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, including changes to our senior management team; 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;

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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~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

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.

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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)

September 30,
2019

December 31,
2018

ASSETS

Current assets:

Cash and cash equivalents
$
1,241
$
1,782

Trade receivables

5,254

5,822

Inventories

4,636

4,731

Prepaid expenses

976

899

Other current assets

416

468

Assets held for sale

18

92

Total current assets

12,542

13,794

Deferred income taxes

331

368

Other
non-current
assets

727

731

Property, plant and equipment, net

6,643

6,868

Operating lease
right-of-use
assets

468

—

Identifiable intangible assets, net

11,878

14,005

Goodwill

24,657

24,917

Total assets
$
57,246
$
60,683

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt
$
3,130
$
2,216

Sales reserves and allowances

6,137

6,711

Trade payables

1,688

1,853

Employee-related obligations

583

870

Accrued expenses

1,748

1,868

Other current liabilities

820

804

Total current liabilities

14,107

14,322

Long-term liabilities:

Deferred income taxes

1,462

2,140

Other taxes and long-term liabilities

2,546

1,727

Senior notes and loans

23,812

26,700

Operating lease liabilities

394

—

Total long-term liabilities

28,215

30,567

Commitments and contingencies
, see note 16

Total liabilities

42,322

44,889

Equity:

Teva shareholders’ equity:

Ordinary shares of NIS 0.10 par value per share; September 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

27,293

27,210

Accumulated deficit

(7,066
)
(5,958
)
Accumulated other comprehensive loss

(2,365
)
(2,459
)
Treasury shares as of September 30, 2019 and December 31, 2018 — 106 million ordinary shares

(4,128
)
(4,142
)

13,790

14,707

Non-controlling
interests

1,134

1,087

Total equity

14,925

15,794

Total liabilities and equity
$
57,246
$
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.

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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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

~~CONSOLIDATED STATEMENTS OF INCOME (LOSS)~~

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

~~(Unaudited)~~

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Net revenues
$
4,264
$
4,529
$
12,896
$
14,295

Cost of sales

2,435

2,552

7,318

7,970

Gross profit

1,830

1,977

5,579

6,325

Research and development expenses

240

311

778

918

Selling and marketing expenses

595

699

1,908

2,119

General and administrative expenses

285

309

873

954

Intangible assets impairment

177

519

1,206

1,246

Goodwill impairment

—

—

—

300

Other assets impairments, restructuring and other items

160

139

263

834

Legal settlements and loss contingencies

468

19

1,171

(1,239
)
Other income

(14
)
(35
)
(29
)
(334
)

Operating income (loss)

(81
)
16

(591
)
1,527

Financial expenses, net

211

229

635

736

Income (loss) before income taxes

(292
)
(213
)
(1,226
)
791

Income taxes
(benefit
)

11

(26
)
(159
)
(56
)
Share in losses of associated companies, net

4

10

8

76

Net income (loss)

(307
)
(197
)
(1,076
)
771

Net income attributable to
non-controlling
interests

7

11

33

35

Net income (loss) attributable to Teva

(314
)
(208
)
(1,108
)
736

Dividends on preferred shares

—

65

—

195

Net income (loss) attributable to ordinary shareholders
$
(314
) $
(273
) $
(1,108
) $
541

Earnings (loss) per share attributable to ordinary shareholders:

Basic
$
(0.29
) $
(0.27
) $
(1.02
) $
0.53

Diluted
$
(0.29
) $
(0.27
) $
(1.02
) $
0.53

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
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Net income (loss)
$

(307)
$

(197)
$

(1,076)
$
771

Other comprehensive income (loss), net of tax:

Currency translation adjustment

(138
)
(105
)
(5
)
(577
)
Unrealized gain from derivative financial instruments

87

19

124

75

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

(2
)
1

(1
)
—

Unrealized gain (loss) on defined benefit plans

—

1

(1
)
—

Total other comprehensive income (loss)

(53
)
(84
)
117

(502
)

Total comprehensive income (loss)

(360
)
(281
)
(959
)
269

Comprehensive income (loss) attributable to
non-controlling
interests

7

(26
)
56

20

Comprehensive income (loss) attributable to Teva
$
(367
) $
(255
) $
(1,015
) $
249


	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.

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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 June 30, 2018

1,124

54

3,760

23,426

(2,864)

(2,289)

(4,149
)

17,938

1,430

19,368

Comprehensive loss

(208
)
(46
)
(255
)
(26
)
(281
)
Issuance of Shares

1

**

**

Issuance of Treasury Shares

(1
)

3

2

2

Stock-based compensation expense

44

44

44

Dividends to preferred shareholders

65

(65
)

—

Balance at September 30,
2018

1,125
$
54
$
3,825
$
23,404
$
(3,072
) $
(2,335
)
$
(4,146
)
$
17,730
$
1,404
$
19,134


	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

Teva shareholders’ equity

Ordinary shares

Number of
shares

(in

millions)

Stated
value

MCPS

*

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 June 30, 2019

1,198

56

—

27,258

(6,752
)
(2,312
)
(4,128
)
14,122

1,128

15,251

Comprehensive income (loss)

(314
)
(53
)

(367
)
7

(360
)
Issuance of Shares

**

**

**

Stock-based compensation expense

35

35

35

Balance at September 30,
2019

1,198
$
56

—
$
27,293
$
(7,066
) $
(2,365
) $
(4,128
) $
13,790
$
1,134
$
14,925

*	~~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.

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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

comprehensive
(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)

736

(487
)
249

20

269

Issuance of Treasury Shares

(1
)

3

2

2

Dividends to preferred shareholders

194

(194
) —
Issuance of shares

1

**
**
Stock-based compensation expense

120

120

120

Transactions with non-controlling

interests

(2
)

(2
)

Balance at September 30, 2018

1,125

$
54

$
3,825

$
23,404

$
(3,072
)

$
(2,335
)

$
(4,146
)

$
17,730

$
1,404

$
19,134

*	~~Mandatory convertible preferred shares.~~

**	~~Represents an amount less than~~ $ ~~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

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)

(1,108
)

94

(1,015
)

56

(959
)
Issuance of Shares

2

**

**

Issuance of Treasury Shares

(8
)

14

6

6

Stock-based compensation expense

99

99

99

Transactions with
non-controlling
interests

(8
)

(8
)
Other

(8
)

(8
)

(8
)
Balance at September 30,
2019

1,198

$
56

—

$
27,293

$
(7,066
)

$
(2,365
)

$
(4,128
)

$
13,790

$
1,134

$
14,925

*	~~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)

Nine months ended
September 30,

2019

2018

Operating activities:

Net income (loss)
$
(1,076
) $
771

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

Depreciation and amortization

1,306

1,460

Impairment of long-lived assets

1,302

1,501

Net change in operating assets and liabilities

(784
)
(1,521
)
Deferred income taxes – net and uncertain tax positions

(652
)
(650
)
Stock-based compensation

99

122

Net
loss (
gain
)
from sale of long-lived assets and investments

10

(53
)
Other items

5

(8
)
Goodwill impairment

—

300

Impairment of equity investment

—

103

In process research and development

—

54

Net cash provided by operating activities

210

2,079

Investing activities:

Beneficial interest collected in exchange for securitized trade receivables

1,108

1,372

Purchases of property, plant and equipment

(406
)
(438
)
Proceeds from sales of business, investments and long-lived assets

169

880

Other investing activities

59

34

Purchases of investments and other assets

(5
)
(56
)

Net cash provided by investing activities

925

1,792

Financing activities:

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

(1,715
)
(6,989
)
Net change in short-term debt

96

(262
)
Tax withholding payments made on shares and dividends

(52
)
(22
)
Other financing activities

(14
)
(13
)
Proceeds from senior notes and loans, net of issuance costs

—

4,434

Net cash used in financing activities

(1,685
)
(2,852
)

Translation adjustment on cash and cash equivalents

9

(107
)

Net change in cash and cash equivalents

(541
)
912

Balance of cash and cash equivalents at beginning of period

1,782

963

Balance of cash and cash equivalents at end of period

$
1,241

$
1,875

Non-cash
financing and investing activities:

Beneficial interest obtained in exchange for securitized trade receivables
$
1,123
$
1,345


	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

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

~~nine~~

three months ended

~~September~~

~~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)~~

~~effective as of January 1, 2019,~~

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 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 of prior periods~~Recently issued accounting pronouncement, not yet adopted

~~During~~In December 2019, the ~~fourth quarter~~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 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.

c. Revision of Previously Reported Consolidated Financial Statements

In connection with the 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~~

~~second~~

~~and thir~~

~~quarters of 2018 was an increase in cost of sales of $33 million~~

~~$28 million~~

~~nd $~~

~~million~~

~~, respectively, with a corresponding decrease in S&M expenses.~~

~~NOTE 3 – Certain transactions:~~

related periods.

~~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.

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, 2 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 September 30, 2019 and December 31, 2018:~~

September 30,
2019

December 31,
2018

(U.S. $ in millions)

Property, plant and equipment, net

24

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
$
18
$
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 ~~belo~~

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~~

Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects.

In December 2016, Teva entered into a license agreement for research, development, manufacture 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.

Celltrion

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

TRUXIMA

and

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:


	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
	(U.S. $ in millions)				(U.S. $ in millions)
Finished products	$	2,517	$	2,665	$	2,193	$	2,504
Raw and packaging materials		1,338		1,328		1,306		1,183
Products in process		621		590		650		583
Materials in transit and payments on account		160		148		141		151

Total	$	4,636	$	4,731	$	4,290	$	4,422

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

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

September 30,

December 31,

2019

2018

(U.S. $ in millions)

Machinery and equipment
$
5,678
$
5,691

Buildings

3,037

3,143

Computer equipment and other assets

2,120

2,097

Payments on account

616

514

Land

364

351

11,816

11,796

Less—accumulated depreciation

(5,172
)
(4,928
)

Total
$
6,643
$
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				Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019
	(U.S. $ in millions)												(U.S. $ in millions)
Product rights	$	19,698	$	20,361	$	10,182	$	9,565	$	9,516	$	10,796	$	19,371	$	19,663	$	10,969	$	10,640	$	8,402	$	9,023
Trade names		596		606		117		91		479		515		595		600		135		126		460		474
In process research and development		1,883		2,694		—		—		1,883		2,694		1,394		1,735		—		—		1,394		1,735

Total	$	22,177	$	23,661	$	10,299	$	9,656	$	11,878	$	14,005	$	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 products from various therapeutic categories from various acquisitions with a weighted average life of approximately ~~12 years.~~

years. Amortization of intangible assets amounted to ~~$255~~

$258 million and ~~$297~~ $283

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

~~Amortization of intangible assets amounted to $823 million and $909 million in the~~

~~nine~~

~~months ended September 30, 2019 and 2018, respectively.~~

IPR&D

Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is comprised mainly of ~~the following acquisitions and related assets:~~ various generic products ~~(Actavis Generics) – $1,626 million; various generic products (Rimsa) – $46 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 September 30, 2019, Teva reclassified $15 million of products from IPR&D to product rights following regulatory approval.~~

~~In the first~~

~~nine~~

~~months of 2019, Teva reclassified $271 million of products from IPR&D to product rights following regulatory approval, mainly $174 million in connection with methylphenidate ER.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Intangible assets ~~impairment~~impairments

Impairments of long-lived intangible assets ~~for~~in the first three months ~~ended September 30,~~of

2020 and 2019 ~~and 2018~~ were ~~$177~~

$649 million and ~~$519~~ $469

million, respectively.

Impairments in the

~~third~~

first quarter of ~~2019~~2020 consisted of:

	a) (a)	~~Identifiable product rights~~IPR&D assets of ~~$99~~$331 million, ~~mainly~~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 s ~~upply ch~~ a ll e ~~nges~~ development progress and changes in ~~connection with products~~ ~~primarily marketed~~other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in ~~Hong Kong~~ .
the United States; and

(b)

Identifiable product rights of $318 million, mainly due to: (i) $165 million in Japan in connection with ongoing regulatory pricing reductions and generic competition; and (ii) $138 million due to updated market assumptions regarding price and volume of certain generic products primarily marketed in the United States.

Impairments in the first quarter of 2019 consisted of:

(a)

IPR&D assets of ~~$78~~$265 million, mainly

due to: (i) $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 ~~pipeline~~filers and (ii) $140 million of other generic 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

~~Impairments~~

Table of ~~long-lived intangible assets for the~~

~~nine~~Contents

~~months ended September 30, 2019 and 2018 were $1,206 million and $1,246 million, respectively. Impairments in the first~~

~~nine~~

~~months of 2019 consisted of:~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

(b)

Identifiable product rights of ~~$667~~$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 $539 million, mainly~~

~~related~~

~~to: (i) $355 million of~~

~~various~~

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

~~(ii) $125 million related to lenalidomide (generic equivalent of R~~

~~evlimid~~

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

~~concer~~

~~ing~~

~~the future market share of~~

~~a number of~~

~~products within Teva’s Actavis Generics pipeline in Europe.~~

NOTE 76 – Goodwill:

The changes in the carrying amount of goodwill for the period ended ~~September 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
)
Translation differences

11

(300
)
57

—

(232
)

Balance as of September 30, 2019 (1)
$
11,086
$
8,348
$
2,536
$
2,687
$
24,657


	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 September 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 ~~17.~~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.~~impairment.

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~During the third quarter of 2019, management assessed developments during the quarter to determine if it was~~ more likely than not ~~that the fair value of any of the Company’s reporting units was below~~exceeds its carrying amount. As part of this assessment, the Company 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 October 2019, Teva reached a settlement with two counties in Ohio and confirmed that it had reached an agreement in principle with a group of~~

~~ttorneys~~

eneral for a global settlement framework in connection with the remaining opioids litigations. These events did not result in a material change in share price compared to the share price used in the market capitalization analysis performed in the second quarter of 2019. Although Teva’s fair value assessment is significantly higher than its market capitalization as of September 30, 2019, management still believes that its fair value assessment is reasonably supported.

Based on this assessment, management has concluded that it is not more likely than not that the fair value of any of the reporting units is below its carrying value as of September 30, 2019 and, therefore, no quantitative assessments were performed.

