisition, integration and related expenses		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non- GAAP items		Other items			Corresponding tax effect			Unusual tax item*		Non- GAAP
Cost of sales**		2,293			248										4		7					35										1,999
R&D expenses		261															6					—										255
S&M expenses		648			35												10															602
G&A expenses		292															12					—										280
Other (income) expense		(6	)																													(6	)
Legal settlements and loss contingencies		57					57																									—
Other assets impairments, restructuring and other items		1							20		2		32						(71	)		19										—
Intangible assets impairments		469							469																							—
Financial expenses, net		218																						(2	)							220
Income taxes		9																									(177	)		61		125
Share in losses of associated companies – net		4																						—								4
Net income (loss) attributable to non-controlling interests		8																						(8	)							16

Total reconciled items					283		57		489		2		32		4		34		(71	)		54		(10	)		(177	)		61

EPS - Basic		(0.10	)																											0.70		0.60
EPS - Diluted		(0.10	)																											0.70		0.60

~~The non-GAAP diluted weighted average number of shares was 1,021 million for the three months ended June 30, 2018.~~

~~Table of Contents~~

Six months ended June 30, 2019

U.S. $ and shares in millions (except per share amounts)

Excluded for non-GAAP measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Legal
settlements
and loss
contingencies

Impair-
ment of
long-
lived
assets

Acquisition,
integration
and related
expenses

Restruc-
turing
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compen-
sation

Contingent
conside-
ration

Gain on
sale of
business

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Unusual
tax
item*

Non-
GAAP

Cost of Sales

4,883

497

16

14

61

4,294

R&D expenses

537

11

0

525

S&M expenses

1,313

71

20

—

1,223

G&A expenses

589

24

(1
)
566

Other (income) expenses

(15
)
(9
)
(6
)

Legal settlements and loss contingencies

703

703

—

Other assets impairments, restructuring and other items

103

68

2

79

(47
)
1

(0
)

Intangible assets impairment

1,030

1,030

—

Financial expenses, net

425

6

419

Corresponding tax effect

(170
)
(490
)
61

259

Share in losses (income) of associated companies, net

4

—

4

Net income (loss) attributable to non-controlling interests

26

(16
)
42

Total reconciled items

568

703

1,098

2

79

16

69

(47
)
(9
)
60

(10
) (490
)
61

EPS—Basic

(0.73
) 1.93

1.20

EPS—Diluted

(0.73
) 1.93

1.20

*	Interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.

**	The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

The

~~The~~ non-GAAP

diluted weighted average number of shares was 1,093 million for the ~~six~~three months ended ~~June 30,~~March 31, 2019.

~~Table of Contents~~

Six months ended June 30, 2018

U.S. $ and shares in millions (except per share amounts)

Excluded for non-GAAP measurement

GAAP

Amorti-
zation of
purchased
intangible
assets

Legal
settlements
and loss
contingencies

Impair-
ment of
long-
lived
assets

Other
R&D
expenses

Acquisition,
integration
and related
expenses

Restruc-
turing
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compen-
sation

Contingent
conside-
ration

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non-
GAAP

Cost of Sales

5,418

525

5

15

64

4,809

R&D expenses

607

22

14

1

570

S&M expenses

1,420

87

21

(4
)
1,316



G&A expenses

645

27

4

614

Other (income) expenses

(299
)
(83
)
(216
)

Legal settlements and loss contingencies

(1,258
)
(1,258
)
—

Other assets impairments, restructuring and other items

695

253

5

354

55

28

—

Intangible assets impairment

727

727

—

Goodwill impairment

300

300

—

Financial expenses, net

507

66

441

Corresponding tax effect

(30
)
(368
)
338

Share in losses (income) of associated companies, net

66

94

(28
)

Net income (loss) attributable to non-controlling interests

24

(20
)
44

Total reconciled items

612

(1,258
)
1,280

22

5

354

5

77

55

10

140
(368
)

EPS—Basic

0.80
0.92

1.72

EPS—Diluted

0.80
0.91

1.71

~~The non-GAAP diluted weighted average number of shares was 1,020 million for the six months ended June 30, 2018.~~

Table of Contents

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the ~~second~~first quarter of 2020 were $175 million or 17%, on

pre-tax

non-GAAP

income of $1,030 million.