~~Management will continue to monitor business conditions and potential events or circumstances that could have a negative effect on the estimated fair value of the Company.~~

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

~~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 diluted loss per share for the three months ended September 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 t~~

~~hree months ended September 30, 2018,~~

~~no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 66 million~~

~~shares~~

~~(including shares issued due to unpaid dividends~~

~~up to~~

~~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 nine months ended September 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 nine months ended September 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~~

~~million~~

~~shares~~

~~(including shares issued due to unpaid dividends~~

~~that~~

~~date) for the nine months ended September 30, 2018, as well as for the convertible senior debentures, since both had an anti-dilutive effect on earnings per share.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~NOTE 9 – Revenue from contracts with customers:~~

~~Disaggregation of revenue~~18

~~The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues, see note 17.~~

Three months ended September 30, 2019

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

1,674

1,153

511

176

3,514

Licensing arrangements

26

7

1

1

36

Distribution

351

1

176

—

528

Other
§
2

48

136

186

$

2,051
$
1,163
$
736
$
314

4,264

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

Three months ended September 30, 2018

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

1,902

1,210

525

166

3,803

Licensing arrangements

29

1

—

2

32

Distribution

333

1

149

—

483

Other

1

—

52

158

211

$

2,265
$
1,212
$
726
$
326
   $

4,529

Nine months ended September 30, 2019

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

4,997

3,586

1,505

566

10,653

Licensing arrangements

92

22

3

4

121

Distribution

1,080

1

491

—

1,572

Other
§
2

145

402

549

$

6,169
$
3,611
$
2,145
$
972
$
12,896

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

Nine months ended September 30, 2018

North America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

5,983

3,956

1,617

526

12,082

Licensing arrangements

91

19

21

6

137

Distribution

984

7

456

—

1,447

Other

1

—

171

457

629

$
7,059
$
3,982
$
2,265
$
989

$
14,295

~~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 82% of the Company’s total SR&A as of September 30, 2019, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the nine months ended September 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

334

4,004

760

7,196

195

308

12,463

12,797

Provisions related to sales made in prior periods

3

(28
)
(2
)
(1
)
23

(7
)
(15
)
(12
)
Credits and payments

(356
)
(4,276
)
(882
)
(7,299
)
(251
)
(295
)
(13,003
)
(13,359
)
Translation differences

—

(14
)
(4
)
(1
)
(1
)
1

(19
)
(19
)

Balance at
Septe
mber
30, 2019
$
156

2,692
$
1,233
$
1,425
$
604
$
183
$
6,137
$
6,293

~~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)
c
redits

Total

(U.S. $ in millions)

Balance as of December 31, 2017*
$
(1,316
) $
1
$
(442
)

$
(91
) $
(1,848
)

Other comprehensive income (loss) before reclassifications
**

(562
)
—

54

—

(508
)
Amounts reclassified to the statements of income

—

—

21

2

23

Net other comprehensive income (loss) before tax

(562
)
—

75

2

(485
)
Corresponding income tax

—

—

—

(2
)
(2
)

Net other comprehensive income (loss) after tax

(562
)
—

75

—

(487
)

Balance as of September 30, 2018
$
(1,878
) $
1
$
(367
) $
(91
) $
(2,335
)

*	~~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 $~~ 15 ~~million gain from foreign currency translation adjustments attributable to~~ ~~non-controlling~~ ~~interests.~~

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)
c
redits

Total

(U.S. $ in millions)

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

Other comprehensive income (loss) before reclassifications
*

(28
)
(1
)
103

**

74

Amounts reclassified to the statements of income

—

—

21

—

21

Net other comprehensive income (loss) before tax

(28
)
(1
)
124

**

95

Corresponding income tax

—

—

—

**

**

Net other comprehensive income (loss) after tax

(28
)
(1
)
124

(1
)
94

Balance as of September 30, 2019
$
(2,083
) $
—
$
(203
) $
(79
) $
(2,365
)

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

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

~~NOTE 11 –~~

~~Debt obligations:~~

~~a. Short-term debt:~~

Weighted average

interest rate as of

September 30, 2019

Maturity

September 30,
2019

December

31,

2018

(U.S. $ in millions)

Bank and financial institutions

—

—
$
—
$
2

Revolving Credit Facility

LIBOR+1.6
%
—

100

—

Convertible debentures

0.25
%
2026

514

514

Current maturities of long-term liabilities

2,516

1,700

Total short-term debt
$
3,130
$
2,216

��

~~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 will consider future developments in Teva’s market capitalization when assessing whether additional goodwill impairment is required in future periods.

~~Long-term debt:~~

NOTE 7 – Debt obligations:

Weighted average interest
rate as of September 30,

2019

Maturity

September 30,
2019

December 31,
2018

(U.S. $ in millions)

Senior notes EUR 1,660 million

0.38%

2020
$
1,816
$
1,897

Senior notes EUR 1,500 million

1.13
%

2024

1,633

1,707

Senior notes EUR 1,300 million

1.25%

2023

1,416

1,480

Senior notes EUR 900 million

4.50%

2025

985

1,029

Senior notes EUR 750 million

1.63%

2028

814

850

Senior notes EUR 700 million

3.25%

2022

766

801

Senior notes EUR 700 million

1.88%

2027

764

798

Senior notes USD 3,500 million

3.15%

2026

3,494

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

—

1,700

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

857

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

354

356

Senior notes CHF 350 million

1.00%

2025

354

356

Fair value hedge accounting adjustments

—

(9
)
Total senior notes

26,417

28,483

Other long-term debt

0.96%

2026

1

12

Less current maturities

(2,516
)
(1,700
)
Derivative instruments

—

9

Less debt issuance costs

(89
)
(104
)
Total senior notes and loans
$
23,812
$
26,700

Short-term debt:


						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 ~~September 30, 2019~~March 31, 2020 is effectively denominated ~~(taking into consideration cross currency swap agreements)~~ in the following currencies:

66%

in U.S. dollar, ~~68%,~~

31%

in euro ~~29%~~ 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 $3~~$1.0 billion ~~revolving credit facility.~~

was

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 ~~September 30, 2019,~~

~~$100 million was outstanding under the RCF. As of the date of this~~

~~quarterly~~

~~report~~

~~on Form 10-Q~~

March 31, 2020, 0 amounts

re were outstanding under the RCF. Based on current and forecasted results, the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date these financial statements are issued.

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 material transfers between Level 1, Level 2 and Level 3 during the first nine months of 2019.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

September 30, 2019

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
176
$
—
$
—
$
176

Cash, deposits and other

1,065

—

—

1,065

Investment in securities:

Equity securities

45

—

—

45

Other, mainly debt securities

2

—

12

14

Derivatives:

Asset derivatives—options and forward contracts

—

40

—

40

Asset derivatives—cross-currency swaps

105

—

105

Liability derivatives—options and forward contracts

—

(18
)
—

(18
)
Contingent consideration*

—

—

(430
)
(430
)

Total
$
1,288
$
127
$
(418
) $
997

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~~

~~ssets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:~~

Nine months ended
September 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

96

Eagle transaction

(100
)
Settlement of contingent consideration:

Eagle transaction

80

Fair value at the end of the period
$
(418
)

~~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*

September 30,

December 31,

2019

2018

(U.S. $ in millions)

Senior notes included under senior notes and loans
$
19,097
$
23,560

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

2,933

2,140

Total
$
22,030
$
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 ~~nine~~three months of ~~2019,~~2020, approximately 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 within ~~the Teva group.~~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:

September 30,

December 31,

2019

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

$
1,588
$
2,088


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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

d.	Derivative instrument outstanding:

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


	Fair value											Fair value
	Designated as hedging instruments					Not designated as hedging instruments						Designated as hedging instruments					Not designated as hedging instruments
	September 30, 2019		December 31, 2018			September 30, 2019			December 31, 2018			March 31, 2020		December 31, 2019			March 31, 2020			December 31, 2019
Reported under	(U.S. $ in millions)											(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—	$	—		$	40		$	18		$	—	$	—		$	104		$	32
Other non-current assets:
Cross-currency swaps — cash flow hedge		103		58			—			—
Cross-currency swaps— net investment hedge		2		—			—			—
Liability derivatives:
Other current liabilities:
Cross-currency swaps—net investment hedge													—		(22	)		—			—
Option and forward contracts		—		—			(18	)		(26	)		—		—			(94	)		(41	)
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 (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			—			—

Financial expenses, net

Other comprehensive income

Three months ended,

Three months ended,

September 30,
2019

September 30,
2018**

September 30,
2019

September 30,
2018**

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
211
$
229
$
53
$
84

Cross-currency swaps
—
cash flow hedge
(1)

(1
)
(1
)
(33
)
(4
)
Cross-currency swaps
—
net investment hedge
(2)

(7
)
(6
)
(39
) $
(7
)
Interest rate swaps
—
fair value hedge
(3)
$
*
$
*
$
—
$
—

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Financial expenses, net

Other comprehensive income

Nine months ended,

Nine months ended,

September

30,
2019

September

30,
2018**

September

30,
2019

September

30,
2018**

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
635
$
736
$
(117
) $
502

Cross-currency swaps—cash flow hedge
(1)

(2
)
(1
)
(49
)
(18
)
Cross-currency swaps
—
net investment hedge
(2)

(22
)
(22
)
(46
) $
(36
)
Interest rate swaps
—
fair value hedge
(3)
$
2
$
*
$
—

$
—

*	~~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 not designated as hedging instruments:

Financial expenses, net

Net revenues

Three months ended,

Three months ended,

September

30,
2019

September

30,
2018

September

30,
2019

September 30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

211

229

(4,264
)
(4,529
)
Option and forward contracts
(4)
$
(35
) $
(6
) $
—

$
—

Option and forward contracts Economic hedge
(5)

—

—

(4
)
1

Financial expenses, net

Net revenues

Nine months ended,

Nine months ended,

September 30,
2019

September 30,
2018

September 30,
2019

September

30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

635

736

(12,896
)
(14,295
)
Option and forward contracts
(4)
$
(42
) $
(11
) $
—

$
—

Option and forward contracts Economic hedge
(5)

—

—

*

*


	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	)		—

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

(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 2

~~019,~~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 ex

~~pense~~

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 ~~the~~

~~uro (EUR),~~projected revenues and expenses recorded in euro, the British

~~ound (GBP),~~ pound, the Russian

~~uble (RUB)~~ ruble and some other currencies ~~denominated revenues with respect to~~during the quarter for which such instruments are ~~purchased.~~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 ~~with changes~~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 ~~under~~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~~

flows.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

e.	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~~swaps 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).agreements:

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~~

$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 ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, and losses of $22 million and $21 million were recognized under financial expenses, net for the nine months ended September 30, 2019 and 2018~~

~~, respectively~~

.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

~~were~~

are recorded under senior notes and loans, are amortized under financial

~~expenses~~

~~net~~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,

~~terminated in 2016 and in 2019 as described above,~~

gains of $3

$1 million and $2

million were recognized under financial expenses, net for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~

~~respectively~~

~~and gains of $6 million~~

~~and $5 million~~

~~were recognized under financial expenses, net for the nine months ended September 30, 2019 and 2018~~

~~, respectively~~

~~NOTE 14 – Other assets impairments, restructuring and other items:~~

Three months ended

Nine months ended

September 30,

September 30,

2019

2018

2019

2018

(U.S. $ in millions)

Impairments of long-lived tangible assets
(1)

$
28

$
2

$
96

$
255

Contingent consideration

51

29

4

84

Restructuring

61

88

140

442

Other

21

20

24

53

Total

$
160

$
139

$
263

$
834

~~(1)~~

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

~~Impairments~~

~~Impairments of long-lived tangible assets for the three months ended September 30, 2019 and 2018 were $~~

~~million and $~~

~~million,~~ respectively.

~~Impairments of long-lived tangible assets for the nine months ended September 30, 2019 and 2018 were $~~

~~million and $~~

~~255~~

~~million, respectively.~~

~~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 September 30, 2019, Teva recorded an expense of $51 million for contingent consideration, compared to an expense of $29 million in the three months ended September 30, 2018. The expenses in the third quarter of 2019 were mainly related to a change in the estimated future royalty payments from Eagle Pharmaceuticals, Inc. (“Eagle”) in connection with bendamustine sales.

In the nine months ended September 30, 2019, Teva recorded an expense of $4 million for contingent consideration, compared to an expense of $84 million in the nine months ended September 30, 2018. The expense in the first nine months of 2019 were mainly related to a change in the estimated future royalty payments from Eagle in connection with bendamustine sales and an increase in the expected future royalty payments to Eagle due to the orphan drug status granted to BENDEKA

~~, offset by the change in the future royalty payments in connection with lenalidomide (generic equivalent of Revlimid~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Restructuring~~

~~In the three months ended September 30, 2019, Teva recorded $61 million of restructuring expenses, compared to $88 million in the three months ended September 30, 2018.~~

~~In the nine months ended September 30, 2019, Teva recorded $140 million of restructuring expenses, compared to $442 million in the nine months ended September 30, 2018.~~

~~Since the announcement of its restructuring plan, Teva reduced its global headcount by 11,554 full-time-equivalent employees.~~

~~During the three months ended September 30, 2019 and 2018, Teva recorded impairments of property, plant and equipment related to restructuring costs of $8 million and $2 million, respectively.~~

~~During the nine months ended September 30, 2019 and 2018, Teva recorded impairments of property, plant and equipment related to restructuring costs of $29 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

September 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
49
$
62

Other

11

26

Total
$

61

$

88

Nine months ended

September 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
105
$
380

Other

34

62

Total
$
140
$
442

~~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

(105
)
(34
)
(140
)
Utilization and other*

108

56

164

Balance as of September 30, 2019
$
(201
) $
(7
) $
(208
)

*	~~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 $63

~~million in revenues from this site in the remainder of 2019 and approximately $~~

~~230~~

~~million~~

~~2020~~

~~, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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.

~~As of September 30, 2019, the accumulated impact of this recall 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.

NOTE 159 – Legal settlements and loss contingencies:

In the

~~third~~

first quarter of ~~2019,~~2020, Teva recorded an ~~expense~~income of ~~$468~~$25 million in legal settlements and loss contingencies, compared to ~~$19 million in the~~

~~third~~

~~quarter of 2018.~~

~~The expense in the third quarter of 2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the remaining opioid cases.~~

~~In the first nine months of 2019, Teva recorded~~ an expense of ~~$1,171 million in legal settlements and loss contingencies, compared to income of $1,239~~$57 million in the first ~~nine months~~quarter of ~~2018.~~2019. The ~~expense~~income in the first ~~nine months~~quarter of ~~2019~~2020 was mainly ~~related~~due to

a settlement of an ~~estimated settlement provision recorded in connection with~~action brought against the ~~remaining opioid cases.~~sellers of Auden McKenzie (an acquisition made by Actavis Generics).

Table of Contents

TEVA

PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses was ~~$1,601~~$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 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.

0Teva 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 ~~cou~~

~~tries~~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.

The provision that was originally included in the financial statements following the ~~damage~~

damages verdict

this matter was reversed following the opinion overturning the verdict as the exposure was no longer considered probable.

~~On May~~

~~2018~~

, A hearing on an appeal filed by both parties ~~filed an appeal. A hearing~~

was

held on

September

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.

In 2014, Teva Canada succeeded in its challenge of the bortezomib (the g

~~neric eq~~

~~ivalent~~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

Millennium ~~may apply~~applied for a leave to

appeal

to the Canadian Supreme Court.

f If the decision is

ultimately

overturned, 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. Teva and Helsinn agreed on a settlement in principle to settle their dispute regarding palonosetron, pending completion of final documentation. A provision with respect to the settlement in principle was included in the financial statements.

~~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 fo

~~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

~~did not~~

~~seek U.S. Supreme Court review of this decision~~

~~this~~

~~matter is considered closed.~~

~~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, and is fully~~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 Modafinil 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 antitrust lawsuits, as described below, Teva and the FTC agreed to amend certain ~~non~~

-non-financial

~~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 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”), from wh

~~ich~~

which Teva 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 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.

n On July 16, 2018, the direct purchaser plaintiffs’ motion for class certification was ~~denied. As~~denied, and in December 2019, Teva reached a ~~result,~~settlement agreement with the three direct purchasers that had sought class ~~certification are now proceeding as individual plaintiffs, and trial on their claims has been scheduled to begin~~certification. Settlement amounts were paid in ~~February 2020.~~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 in 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. The defendants have moved the Philadelphia court to transfer all of these claims to the same Georgia federal court that has been presiding over the multidistrict litigation, and that motion remains pending. Annual sales of AndroGel

1% were approximately

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

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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

August 2019, the district court certified

the direct-purchaser class,

, although the court has yet to rule on the

indirect

~~purchaser’~~ purchasers’ pending motion

for class 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.

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~~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 those~~The 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 also reached a settlement agreement.~~

California. On September 16, 2019,

end-payers

Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan filed their own lawsuit against Watson, and other defendants, in Michigan state ~~court. That lawsuit was subsequently removed to federal~~ court and that lawsuit remains pending.

~~Since November 2013, numerous lawsuits have been filed in various federal courts by purported classes~~ 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 Attorney~~Mississippi 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~~

~~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~~defendants have moved 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~~dismiss, which motion remains 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,

, but on October 8, 2019, the district court dismissed, with prejudice,

the direct purchasers’

claims against the generic manufacturers (including Teva, Actavis,

, and

Watson).

At the time of 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

federal court in Philadelphia

alleging that they violated the antitrust laws ~~when they entered~~by entering into a

December ~~2011settlement~~

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 against both Teva and Perrigo in the underlying AndroGel patent litigation. The court ordered AbbVie to pay $448 million ~~in disgorgement but declined to award injunctive relief.~~judgement against AbbVie. 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.

n 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 ~~first group is challenging~~second group’s claims challenge both Teva’s December 2011 settlement with AbbVie ~~while the second group is challenging that settlement, as well as~~and the September 2006 AndroGel

settlement between Watson and Solvay, referenced above. ~~The defendants have moved to transfer the second group’s~~Those claims ~~to the Georgia federal court that is presiding over the multidistrict litigation related to the September 2006 settlement between Watson and Solvay. That motion remains~~remain pending.

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~~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.

~~On December 16, 2016, the U.K. Competition and Markets Authority (“CMA”) issued a statement~~2

Table of objections (a provisional finding of infringement 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, the CMA issued a second statement of objections in respect of certain additional allegations (relating to the same products and covering part of the same time period as in the first statement of objections) against Actavis UK, Allergan and certain Auden Mckenzie entities. On February 28, 2019, the CMA issued a third statement of objections with allegations of additional infringements relating to the supply of 10mg and 20mg hydrocortisone tablets in the U.K against certain Auden Mckenzie entities and others. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, pursuant to 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 18, 2017 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3. 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. A liability for this matter has been recorded in purchase accounting related to the acquisition of Actavis Generics.

Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.~~

In August 2019, the court denied the indirect purchasers’ motion for class certification, and they filed a petition for immediate appellate review, which remains pending. The court granted the direct purchasers’ motion for class certification in September 2019.

~~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.~~

In January 2019, generic manufacturer Cipla Limited filed a lawsuit ~~aga~~

~~nst~~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 ~~in (since~~(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 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. On March 3, 2017 and February 28, 2019, the CMA issued second and third statements of objections in respect of certain additional allegations relating to the same products and covering part of the same time periods as in the first statement of objections. On February 12, 2020, the CMA issued a supplementary statement of objections effectively combining the three previously issued statements referenced above. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 16, 2016 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. A liability for this matter has been recorded in the financial statements.

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~~

In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the U.S. Department of ~~these investigations originate through what are known as~~

~~qui tam~~

~~complaints, in which~~Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the ~~government reviews~~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

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. Att~~

~~rney~~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 the relators to amend their complaint with additional information. In March 2016, the relators filed an amended complaint. Teva’s motion for summary judgment on all claims was denied on February 27, 2019. Teva has reached an agreement in principle to resolve relators’ claims, for which an estimated provision was included in the financial statements for the second quarter of 2019 with the remainder of such provisions recorded in the third quarter of 2019. Pending the parties’ efforts to finalize the settlement agreement and related matters and obtain necessary approvals, the court adjourned the previously scheduled trial date of August 19, 2019 until January 6, 2020.

~~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.

~~On September 27, 2019, the Court granted the DOJ’s motion to dismiss.~~

~~In May 2017, a~~

~~qui tam~~

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

~~qui tam~~

~~action~~at the time the DPA 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.

entered into.

Opioids Litigation

Since May 2014,

more than

~~2,000~~ 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 ~~Utah,~~West Virginia, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. ~~Absent resolutions, trials are expected to proceed in several states in 2020~~

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.

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~~ $85 million.

The settlement did not include any admission of violation of law for any of the claims or allegations made. As the Company demonstrated a willingness to settle part of the litigation, for accounting purposes, management considered a portion of opioid-related cases as probable and, as such, recorded an estimated provision in the second quarter of 2019. Given the relatively early stage of the cases, management viewed no amount within the range to be the most likely outcome. Therefore, management recorded a provision for the reasonably estimable minimum amount in the assessed range for such opioid-related cases in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”

On October 21, 2019, Teva reached a settlement with the two plaintiffs in the MDL Opioid Proceeding that was scheduled for trial for the Track One case, Cuyahoga and Summit Counties of Ohio. Under the terms of the settlement, Teva will provide the two counties with opioid treatment medication,

buprenorphine naloxone (sublingual tablets),

known by the brand name ~~Suboxone®~~Suboxone

, with a value of

~~$25~~ $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.~~ (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~~

. period. In addition, Teva would also provide cash ~~paymen~~

payments of up to $250 million over a ten year period. The Company cannot predict if the nationwide settlement framework will be ~~finalized.~~finalized

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Following these ~~devel~~

~~pments,~~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 ~~our~~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 cooperating with 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 of state attorneys general, including a coordinated multistate effort, have initiated investigations into sales and marketing practices of Teva and its affiliates with respect to opioids. Other states are conducting their own investigations outside of the multistate group. Teva is cooperating with these ongoing investigations and cannot predict their outcome at this time.

In addition, several jurisdictions 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 12, 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”).

~~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 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 action in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaint has been filed.

In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. 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 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 3, 2018, the court dismissed the case without prejudice. The lead plaintiff filed a second amended~~ complaint, ~~on June 22, 2018,~~ purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and ~~August 3, 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~~In July 2017, August 2017, and ~~the current and former officer and director defendants filed motions to dismiss the second complaint on September 14, 2018.~~

~~On September 25,~~June 2019, ~~the court denied in substantial part and granted in part the defendants’ motions to dismiss. The court has yet to establish a pre-trial schedule~~

~~On July 17, 2017, a lawsuit was~~other putative securities class actions were 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 controlsother 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 29, 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 12, 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.~~

~~Following the September 25, 2019 decision on the motions to dismiss in the Ontario Teachers Securities Litigation, Teva is awaiting the court’s pre-trial schedule for this case.~~

~~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 30, 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.

~~Following the September 25, 2019 decision on the motions to dismiss in the Ontario Teachers Securities Litigation, Teva is awaiting the court’s a pre-trial schedule for this case.~~

On August 21 and 30, 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 15, 2016 and August 2, 2017directors 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 1, 2017, the court consolidated the Baker and Grodko cases. On April 10, 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.

~~Following the September 25, 2019 decision on the motions to dismiss in the Ontario Teachers Securities Litigation, Teva is awaiting the court’s pre-trial schedule for this case.~~

~~Between August 2018 and Ju~~

~~2019,~~

~~sixteen~~

~~complaints were filed against Teva and current and former officer and director defendants 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 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.~~

~~Teva is awaiting the court’s pre-trial schedule for the~~

~~cases filed in, or transferred to,~~

~~the District of~~

~~Connecticut.~~

~~On June 21, 2019, the Employees’ Retirement System~~with all of the ~~City of St. Petersburg, Florida filed a~~above-referenced putative ~~securities~~ class ~~action~~actions for all purposes and the

“opt-out”

cases for pretrial purposes. The case is now 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.

~~Teva has filed a motion to transfer the case to the United States District Court for the District of Connecticut, which motion remains pending.~~

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

to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, Teva received a warning letter from the FDA that contained four additional enumerated concerns related to production, quality control, and investigations at this site. Teva has been working diligently to address the FDA’s concerns in a manner consistent with current good manufacturing practice (cGMP) requirements, and to address those concerns as quickly and as thoroughly as possible.

An FDA follow up inspection occurred in January 2020, resulting in some follow up findings, and Teva received a letter from the FDA dated April 24, 2020 notifying 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 13 – 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 1714 – 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 3three 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

from time to ~~time~~

.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 September 30,
2019

North America

Europe

International

Markets

(U.S. $ in millions)

Revenues
$
2,051
$
1,163
$
736

Gross profit

1,048

662

295

R&D expenses

156

63

21

S&M expenses

219

206

114

G&A expenses

112

56

32

Other income

(5
)
(4
)
(1
)

Segment profit
$
565
$
341
$
130

Three months ended September 30
, 2018

North America

Europe

International

Markets

(U.S. $ in millions)

Revenues
$
2,265
$
1,212
$
726

Gross profit

1,196

676

301

R&D expenses

158

62

21

S&M expenses

265

242

120

G&A expenses

128

74

37

Other (income) expense

(4
)
1

—

Segment profit
$
649
$
297
$
123

Nine months ended September 30, 2019

North America

Europe

International Markets

(U.S. $ in millions)

Revenues

$
6,169

$
3,611

$
2,145

Gross profit

3,155

2,066

877

R&D expenses

497

199

66

S&M expenses

756

637

348

G&A expenses

342

175

102

Other income

(6
)

(5
)

(2
)

Segment profit

$
1,566

$
1,060

$
363

Nine months ended September 30, 2018

North America

Europe

International Markets

(U.S. $ in millions)

Revenues

$
7,059

$
3,982

$
2,265

Gross profit

3,778

2,195

942

R&D expenses

528

208

70

S&M expenses

813

725

384

G&A expenses

357

243

115

Other income

(206
)

(1
)

(11
)

Segment profit

$
2,286

$
1,020

$
384


	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.

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

Nine
months ended

September 30,

September 30,

2019

2018

2019

2018

(U.S. $ in millions)

(U.S. $ in millions)

North America profit

$
565

$
649

$
1,566

$
2,286

Europe profit

341

297

1,060

1,020

International Markets profit

130

123

363

384

Total segment
s
profit

1,036

1,069

2,989

3,690

Profit of other activities

16

35

92

87

1,051

1,104

3,081

3,777

Amounts not allocated to segments:

Amortization

255

297

823

909

Other assets impairments, restructuring and other items

160

139

263

834

Goodwill impairment

—

—

—

300

Intangible asset impairments

177

519

1,206

1,246

G
ain on divestitures, net of divestitures related costs

(3
)

(31
)

(12
)

(114
)
Other R&D expenses
(income)

(7
)

60

(7
)

82

Costs related to regulatory actions taken in facilities

11

1

28

6

Legal settlements and loss contingencies

468

19

1,171

(1,239
)
Other unallocated amounts

72

84

201

226

Consolidated operating income (loss)

(81
)

16

(591
)

1,527

Financial expenses, net

211

229

635

736

Consolidated income (loss) before income taxes

$
(292
)

$
(213
)

$
(1,226
)

$
791


	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 ~~the nine months ended September 30, 2019 and 2018:~~2019:


North America					Three months ended March 31,
					2020		2019
	Three months ended September 30,				(U.S. $ in millions)
	2019		2018
	(U.S. $ in millions)
No rth Ameri ca
Generic products	$	914	$	922	$	952	$	966
AJOVY						29		20
AUSTEDO						122		74
BENDEKA/TREANDA						105		122
COPAXONE		271		463		198		208
BENDEKA/TREANDA		124		161
ProAir*		71		107		59		59
QVAR		60		36		45		64
AJOVY		25		—
AUSTEDO		105		62
Anda		351		333		426		379
Other		131		182		146		155

Total	$	2,051	$	2,265	$	2,082	$	2,047

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

Nine months ended
September 30,

2019

2018

(U.S. $ in millions)

North America

Generic products
$
2,826
$

2,957

COPAXONE

753

1,403

BENDEKA/TREANDA

353

502

ProAir*

194

352

QVAR

183

173

AJOVY

68

—

AUSTEDO

276

136

Anda

1,080

984

Other

436

554

Total

$

6,169

$
7,059

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


Europe					Three months ended March 31,
					2020		2019
	Three months ended September 30,				(U.S. $ in millions)
	2019		2018
	(U.S. $ in millions)
Europe
Generic products	$	836	$	845	$	1,032	$	919
COPAXONE		106		124		109		114
Respiratory products		87		93		106		91
AJOVY						4		—
Other		134		150		151		140

Total	$	1,163	$	1,212	$	1,402	$	1,264

Nine months ended
September 30,

2019

2018

(U.S. $ in millions)

Europe

Generic products
$
2,599
$
2,749

COPAXONE

327

417

Respiratory products

267

312

Other

417

504

Total
$
3,611
$
3,982

Three months ended
September 30,

2019

2018

(U.S. $ in millions)

International markets

Generic products
$
474
$
498

COPAXONE

20

14

Distribution

176

149

Other

66

65

Total

$

736

$

726

Nine months ended
September 30,

2019

2018

(U.S. $ in millions)

International markets

Generic products
$
1,404
$
1,523

COPAXONE

46

52

Distribution

491

456

Other

204

233

Total
$
2,145
$
2,265

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

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.

*	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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1816 – ~~Other income:~~Fair value measurement:

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

September 30,

Nine months ended

September 30,

2019

2018

2019

2018

(U.S. $ in millions)

(U.S. $ in millions)

Gain

on divestitures, net of divestitures related costs (1)

$
3

31

$
12

114

Section 8 and similar payments (2)

—

1

—

195

Gain (loss) on sale of assets

3

1

(1
)

9

Other, net

8

2

19

16

Total other income

$
14

$
35

$
29

$
334


	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.

~~(2)~~

~~Section 8 of the Patented Medicines (Notice of Compliance) Regulation relates to recoveries of lost revenue related to patent infringement proceedings in Canada.~~

~~NOTE 19 – Income taxes:~~

~~In the third quarter of 2019, Teva recognized a tax~~

~~expense~~

~~million~~

~~pre-tax~~

~~loss~~

~~292~~

~~million~~

~~. In the third quarter of 2018, Teva recognized a tax benefit of~~

~~million~~

~~, or 12%, on~~

~~pre-tax~~

~~loss of~~

~~213~~

~~million~~

~~. Teva’s tax rate for the third quarter of 2019 was mainly affected by impairments, amortization~~

~~, legal settlements with low corresponding tax effect~~

~~and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.~~

~~In the first~~

~~nine~~

~~months of 2019, Teva recognized a tax benefit of~~

~~159~~

~~million~~

~~, or 13%, on~~

~~pre-tax~~

~~loss of~~

~~1,226~~

~~million~~

~~. In the first~~

~~nine~~

~~months of 2018, Teva recognized a tax benefit of~~

~~million~~

~~pre-tax~~

~~income of~~

~~791~~

~~million~~

~~. Teva’s tax rate for the first~~

~~nine~~

~~months of 2019 was mainly affected by impairments, amortization~~

~~, legal settlements with low corresponding tax effect~~

~~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, 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 November 2019. A final and binding decision against Teva in this case may lead to an impairment in the amount of $146 million.

~~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 nine months ended September 30, 201

~~and the 12 months ended December 31, 201~~

~~, was $131 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 ofdetermined the fair value of the ~~underlying asset comprises substantially all~~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.

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 ~~the underlying asset.~~

~~Operating leases~~contingent consideration are ~~included~~recorded 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.

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)

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.~~

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.

~~The new Lease 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 nine months ended September 30, 2019 were as follows:~~

Three months
ended

September 30,

Nine months
ended

September 30,

2019

(U.S. $ in millions)

Operating lease cost:

Fixed payments and variable payments that depend on an index or rate
$
45
$
123

Variable lease payments not included in the lease liability

—

4

Short-term lease cost

1

4

Total operating lease cost
$
46
$
131

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

Nine months ended

September 30,
2019

(U.S. $ in millions)

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

Operating cash flows from operating leases
$
130

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

Operating leases
$
70


	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):

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

September 30, 2019

(U.S. $ in millions)

Operating leases:
$
Operating lease ROU assets

468

Other current liabilities

116

Operating lease liabilities

394

Total operating lease liabilities
$
510

September 30, 2019

Weighted average remaining lease term

Operating leases

7.4
years

Weighted average discount rate

Operating leases

5.9
%


	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

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

September 30,

2019

(U.S. $ in millions)

2019 (excluding the nine months ended September 30, 2019)
$
38

2020

128

2021

98

2022

73

2023

51

2024 and thereafter

253

Total operating lease payments
$
641

Less: imputed interest

131

Present value of lease liabilities
$
510

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

*	Based on quoted market price. See note 7 for carrying value.

As of September 30, 2019, Teva has additional operating leases for office space which have yet to commence, with undiscounted future payments of $92 million. These operating leases will commence during fiscal year

~~2020~~

~~with lease terms of 9 to 12 years.~~

~~On October 10, 2019, Teva entered into an agreement to sell and lease back the land and building of its distribution center in Israel. Net proceeds from the asset sale amounted to $~~

~~128~~

~~million.~~39

As of September 30, 2019, Teva’s total finance lease assets and finance lease liabilities are $77 million and $29 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 ~~third~~first quarter of ~~2019~~2020 included:

Revenues in the ~~third~~first quarter of ~~2019~~2020 were ~~$4,264~~$4,357 million, ~~a decrease~~an increase of 6%5%, ~~or 5%~~ in both U.S. dollar and local currency terms, compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to ~~generic competition to COPAXONE~~

~~, a decline in~~higher revenues from ~~BENDEKA~~

~~/ TREANDA~~

generics and ~~certain other specialty products~~OTC sales in ~~the United States, as well as declines in revenues in Russia and Japan, partially offset by~~Europe, 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 ~~$2,051~~$2,082 million and profit of ~~$565~~$550 million in the ~~third~~first quarter of ~~2019.~~2020. Revenues ~~decreased~~increased by 9%2% compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to ~~a decline~~an increase in revenues ~~from COPAXONE~~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 ~~AUSTEDO, AJOVY~~ QVAR, BENDEKA/TREANDA, COPAXONE

and ~~QVAR.~~generic products. Profit ~~decreased~~increased by ~~13%~~10%, mainly due to the changes in revenues described ~~above, partially offset by cost reductions and efficiency measures as part of the restructuring plan.~~above.