Non-GAAP

income taxes in the first quarter of 2019 were ~~$134~~$125 million, or 16%, on

pre-tax

non-GAAP

income of ~~$812~~$799 million. ~~Non-GAAP income taxes in the second quarter of 2018 were $127 million, or 13%, on pre-tax~~ Our

non-GAAP ~~income of $1,000 million. Our non-GAAP~~

tax rate for the ~~second~~first quarter of ~~2019~~2020 was mainly affected by the mix of products we sold ~~in different geographies~~ and ~~the enactment of the Tax Cuts and Jobs Act in the United States.~~

~~Non-GAAP income taxes for~~lower interest expense disallowance compared to the first ~~six months~~quarter of 2019 were $259 million, or 16%, on pre-tax non-GAAP income of $1,611 million. Non-GAAP income taxes in the first six months of 2018 were $338 million, or 15% on pre-tax non-GAAP income of $2,232 million.

2019.

We expect our annual non-GAAP tax rate for ~~2019~~2020 to be ~~16%~~17%-18%, ~~which is higher~~slightly lower than our ~~previous projection.~~non-GAAP tax rate for 2019, which was 18%. This is due to lower amounts of interest expense disallowance and other changes ~~in the geographical mix of income we expect~~ to ~~earn this year. Our non-GAAP~~ tax ~~rate for 2018 was 14%.~~positions and deductions.

Off-Balance

Sheet Arrangements

Except for securitization transactions, which are disclosed in note ~~16 (d)~~10(f) to our consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, ~~2018,~~2019, we do not have any material

off-balance

sheet arrangements.

Critical Accounting Policies

For a summary of our significant accounting policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~

2019.

Recently Issued Accounting Pronouncements

See note 21 to our consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in our assessment of market risk as set forth in Item 7A to our Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~

2019.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and procedures” (as defined in Rules

13a-15(e)

and

15d-15(e)

under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

After evaluating the effectiveness of our disclosure controls and procedures as of ~~June 30, 2019,~~March 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~June 30, 2019,~~March 31, 2020, there were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings. For a discussion of these matters, see “Commitments and Contingencies” included in note 1610 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form

10-Q.

ITEM 1A.

RISK FACTORS

~~There~~Except as set forth below, there are no material changes to the risk factors previously disclosed in our Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~2019.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as the

COVID-19

pandemic, could adversely affect our business, results of operations and financial condition.

The novel coronavirus outbreak, or

COVID-19,

has affected segments of the global economy and may materially affect our operations, including potentially interrupting our manufacturing, supply chain, clinical trial and

pre-commercial

launch activities.

COVID-19

originated in Wuhan, China, in December 2019 and was declared a pandemic by the World Health Organization in March 2020. The virus has since spread to multiple countries, including to the United States and Israel, where we currently manufacture most of our products and conduct our clinical trials. The

COVID-19

pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets.

At present, we are not experiencing significant impact or delays from

COVID-19

on our business operations. However, as we expect to be able to continue our operations and to satisfy the higher demand for our products, while protecting the health and safety of our employees and customers, the uncertainty surrounding the severity and continued spread of the coronavirus may result in a period of business disruption.

COVID-19

may impact our operations, including potential delays in supply and manufacturing or material interruptions to supply chains, clinical trials and

pre-commercial

launch activities and regulatory reviews and approvals.

COVID-19

may also affect our employees and employees and operations at third-party manufacturers or suppliers that may result in delays or disruptions in manufacturing and supply. Any

COVID-19

related disruption could have a material adverse impact on our business and our results of operation and financial condition. Changes in patient behavior resulting in less visits to physicians and medical facilities, or increased layoffs in the U.S. employment market, which may affect healthcare benefits coverage, may cause a decline or slower growth in the number of patients diagnosed with diseases for which we produce treatments, and as a result our revenues could be adversely affected. In addition, a recession or market correction resulting from the spread of

COVID-19

could materially affect our business and the value of our shares.