Our Europe segment generated revenues of ~~$1,163~~$1,402 million and profit of ~~$341~~$502 million in the ~~third~~first quarter of ~~2019.~~2020. Revenues ~~decreased~~increased by 4%11%. In local currency terms, revenues ~~were flat~~increased by 13% compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to ~~strong~~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, ~~and higher sales~~partially offset by price declines for oncology products as a result of ~~OTC products, mostly offset by~~generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate products. Profit increased by ~~15%~~25%, mainly due to ~~strong new generic product launches, cost reductions~~higher revenues and ~~efficiency measures as part of the restructuring plan, partially offset by the impact of currency fluctuations.~~lower expenses.

Our International Markets segment generated revenues of ~~$736~~$565 million and profit of ~~$130~~$156 million in the ~~third~~first quarter of ~~2019.~~2020. Revenues increased by 1%8% in ~~both~~ U.S. dollars ~~and~~or 5% in local currency terms, compared to the ~~third~~first quarter of ~~2018.~~2019. The increase in revenues was mainly due to higher ~~distribution activities~~sales in ~~Israel,~~Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in ~~Japan and Russia.~~Japan. The revenues in the first quarter of 2020 included $35 million from a positive hedging impact. Profit increased by 6%61%, mainly due to ~~cost reductions~~higher sales and ~~efficiency measures as part of~~ the ~~restructuring plan.~~

positive impact from hedging activity.

~~Intangible asset impairments~~

Impairment of identifiable intangible assets were ~~$177~~$649 million in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~$519~~$469 million in the ~~third~~first quarter of ~~2018. The impairment~~2019. Impairment expenses in the ~~third~~first quarter of ~~2019~~2020 related to IPR&D assets were ~~related to~~$331 million and identifiable product rights ~~of $99 million and IPR&D assets of $78~~were $318 million. ~~These impairments were mainly related to products acquired from Actavis Generics in the United States and Hong Kong.~~

~~Operating loss was $81 million~~

No goodwill impairments were recorded in the ~~third quarter~~first quarters of ~~2019, compared to income of $16 million in the third quarter of 2018. The decrease was mainly due to higher provisions in connection with legal settlements~~both 2020 and ~~loss contingencies, partially offset by lower intangible asset impairments, lower R&D expenses and higher profit in our Europe segment.~~

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 ~~third~~first quarter of ~~2019,~~2020, we recorded an ~~expense~~income of ~~$468~~$25 million in legal settlements and loss contingencies, compared to ~~$19~~an expense of $57 million in the ~~third~~first quarter of ~~2018.~~2019. The ~~expense~~income in the ~~third~~first quarter of ~~2019~~2020 was mainly related to a settlement of an ~~increase in~~action brought against the ~~estimated settlement provision recorded in connection with the remaining opioid cases.~~sellers of Auden McKenzie (an acquisition made by Actavis Generics).

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

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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 ~~third~~first quarter of 2020 and the first quarter of 2019, ~~and the third quarter~~net of ~~2018~~hedging, negatively impacted overall revenues by ~~$55~~$3 million and positively impacted operating income by ~~$19~~$27 million.

~~Table of Contents~~

As of ~~September 30, 2019,~~March 31, 2020, our debt was ~~$26,942~~$26,103 million, compared to ~~$28,726~~$26,908 million as of ~~June 30,~~December 31, 2019. ~~The~~This decrease was mainly due to repayment at maturity of our ~~$1,556~~$700 million ~~1.7%~~2.25% senior notes, as well as ~~decreased~~ exchange rate fluctuations.

Cash flow generated from operating activities during the ~~third~~first quarter of ~~2019~~2020 was ~~$325~~$305 million, compared to ~~$421~~$112 million in the ~~third~~first quarter of ~~2018. The decrease~~2019. This increase in cash flow in the ~~third~~first quarter of ~~2019~~2020 was mainly due to higher operating profit in each of our three segments, as well as lower ~~revenues and a reduction~~performance incentive payments to employees paid in ~~sales reserves associated with~~ the ~~revenue decline.~~

first quarter of 2020, compared to the amounts paid in the first quarter of 2019.

~~Cash~~

During the first quarter of 2020, we generated free cash flow of $551 million, which we define as comprising $305 million in cash flow generated from operating activities, $368 million in ~~the third quarter of 2019, net of cash received for capital investments and~~ beneficial interest collected in exchange for securitized ~~trade~~accounts receivables ~~was $551~~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. This increase compared to ~~$704 million in~~ the ~~third quarter of 2018. The decrease in cash flow in the third~~first quarter of 2019, ~~was~~resulted mainly ~~due to the reasons mentioned above, as well as~~from higher ~~capital investments during the third quarter~~cash flow generated from operating activities, including significant consumption of ~~2019 compared to the third quarter of 2018.~~

inventories.

~~Transactions~~

On October 10, 2019, we entered into an agreement to sell and lease back the land and building of our distribution center in Israel. Net proceeds from the asset sale amounted to $128 million. See also note 20 to our consolidated financial statements.

~~Changes in Senior Management~~

In August 2019, we announced the departure of Mr. Michael McClellan from his role as Executive Vice President and Chief Financial Officer. On November 7, 2019, we announced that Mr. Eli Kalif was appointed Executive Vice President and Chief Financial Officer and a member of Teva Executive Management, effective December 22, 2019. In the interim period between Mr. McClellan’s departure on November 8, 2019 and the beginning of Mr. Kalif’s service on December 22, 2019, our President and Chief Executive Officer, Mr. Kåre Schultz, will perform the chief financial officer’s functions.

In October 2019, we announced the departure of Dr. Carlo de Notaristefani from his role as Executive Vice President, Global Operations. Effective October 2, 2019, Mr. Eric Drapé was appointed Executive Vice President, Global Operations and a member of Teva Executive Management. Prior to this appointment, Mr. Drapé served as Executive Vice President and Chief Quality Officer.

In October 2019, Iris Beck-Codner stepped down from her role as Executive Vice President, Global Brand and Communications. Mark Sabag, Executive Vice President, Global Human Resources, assumed the responsibilities of the Global Brand and Communications function.

Results of Operations

Comparison of Three Months Ended ~~September 30, 2019~~March 31, 2020 to Three Months Ended ~~September 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						Percentage Change
	Three Months Ended
	September 30,									Percentage of Net Revenues Three Months Ended March 31,					Percentage Change
	2019			2018				2019 - 2018			2020		2019			2020 - 2019
	%			%				%			%		%			%
Net revenues		100			100			(6	)		100		100			5
Gross profit		43			44			(7	)		47		45			11
Research and development expenses		6			7			(23	)		5		6			(15	)
Selling and marketing expenses		14			15			(15	)		14		16			(5	)
General and administrative expenses		7			7			(8	)		7		7.0			4
Intangible assets impairment		4			11			(66	)
Intangible assets impairments											15		11			38
Other assets impairments, restructuring and other items		4			3			15			3		§			NA
Legal settlements and loss contingencies		11			§			NA			(1	)	1			NA
Other income		§			(1	)		—
Operating income (loss)		(2	)		§			—
Other income (loss)											§		§			115
Operating income											4		3			43
Financial expenses, net		5			5			(8	)		5		5			3
Income (loss) before income taxes		(7	)		(5	)		37			(1	)	(2	)		(61	)
Income taxes (benefit)		§			(1	)		—			(1	)	§			—
Share in losses (income) of associated companies, net		§			§			NA
Share in losses (profits) of associated companies, net											§		§			NA
Net income attributable to non-controlling interests		§			§			NA			(1	)	§			NA
Net income (loss) attributable to Teva		(7	)		(5	)		51			2		(3	)		—
Dividends on preferred shares		—			1			NA
Net income (loss) attributable to ordinary shareholders		(7	)		(6	)		15			2		(3	)		—

§	Represents an amount less than 0.5%.

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Segment Information

North America Segment

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


	Three months ended September 30,										Three months ended March 31,
	2019					2018					2020					2019
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,051		100	%	$	2,265		100.0	%	$	2,082		100	%	$	2,047		100.0	%
Gross profit		1,048		51.1	%		1,196		52.8	%		1,062		51.0	%		1,039		50.8	%
R&D expenses		156		7.6	%		158		7.0	%		146		7.0	%		165		8.1	%
S&M expenses		219		10.7	%		265		11.7	%		251		12.1	%		268		13.1	%
G&A expenses		112		5.5	%		128		5.7	%		118		5.6	%		112		5.5	%
Other (income) expense		(5	)	§			(4	)	§			(2	)	§			(4	)	§

Segment profit*	$	565		27.5	%	$	649		28.7	%	$	550		26.4	%	$	498		24.3	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the ~~third~~first quarter of ~~2019~~2020 were ~~$2,051~~$2,082 million, ~~a decrease~~an increase of ~~$214~~$36 million, or 9%2%, compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to ~~a decline~~an increase in revenues of ~~COPAXONE~~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 ~~AUSTEDO, AJOVY~~QVAR, BENDEKA/TREANDA, COPAXONE and ~~QVAR.~~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 ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three months ended September 30,				Percentage Change			Three months ended March 31,				Percentage Change
	2019		2018		2019-2018			2020		2019		2019-2020
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	914	$	922		(1	%)	$	952	$	966		(1	%)
COPAXONE		271		463		(41	%)
BENDEKA/TREANDA		124		161		(23	%)
ProAir ® *		71		107		(34	%)
QVAR		60		36		68	%
AJOVY		25		—		NA			29		20		44	%
AUSTEDO		105		62		71	%		122		74		64	%
BENDEKA/TREANDA									105		122		(14	%)
COPAXONE									198		208		(5	%)
ProAir*									59		59		1	%
QVAR									45		64		(29	%)
Anda		351		333		5	%		426		379		13	%
Other		131		182		(28	%)		146		155		(6	%)

Total	$	2,051	$	2,265		(9	%)	$	2,082	$	2,047		2	%

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

Generic products

revenues in our North America segment (including biosimilars) in the ~~third~~first quarter of ~~2019~~2020 were ~~$914~~$952 million, ~~flat~~a decrease of 1% compared to the ~~third~~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.

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Among the most significant generic products we sold in North America in the ~~third~~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.

), ~~albuterol sulfate inhalation aerosol (ProAir~~TRUXIMA (the biosimilar to Rituxan

~~HFA authorized generic of Teva’s specialty product)~~), lidocaine transdermal patch (the generic equivalent of Lidoderm Patch

), and amphetamine salt tablets (the generic equivalent of Adderall IR

) ~~and icatibant acetate injection~~.

We launched HERZUMA for Injection (the ~~generic equivalent of Firazyr~~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 ~~third~~first quarter of ~~2019,~~2020, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~391~~389 million total prescriptions (based on trailing twelve months), representing ~~10.6%~~10.4% of total U.S. generic prescriptions according to IQVIA data.

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.

~~Table~~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 ~~Contents~~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.

~~COPAXONE~~AUSTEDO

revenues in our North America segment in the ~~third~~first quarter of ~~2019 decreased~~2020 increased by ~~41%~~64%, to ~~$271~~$122 million, compared to $74 million in the ~~third~~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 $257 million in~~for the ~~third 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 68% of global COPAXONE revenues in the third quarter of 2019, compared to 77% in the third quarter of 2018.~~

COPAXONE global sales accounted for approximately 9% of our global revenues in the third 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. A hearing for an appeal in this case has been set for June 2020.

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.~~

BENDEKA

and

TREANDA

combined revenues in our North America segment in the ~~third~~first quarter of ~~2019~~2020 decreased by ~~23%~~14% to ~~$124~~$105 million, compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to the ~~June 2018 launch~~emergence of alternative novel therapies and continued competition from Belrapzo

ready-to-dilute

bendamustine ~~hydrochloride) by~~hydrochloride product 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. ~~We await~~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 ~~decision from~~result, the ~~court, which could come as early as the first half of 2020. The asserted~~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 ~~third~~first quarter of ~~2019 decreased by 34% to $71~~2020 were $59 million, flat compared to the ~~third~~first quarter of ~~2018, mainly due to lower volumes and 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% (46.5%~~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 ~~third~~first quarter of ~~2019,~~2020, compared to ~~45.2%~~27.6% in the ~~third~~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 ~~third~~first quarter of ~~2019 increased~~2020 decreased by ~~68%~~29% to ~~$60~~$45 million, compared to the ~~third~~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 ~~19.9%~~20.8% in terms of total number of prescriptions during the ~~third~~first quarter of ~~2019,~~2020, compared to 21.7% in the ~~third~~first quarter of ~~2018.~~

~~AJOVY~~

revenues in our North America segment in the third quarter of 2019 were $25 million. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults.

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.

~~Table of Contents~~

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, and the litigation in the district court has been stayed pending resolution of the IPRs. The patent office hearing on the first set of six IPRs is scheduled for November 22, 2019 and the hearing on the remaining three IPRs is scheduled for January 8, 2020. 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 third quarter of 2019 increased by 71%, to $105 million, compared to $62 million in the third 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 ~~third~~first quarter of ~~2019~~2020 increased by 5%13% to ~~$351~~$426 million, compared to ~~$333~~$379 million in the ~~third~~first quarter of ~~2018,~~2019, 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 ~~third~~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))
*

Oseltamivir phosphate for oral suspension, 6 mg / mL

Tamiflu
®
July
$
281

Icatibant injection, 30 mg / 3 mL

Firazyr
®
July
$
304

Pregabalin capsules, 25 mg, 50 mg, 75 mg, 100 mg, 150 mg, 200 mg, 225 mg & 300 mg

Lyrica
®
July
$
5,456

Ramelteon tablets, 8 mg

Rozerem
®
July
$
91

Bisoprolol fumarate and hydrochlorothiazide tablets, 2.5 mg/6.25 mg, 5 mg/6.25 mg & 10 mg/6.25 mg **

Ziac
®
August
$
42

Doxycycline hyclate delayed-release tablets, USP, 50 mg & 200 mg

Doryx
®
August
$
20

Mycophenolic acid delayed-release tablets, USP, 180 mg & 360 mg

Myfortic
®
DR

August
$
180

Epinephrine injection, USP (auto-injector), 0.15 mg/0.3 mL

EpiPen
®
and EpiPen Jr
®
August
$
201

Minocycline hydrochloride extended-release tablets, USP, 55 mg

Solodyn
®
ER

August
$
44

Fulvestrant injection, 250 mg / 5 mL (50 mg/mL)

***

August

—

Triamcinolone acetonide injectable suspension, USP, 40 mg/mL (40 mg), 40 mg/mL (200 mg) & 40 mg/mL (400 mg)

Kenalog
®
-40

August
$
135

Acyclovir cream, 5% ****

Zovirax
®
August
$
97

Fosaprepitant for injection, 150 mg/Vial

***

September

—

Treprostinil Injection, 1 mg/mL (20 mg), 2.5 mg/mL (50 mg), 5 mg/mL (100 mg) & 10 mg/mL (200 mg)

Remodulin
®
September
$
3

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 .

**	~~Authorized generic – Teva brand.~~Biosimilar.

~~***~~

~~Approved via 505(b)(2) regulatory pathway; not equivalent to a brand product.~~

~~****~~

~~Authorized generic.~~

~~Table of Contents~~

Our generic products pipeline in the United States includes, as of ~~September 30, 2019, 244~~March 31, 2020, 242 product applications awaiting FDA approval, including 8179 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 ~~June 30, 2019~~March 31, 2020 exceeding ~~$112~~$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 9890 of these products, or ~~119~~112 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$73~~$77 billion in U.S. brand sales for the twelve months ended ~~June 30, 2019,~~March 31, 2020, according to IQVIA.

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

so-called

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

In the ~~third~~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))*

Ivermectin lotion, 0.5%

Sklice
® $
81

Sildenafil, 10mg/mL

Revatio
® $
189

*	~~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 ~~September 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 (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

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)~~

~~Discontinued.~~

ProAir

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 2019)

~~Oncology~~

~~TRUXIMA~~

ArmonAir

~~(formerly~~DigiHaler

~~CT-P10)~~®

~~(biosimilar to~~

~~Rituxan~~

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

Oral inhalation

Approved by FDA ~~(November 2018)~~(February 2020)

~~Approved in Canada (April 2019)~~

~~Expected to launch in the U.S. in November 2019.~~

~~HERZUMA~~

GoResp

~~(formerly~~DigiHaler

~~CT-P06)~~®

/ 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)~~

~~Approved in Canada (September 2019)~~

~~Table of Contents~~

North America Gross Profit

Gross profit from our North America segment in the ~~third~~first quarter of ~~2019~~2020 was ~~$1,048~~$1,062 million, ~~a decrease~~an increase of ~~12%~~2%, compared to ~~$1,196~~$1,039 million in the ~~third~~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 ~~third~~first quarter of ~~2019 decreased~~2020 increased to ~~51.1%~~51.0%, compared to ~~52.8%~~50.8% in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$156~~$146 million, a decrease of 1%12%, compared to ~~$158~~$165 million in the ~~third~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$219~~$251 million, a decrease of ~~17%~~6%, compared to ~~$265~~$268 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$112~~$118 million, ~~a decrease~~an increase of ~~12%~~5%, compared to ~~$128~~$112 million in the ~~third~~first quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan, partially offset by legal expenses.~~2019.

North America Other Income (Expense)

Other income from our North America segment in the ~~third~~first quarter of ~~2019~~2020 was $5$2 million, compared to other income of $4 million in the ~~third~~first quarter of ~~2018.~~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 ~~third~~first quarter of ~~2019~~2020 was ~~$565~~$550 million, ~~a decrease~~an increase of ~~13%~~10%, compared to ~~$649~~$498 million in the ~~third~~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, partially offset by increases in sales of AUSTEDO, QVAR and AJOVY, as well as cost reductions and efficiency measures as part of the restructuring plan.discussed above.

~~Table of Contents~~

Europe Segment

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


	Three months ended September 30,										Three months ended March 31,
	2019						2018				2020					2019
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,163			100	%	$	1,212	100	%	$	1,402		100	%	$	1,264		100	%
Gross profit		662			56.9	%		676	55.8	%		823		58.7	%		730		57.8	%
R&D expenses		63			5.4	%		62	5.1	%		55		3.9	%		66		5.2	%
S&M expenses		206			17.7	%		242	20.0	%		202		14.4	%		215		17.0	%
G&A expenses		56			4.9	%		74	6.1	%		66		4.7	%		48		3.8	%
Other (income) expense		(4	)		§			1	§			(1	)	§			(1	)	§
				��
Segment profit*	$	341			29.3	%	$	297	24.5	%	$	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 ~~third~~first quarter of ~~2019~~2020 were ~~$1,163~~$1,402 million, ~~a decrease~~an increase of 4%11% or ~~$49~~$138 million, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~were flat,~~increased by 13%, mainly due to ~~strong~~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 ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three months ended September 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	$	836	$	845		(1	%)	$	1,032	$	919		12	%
COPAXONE		106		124		(14	%)		109		114		(4	%)
Respiratory products		87		93		(7	%)		106		91		16	%
AJOVY									4		—		NA
Other		134		150		(10	%)		151		140		7	%

Total	$	1,163	$	1,212		(4	%)	$	1,402	$	1,264		11	%

Generic products

revenues in our Europe segment in the ~~third~~first quarter of ~~2019,~~2020, including OTC products, ~~decreased~~increased by 1%12% to ~~$836~~$1,032 million, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues increased by 4%16% compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to ~~strong~~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 and higher sales~~launches. We estimate that the impact of ~~OTC products.~~the

COVID-19

pandemic on advanced purchasing patterns was approximately $100 million.

COPAXONE

revenues in our Europe segment in the ~~third~~first quarter of ~~2019~~2020 decreased by ~~14%~~4% to ~~$106~~$109 million, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues decreased by ~~10%~~1%, mainly due to price reductions and a decline in volume ~~decline~~ resulting from competing glatiramer acetate ~~products.~~products, partially offset by higher demand due to the impact of the

COVID-19

pandemic on purchasing patterns.

~~Revenues~~COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various European 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 ~~COPAXONE~~the European Patent Office in ~~our Europe segment were 27% of global COPAXONE revenues~~April 2019. A hearing for an appeal in ~~the third quarter of 2019, compared to 21% in the third quarter of 2018.~~this case has been set for June 2020.

~~For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.~~

Table of Contents

Respiratory products

revenues in our Europe segment in the ~~third~~first quarter of ~~2019 decreased~~2020 increased by 7%16% to ~~$87~~$106 million, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased~~increased by 2%20%, mainly due to ~~lower sales in~~higher demand attributed to the ~~United Kingdom.~~impact of the

COVID-19

pandemic.

AJOVY

revenues in our Europe segment in the first quarter of 2020 were $4 million.

AJOVY was granted a Marketing Authorization in the European Union by the European Medicines Agency (“EMA”) in ~~the European Union in~~ a centralized process in April 2019. We commenced launching AJOVY ~~launched~~ in ~~Germany on~~certain European markets in May ~~15,~~ 2019 and ~~we continue~~are moving forward with plans to ~~progress with launches~~launch in other European countries. In October 2019, we received approval from the EMA for AJOVY’s auto-injector submission in the European Union ~~countries.~~and we commenced launch in March 2020. For information about AJOVY patent protection, see “—North America Revenues—Revenues by Major Product” above.

~~Table of Contents~~

Product Launches and Pipeline

As of ~~September 30, 2019,~~March 31, 2020, our generic products pipeline in Europe included ~~509~~88 generic approvals relating to 6627 compounds in ~~135~~49 formulations, ~~and~~no EMA approvals received. In addition, approximately ~~1,140~~1,115 marketing authorization applications pending approval in 37 European countries, relating to ~~135~~119 compounds in ~~276 formulations in 30 countries.~~236 formulations. No applications are pending with the EMA.

For information regarding our specialty pipeline and launches in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 was ~~$662~~$823 million, ~~a decrease~~an increase of 2%13% compared to ~~$676~~$730 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 increased to ~~56.9%~~58.7%, compared to ~~55.8%~~57.8% in the ~~third~~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 network optimization.~~inventory write-offs.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the ~~third~~first quarter of ~~2019~~2020 were ~~$63~~$55 million, ~~an increase~~a decrease of 2%17% compared to ~~$62~~$66 million in the ~~third~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$206~~$202 million, a decrease of ~~15%~~6% compared to ~~$242~~$215 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$56~~$66 million, ~~a decrease~~an increase of ~~24%~~37% compared to ~~$74~~$48 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 was ~~$341~~$502 million, an increase of ~~15%~~25%, compared to ~~$297~~$403 million in the ~~third~~first quarter of ~~2018. The~~2019. This increase was mainly due to ~~strong new generic product launches~~higher revenues and ~~cost reductions and efficiency measures~~lower expenses as ~~part~~discussed above.

Table of ~~the restructuring plan, partially offset by the impact of currency fluctuations.~~Contents

International Markets Segment

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


	Three months ended September 30,									Three months ended March 31,
	2019					2018				2020					2019
	(U.S. $ in millions / % of Segment Revenues)									(U.S. $ in millions / % of Segment Revenues)
Revenues	$	736		100	%	$	726	100	%	$	565		100	%	$	521	100	%
Gross profit		295		40.1	%		301	41.4	%		305		54.0	%		269	51.7	%
R&D expenses		21		2.8	%		21	2.9	%		15		2.7	%		22	4.2	%
S&M expenses		114		15.4	%		120	16.5	%		106		18.8	%		115	22.0	%
G&A expenses		32		4.3	%		37	5.1	%		34		6.0	%		36	6.8	%
Other (income) expense		(1	)	§			—	§			(6	)	(1.1	%)		—	§

Segment profit*	$	130		17.7	%	$	123	16.9	%	$	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 ~~third~~first quarter of ~~2019~~2020 were ~~$736~~$565 million, an increase of ~~$10~~$44 million, or 1%8%, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues increased 1%by 5% compared to the ~~third~~first quarter of ~~2018,~~2019, mainly due to higher ~~distribution activities~~sales in ~~Israel,~~Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in ~~Japan~~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 ~~Russia.~~cost of sales in 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 ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended
September 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
474
$
498

(5
%)
COPAXONE

20

14

39
%
Distribution

176

149

18
%
Other

66

65

3
%

Total
$
736
$
726

1
%


	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 ~~third~~first quarter of ~~2019,~~2020, which include OTC products, ~~decreased~~increased by 5%2% to ~~$474~~$449 million, compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~decreased~~increased by 5%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, as well as lower sales in Russia.~~products.

COPAXONE

revenues in our International Markets segment in the ~~third~~first quarter of ~~2019 increased~~2020 decreased by ~~39%~~11% to ~~$20~~$12 million, compared to ~~$14~~$13 million in the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues ~~increased~~decreased by ~~46%~~1%.

~~For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.~~

~~Distribution~~

revenues in our International Markets segment in the third quarter of 2019 increased by 18% to $176 million, compared to $149 million in the third quarter of 2018. In local currency terms, revenues increased by 15%, mainly due to agreements with new distribution partners.

International Markets Gross Profit

Gross profit from our International Markets segment in the ~~third~~first quarter of ~~2019~~2020 was ~~$295~~$305 million, ~~a decrease~~an increase of 2%13% compared to ~~$301~~$269 million in the ~~third~~first quarter of ~~2018.~~2019.

Gross profit margin for our International Markets segment in the ~~third~~first quarter of ~~2019 decreased~~2020 increased to ~~40.1%~~54.0%, compared to ~~41.4%~~51.7% in the ~~third~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~changes in product mix.~~higher sales and 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 ~~third~~first quarter of ~~2019~~2020 were ~~$21~~$15 million, ~~flat~~a decrease of 31% compared to $22 million in the ~~third~~first quarter of ~~2018.~~2019.

For a description of our R&D expenses in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$114~~$106 million, a decrease of 5%8% compared to ~~$120~~$115 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$32~~$34 million, a decrease of ~~15%~~5% compared to ~~$37~~$36 million in the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 was ~~$130~~$156 million, an increase of 6%61%, compared to ~~$123~~$97 million in the ~~third~~first quarter of ~~2018. The~~2019. This increase was mainly due to ~~cost reductions~~higher sales 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 ~~third~~first quarter of ~~2019~~2020 were ~~$314~~$307 million, a decrease of 4%3% compared to the ~~third~~first quarter of ~~2018.~~2019. In local currency terms, revenues decreased by 2%.

API sales to third parties in the ~~third~~first quarter of ~~2019~~2020 were ~~$176~~$177 million, ~~an increase~~a decrease of 3%5%, in both U.S. dollar and local currency terms, compared to the ~~third~~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 ~~third~~first quarter of ~~2019~~2020 were ~~$4,264~~$4,357 million, ~~a decrease~~an increase of ~~6%, or~~ 5% in both U.S. dollar and local currency terms, compared to the ~~third~~first quarter of ~~2018,~~2019. This increase was mainly due to ~~generic competition to COPAXONE, a decline in~~higher revenues from ~~BENDEKA/TREANDA~~generics and ~~certain other specialty products~~OTC sales in ~~the United States, as well as a decline in revenues in Russia and Japan, partially offset by~~Europe, 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 ~~third~~first quarter of ~~2019~~2020, net of hedging, negatively impacted revenues by ~~$55~~$3 million compared to the ~~third~~first quarter of ~~2018.~~2019. See note 8d to our consolidated financial statements.

Table of Contents

Gross Profit

Gross profit in the ~~third~~first quarter of ~~2019~~2020 was ~~$1,830~~$2,063 million, ~~a decrease~~an increase of 7%11% compared to the ~~third~~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 ~~42.9%~~47.3% in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~43.7%~~44.7% in the ~~third~~first quarter of ~~2018.~~2019.

The ~~decrease~~increase in gross profit as a percentage of revenues was mainly due to ~~lower~~higher profitability in each of our three segments, primarily higher revenues from AUSTEDO, a favorable mix of generic products in North America, ~~resulting mainly~~a favorable mix of generic products in Europe and International Markets and a positive impact from ~~a decline in COPAXONE revenues due to generic competition,~~our hedging activity, partially offset by higher revenues from Anda, which has lower ~~amortization expenses and higher profitability in Europe, resulting mainly from lower cost of goods sold related to network optimization.~~profitability.

Research and Development (R&D) Expenses

Net R&D expenses in the ~~third~~first quarter of ~~2019~~2020 were ~~$240~~$221 million, a decrease of ~~23%~~15% compared to the ~~third~~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 ~~third~~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 ~~third~~first quarter of 2020, compared to the first quarter of 2019, ~~compared to~~resulted primarily from the ~~third quarter~~life cycle and stage of ~~2018, primarily resulted from cost of labor reductions, pipeline optimization and project terminations, partially offset by increased investment in early stage~~various projects.

R&D expenses as a percentage of revenues were ~~5.6%~~5.1% in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~6.9%~~6.3% in the ~~third~~first quarter of ~~2018.~~2019.

~~Table of Contents~~

Selling and Marketing (S&M) Expenses

S&M expenses in the ~~third~~first quarter of ~~2019~~2020 were ~~$595~~$613 million, a decrease of ~~15%~~5% compared to the ~~third~~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 ~~13.9%~~14.1% in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~15.4%~~15.6% in the ~~third~~first quarter of ~~2018.~~2019.

General and Administrative (G&A) Expenses

G&A expenses in the ~~third~~first quarter of ~~2019~~2020 were ~~$285~~$304 million, ~~a decrease~~an increase of 8%4% compared to the ~~third~~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 ~~6.7%~~7.0% in the ~~third~~first quarter of ~~2019,~~2020, flat compared to ~~6.8% in~~ the ~~third~~first quarter of ~~2018.~~2019.

Intangible Asset Impairments

We recorded expenses of ~~$177~~$649 million for identifiable intangible asset impairments in the ~~third~~first quarter of ~~2019,~~2020, compared to expenses of ~~$519~~$469 million in the ~~third~~first quarter of ~~2018.~~2019. See note 65 to our consolidated financial statements.

Goodwill Impairment

No goodwill impairments were recorded in the ~~third quarter~~first quarters of ~~2019~~both 2020 and ~~2018.~~2019. See note 6 to our consolidated financial statements.

Table of Contents

Other ~~Assets~~Asset Impairments, Restructuring and Other Items

We recorded expenses of ~~$160~~$121 million for other ~~assets~~asset impairments, restructuring and other items in the ~~third~~first quarter of ~~2019,~~2020, compared to expenses of ~~$139~~$1 million in the ~~third~~first quarter of ~~2018.~~2019. See note 1412 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 ~~$63~~$230 million in revenues from this site ~~in the remainder of 2019 and approximately $230 million~~ 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. ~~As of September 30, 2019, the accumulated~~The aggregate direct impact of ~~this recall~~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 ~~third~~first quarter of ~~2019,~~2020, we recorded ~~$61~~$39 million of restructuring expenses, compared to ~~$88~~$32 million in the ~~third~~first quarter of ~~2018.~~2019. The expenses in the ~~third~~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 11,554 full-time-equivalent employees.~~

Legal Settlements and Loss Contingencies

In the ~~third~~first quarter of ~~2019,~~2020, we recorded an ~~expense~~income of ~~$468~~$25 million in legal settlements and loss contingencies, compared to ~~$19~~an expense of $57 million in the ~~third~~first quarter of ~~2018.~~2019. The ~~expense~~income in the ~~third~~first quarter of ~~2019~~2020 was mainly ~~related~~due to a settlement of an ~~increase in~~action brought against the ~~estimated settlement provision recorded in connection with the remaining opioid cases. See note 16 to our consolidated financial statements.~~sellers of Auden McKenzie (an acquisition made by Actavis Generics).