Additionally, if the

COVID-19

pandemic has a significant impact on our business and financial results for an extended period of time, our credit losses, liquidity and cash resources could be negatively impacted. We may be required to draw down funds from our RCF or pursue additional sources of financing to fund our operations. Capital and credit markets have been disrupted by the crisis and foreign exchanges have experienced increased volatility. As a result, access to additional financing may be challenging and is largely dependent upon evolving market conditions and other factors.

We have taken precautionary measures, and may take additional measures, intended to minimize the risk of

COVID-19

to our employees and operations. The extent of the impact of

COVID-19

on our operational and financial performance, including our ability to execute our business strategies in the expected time frame or at all, will depend on future developments, such as the duration and spread of the

COVID-19

pandemic and related restrictions and implications, all of which are uncertain and cannot be predicted.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended March 31, ~~2019.~~2020.

Repurchase of Shares

In December 2011, our Board of Directors authorized us to repurchase up to an aggregate amount of $3.0 billion of our ordinary shares or ADSs, of which $1.3 billion remained available for purchase, when in October 2014, the Board of Directors authorized us to increase our share repurchase program by $1.7 billion to $3.0 billion, of which $2.1 billion remained available as of June 30, 2019. We did not repurchase any of our shares during the three months ended ~~June 30, 2019~~March 31, 2020 and currently cannot ~~do so~~conduct share repurchases or pay dividends due to our accumulated deficit. ~~The repurchase program has no time limit. Repurchases may be commenced or suspended at any time, subject to applicable law.~~

Table of Contents

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

Table of Contents

ITEM 6.

EXHIBITS



	~~10.1~~			Senior Unsecured Revolving Credit Agreement, dated as of April 8, 2019, by and among Teva Pharmaceutical Industries Limited, Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Finance Netherlands III B.V., Teva Pharmaceutical Finance Netherlands II B.V., Bank of America, N.A. and the lenders party thereto (1)

	31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002

	31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002

	32			Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002

	101.INS			XBRL Taxonomy Instance Document

	101.SCH			XBRL Taxonomy Extension Schema Document

	101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB			XBRL Taxonomy ~~Label~~Extension Labels Linkbase Document

	101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

	104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.

1.	~~Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 10, 2019.~~

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

8065


	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	2,165		$	1,782
Trade receivables		5,260			5,822
Inventories		4,850			4,731
Prepaid expenses		1,069			899
Other current assets		437			468
Assets held for sale		24			92
Total current assets		13,805			13,794
Deferred income taxes		317			368
Other non-current assets		721			731
Property, plant and equipment, net		6,732			6,868
Operating lease right-of-use assets		500			—
Identifiable intangible assets, net		12,435			14,005
Goodwill		24,913			24,917
Total assets	$	59,424		$	60,683
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	2,771		$	2,216
Sales reserves and allowances		6,054			6,711
Trade payables		1,806			1,853
Employee-related obligations		587			870
Accrued expenses		2,335			1,868
Other current liabilities		899			804
Total current liabilities		14,452			14,322
Long-term liabilities:
Deferred income taxes		1,698			2,140
Other taxes and long-term liabilities		1,642			1,727
Senior notes and loans		25,955			26,700
Operating lease liabilities		426			—
Total long-term liabilities		29,721			30,567
Commitments and contingencies , see note 16
Total liabilities		44,173			44,889
Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; June 30, 2019 and December 31, 2018: authorized 2,495 million shares; issued 1,198 million shares and 1,196 million shares, respectively		56			56
Additional paid-in capital		27,258			27,210
Accumulated deficit		(6,752	)		(5,958	)
Accumulated other comprehensive loss		(2,312	)		(2,459	)
Treasury shares as of June 30, 2019 and December 31, 2018 — 107 million ordinary shares and 106 million ordinary shares, respectively		(4,128	)		(4,142	)
		14,122			14,707
Non-controlling interests		1,128			1,087
Total equity		15,251			15,794
Total liabilities and equity	$	59,424		$	60,683