Other Income

Other income in the ~~third~~first quarter of ~~2019~~2020 was ~~$14~~$13 million, compared to ~~$35~~$6 million in the ~~third~~first quarter of ~~2018.~~2019.

Operating Income (Loss)

Operating ~~loss~~income was ~~$81~~$191 million in the ~~third~~first quarter of ~~2019,~~2020, compared to operating income of ~~$16~~$134 million in the ~~third~~first quarter of ~~2018.~~2019.

Operating income ~~(loss)~~ as a percentage of revenues was ~~1.9%~~4.4% in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~0.4%~~3.2% in the ~~third~~first quarter of ~~2018. The decrease~~2019. This increase was mainly due to higher ~~provisions in connection with legal settlements and loss contingencies, partially offset by lower intangible asset impairments, lower R&D expenses and higher~~ profit in our Europe, ~~segment.~~International Markets and North America segments and income from legal settlements (compared to an expense in the first quarter of 2019), partially offset by higher intangible asset impairments and higher other assets impairments, restructuring and other items in the first quarter of 2020.

Financial Expenses, Net

Financial expenses were ~~$211~~$224 million in the ~~third~~first quarter of ~~2019,~~2020, compared to ~~$229~~$218 million in the ~~third~~first quarter of ~~2018.~~2019. Financial expenses in the ~~third~~first quarter of 2020 and 2019 were mainly comprised of interest expenses of ~~$219 million. Financial expenses in the third quarter~~$241 million and $227 million, respectively.

Table of ~~2018 were mainly comprised of interest expenses of $240 million.~~Contents

Three months ended
September 30,

2019

2018

(U.S. $ in millions)

North America profit
$
565
$
649

Europe profit

341

297

International Markets profit

130

123

Total segments profit

1,036

1,069

Profit of other activities

16

35

1,051

1,104

Amounts not allocated to segments:

Amortization

255

297

Other assets impairments, restructuring and other items

160

139

Goodwill impairment

—

—

Intangible asset impairments

177

519

Gain on divestitures, net of divestitures related costs

(3
)
(31
)
Other R&D expenses (income)

(7
)
60

Costs related to regulatory actions taken in facilities

11

1

Legal settlements and loss contingencies

468

19

Other unallocated amounts

72

84

Consolidated operating income (loss)

(81
)
16

Financial expenses, net

211

229

Consolidated income (loss) before income taxes
$
(292
) $
(213
)


	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 ~~third~~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 ~~$11~~$9 million, on

pre-tax

loss of ~~$292 million. In the third quarter of 2018, we recognized a tax benefit of $26 million, or 12%, on~~

~~pre-tax~~

~~loss of $213~~$84 million. Our tax rate for the ~~third~~first quarter of ~~2019~~2020 was mainly affected by impairments ~~amortization, legal settlements with low corresponding~~in jurisdictions in which tax ~~effect and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.~~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

Share in losses of associated companies, net in the ~~third~~first quarter of ~~2019~~2020 was $4$1 million, compared to ~~$10~~$4 million in the ~~third~~first quarter of ~~2018.~~2019.

Net Income (Loss) Attributable to Teva

Net ~~loss~~income attributable to Teva ~~was $314~~and net income attributable to ordinary shareholders were $69 million in the ~~third~~first quarter of ~~2019,~~2020, compared to net loss of ~~$208~~$105 million in the ~~third~~first quarter of ~~2018.~~

~~Net loss attributable to ordinary shareholders was $314 million in the third quarter of 2019, compared to net loss of $273 million in the third 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 ~~September 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 ~~September 30,~~March 31, 2019, ~~and 2018,~~ 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 66 million shares (including shares issued due to unpaid dividends up to that date) for the three months ended September 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 $0.29~~were $0.06 in the ~~third~~first quarter of ~~2019,~~2020, compared to diluted loss per share of ~~$0.27~~$0.10 in the ~~third~~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 ~~September 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 ~~1,111~~1,107 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the ~~third~~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 and Russian ruble) impact our results.

During the ~~third~~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 37%, euro by 3% and British pound by ~~5% and euro by 4%~~2%. The following main currencies relevant to our operations increased in value against the U.S. dollar: ~~Japanese yen by 4% and~~ new Israeli shekel by 3%4% and Japanese yen by 1%.

As a result, exchange rate movements during the ~~third~~first quarter of ~~2019~~2020, net of hedging, negatively impacted overall revenues by ~~$55~~$3 million and positively impacted our operating income by ~~$19~~$27 million, in comparison with the ~~third~~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 Nine Months Ended September 30, 2019 to Nine Months Ended September 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 nine months ended September 30, 2019 and 2018. Additional factors affecting the nine 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

Nine Months Ended
September 30,

2019

2018

%

%

%

Net revenues

100.0

100.0

(10
)
Gross profit

43.3

44.2

(12
)
Research and development expenses

6.0

6.4

(15
)
Selling and marketing expenses

14.8

14.8

(10
)
General and administrative expenses

6.8

6.7

(8
)
Other asset impairments, restructuring and other items

2.0

5.8

(69
)
Goodwill impairment

—

2.1

—

Legal settlements and loss contingencies

9.1

(8.7
)
—

Other income

(0.2
)
(2.3
)
(91
)
Operating income (loss)

(4.6
)
10.8

—

Financial expenses, net

4.9

5.1

(14
)
Income (loss) before income taxes

(9.5
)
5.6

—

Income taxes (benefit)

(1.2
)
(0.4
)
184

Share in (profits) losses of associated companies, net

0.1

0.5

(89
)
Net income (loss) attributable to
non-controlling
interests

(0.3
)
0.2

—

Net income (loss) attributable to Teva

(8.6
)
5.1

—

Dividends on preferred shares

—

1.4

—

Net income (loss) attributable to ordinary shareholders

(8.6
)
3.8

—

~~Segment Information~~

~~North America Segment~~

~~The following table presents revenues, expenses and profit for our North America segment for the nine months ended September 30, 2019 and 2018:~~

Nine months ended September 30,

2019

2018

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

Revenues
$
6,169

100%
$
7,059

100.0
%
Gross profit

3,155

51.1
%
3,778

53.5
%
R&D expenses

497

8.0
%
528

7.5
%
S&M expenses

756

12.3
%
813

11.5
%
G&A expenses

342

5.5
%
357

5.1
%
Other (income) expense

(6
)
§

(206
)
(2.9
%)

Segment profit*
$
1,566

25.4
% $
2,286

32.4
%

*	~~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 nine months of 2019 were $6,169 million, a decrease of $890 million, or 13%, compared to the first nine 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 nine months ended September 30, 2019 and 2018:~~

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
2,826
$
2,957

(4
%)
COPAXONE

753

1,403

(46
%)
BENDEKA/TREANDA

353

502

(30
%)
ProAir*

194

352

(45
%)
QVAR

183

173

6
%
AJOVY

68

—

N/A

AUSTEDO

276

136

103
%
Anda

1,080

984

10
%
Other

436

554

(21
%)

Total
$
6,169
$
7,059

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

~~Table of Contents~~

~~North America Gross Profit~~

~~Gross profit from our North America segment in the first nine months of 2019 was $3,155 million, a decrease of 17%, compared to $3,778 million in the first nine months of 2018.~~

~~Gross profit margin for our North America segment in the first nine months of 2019 decreased to 51.1% from 53.5% in the first nine months of 2018.~~

~~North America R&D Expenses~~

~~R&D expenses relating to our North America segment in the first nine months of 2019 were $497 million, a decrease of 6%, compared to $528 million in the first nine months of 2018.~~

~~North America S&M Expenses~~

~~S&M expenses relating to our North America segment in the first nine months of 2019 were $756 million, a decrease of 7%, compared to $813 million in the first nine months of 2018.~~

~~North America G&A Expenses~~

~~G&A expenses relating to our North America segment in the first nine months of 2019 were $342 million, a decrease of 4%, compared to $357 million in the first nine months of 2018.~~

~~North America Other Income (Expense)~~

~~Other income from our North America segment in the first nine months of 2019 was $6 million, compared to $206 million in the first nine months of 2018.~~

~~North America Profit~~

~~Profit from our North America segment in the first nine months of 2019 was $1,566 million, a decrease of 31%, compared to $2,286 million in the first nine months of 2018.~~

~~Table of Contents~~

~~Europe Segment~~

~~The following table presents revenues, expenses and profit for our Europe segment for the nine months ended September 30, 2019 and 2018:~~

Nine months ended September 30,

2019

2018

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

Revenues
$
3,611

100
%

$
3,982

100
%
Gross profit

2,066

57.2
%
2,195

55.1
%
R&D expenses

199

5.5
%
208

5.2
%
S&M expenses

637

17.6
%
725

18.2
%
G&A expenses

175

4.8
%
243

6.1
%
Other (income) expense

(5
)
§

(1
)
§

Segment profit*
$

1,060

29.4
% $

1,020

25.6
%

*	~~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 nine months of 2019 were $3,611 million, a decrease of 9% or $371 million, compared to the first nine months of 2018. In local currency terms, revenues decreased by 4% compared to the first nine months of 2018, mainly due to a decline in COPAXONE revenues due to competing glatiramer acetate products and the termination of the PGT joint venture, partially offset by new generic product launches.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our Europe segment by major products and activities for the nine months ended September 30, 2019 and 2018:~~

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
2,599
$
2,749

(5
%)
COPAXONE

327

417

(22
%)
Respiratory products

267

312

(14
%)
Other

417

504

(17
%)

Total
$
3,611
$
3,982

(9
%)

~~Table of Contents~~

~~Europe Gross Profit~~

~~Gross profit from our Europe segment in the first nine months of 2019 was $2,066 million, a decrease of 6% compared to $2,195 million in the first nine months of 2018.~~

~~Gross profit margin for our Europe segment in the first nine months of 2019 increased to 57.2% from 55.1% in the first nine months of 2018.~~

~~Europe R&D Expenses~~

~~R&D expenses relating to our Europe segment in the first nine months of 2019 were $199 million, a decrease of 4%, compared to $208 million in the first nine months of 2018.~~

~~Europe S&M Expenses~~

~~S&M expenses relating to our Europe segment in the first nine months of 2019 were $637 million, a decrease of 12%, compared to $725 million in the first nine months of 2018.~~

~~Europe G&A Expenses~~

~~G&A expenses relating to our Europe segment in the first nine months of 2019 were $175 million, a decrease of 28%, compared to $243 million in the first nine months of 2018.~~

~~Europe Profit~~

~~Profit from our Europe segment in the first nine months of 2019 was $1,060 million, an increase of 4%, compared to $1,020 million in the first nine months of 2018.~~

~~International Markets Segment~~

~~The following table presents revenues, expenses and profit for our International Markets segment for the nine months ended September 30, 2019 and 2018:~~

2019

2018

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

Revenues
$
2,145

100
% $
2,265

100
%
Gross profit

877

40.9
%
942

41.6
%
R&D expenses

66

3.1
%
70

3.1
%
S&M expenses

348

16.2
%
384

16.9
%
G&A expenses

102

4.7
%
115

5.1
%
Other (income) expense

(2
)
§

(11
)
§

Segment profit*
$

363

16.9
%

$

384

16.9
%

*	~~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 nine months of 2019 were $2,145 million, a decrease of $120 million, or 5%, compared to the first nine months of 2018. In local currency terms, revenues decreased by 1% compared to the first nine 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 nine months ended September 30, 2019 and 2018:~~

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,404
$
1,523

(8
%)
COPAXONE

46

52

(12
%)
Distribution

491

456

8
%
Other

204

233

(13
%)

Total
$
2,145
$
2,265

(5
%)

~~International Markets Gross Profit~~

~~Gross profit from our International Markets segment in the first nine months of 2019 was $877 million, a decrease of 7%, compared to $942 million in the first nine months of 2018.~~

Gross profit margin for our International Markets segment in the first nine months of 2019 decreased to 40.9%, from 41.6% in the first nine months of 2018. The decrease was mainly due to lower sales in Japan.

~~International Markets R&D Expenses~~

~~R&D expenses relating to our International Markets segment in the first nine months of 2019 were $66 million, a decrease of 5%, compared to $70 million in the first nine months of 2018.~~

~~International Markets S&M Expenses~~

~~S&M expenses relating to our International Markets segment in the first nine months of 2019 were $348 million, a decrease of 9%, compared to $384 million in the first nine months of 2018.~~

~~International Markets G&A Expenses~~

~~G&A expenses relating to our International Markets segment in the first nine months of 2019 were $102 million, a decrease of 12%, compared to $115 million in the first nine months of 2018.~~

~~International Markets Profit~~

~~Profit from our International Markets segment in the first nine months of 2019 was $363 million, a decrease of 6%, compared to $384 million in the first nine months of 2018.~~

~~Table of Contents~~

~~Other Activities~~

~~Our revenues from other activities in the first nine months of 2019 decreased by 2% to $972 million, compared to the first nine months of 2018. In local currency terms, revenues were flat.~~

~~API sales to third parties in the first nine months of 2019 increased by 6%, in both U.S. dollar and local currency terms, to $566 million, compared to the first nine months of 2018.~~

~~Teva Consolidated Results~~

~~Revenues~~

~~Revenues in the first nine months of 2019 were $12,896 million, a decrease of 10% or 7% in local currency terms, compared to the first nine months of 2018.~~

~~Exchange rate movements during the first nine months of 2019, compared to the first nine months of 2018, negatively impacted revenues by $357 million.~~

~~Gross Profit~~

~~Gross profit in the first nine months of 2019 was $5,579 million, a decrease of $746 million compared to the first nine months of 2018.~~

~~Gross profit as a percentage of revenues was 43.3% in the first nine months of 2019, compared to 44.2% in the first nine months of 2018.~~

~~Research and Development (R&D) Expenses~~

~~Net R&D expenses in the first nine months of 2019 were $778 million, a decrease of 15% compared to the first nine months of 2018.~~

~~R&D expenses as a percentage of revenues were 6.0% in the first nine months of 2019, compared to 6.4% in the first nine months of 2018.~~

~~Table of Contents~~

~~Selling and Marketing (S&M) Expenses~~

~~S&M expenses in the first nine months of 2019 were $1,908 million, a decrease of 10% compared to the first nine months of 2018.~~

~~S&M expenses as a percentage of revenues were 14.8% in the first nine months of 2019, flat compared to the first nine months of 2018.~~

~~General and Administrative (G&A) Expenses~~

~~G&A expenses in the first nine months of 2019 were $873 million, a decrease of 8% compared to the first nine months of 2018.~~

~~G&A expenses as a percentage of revenues were 6.8% in the first nine months of 2019, compared to 6.7% in the first nine months of 2018.~~

~~Intangible Asset Impairments~~

We recorded expenses of $1,206 million for identifiable intangible asset impairments, in the first nine months of 2019, compared to expenses of $1,246 million in the first nine months of 2018. See note 6 to our consolidated financial statements.

~~Goodwill Impairment~~

In the first nine months of 2019, no goodwill impairments were recorded, compared to a $300 million goodwill impairment charge recorded in the first nine months of 2018. See note 7 to our consolidated financial statements.

~~Other Asset Impairments, Restructuring and Other Items~~

We recorded expenses of $263 million for other asset impairments, restructuring and other items in the first nine months of 2019, compared to expenses of $834 million in the first nine months of 2018. See note 14 to our consolidated financial statements.

~~Table of Contents~~

~~Legal Settlements and Loss Contingencies~~

In the first nine months of 2019, we recorded an expense of $1,171 million in legal settlements and loss contingencies, compared to an income of $1,239 million in the first nine months of 2018. The expense in the first nine months of 2019 was mainly related to an estimated settlement provision recorded in connection with the remaining opioid cases. See note 16 to our consolidated financial statements.

~~Other Income~~

~~Other income in the first nine months of 2019 was $29 million, compared to $334 million in the first nine months of 2018.~~

~~Other income as a percentage of revenues was 0.2% in the first nine months of 2019, compared to 2.3% in the first nine months of 2018.~~

~~Operating Income (Loss)~~

~~Operating loss was $591 million in the first nine months of 2019, compared to an operating income of $1,527 million in the first nine months of 2018.~~

~~Financial Expenses, Net~~

~~Financial expenses were $635 million in the first nine months of 2019, compared to $736 million in the first nine months of 2018.~~

Financial expenses in the first nine months of 2019 were mainly comprised of interest expenses of $672 million, partially offset by $36 million of interest income. Financial expenses in the first nine months of 2018 were mainly comprised of interest expenses of $689 million, $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, as well as a $22 million loss resulting from our hedging and derivatives activities, partially offset by $33 million of interest income.

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 nine months ended September 30, 2019 and 2018:

Nine months ended
September 30,

2019

2018

(U.S. $ in millions)

North America profit
$
1,566
$
2,286

Europe profit

1,060

1,020

International Markets profit

363

384

Total segments profit

2,989

3,690

Profit (loss) of other activities

92

87

3,081

3,777

Amounts not allocated to segments:

Amortization

823

909

Other asset impairments, restructuring and other items

263

834

Goodwill impairment

—

300

Intangible asset impairments

1,206

1,246

Gain on divestitures, net of divestitures related costs

(12
)
(114
)
Other R&D expenses

(7
)
82

Costs related to regulatory actions taken in facilities

28

6

Legal settlements and loss contingencies

1,171

(1,239
)
Other unallocated amounts

201

226

Consolidated operating income (loss)

(591
)
1,527

Financial expenses, net

635

736

Consolidated income (loss) before income taxes
$
(1,226
) $
791

~~Table of Contents~~

~~Tax Rate~~

~~In the first nine months of 2019, we recognized a tax benefit of $159 million, or 13%, on~~

~~pre-tax~~

~~loss of $1,226 million. In the first nine months of 2018, we recognized a tax benefit of $56 million, on~~

~~pre-tax~~

income of $791 million. Our tax rate for the first nine months of 2019 was mainly affected by impairments, amortization, legal settlements with low corresponding tax effect 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 nine months of 2019 was $8 million, compared to share in losses of $76 million in the first nine months of 2018.~~

~~Net Income (Loss)~~

~~Net loss attributable to Teva was $1,108 million in the first nine months of 2019, compared to net income attributable to Teva of $736 million in the first nine months of 2018.~~

~~Net loss attributable to ordinary shareholders was $1,108 million in the first nine months of 2019, compared to net income of $541 million in the first nine 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 nine months ended September 30, 2019 and 2018 were 1,091 million and 1,020 million shares, respectively.

~~In computing diluted loss per share for the nine months ended September 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 nine months ended September 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 68 million shares (including shares issued due to unpaid dividends up to that date) for the nine months ended September 30, 2018, as well as for the convertible senior debentures, since both had an anti-dilutive effect on earnings per share.

~~Diluted loss per share was $1.02 in the first nine months of 2019, compared to diluted earnings per share of $0.53 in the first nine months of 2018.~~

~~Impact of Currency Fluctuations on Results of Operations~~

In the first nine months of 2019, 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 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, Israeli shekel, Canadian dollar and Russian ruble) impact our results. During the first nine months of 2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinean peso by 44%, Polish zloty by 7%, Russian ruble by 6%, euro by 6% and British pound by 6% (all compared on a nine-month average basis).

As a result, exchange rate movements during the first nine months of 2019 negatively impacted overall revenues by $357 million and our operating income by $110 million, in comparison to the first nine months of 2018.

Liquidity and Capital Resources

Total balance sheet assets were ~~$57,246~~$55,330 million as of ~~September 30, 2019,~~March 31, 2020, compared to ~~$59,424~~$57,470 million as of ~~June 30,~~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 ~~$306~~$302 million as of ~~September 30, 2019,~~March 31, 2020, compared to ~~negative $65~~$74 million as of ~~June 30,~~December 31, 2019.

~~Table of Contents~~

~~Accrued expenses~~Employee-related obligations, as of ~~September 30, 2019,~~March 31, 2020, were ~~$1,748~~$540 million, compared to ~~$2,335~~$693 million as of ~~June 30,~~December 31, 2019. The ~~lower accrued expenses~~decrease in the ~~third~~first quarter of ~~2019 resulted~~2020 was mainly ~~from a reclassification of provisions made under legal settlements and loss contingencies in the second quarter of 2019~~due to ~~long-term liabilities.~~performance incentive payments to employees for 2019.

~~Investment~~Cash investment in property, plant and equipment in the ~~third~~first quarter of ~~2019~~2020 was approximately ~~$169~~$128 million, compared to ~~$112~~$119 million in the ~~second~~fourth quarter of 2019. Depreciation in the ~~third~~first quarter of ~~2019~~2020 was ~~$151~~$141 million, compared to $153 million in the ~~second~~fourth quarter of 2019.

Cash and cash equivalents and short-term and long-term investments as of ~~September 30, 2019~~March 31, 2020 were ~~$1,301~~$1,850 million, compared to ~~$2,232~~$2,033 million as of ~~June 30,~~December 31, 2019.

The decrease in the ~~third~~first quarter of ~~2019~~2020 was mainly due to repayment at maturity of our ~~$1,556~~$700 million ~~1.7%~~2.25% senior note in ~~July 2019,~~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.

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The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~September 30, 2019, $100 million were outstanding under the RCF. As of the date of this quarterly report on Form 10-Q,~~March 31, 2020, no amounts ~~are~~were outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.

Under specified circumstances, including

non-compliance

with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under our senior notes due to cross acceleration provisions.

We expect that we will continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that the financial statements are issued.

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.

During the third quarter of 2019, we borrowed $500 million under the RCF and repaid $400 million of such borrowings. As of September 30, 2019, $100 million was outstanding under the RCF. As of the date of this Quarterly Report on Form

~~10-Q,~~

~~no amounts were outstanding under the RCF.~~

Our debt as of ~~September 30, 2019~~March 31, 2020 was effectively denominated in the following currencies: ~~65%~~64% in U.S. dollars, ~~32%~~33% in euros and 3% in Swiss francs.

The portion of total debt classified as short-term as of ~~September 30, 2019~~March 31, 2020 was ~~12%~~6%, compared to ~~10%~~9% as of ~~June 30,~~December 31, 2019.

Our financial leverage was 64% as of ~~September 30, 2019, a slight decrease compared~~March 31, 2020, similar to ~~65%~~the financial leverage as of ~~June 30,~~December 31, 2019.

Our average debt maturity was approximately 6.6 years as of March 31, 2020, compared to 6.4 years as of ~~September 30, 2019, compared to 6.3 years as of June 30,~~December 31, 2019.

Total Equity

Total equity was ~~$14,925~~$14,588 million as of ~~September 30, 2019,~~March 31, 2020, compared to ~~$15,251~~$15,063 million as of ~~June 30,~~December 31, 2019. ~~The~~This decrease was mainly due to ~~$307 million of net loss and the~~a negative impact of ~~$138~~$560 million from exchange rate ~~fluctuations, partially offset by $87 million of unrealized gain from derivative financial instruments in the third quarter of 2019.~~fluctuations.

Exchange rate fluctuations affected our balance sheet, as approximately 36% of our net assets in the ~~third~~first quarter of ~~2019~~2020 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to ~~June 30,~~December 31, 2019, changes in currency rates had a negative impact of ~~$138~~$560 million on our equity as of ~~September 30, 2019,~~March 31, 2020, mainly due to the changes in value against the U.S. dollar of: the Mexican peso by 26%, the Russian ruble by 28%, the Canadian dollar by 8%, the Polish zloty by 7%8%, the British pound by 6%, Indian rupee by 6%, the Chilean peso by ~~7%, the euro by~~ 4%, ~~the Bulgarian lev~~Croatian kuna by 4% and the ~~British pound~~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 ~~third~~first quarter of ~~2019~~2020 was ~~$325~~$305 million, compared to ~~$421~~$112 million in the ~~third~~first quarter of ~~2018.~~2019. The ~~decrease~~increase in the ~~third~~first quarter of ~~2019~~2020 was mainly due to higher operating profit in each of our three segments, as well as lower ~~revenues and a reduction~~performance incentive payments to employees paid in ~~sales reserves associated with~~ the ~~revenue decline.~~first quarter of 2020 compared to the amounts paid in the first quarter of 2019.

~~Cash~~During the first quarter of 2020, we generated free cash flow of $551 million, which we define as comprising $305 million in cash flow generated from operating activities, $368 million in ~~the third quarter of 2019, net of cash received for capital investments and~~ beneficial interest collected in exchange for securitized ~~trade~~accounts receivables ~~was $551 million, compared to $704~~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 ~~third~~first quarter of ~~2018. The decrease~~2019, we generated free cash flow of $360 million, comprising $112 million in cash flow ~~was mainly due to~~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 ~~reasons mentioned above, as well as higher capital investments during the third~~first quarter of ~~2019 compared to the third quarter~~2020 resulted mainly from higher cash flow generated from operating activities, including significant consumption of ~~2018.~~inventories.

Dividends

We have not paid dividends on our ordinary shares or ADSs since December 2017.

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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 and HERZUMA, were approved by the FDA in November and December 2018, ~~respectively. TRUXIMA is expected to launch~~respectively, and were launched in the ~~U.S.~~United States in November ~~2019.~~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~~meet their primary endpoints.

~~return.~~

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.~~

~~For a description of our new revolving credit facility entered into in April 2019, see “—Liquidity and Capital Resources” above.~~

2019.

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:

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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 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:

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The following table presents the GAAP measures, related

non-GAAP

adjustments and the corresponding

non-GAAP

amounts for the applicable periods:

Three Months Ended September 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

Restruc-
turing
costs

Costs
related
to
regulatory
actions
taken in
facilities

Equity
compens-
ation

Contin-
gent
conside-
ration

Gain on
sale of
business

Other
non
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non
GAAP

Cost of sales

2,435

220

11

7

35

2,162

R&D expenses

240

5

(7
)
242

S&M expenses

595

35

9

551

G&A expenses

285

14

1

270

Other (income) expense

(14
)
(3
)
(11
)

Legal settlements and loss contingencies

468

468

—

Other assets impairments,
restructuring and other items

160

28

61

51

21

—

Intangible assets impairment

177

177

0

Financial expenses, net

211

3

208

Income taxes

11

(172
)
183

Share in losses of associated companies – net

4

4

Net income (loss) attributable to
non-controlling
interests

7

(12)

19

Total reconciled items

255

468

204

61

11

35

51

(3
)
51

(9
)
(172
)

EPS—Basic

(0.29
)
0.87

0.58

EPS—Diluted

(0.29
)
0.87

0.58


	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

non-GAAP

diluted weighted average number of shares was ~~1,093~~1,096 million for the three months ended ~~September 30, 2019.~~March 31, 2020.

Table of Contents

Three Months Ended September 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

Restru-
cturing
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

2,552

246

1

7

30

2,268

R&D expenses

311

60

7

1

243

S&M expenses

699

51

14

634



G&A expenses

309

17

8

284

Other (income) expense

(35)

(31
)
(4
)

Legal settlements and loss contingencies

19

19

—

Other assets impairments, restructuring and other items

139

2

4

88

29

16

—

Intangible assets impairment

519

519

—

Financial expenses, net

229

(7
)
236

Income taxes

(26)

(111
)
85

Share in losses of associated companies – net

10

9

1

Net income (loss) attributable to
non-controlling
interests

11

(12
)
23

Total reconciled items

297

19

521

60

4

88

1

45

29

24

(10
)
(111
)

EPS—Basic

(0.27)

0.95

0.68

EPS—Diluted

(0.27)

0.95

0.68


	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 1,022 million for the three months ended September 30, 2018.~~

~~Table of Contents~~

Nine Months Ended September 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

Acquisition,
integration
and related
expenses

Restruc-
turing
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compens-
ation

Contin-
gent
consider-
ation

Gain on
sale of
business

Other
non
GAAP
items

Other
items

Corres-
ponding
tax
effect

Unusual
tax
item*

Non
GAAP

Cost of sales

7,318

717

28

21

96

6,456

R&D expenses

778

17

(7
)
768

S&M expenses

1,908

105

29

1,774

G&A expenses

873

37

836

Other (income) expense

(29)

(12
)
(17
)
Legal settlements and loss contingencies

1,171

1,171

—

Other assets impairments, restructuring and other items

263

96

2

140

4

22

—

Intangible assets impairment

1,206

1,206

—

Financial expenses, net

635

9

626

Income taxes

(159)

(662
)
61

442

Share in losses of associated companies – net

8

8

Net income (loss) attributable to
non-controlling
interests

33

(28
)
61

Total reconciled items

823

1,171

1,302

2

140

28

104

4

(12
)
111

(19
)
(662
)
61

EPS—Basic

(1.02)

2.80

1.78

EPS—Diluted

(1.02)

2.80

1.78

~~The~~

~~non-GAAP~~

~~diluted weighted average number of shares was 1,093 million for the nine months ended September 30, 2019.~~

*	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.

~~Table of Contents~~

Nine months ended September 30, 2018

U.S. $ and shares in millions (except per share amounts)

Excluded for
non-GAAP
measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Good
will
impai
rment

Legal
settle
ments
and
loss
conting
encies

Impair-
ment of
long-
lived
assets

Other
R&D
expenses

Acquisition,
integration
and related
expenses

Restruct-
uring
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compen-
sation

Contin
gent
consider-
ation

Gain on
sale of
business

Other
non
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non
GAAP

Cost of sales

7,970

771

6

22

94

7,077

R&D expenses

918

82

21

2

813

S&M expenses

2,119

138

35

(4
)
1,950

G&A expenses

954

44

12

898

Other (income) expense

(334
)
(114
)
(220
)

Legal settlements and loss contingencies

(1,239
)
(1,239
)
—

Other assets impairments, restructuring and other items

834

255

9

442

84

44

—

Intangible assets impairment

1,246

1,246

—

Goodwill impairment

300

300

—

Financial expenses, net

736

59

677

Income taxes

(56
)
(479
)
423

Share in losses of associated companies – net

76

103

(27
)

Net income (loss) attributable to
non-controlling
interests

35

(32
)
67

Total reconciled items
��

Total reconciled items

909

300

(1,239
)
1,501

82

9

442

6

122

84

(114
)
148

130

(479
)

EPS—Basic

0.53

1.87

2.40

EPS—Diluted

0.53

1.86

2.39

The

non-GAAP

diluted weighted average number of shares was ~~1,020~~1,093 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

Table of Contents

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the ~~third~~first quarter of ~~2019~~2020 were ~~$183~~$175 million or ~~22%~~17%, on

pre-tax

non-GAAP

income of ~~$843~~$1,030 million.

Non-GAAP

income taxes in the ~~third~~first quarter of ~~2018~~2019 were ~~$85~~$125 million, or ~~10%~~16%, on

pre-tax

non-GAAP

income of ~~$868~~$799 million. Our

non-GAAP

tax rate for the ~~third~~first quarter of ~~2019~~2020 was mainly affected by ~~legal settlements with low corresponding~~the mix of products we sold and lower interest expense disallowance compared to the first quarter of 2019.

We expect our annual non-GAAP tax ~~effect,~~rate for 2020 to be 17%-18%, slightly lower than our non-GAAP tax rate for 2019, which was 18%. This is due to lower amounts of interest expense disallowance and other changes to tax positions and deductions.

~~Non-GAAP~~

~~income taxes for the first nine months of 2019 were $442 million, or 18%, on~~

~~pre-tax~~

~~non-GAAP~~

~~income of $2,454 million.~~

~~Non-GAAP~~

~~income taxes in the first nine months of 2018 were $423 million, or 14% on~~

~~pre-tax~~

~~non-GAAP~~

~~income of $3,100 million.~~

~~We expect our annual~~

~~non-GAAP~~

~~tax rate for 2019 to be 18%, which is higher than our previous projections and our~~

~~non-GAAP~~

~~tax rate for 2018. This is due to legal settlements with low corresponding tax effect, interest expense disallowance and other changes to tax positions and deductions. Our~~

~~non-GAAP~~

~~tax rate for 2018 was 14%.~~

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 ~~September 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

InDuring the ~~third~~ quarter of 2019 Teva completed the implementation of a company-wide enterprise resource planning (ERP) system in the U.S. to upgrade certain operational and financial processes. In connection with this ERP implementation,ended March 31, 2020, there ~~have been~~were no changes in internal control over financial reporting ~~during the quarter ended September 30, 2019~~ that ~~have~~ materially affected or are reasonably likely to materially affect ~~the Company’s~~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

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.