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018

Net revenues	$	4,337		$	4,701		$	8,632		$	9,766
Cost of sales		2,443			2,668			4,883			5,418

Gross profit		1,893			2,033			3,749			4,348
Research and development expenses		276			290			537			607
Selling and marketing expenses		666			682			1,313			1,420
General and administrative expenses		296			316			589			645
Intangible assets impairment		561			521			1,030			727
Goodwill impairment		—			120			—			300
Other assets impairments, restructuring and other items		101			194			103			695
Legal settlements and loss contingencies		646			20			703			(1,258	)
Other income		(9	)		(96	)		(15	)		(299	)

Operating income (loss)		(644	)		(14	)		(510	)		1,511
Financial expenses, net		206			236			425			507

Income (loss) before income taxes		(850	)		(250	)		(934	)		1,004
Income taxes		(179	)		(76	)		(170	)		(30	)
Share in losses (income) of associated companies, net		—			(8	)		4			66

Net income (loss)		(671	)		(166	)		(768	)		968
Net income attributable to non-controlling interests		18			10			26			24

Net income (loss) attributable to Teva		(689	)		(176	)		(794	)		944

Dividends on preferred shares		—			65			—			130

Net income (loss) attributable to ordinary shareholders	$	(689	)	$	(241	)	$	(794	)	$	814

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(0.63	)	$	(0.24	)	$	(0.73	)	$	0.80

Diluted	$	(0.63	)	$	(0.24	)	$	(0.73	)	$	0.80

Weighted average number of shares (in millions):
Basic		1,092			1,018			1,091			1,018

Diluted		1,092			1,018			1,091			1,020


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income (loss)	$	(671	)	$	(166	)	$	(768	)	$	968
Other comprehensive income (loss), net of tax:
Currency translation adjustment		86			(711	)		133			(472	)
Unrealized gain (loss) from derivative financial instruments		(10	)		100			37			56
Unrealized gain (loss) from available-for-sale securities		1			(1	)		1			(1	)
Unrealized loss on defined benefit plans		(1	)		(2	)		(1	)		(1	)

Total other comprehensive income (loss)		76			(614	)		170			(418	)

Total comprehensive income (loss)		(595	)		(780	)		(598	)		550
Comprehensive income (loss) attributable to non-controlling interests		47			(51	)		49			46

Comprehensive income (loss) attributable to Teva	$	(642	)	$	(729	)	$	(647	)	$	504


	June 30, 2019			December 31, 2018
	(U.S. $ in millions)
Property, plant and equipment, net	$	30		$	92
Goodwill		—			51
Adjustments of assets held for sale to fair value		(6	)		(51	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	24		$	92


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2019		2018		2019		2018		2019		2018
	(U.S. $ in millions)
Product rights	$	19,995	$	20,361	$	10,043	$	9,565	$	9,952	$	10,796
Trade names		604		606		109		91		496		515
In process research and development		1,988		2,694		—		—		1,988		2,694

Total	$	22,587	$	23,661	$	10,152	$	9,656	$	12,435	$	14,005


	North America			Europe			International Markets		Other		Total
	(U.S. $ in millions)
Balance as of January 1, 2019 (1)	$	11,098		$	8,653		$	2,479	$	2,687	$	24,917

Changes during the period:
Goodwill disposal		(23	)		(5	)		—		—		(28	)
Goodwill adjustments		(13	)		—			—		—		(13	)
Translation differences		16			(32	)		53		—		37

Balance as of June 30, 2019 (1)	$	11,078		$	8,616		$	2,532	$	2,687	$	24,913


	Three months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,686		1,173		526		204		3,588
Licensing arrangements		35		10		2		1		48
Distribution		351		§		164		—		515
Other		—		§		49		137		186

	$	2,071	$	1,183	$	741	$	342		4,337


	Three months ended June 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,913		1,317		573		186		3,989
Licensing arrangements		30		8		1		2		41
Distribution		320		3		154		—		477
Other		—		—		61		133		194

	$	2,263	$	1,328	$	789	$	321	$	4,701

	Six months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,324		2,433		994		390		7,141
Licensing arrangements		65		15		2		3		85
Distribution		729		§		315		—		1,044
Other		—		§		97		264		362

	$	4,118	$	2,448	$	1,409	$	657	$	8,632

	Six months ended June 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		4,081		2,746		1,092		365		8,284
Licensing arrangements		62		18		21		4		105
Distribution		651		6		307		—		964
Other		—		—		119		294		413

	$	4,794	$	2,770	$	1,539	$	663	$	9,766


	June 30, 2019
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	401	$	—		$	—		$	401
Cash, deposits and other		1,764		—			—			1,764
Investment in securities:
Equity securities		48		—			—			48
Other, mainly debt securities		5		—			13			18
Derivatives:
Asset derivatives—options and forward contracts		—		14			—			14
Asset derivatives —interest rate and cross-currency swaps				85			—			85
Liability derivatives—options and forward contracts		—		(55	)		—			(55	)
Liability derivatives—interest rate and cross-currency swaps		—		(37	)		—			(37	)
Contingent consideration*		—		—			(403	)		(403	)

Total	$	2,218	$	7		$	(390	)	$	1,835


	December 31, 2018
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	203	$	—		$	—		$	203
Cash, deposits and other		1,579		—			—			1,579
Investment in securities:
Equity securities		51		—			—			51
Other, mainly debt securities		2		—			10			12
Derivatives:
Asset derivatives — options and forward contracts		—		18			—			18
Asset derivatives—interest rate and cross-currency swaps		—		58			—			58
Liability derivatives—options and forward contracts		—		(26	)		—			(26	)
Liability derivatives—interest rate and cross-currency swaps		—		(50	)		—			(50	)
Contingent consideration*		—		—			(507	)		(507	)

Total	$	1,835	$	—		$	(497	)	$	1,338


	Six months ended June 30, 2019
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(497	)
Revaluation of debt securities		3
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		101
Eagle transaction		(54	)
Settlement of contingent consideration:
Eagle transaction		57

Fair value at the end of the period	$	(390	)


	Financial expenses, net						Other comprehensive income
	Three month ended,						Three month ended,
	June 30, 2019			June 30, 2018**			June 30, 2019			June 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	206		$	236		$	(76	)	$	614
Cross-currency swaps—cash flow hedge (1)		(1	)		*			4			(28	)
Cross-currency swaps—net investment hedge (2)		(7	)		(9	)		14			(59	)
Interest rate swaps—fair value hedge (3)		1			*			—			—


	Financial expenses, net						Other comprehensive income
	Six month ended,						Six month ended,
	June 30, 2019			June 30, 2018**			June 30, 2019			June 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	425		$	507		$	(170	)	$	418
Cross-currency swaps—cash flow hedge (1)		(1	)		(1	)		(15	)		(11	)
Cross-currency swaps—net investment hedge (2)		(15	)		(16	)		(6	)		(29	)
Interest rate swaps—fair value hedge (3)		1			*			—			—


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2019	$	(204	)	$	(29	)	$	(233	)
Provision		(56	)		(23	)		(79	)
Utilization and other*		67			45			112

Balance as of June 30, 2019	$	(193	)	$	(7	)	$	(200	)


	Six months ended June 30, 2 019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	4,118		$	2,448		$	1,409
Gross profit		2,107			1,404			582
R&D expenses		340			136			46
S&M expenses		537			431			234
G&A expenses		230			119			70
Other (income) expense		(2	)		(1	)		(1	)

Segment profit	$	1,001		$	719		$	233


	Six months ended June 30, 2018
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	4,794		$	2,770		$	1,539
Gross profit		2,582			1,519			641
R&D expenses		370			146			49
S&M expenses		548			483			264
G&A expenses		229			169			78
Other (income) expense		(202	)		(2	)		(11	)

Segment profit	$	1,637		$	723		$	261


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(U.S. $ in millions)						(U.S. $ in millions)
Gain (loss) on divestitures, net of divestitures related costs (1)	$	9			(10	)	$	9			83
Section 8 and similar payments (2)		—			95			—			194
Gain (loss) on sale of assets		(5	)		1			(4	)		9
Other, net		5			10			11			13

Total other income	$	9		$	96		$	15		$	299


	Three months ended June 30,		Six months ended June 30,
	2019
	(U.S. $ in millions)
Operating lease cost:
Fixed payments and variable payments that depend on an index or rate	$	36	$	78
Variable lease payments not included in the lease liability		2		4
Short-term lease cost		1		3

Total operating lease cost	$	39	$	85


	June 30, 2019
	(U.S. $ in millions)
Operating leases:
Operating lease ROU assets	$	500
Other current liabilities		120
Operating lease liabilities		426

Total operating lease liabilities	$	546


	June 30, 2019
	(U.S. $ in millions)
2019 (excluding the six months ended June 30, 2019)	$	87
2020		124
2021		100
2022		78
2023		58
2024 and thereafter		266

Total operating lease payments	$	713

Less: imputed interest		167

Present value of lease liabilities	$	546


	December 31, 2018
	(U.S. $ in millions)
2019	$	193
2020		154
2021		118
2022		91
2023		66
2024 and thereafter		283

Total lease payments	$	905


	Percentage of Net Revenues						Percentage Change 2019 - 2018
	Six Months Ended June 30,
	2019			2018
	%			%			%
Net revenues		100.0			100.0			(12	)
Gross profit		43.4			44.5			(14	)
Research and development expenses		6.2			6.2			(12	)
Selling and marketing expenses		15.2			14.5			(7	)
General and administrative expenses		6.8			6.6			(9	)
Other asset impairments, restructuring and other items		1.2			7.1			(85	)
Goodwill impairment		—			3			—
Legal settlements and loss contingencies		8.1			(12.9	)		—
Other income		(0.2	)		(3.1	)		(95	)
Operating income (loss)		(5.9	)		15.6			—
Financial expenses, net		4.9			5.2			(16	)
Income (loss) before income taxes		(10.8	)		10.4			—
Tax benefit		(2.0	)		(0.3	)		466
Share in (profits) losses of associated companies, net		§			0.7			—
Net income (loss) attributable to non-controlling interests		(0.3	)		0.2			—
Net income (loss) attributable to Teva		(9.2	)		9.7			—
Dividends on preferred shares		—			1.3			—
Net income (loss) attributable to ordinary shareholders		(9.2	)		8.3			—


	Six months ended June 30,				Percentage Change 2018-2019
	2019		2018		Percentage Change 2018-2019
	(U.S. $ in millions)
Generic products	$	1,913	$	2,035		(6	%)
COPAXONE		482		940		(49	%)
TREANDA/BENDEKA		229		341		(33	%)
ProAir*		123		245		(50	%)
QVAR		124		137		(10	%)
AJOVY		43		—		N/A
AUSTEDO		171		74		130	%
Anda		729		651		12	%
Other		305		372		(18	%)

Total	$	4,118	$	4,794		(14	%)


	Three months ended June 30, 2019
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies		Impair- ment of long- lived assets		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compen- sation		Contin- gent conside- ration		Gain on sale of business			Other non- GAAP items			Other items			Corres- ponding tax effect			Non- GAAP
Cost of Sales		2,443			249								12		7							26									2,149
R&D expenses		276													6							—									271
S&M expenses		666			35										10																621
G&A expenses		296													12							(2	)								286
Other (income) expenses		(9	)																(9	)											(0	)
Legal settlements and loss contingencies		646					646																								—
Other assets impairments, restructuring and other items		101							48		47						24					(18	)								—
Intangible assets impairment		561							561																						—
Financial expenses, net		206																							8						198
Income taxes		(179	)																									(312	)		134
Net income (loss) attributable to non-controlling interests		18																							(8	)					26

Total reconciled items					285		646		609		47		12		35		24		(9	)		6			(0	)		(312	)

EPS—Basic		(0.63	)																									1.23			0.60
EPS—Diluted		(0.63	)																									1.23			0.60

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company