~~Public concern over the abuse~~The widespread outbreak of ~~opioid medications in~~an illness or any other communicable disease, or any other public health crisis, such as the ~~United States, including increased legal and regulatory action,~~

COVID-19

pandemic, could ~~negatively~~adversely affect our ~~business.~~

Certain governmental and regulatory agencies are focused on the abuse of opioid medications in the United States. Federal, state and local governmental and regulatory agencies are conducting investigations of us, other pharmaceutical manufacturers and other supply chain participants with regard to the manufacture, sale, marketing and distribution of opioid medications. A number of state attorneys general, including a coordinated multistate effort, are investigating our sales and marketing of opioids and we have received subpoena requests from the U.S. Department of Justice seeking documents relating to the manufacture, marketing and sale of opioid medications. In addition, we are currently litigating civil claims brought by various states and political subdivisions as well as private claimants, against various manufacturers, distributors and retail pharmacies throughout the United States in connection with our manufacture, sale and distribution of opioids. 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 Teva 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), in quantities with an estimated value up to approximately $23 billion at wholesale acquisition cost over a ten year period. In addition, Teva would also provide cash payments of up to $250 million over a ten year period. This global settlement framework is predicated on settlement with all U.S. states and related subdivisions. Teva cannot predict if the nationwide settlement framework will be finalized. Responding to governmental investigations and managing legal proceedings is costly and involves a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve substantial monetary penalties and could have a material and adverse effect on our reputation, business, results of operations and ~~cash flows. See “Government Investigations~~financial condition.

The novel coronavirus outbreak, or

COVID-19,

has affected segments of the global economy and ~~Litigation Relating~~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 ~~Pricing and Marketing” in note 16~~multiple countries, including to the ~~consolidated~~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 ~~statements included~~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 ~~Part I, Item 1~~a period of ~~this Quarterly Report~~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 ~~Form 10-Q.~~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 ~~September 30, 2019.~~March 31, 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 September 30, 2019. We did not repurchase any of our shares during the three months ended ~~September 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



	31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

	31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

	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 2002 *

	101.INS			~~Inline~~ XBRL Taxonomy Instance Document ~~(The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)~~

	101.SCH			~~Inline~~ XBRL Taxonomy Extension Schema Document

	101.CAL			~~Inline~~ XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF			~~Inline~~ XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB			~~Inline~~ XBRL Taxonomy Extension Labels Linkbase Document

	101.PRE			~~Inline~~ XBRL Taxonomy Extension Presentation Linkbase Document

	104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.

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.

8165


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)


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


PART I.	~~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 of ~~Changes in Equity~~Cash Flows		8 9

	Notes to Consolidated Financial Statements		10

Item 2.	~~Consolidated Statements~~Management’s Discussion and Analysis of ~~Cash Flows~~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.	10 Legal Proceedings		62

Item 1A.	Risk Factors		62

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

Item 3.	Defaults Upon Senior Securities		63

Item 4.	Mine Safety Disclosures		63

Item 5.	Other Information		63

Item 6.	Exhibits		64

	~~Notes to Consolidated Financial Statements~~Signatures		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~~		78

~~Item 4.~~	~~Controls and Procedures~~		78

~~PART II.~~	~~OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~		79

~~Item 1A.~~	~~Risk Factors~~		79

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~		79

~~Item 3.~~	~~Defaults Upon Senior Securities~~		79

~~Item 4.~~	~~Mine Safety Disclosures~~		79

~~Item 5.~~	~~Other Information~~		79

~~Item 6.~~	~~Exhibits~~		80

	~~Signatures~~	81 65


	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net revenues	$	4,264		$	4,529		$	12,896		$	14,295
Cost of sales		2,435			2,552			7,318			7,970

Gross profit		1,830			1,977			5,579			6,325
Research and development expenses		240			311			778			918
Selling and marketing expenses		595			699			1,908			2,119
General and administrative expenses		285			309			873			954
Intangible assets impairment		177			519			1,206			1,246
Goodwill impairment		—			—			—			300
Other assets impairments, restructuring and other items		160			139			263			834
Legal settlements and loss contingencies		468			19			1,171			(1,239	)
Other income		(14	)		(35	)		(29	)		(334	)

Operating income (loss)		(81	)		16			(591	)		1,527
Financial expenses, net		211			229			635			736

Income (loss) before income taxes		(292	)		(213	)		(1,226	)		791
Income taxes (benefit )		11			(26	)		(159	)		(56	)
Share in losses of associated companies, net		4			10			8			76

Net income (loss)		(307	)		(197	)		(1,076	)		771
Net income attributable to non-controlling interests		7			11			33			35

Net income (loss) attributable to Teva		(314	)		(208	)		(1,108	)		736

Dividends on preferred shares		—			65			—			195

Net income (loss) attributable to ordinary shareholders	$	(314	)	$	(273	)	$	(1,108	)	$	541

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(0.29	)	$	(0.27	)	$	(1.02	)	$	0.53

Diluted	$	(0.29	)	$	(0.27	)	$	(1.02	)	$	0.53

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


	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 June 30, 2018		1,124		54		3,760		23,426			(2,864)			(2,289)			(4,149	)		17,938			1,430			19,368
Comprehensive loss											(208	)		(46	)					(255	)		(26	)		(281	)
Issuance of Shares		1		**																						**
Issuance of Treasury Shares								(1	)								3			2						2
Stock-based compensation expense								44												44						44
Dividends to preferred shareholders						65		(65	)																	—

Balance at September 30, 2018		1,125	$	54	$	3,825	$	23,404		$	(3,072	)	$	(2,335	)	$	(4,146	)	$	17,730		$	1,404		$	19,134


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		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 June 30, 2019		1,198		56		—		27,258		(6,752	)		(2,312	)		(4,128	)		14,122			1,128		15,251
Comprehensive income (loss)										(314	)		(53	)					(367	)		7		(360	)
Issuance of Shares		**		**																				**
Stock-based compensation expense								35											35					35

Balance at September 30, 2019		1,198	$	56		—	$	27,293	$	(7,066	)	$	(2,365	)	$	(4,128	)	$	13,790		$	1,134	$	14,925


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		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, 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)											736			(487	)					249		20			269
Issuance of Treasury Shares								(1	)								3			2					2
Dividends to preferred shareholders						194		(194	)																—
Issuance of shares		1		**																					**
Stock-based compensation expense								120												120					120
Transactions with non-controlling interests																						(2	)		(2	)

Balance at September 30, 2018		1,125	$	54	$	3,825	$	23,404		$	(3,072	)	$	(2,335	)	$	(4,146	)	$	17,730	$	1,404		$	19,134


	Three months ended September 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,674		1,153		511		176		3,514
Licensing arrangements		26		7		1		1		36
Distribution		351		1		176		—		528
Other		§		2		48		136		186

	$	2,051	$	1,163	$	736	$	314		4,264


	Three months ended September 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,902		1,210		525		166		3,803
Licensing arrangements		29		1		—		2		32
Distribution		333		1		149		—		483
Other		1		—		52		158		211

	$	2,265	$	1,212	$	726	$	326	$	4,529


	Nine months ended September 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		4,997		3,586		1,505		566		10,653
Licensing arrangements		92		22		3		4		121
Distribution		1,080		1		491		—		1,572
Other		§		2		145		402		549

	$	6,169	$	3,611	$	2,145	$	972	$	12,896

	Nine months ended September 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		5,983		3,956		1,617		526		12,082
Licensing arrangements		91		19		21		6		137
Distribution		984		7		456		—		1,447
Other		1		—		171		457		629

	$	7,059	$	3,982	$	2,265	$	989	$	14,295


	Net Unrealized Gains (Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains (losses) and prior service (costs) c redits			Total
	(U.S. $ in millions)
Balance as of December 31, 2017*	$	(1,316	)	$	1	$	(442	)	$	(91	)	$	(1,848	)

Other comprehensive income (loss) before reclassifications **		(562	)		—		54			—			(508	)
Amounts reclassified to the statements of income		—			—		21			2			23

Net other comprehensive income (loss) before tax		(562	)		—		75			2			(485	)
Corresponding income tax		—			—		—			(2	)		(2	)

Net other comprehensive income (loss) after tax		(562	)		—		75			—			(487	)

Balance as of September 30, 2018	$	(1,878	)	$	1	$	(367	)	$	(91	)	$	(2,335	)


	September 30, 2019
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	176	$	—		$	—		$	176
Cash, deposits and other		1,065		—			—			1,065
Investment in securities:
Equity securities		45		—			—			45
Other, mainly debt securities		2		—			12			14
Derivatives:
Asset derivatives—options and forward contracts		—		40			—			40
Asset derivatives—cross-currency swaps				105			—			105
Liability derivatives—options and forward contracts		—		(18	)		—			(18	)
Contingent consideration*		—		—			(430	)		(430	)

Total	$	1,288	$	127		$	(418	)	$	997


	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


	Nine months ended September 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		96
Eagle transaction		(100	)
Settlement of contingent consideration:
Eagle transaction		80

Fair value at the end of the period	$	(418	)


	Financial expenses, net						Other comprehensive income
	Three months ended,						Three months ended,
	September 30, 2019			September 30, 2018**			September 30, 2019			September 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	211		$	229		$	53		$	84
Cross-currency swaps — cash flow hedge (1)		(1	)		(1	)		(33	)		(4	)
Cross-currency swaps — net investment hedge (2)		(7	)		(6	)		(39	)	$	(7	)
Interest rate swaps — fair value hedge (3)	$	*		$	*		$	—		$	—


	Financial expenses, net						Other comprehensive income
	Nine months ended,						Nine months ended,
	September 30, 2019			September 30, 2018**			September 30, 2019			September 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	635		$	736		$	(117	)	$	502
Cross-currency swaps—cash flow hedge (1)		(2	)		(1	)		(49	)		(18	)
Cross-currency swaps — net investment hedge (2)		(22	)		(22	)		(46	)	$	(36	)
Interest rate swaps — fair value hedge (3)	$	2		$	*		$	—		$	—


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	28	$	2	$	96	$	255
Contingent consideration		51		29		4		84
Restructuring		61		88		140		442
Other		21		20		24		53

Total	$	160	$	139	$	263	$	834


	Three months ended September 30,
	2019		2018
	(U.S. $ in millions)
Restructuring
Employee termination	$	49	$	62
Other		11		26

Total	$	61	$	88


	Nine months ended September 30,
	2019		2018
	(U.S. $ in millions)
Restructuring
Employee termination	$	105	$	380
Other		34		62

Total	$	140	$	442


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2019	$	(204	)	$	(29	)	$	(233	)
Provision		(105	)		(34	)		(140	)
Utilization and other*		108			56			164

Balance as of September 30, 2019	$	(201	)	$	(7	)	$	(208	)


	Three months ended September 30, 2019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,051		$	1,163		$	736
Gross profit		1,048			662			295
R&D expenses		156			63			21
S&M expenses		219			206			114
G&A expenses		112			56			32
Other income		(5	)		(4	)		(1	)

Segment profit	$	565		$	341		$	130


	Three months ended September 30 , 2018
	North America			Europe		International Markets
	(U.S. $ in millions)
Revenues	$	2,265		$	1,212	$	726
Gross profit		1,196			676		301
R&D expenses		158			62		21
S&M expenses		265			242		120
G&A expenses		128			74		37
Other (income) expense		(4	)		1		—

Segment profit	$	649		$	297	$	123


	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	565		$	649		$	1,566		$	2,286
Europe profit		341			297			1,060			1,020
International Markets profit		130			123			363			384
Total segment s profit		1,036			1,069			2,989			3,690
Profit of other activities		16			35			92			87
		1,051			1,104			3,081			3,777
Amounts not allocated to segments:
Amortization		255			297			823			909
Other assets impairments, restructuring and other items		160			139			263			834
Goodwill impairment		—			—			—			300
Intangible asset impairments		177			519			1,206			1,246
G ain on divestitures, net of divestitures related costs		(3	)		(31	)		(12	)		(114	)
Other R&D expenses (income)		(7	)		60			(7	)		82
Costs related to regulatory actions taken in facilities		11			1			28			6
Legal settlements and loss contingencies		468			19			1,171			(1,239	)
Other unallocated amounts		72			84			201			226
Consolidated operating income (loss)		(81	)		16			(591	)		1,527
Financial expenses, net		211			229			635			736
Consolidated income (loss) before income taxes	$	(292	)	$	(213	)	$	(1,226	)	$	791


	Three months ended September 30,		Nine months ended September 30,
	2019
	(U.S. $ in millions)
Operating lease cost:
Fixed payments and variable payments that depend on an index or rate	$	45	$	123
Variable lease payments not included in the lease liability		—		4
Short-term lease cost		1		4

Total operating lease cost	$	46	$	131


	September 30, 2019
	(U.S. $ in millions)
Operating leases:	$
Operating lease ROU assets		468
Other current liabilities		116
Operating lease liabilities		394

Total operating lease liabilities	$	510



	September 30, 2019
Weighted average remaining lease term
Operating leases		7.4 years
Weighted average discount rate
Operating leases		5.9	%


	September 30, 2019
	(U.S. $ in millions)
2019 (excluding the nine months ended September 30, 2019)	$	38
2020		128
2021		98
2022		73
2023		51
2024 and thereafter		253

Total operating lease payments	$	641
Less: imputed interest		131

Present value of lease liabilities	$	510


	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


Generic Name	Brand Name			Total U.S. Annual Branded Market (U.S. $ in millions (IQVIA))*
Ivermectin lotion, 0.5%		Sklice	®	$	81
Sildenafil, 10mg/mL		Revatio	®	$	189


	Percentage of Net Revenues						Percentage Change 2019 - 2018
	Nine Months Ended September 30,
	2019			2018
	%			%			%
Net revenues		100.0			100.0			(10	)
Gross profit		43.3			44.2			(12	)
Research and development expenses		6.0			6.4			(15	)
Selling and marketing expenses		14.8			14.8			(10	)
General and administrative expenses		6.8			6.7			(8	)
Other asset impairments, restructuring and other items		2.0			5.8			(69	)
Goodwill impairment		—			2.1			—
Legal settlements and loss contingencies		9.1			(8.7	)		—
Other income		(0.2	)		(2.3	)		(91	)
Operating income (loss)		(4.6	)		10.8			—
Financial expenses, net		4.9			5.1			(14	)
Income (loss) before income taxes		(9.5	)		5.6			—
Income taxes (benefit)		(1.2	)		(0.4	)		184
Share in (profits) losses of associated companies, net		0.1			0.5			(89	)
Net income (loss) attributable to non-controlling interests		(0.3	)		0.2			—
Net income (loss) attributable to Teva		(8.6	)		5.1			—
Dividends on preferred shares		—			1.4			—
Net income (loss) attributable to ordinary shareholders		(8.6	)		3.8			—


	Nine months ended September 30,
	2019					2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	6,169		100%		$	7,059		100.0	%
Gross profit		3,155		51.1	%		3,778		53.5	%
R&D expenses		497		8.0	%		528		7.5	%
S&M expenses		756		12.3	%		813		11.5	%
G&A expenses		342		5.5	%		357		5.1	%
Other (income) expense		(6	)	§			(206	)	(2.9	%)

Segment profit*	$	1,566		25.4	%	$	2,286		32.4	%


	Nine months ended September 30,				Percentage Change 2018-2019
	2019		2018		Percentage Change 2018-2019
	(U.S. $ in millions)
Generic products	$	2,826	$	2,957		(4	%)
COPAXONE		753		1,403		(46	%)
BENDEKA/TREANDA		353		502		(30	%)
ProAir*		194		352		(45	%)
QVAR		183		173		6	%
AJOVY		68		—		N/A
AUSTEDO		276		136		103	%
Anda		1,080		984		10	%
Other		436		554		(21	%)

Total	$	6,169	$	7,059

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Date: ~~November~~May 7, ~~2019~~2020

/s/ ~~Michael McClellan~~Eli Kalif

~~Michael McClellan~~Eli Kalif

Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer)