| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ApplicableApplicable 5 Basel Street, Petach Tikva, 4951033
+972(3) 914-8171
(Registrant’s telephone number, including area code)
+972 (3) 914-8213 (Registrant’s telephone number, including area 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 |
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☐ | |||||
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
PART I. | ||||||
Item 1. | ||||||
| Consolidated Balance Sheets | 5 | |||||
| 6 | |||||
| Consolidated Statements of Comprehensive Income (loss) | 7 | |||||
| Consolidated statements of changes in equity | 8 | |||||
| Consolidated Statements of Cash Flows | 9 | |||||
| Notes to Consolidated Financial Statements | 10 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4. | ||||||
Item 1. | ||||||
Item | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
Item 5. | ||||||
Item 6. | ||||||
Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts. This report on Form
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
ITEM 1. | FINANCIAL STATEMENTS |
millions, except for share data)
| March 31, 2018 | December 31, 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,418 | $ | 963 | ||||
Trade receivables | 6,289 | 7,128 | ||||||
Inventories | 5,113 | 4,924 | ||||||
Prepaid expenses | 1,138 | 1,100 | ||||||
Other current assets | 712 | 701 | ||||||
Assets held for sale | 17 | 566 | ||||||
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| |||||
Total current assets | 14,687 | 15,382 | ||||||
Deferred income taxes | 463 | 574 | ||||||
Othernon-current assets | 832 | 932 | ||||||
Property, plant and equipment, net | 7,420 | 7,673 | ||||||
Identifiable intangible assets, net | 17,314 | 17,640 | ||||||
Goodwill | 28,465 | 28,414 | ||||||
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Total assets | $ | 69,181 | $ | 70,615 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 1,302 | $ | 3,646 | ||||
Sales reserves and allowances | 7,410 | 7,881 | ||||||
Trade payables | 1,929 | 2,069 | ||||||
Employee-related obligations | 607 | 549 | ||||||
Accrued expenses | 2,632 | 3,014 | ||||||
Other current liabilities | 876 | 724 | ||||||
Liabilities held for sale | — | 38 | ||||||
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| |||||
Total current liabilities | 14,756 | 17,921 | ||||||
Long-term liabilities: | ||||||||
Deferred income taxes | 2,998 | 3,277 | ||||||
Other taxes and long-term liabilities | 1,875 | 1,843 | ||||||
Senior notes and loans | 29,450 | 28,829 | ||||||
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Total long-term liabilities | 34,323 | 33,949 | ||||||
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Commitments and contingencies, see note 16 | ||||||||
Total liabilities | 49,079 | 51,870 | ||||||
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| |||||
Equity: | ||||||||
Teva shareholders’ equity: | ||||||||
Preferred shares of NIS 0.10 par value per mandatory convertible preferred share; March 31, 2018 and December 31, 2017: authorized 5.0 million shares; issued 3.7 million shares | 3,696 | 3,631 | ||||||
Ordinary shares of NIS 0.10 par value per share; March 31, 2018 and December 31, 2017: authorized 2,495 million shares; issued 1,124 million shares | 54 | 54 | ||||||
Additionalpaid-in capital | 23,443 | 23,479 | ||||||
Retained earnings | (2,688 | ) | (3,808 | ) | ||||
Accumulated other comprehensive loss | (1,735 | ) | (1,848 | ) | ||||
Treasury shares as of March 31, 2018 and December 31, 2017 —106 million ordinary shares and 107 million ordinary shares, respectively | (4,149 | ) | (4,149 | ) | ||||
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| 18,621 | 17,359 | |||||||
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| |||||
Non-controlling interests | 1,481 | 1,386 | ||||||
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| |||||
Total equity | 20,102 | 18,745 | ||||||
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| |||||
Total liabilities and equity | $ | 69,181 | $ | 70,615 | ||||
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| |||||
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,175 | $ | 2,165 | ||||
Accounts receivables, net of allowance for credit losses of $91 million and $90 million as of March 31, 2022 and December 31, 2021 | 4,253 | 4,529 | ||||||
Inventories | 4,012 | 3,818 | ||||||
Prepaid expenses | 1,064 | 1,075 | ||||||
Other current assets | 933 | 965 | ||||||
Assets held for sale | 13 | 19 | ||||||
Total current assets | 12,451 | 12,573 | ||||||
Deferred income taxes | 637 | 596 | ||||||
Other non-current assets | 472 | 515 | ||||||
Property, plant and equipment, net | 5,932 | 5,982 | ||||||
Operating lease right-of-use | 464 | 495 | ||||||
Identifiable intangible assets, net | 7,116 | 7,466 | ||||||
Goodwill | 19,986 | 20,040 | ||||||
Total assets | $ | 47,059 | $ | 47,666 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 2,077 | $ | 1,426 | ||||
Sales reserves and allowances | 3,807 | 4,241 | ||||||
Accounts payables | 1,750 | 1,686 | ||||||
Employee-related obligations | 481 | 563 | ||||||
Accrued expenses | 2,597 | 2,208 | ||||||
Other current liabilities | 900 | 903 | ||||||
Total current liabilities | 11,613 | 11,027 | ||||||
Long-term liabilities: | ||||||||
Deferred income taxes | 666 | 784 | ||||||
Other taxes and long-term liabilities | 3,288 | 2,578 | ||||||
Senior notes and loans | 20,840 | 21,617 | ||||||
Operating lease liabilities | 393 | 416 | ||||||
Total long-term liabilities | 25,186 | 25,395 | ||||||
Commitments and contingencies | 0 | 0 | ||||||
Total liabilities | 36,799 | 36,422 | ||||||
Equity: | ||||||||
Teva shareholders’ equity: | ||||||||
Ordinary shares of NIS 0.10 par value per share; March 31, 2022 and December 31, 2021: authorized 2,495 million shares; issued 1,216 million shares and 1,209 million shares, respectively. | 57 | 57 | ||||||
Additional paid-in capital | 27,587 | 27,561 | ||||||
Accumulated deficit | (11,484 | ) | (10,529 | ) | ||||
Accumulated other comprehensive loss | (2,687 | ) | (2,683 | ) | ||||
Treasury shares as of March 31, 2022 and December 31, 2021: 106 million ordinary shares | (4,128 | ) | (4,128 | ) | ||||
| 9,344 | 10,278 | |||||||
Non-controlling interests | 916 | 966 | ||||||
Total equity | 10,260 | 11,244 | ||||||
Total liabilities and equity | $ | 47,059 | $ | 47,666 | ||||
(LOSS)
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net revenues | $ | 5,065 | $ | 5,650 | ||||
Cost of sales | 2,717 | 2,811 | ||||||
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| |||||
Gross profit | 2,348 | 2,839 | ||||||
Research and development expenses | 317 | 432 | ||||||
Selling and marketing expenses | 771 | 958 | ||||||
General and administrative expenses | 329 | 366 | ||||||
Other asset Impairments, restructuring and other items | 707 | 240 | ||||||
Goodwill impairment | 180 | — | ||||||
Legal settlements and loss contingencies | (1,278 | ) | 20 | |||||
Other income | (203 | ) | (72 | ) | ||||
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Operating income | 1,525 | 895 | ||||||
Financial expenses, net | 271 | 207 | ||||||
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Income before income taxes | 1,254 | 688 | ||||||
Income taxes | 46 | 54 | ||||||
Share in (profits) losses of associated companies, net | 74 | (7 | ) | |||||
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Net income | 1,134 | 641 | ||||||
Net Income (loss) attributable tonon-controlling interests | 14 | (4 | ) | |||||
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Net income attributable to Teva | 1,120 | 645 | ||||||
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Dividends on preferred shares | 65 | 65 | ||||||
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Net income attributable to ordinary shareholders | $ | 1,055 | $ | 580 | ||||
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Earnings per share attributable to ordinary shareholders: | ||||||||
Basic | $ | 1.04 | $ | 0.57 | ||||
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Diluted | $ | 1.03 | $ | 0.57 | ||||
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Weighted average number of shares (in millions): | ||||||||
Basic | 1,017 | 1,016 | ||||||
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Diluted | 1,020 | 1,017 | ||||||
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Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Net revenues | $ | 3,661 | $ | 3,982 | ||||
Cost of sales | 1,921 | 2,104 | ||||||
Gross profit | 1,740 | 1,878 | ||||||
Research and development expenses | 225 | 254 | ||||||
Selling and marketing expenses | 584 | 585 | ||||||
General and administrative expenses | 296 | 290 | ||||||
Intangible assets impairments | 149 | 79 | ||||||
Other assets impairments, restructuring and other items | 128 | 137 | ||||||
Legal settlements and loss contingencies | 1,124 | 104 | ||||||
Other income | (52 | ) | (5 | ) | ||||
Operating income (loss) | (713 | ) | 434 | |||||
Financial expenses, net | 258 | 290 | ||||||
Income (loss) before income taxes | (971 | ) | 144 | |||||
Income taxes (benefit) | 2 | 62 | ||||||
Share in (profits) losses of associated companies, net | (21 | ) | (3 | ) | ||||
Net income (loss) | (952 | ) | 84 | |||||
Net income (loss) attributable to non-controlling interests | 3 | 7 | ||||||
Net income (loss) attributable to Teva | (955 | ) | 77 | |||||
Earnings (loss) per share attributable to ordinary shareholders: | ||||||||
Basic | $ | (0.86 | ) | $ | 0.07 | |||
Diluted | $ | (0.86 | ) | $ | 0.07 | |||
Weighted average number of shares (in millions): | ||||||||
Basic | 1,107 | 1,099 | ||||||
Diluted | 1,107 | 1,107 | ||||||
(LOSS)
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net income | $ | 1,134 | $ | 641 | ||||
Other comprehensive income, net of tax: | ||||||||
Currency translation adjustment | 239 | 466 | ||||||
Unrealized gain (loss) from derivative financial instruments, net | (44 | ) | 8 | |||||
Unrealized gain fromavailable-for-sale securities, net | 1 | 54 | ||||||
Unrealized loss on defined benefit plans | — | (13 | ) | |||||
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Total other comprehensive income | 196 | 515 | ||||||
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Total comprehensive income | 1,330 | 1,156 | ||||||
Comprehensive income attributable tonon-controlling interests | 97 | 66 | ||||||
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Comprehensive income attributable to Teva | $ | 1,233 | $ | 1,090 | ||||
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Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Net income (loss) | $ | (952 | ) | $ | 84 | |||
Other comprehensive income (loss), net of tax: | ||||||||
Currency translation adjustment | (64 | ) | (208 | ) | ||||
Unrealized gain (loss) from derivative financial instruments, net | 7 | 7 | ||||||
Total other comprehensive income (loss) | (57 | ) | (201 | ) | ||||
Total comprehensive income (loss) | (1,009 | ) | (117 | ) | ||||
Comprehensive income (loss) attributable to non-controlling interests | (50 | ) | (60 | ) | ||||
Comprehensive income (loss) attributable to Teva | $ | (959 | ) | $ | (57 | ) | ||
(U.S. dollars in millions)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Operating activities: | ||||||||
Net income | $ | 1,134 | $ | 641 | ||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||
Net change in operating assets and liabilities | (592 | ) | (797 | ) | ||||
Impairment of long-lived assets | 432 | 11 | ||||||
Depreciation and amortization | 507 | 480 | ||||||
Goodwill impairment | 180 | — | ||||||
Deferred income taxes – net and uncertain tax positions | (221 | ) | (217 | ) | ||||
Net gain from sale of long-lived assets and investments | (106 | ) | (39 | ) | ||||
Impairment of equity investment | 94 | — | ||||||
Research and development in process | 54 | — | ||||||
Stock-based compensation | 30 | 40 | ||||||
Other items | (16 | ) | 17 | |||||
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Net cash provided by operating activities | 1,496 | 136 | ||||||
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Investing activities: | ||||||||
Proceeds from sales of business, investments and long-lived assets | 824 | 1,412 | ||||||
Beneficial interest collected in exchanged for securitized trade receivables | 444 | 334 | ||||||
Purchases of property, plant and equipment | (163 | ) | (202 | ) | ||||
Purchases of investments and other assets | (56 | ) | (6 | ) | ||||
Other investing activities | (10 | ) | (22 | ) | ||||
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Net cash provided by investing activities | 1,039 | 1,516 | ||||||
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Financing activities: | ||||||||
Repayment of long-term loans and other long-term liabilities | (6,243 | ) | — | |||||
Proceeds from long-term loans, net of issuance costs | 4,440 | — | ||||||
Net change in short-term debt | (261 | ) | (1,350 | ) | ||||
Dividends paid on ordinary shares | (12 | ) | (346 | ) | ||||
Dividends paid on preferred shares | (10 | ) | (65 | ) | ||||
Other financing activities | (5 | ) | (7 | ) | ||||
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Net cash used in financing activities | (2,091 | ) | (1,768 | ) | ||||
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Translation adjustment on cash and cash equivalents | 11 | 28 | ||||||
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Net change in cash and cash equivalents | 455 | (88 | ) | |||||
Balance of cash and cash equivalents at beginning of period | 963 | 988 | ||||||
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Balance of cash and cash equivalents at end of period | $ | 1,418 | $ | 900 | ||||
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Supplemental cash flow information: | ||||||||
Non-cash financing and investing activities: | ||||||||
Beneficial interest obtained in exchange for securitized trade receivables | $ | 551 | $ | 285 | ||||
CHANGES IN EQUITY
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||
Number of shares (in millions) | Stated value | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other comprehensive (loss) | Treasury shares | Total Teva shareholders’ equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,209 | 57 | 27,561 | (10,529 | ) | (2,683 | ) | (4,128 | ) | 10,278 | 966 | 11,244 | ||||||||||||||||||||||||
Net Income (loss) | (955 | ) | (955 | ) | 3 | (952 | ) | |||||||||||||||||||||||||||||
Other comprehensive (loss) | (4 | ) | (4 | ) | (53 | ) | (57 | ) | ||||||||||||||||||||||||||||
Issuance of Shares | 7 | * | 1 | 1 | 1 | |||||||||||||||||||||||||||||||
Stock-based compensation expense | 24 | 24 | 24 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 1,216 | $ | 57 | $ | 27,587 | $ | (11,484 | ) | $ | (2,687 | ) | $ | (4,128 | ) | $ | 9,344 | $ | 916 | $ | 10,260 | ||||||||||||||||
| * | Represents an amount less than $0.5 million. |
Teva shareholders’ equity | ||||||||||||||||||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||||||||||||||
Number of shares (in millions) | Stated value | Additional paid-in capital | Retained earnings (accumulated deficit) | Accumulated other comprehensive (loss) | Treasury shares | Total Teva shareholders’ equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||
(U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 1,202 | 57 | 27,443 | (10,946 | ) | (2,399 | ) | (4,128 | ) | 10,026 | 1,035 | 11,061 | ||||||||||||||||||||||||
Net Income (loss) | 77 | 77 | 7 | 84 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (134 | ) | (134 | ) | (67 | ) | (201 | ) | ||||||||||||||||||||||||||||
Issuance of shares | 6 | * | * | |||||||||||||||||||||||||||||||||
Stock-based compensation expense | 31 | 31 | 31 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 1,208 | $ | 57 | $ | 27,474 | $ | (10,869 | ) | $ | (2,534 | ) | $ | (4,128 | ) | $ | 10,000 | $ | 975 | $ | 10,975 | ||||||||||||||||
| * | Represents an amount less than $0.5 million. |
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (952 | ) | $ | 84 | |||
Adjustments to reconcile net income (loss) to net cash provided by operations: | ||||||||
Depreciation and amortization | 323 | 376 | ||||||
Impairment of long-lived assets and assets held for sale | 165 | 127 | ||||||
Net change in operating assets and liabilities | 559 | (1,076 | ) | |||||
Deferred income taxes – net and uncertain tax positions | (175 | ) | (11 | ) | ||||
Stock-based compensation | 24 | 31 | ||||||
Other items | 30 | (10 | ) | |||||
Net loss (gain) from investments and from sale of long lived assets | (23 | ) | 74 | |||||
Net cash provided by (used in) operating activities | (49 | ) | (405 | ) | ||||
Investing activities: | ||||||||
Beneficial interest collected in exchange for securitized trade receivables | 305 | 476 | ||||||
Proceeds from sale of business and long lived assets | 25 | 138 | ||||||
Acquisition of businesses, net of cash acquired | (7 | ) | 0 | |||||
Purchases of property, plant and equipment | (157 | ) | (150 | ) | ||||
Purchases of investments and other assets . | (4 | ) | (2 | ) | ||||
Proceeds from sale of investments | 0 | 46 | ||||||
Other investing activities | (1 | ) | 0 | |||||
Net cash provided by (used in) investing activities | 161 | 508 | ||||||
Financing activities: | ||||||||
Redemption of convertible senior notes | 0 | (491 | ) | |||||
Other financing activities | 2 | (2 | ) | |||||
Net cash provided by (used in) financing activities | 2 | (493 | ) | |||||
Translation adjustment on cash and cash equivalents | (62 | ) | (44 | ) | ||||
Net change in cash, cash equivalents and restricted cash | 52 | (434 | ) | |||||
Balance of cash, cash equivalents and restricted cash at beginning of period | 2,198 | 2,177 | ||||||
Balance of cash, cash equivalents and restricted cash at en of periodd | $ | 2,250 | $ | 1,743 | ||||
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets: | ||||||||
Cash and cash equivalents | 2,175 | 1,743 | ||||||
Restricted cash included in other current assets | 75 | 0 | ||||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | 2,250 | 1,743 | ||||||
Non-cash financing and investing activities: | ||||||||
| Beneficial interest obtained in exchange for securitized accounts receivables | $ | 299 | $ | 488 | ||||
a. | Basis of presentation |
Note 2 - Significant accounting policies:
Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.
b. | Significant accounting policies |
On January 1, 2018, Teva
In May 2017, the FASB issued guidance on changes to terms and conditions of share-based payment awards. The amendment provides guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting.Customers. The guidance is effective for the fiscal year beginning on January 1, 2018, including interim periods within that year. Teva adopted the provisions of this updatewill result in the first quarter of 2018.acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The impact that this new standard has on Teva’s financial statements after adoption will depend on any future modification of share-based compensation.
In February 2017, the FASB issued guidance onde-recognition of nonfinancial assets. The amendments address the recognition of gains and losses on the transfer (i.e., sale) of nonfinancial assets to counterparties other than customers. The guidance conformsde-recognition on nonfinancial assets with the model for transactions in the new revenue standard. Teva adopted the provisions of this update in the first quarter of 2018 with no material impact on its consolidated financial statements.
In August 2016, the FASB issued guidance on statements of cash flows. The guidance addresses eight specific issues: debt prepayment or debt extinguishment costs; settlement of certain debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of predominance principle. The amendments should be applied retrospectively. Teva adoptedprospectively to acquisitions occurring on or after the provisions of this update in the first quarter of 2018. This resulted in a reclassification of $444 million and $334 million from operating activities to investing activities in the first quarter of 2018 and 2017, respectively.
In January 2016, the FASB issued guidance which updates certain aspects of recognition, measurement, presentation and disclosure of equity investments. The guidance requires entities to recognize changes in fair value in net income rather than in accumulated other comprehensive income. Teva adopted the provisions of this update in the first quarter of 2018. Following the adoption, the Company recorded a $5 million opening balance reclassification from accumulated other comprehensive loss to retained earnings. See note 10.
Recently issued accounting pronouncements, not yet adopted
In February 2018, the FASB issued guidance on the recognition and measurement of financial assets and financial liabilities. The guidance provides updates which address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.effective date. The guidance is effective for fiscal years beginning after December 15, 2017; however, public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018 are not required to adopt these amendments until the interim period beginning after June 15, 2018. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance allows reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.
In August 2017, the FASB issued guidance on derivatives and hedging, which expands and refines hedge accounting for bothnon-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. The guidance will be effective for fiscal years beginning after December 15, 2018,2022, including interim periods within those fiscal years (earlyyears. Early adoption is permitted, including in interim periods, for any interim and annual financial statements that have not yet been issued). Tevaissued. The Company is currently evaluating this guidance to determine the potential effect of the guidanceimpact it may have on its consolidated financial statements.
In June 2016, the FASB issued guidance on financial instruments. The 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 the fiscal year beginning on January 1, 2020, including interim periods within that year. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.
In February 2016, the FASB issued guidance on leases. The guidance requires entities to record lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance. The guidance will become effective for interim and annual periods beginning on January 1, 2019 (early adoption is permitted) and is required to be adopted at the earliest period presented using a modified retrospective approach. In January 2018, the FASB issued an update that permits an entity to elect an optional transition practical expedient to not evaluate land easements that existed or expired before the entity’s adoption of the new standard and that were not previously accounted for as leases. Although the Company has not finalized its process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company expects there will be a material increase to assets and liabilities related to the recognition of newright-of-use assets and lease liabilities on the Company’s balance sheet for leases currently classified as operating leases.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Business acquisitions:
Actavis Generics and Anda acquisitions
On August 2, 2016, Teva consummated its 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 consummated the acquisition of Anda Inc. (“Anda”), the fourth largest distributor of generic pharmaceuticals in the United States, from Allergan, for cash consideration of $500 million. The purchase is a transaction 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. Following the terms of the agreement, Teva submitted an adjustment for $1.4 billion with regards to a working capital true up as well as potential recoveries of purchase price related to certain tax items. On January 31, 2018, Teva and Allergan entered into a settlement agreement and mutual releases, providing that Allergan will make aone-time payment of $703 million to Teva, which was paid during the first quarter of 2018. The Agreement also provides that Teva and Allergan will jointly dismiss the working capital dispute arbitration, as well as actual or potential claims under the Master Purchase Agreement, dated July 26, 2015, by and between Teva and Allergan, for breach of any representation, warranty or covenant (other than any breach of a post-closing covenant not known as of the date of the settlement agreement). As the measurement period has ended, this amount has been recorded as a gain under legal settlements and loss contingencies.
Rimsa
On March 3, 2016, Teva completed 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 of the acquisition, Teva identified issues concerning Rimsa’spre-acquisition quality, manufacturing and other practices, at which point Teva began an assessment of the extent and cost of remediation required to return its products to the market. In September 2016, two lawsuits were filed: apre-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 on the breach of contract claim, providing that the sellers will make aone-time payment to Teva, which was paid during the first quarter of 2018 and recorded as a gain under legal settlements and loss contingencies. This settlement was approved by the court and Teva’s breach of contract claim was subsequently dismissed.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Assets and Liabilities Held For Sale:
Certain Women’s Health and Other Specialty Products
On September 17, 2017, Teva entered into a definitive agreement under which CVC Capital Partners Fund VI will acquire a portfolio of products for $703 million in cash. The portfolio of products, which is marketed and sold outside of the United States, includes the women’s health products OVALEAP®, ZOELY®, SEASONIQUE®, COLPOTROPHINE® and other specialty products such as ACTONEL®.
As of December 31, 2017, the Company accounted for this transaction as assets and liabilities held for sale and determined that the fair value less cost to sell exceeded the carrying value of the business. The Company disposed of $329 million of goodwill associated with the divested business.
On January 31, 2018, Teva completed the sale of the portfolio of products to CVC Capital Partners Fund VI. As a result of these transactions, the Company recognized a net gain on sale of approximately $93 million in the first quarter of 2018 within other income in the consolidated statement of income. The transaction expenses for these divestitures of approximately $2 million were recognized concurrently and included as a reduction to the net gain on sale.
The Company determined that the sale of its global women’s health business did not constitute a strategic shift and that it did not, and will not, have a major effect on its operations and financial results. Accordingly, the operations associated with the transactions are not reported as discontinued operations.
The table below summarizes the major classes of assets and liabilities included as held for sale as of March 31, 2018 and December 31, 2017:
| March 31, 2018 | December 31, 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Inventories | — | 39 | ||||||
Property, plant and equipment, net | 17 | 16 | ||||||
Identifiable intangible assets, net | — | 236 | ||||||
Goodwill | — | 275 | ||||||
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Total assets of the disposal group classified as held for sale in the consolidated balance sheets | $ | 17 | $ | 566 | ||||
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Other taxes and long-term liabilities | — | 38 | ||||||
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Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets | $ | — | $ | 38 | ||||
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Other significant agreements:
PGT Healthcare Partnership
The separation is planned to become effective July 1, 2018, subject to receiptUnited Kingdom.
During the first quarter of 2018, Teva recorded an impairment of $56 million related to the plant in India and an impairment of $94 million related to the investment in New Chapter Inc. which was recorded within share in loss (profits) of associated companies.
Alder BioPharmaceuticals®
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 clinical development, driving all operational aspects of the phase 3 program, and Teva will lead the regulatory process and be responsible for commercialization. Upon FDA approval of AUSTEDO for the treatment of Tourette syndrome, Teva will pay Nuvelution apre-agreed amount as compensation for their contribution to the partnership.
AttenukineTM
In December 2016, Teva entered into a license agreement for research, development, manufacture and commercializing of AttenukineTM 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.
Ninlaro®
In November 2016, Teva entered into an agreement to sell its royalties and other rights in Ninlaro® (ixazomib) to a subsidiary of Takeda, for a $150 million upfront payment to Teva and an additional $150 million payment based on sales during 2017. Teva was entitled to these royalties pursuant to an agreement from 2014 assigning the Ninlaro® patents to an affiliate of Takeda in consideration of milestone payments and sales royalties. In the first six months of 2017, Teva received payments in the amount of $150 million, which were recognized as revenue for the period.
Celltrion
In October 2016, Teva and Celltrion, Inc. (“Celltrion”) entered into a collaborative agreement to commercialize two of Celltrion’s 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. Teva and Celltrion will share the profit from the commercialization of these products.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
2022, and certain assets that are expected to be sold during 2022. The table below summarizes all Teva assets and liabilities included as held for sale as of March 31, 2022 and December 31, 2021:
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Inventories | $ | 0 | $ | 2 | ||||
Property, plant and equipment, net and others | 64 | 86 | ||||||
Goodwill | 0 | 7 | ||||||
Adjustments of assets held for sale to fair value | (51 | ) | (76 | ) | ||||
Total assets of the disposal group classified as held for sale in the consolidated balance sheets | $ | 13 | $ | 19 | ||||
Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets, recorded under accrued expenses and other long-term liabilities | $ | (60 | ) | $ | (43 | ) | ||
Three months ended March 31, 2022 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 1,377 | 1,134 | 445 | 180 | 3,136 | |||||||||||||||
Licensing arrangements | 21 | 12 | 4 | 1 | 38 | |||||||||||||||
Distribution | 342 | § | 16 | 0 | 358 | |||||||||||||||
Other | (2 | ) | 9 | 27 | 95 | 129 | ||||||||||||||
| $ | 1,737 | $ | 1,156 | $ | 492 | $ | 275 | $ | 3,661 | |||||||||||
Three months ended March 31, 2021 | ||||||||||||||||||||
North America | Europe | International Markets | Other activities | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Sale of goods | 1,668 | 1,178 | 440 | 177 | 3,463 | |||||||||||||||
Licensing arrangements | 32 | 14 | 3 | 1 | 49 | |||||||||||||||
Distribution | 289 | § | 19 | 0 | 308 | |||||||||||||||
Other | § | 22 | 28 | 111 | 162 | |||||||||||||||
| $ | 1,989 | $ | 1,214 | $ | 490 | $ | 289 | $ | 3,982 | |||||||||||
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, 2021 | $ | 68 | $ | 1,655 | $ | 854 | $ | 1,085 | $ | 535 | $ | 112 | $ | 4,241 | $ | 4,309 | ||||||||||||||||
Provisions related to sales made in current year | 82 | 928 | 198 | 1,814 | 58 | 90 | 3,088 | 3,170 | ||||||||||||||||||||||||
Provisions related to sales made in prior periods | — | (90 | ) | 26 | (8 | ) | (14 | ) | (1 | ) | (87 | ) | (87 | ) | ||||||||||||||||||
Credits and payments | (88 | ) | (1,037 | ) | (270 | ) | (1,940 | ) | (110 | ) | (73 | ) | (3,430 | ) | (3,518 | ) | ||||||||||||||||
Translation differences | — | (3 | ) | (1 | ) | — | — | (1 | ) | (5 | ) | (5 | ) | |||||||||||||||||||
Balance at March 31, 2022 | $ | 62 | 1,453 | $ | 807 | $ | 951 | $ | 469 | $ | 127 | $ | 3,807 | $ | 3,869 | |||||||||||||||||
Reserves included in Accounts Receivable, net | Rebates | Medicaid and other governmental allowances | Chargebacks | Returns | Other | Total reserves included in SR&A | Total | |||||||||||||||||||||||||
(U.S.$ in millions) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 80 | $ | 2,054 | $ | 828 | $ | 1,108 | $ | 686 | $ | 148 | $ | 4,824 | $ | 4,904 | ||||||||||||||||
Provisions related to sales made in current year | 100 | 1,126 | 164 | 2,043 | 76 | 23 | 3,432 | 3,532 | ||||||||||||||||||||||||
Provisions related to sales made in prior periods | — | (55 | ) | (11 | ) | 6 | (40 | ) | (17 | ) | (117 | ) | (117 | ) | ||||||||||||||||||
Credits and payments | (102 | ) | (1,210 | ) | (188 | ) | (1,987 | ) | (101 | ) | (40 | ) | (3,526 | ) | (3,628 | ) | ||||||||||||||||
Translation differences | — | (17 | ) | (4 | ) | (3 | ) | (3 | ) | (2 | ) | (29 | ) | (29 | ) | |||||||||||||||||
Balance at March 31, 2021 | $ | 78 | $ | 1,898 | $ | 789 | $ | 1,167 | $ | 618 | $ | 112 | $ | 4,584 | $ | 4,662 | ||||||||||||||||
| March 31, 2018 | December 31, 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Finished products | $ | 2,772 | $ | 2,689 | ||||
Raw and packaging materials | 1,483 | 1,454 | ||||||
Products in process | 646 | 597 | ||||||
Materials in transit and payments on account | 212 | 184 | ||||||
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| $ | 5,113 | $ | 4,924 | |||||
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March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Finished products | $ | 1,985 | $ | 1,932 | ||||
Raw and packaging materials | 1,256 | 1,136 | ||||||
Products in process | 593 | 587 | ||||||
Materials in transit and payments on account | 178 | 163 | ||||||
Total | $ | 4,012 | $ | 3,818 | ||||
Property, plant and equipment, net, consisted of the following:
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Machinery and equipment | $ | 5,759 | $ | 5,809 | ||||
Buildings | 3,307 | 3,329 | ||||||
Computer equipment and other assets | 2,055 | 2,016 | ||||||
Payments on account | 615 | 634 | ||||||
Land(1) | 358 | 390 | ||||||
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| 12,094 | 12,178 | |||||||
Less—accumulated depreciation | 4,674 | 4,505 | ||||||
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| $ | 7,420 | $ | 7,673 | |||||
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NOTE 6 -– Identifiable intangible assets:
| Gross carrying amount net of impairment | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
| (U.S. $ in millions) | ||||||||||||||||||||||||
Product rights | $ | 21,395 | $ | 21,011 | $ | 8,728 | $ | 8,276 | $ | 12,667 | $ | 12,735 | ||||||||||||
Trade names | 618 | 617 | 64 | 55 | 554 | 562 | ||||||||||||||||||
Research and development in process | 4,093 | 4,343 | — | — | 4,093 | 4,343 | ||||||||||||||||||
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Total | $ | 26,106 | $ | 25,971 | $ | 8,792 | $ | 8,331 | $ | 17,314 | $ | 17,640 | ||||||||||||
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Gross carrying amount net of impairment | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||||||
Product rights | $ | 18,544 | $ | 18,815 | $ | 12,383 | $ | 12,318 | $ | 6,161 | $ | 6,497 | ||||||||||||
Trade names | 588 | 590 | 206 | 198 | 382 | 392 | ||||||||||||||||||
In process research and development | 573 | 577 | — | — | 573 | 577 | ||||||||||||||||||
Total | $ | 19,705 | $ | 19,982 | $ | 12,589 | $ | 12,516 | $ | 7,116 | $ | 7,466 | ||||||||||||
Whenever impairment indicators are identified for definite life intangible assets, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the asset’s or asset group’s cash flows by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams and compares such value against the asset’s or asset group’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of book value over fair value based on the discounted cash flows.
The more significant estimates and assumptions inherent in the estimate of the fair value of identifiable intangible assets include all assumptions associated with forecasting product profitability, including sales and cost to sell projections, R&D expenditure for ongoing support of product rights or continued development of IPR&D, estimated useful lives and IPR&D expected launch dates. Additionally, for IPR&D assets the risk of failure has been factored into the fair value measure.
Impairment of identifiable intangible assets was $206$242 million in the three months ended March 31, 20182022 and 2021, respectively.
Additional reductions to R&D intangibles relate to reclassification to product rights following regulatory approvalscomprised mainly of various generic products from the Actavis Generics acquisition of $542 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
In the first quarter of 2018, $103 million was reclassified from IPR&D to2022 consisted primarily of identifiable product rights of $129 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics.
the first quarter of 2021 consisted of:
| (a) | IPR&D assets of $51 million related to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and |
| (b) | Identifiable product rights of $28 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States. |
| Generics | Specialty | Other | Total | North America | Europe | Growth Market | Other | Total | ||||||||||||||||||||||||||||
| (U.S. $ in millions) | (U.S. $ in millions) | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2017(3) | $ | 18,864 | $ | 8,464 | $ | 1,086 | $ | 28,414 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Relative fair value allocation | (18,864 | ) | (8,464 | ) | (1,086 | ) | (28,414 | ) | 11,144 | 9,001 | 5,404 | 2,865 | 28,414 | |||||||||||||||||||||||
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Balance as of January 1, 2018 | — | — | — | — | 11,144 | 9,001 | 5,404 | 2,865 | 28,414 | |||||||||||||||||||||||||||
Changes during the period: | ||||||||||||||||||||||||||||||||||||
Goodwill impairment(1) | (180 | ) | (180 | ) | ||||||||||||||||||||||||||||||||
Goodwill disposal(2) | (54 | ) | (54 | ) | ||||||||||||||||||||||||||||||||
Translation differences | (13 | ) | 269 | 28 | 1 | 285 | ||||||||||||||||||||||||||||||
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Balance as of March 31, 2018(3) | $ | — | $ | — | $ | — | $ | — | $ | 11,131 | $ | 9,216 | $ | 5,252 | $ | 2,866 | $ | 28,465 | ||||||||||||||||||
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North America | Europe | International Markets | Other | Total | ||||||||||||||||
(U.S. $ in millions) | ||||||||||||||||||||
Balance as of December 31, 2021 (1) | $ | 6,474 | $ | 8,544 | $ | 2,328 | $ | 2,694 | $ | 20,040 | ||||||||||
Changes during the period: | ||||||||||||||||||||
Goodwill acquired | 12 | 12 | ||||||||||||||||||
Translation differences | 9 | (85 | ) | 34 | (24 | ) | (66 | ) | ||||||||||||
Balance as of March 31, 2022 (1) | $ | 6,483 | $ | 8,459 | $ | 2,362 | $ | 2,682 | $ | 19,986 | ||||||||||
| (1) |
Accumulated goodwill impairment as of March 31, |
In November 2017, Teva announced a new organizational structure and leadership changes to enable strategic alignment across its portfolios, regions and functions. Teva now operates its business through three segments: North America, Europe and Growth Markets. The purpose of the new structure is to enable stronger alignment and integration between operations, commercial regions, R&D and Teva’s global marketing and portfolio function, in order to optimize its product lifecycle across the therapeutic areas. Teva’s financial results for the first quarter of 2018 are being reported under this new structure for the first time.
In addition to these three segments, Teva has other activities, primarily the active pharmaceutical ingredient (“API”) manufacturing business and certain contract manufacturing services. See note 17.
Following the announcement of its new organizational structure and leadership changes in November 2017, Teva conducted an analysis of its business segments, which led to changes in Teva’s identified reporting units, operating and reporting segments. As a result, on January 1, 2018, Teva reallocated its goodwill to the adjusted reporting units using a relative fair value allocation. In conjunction with the goodwill reallocation, Teva performed a goodwill impairment test for the balances in its adjusted reporting units, utilizing the same annual operating plan (“AOP”) and long range plan model that were used in its 2017 annual impairment test; The Company concluded that the fair value of each reporting unit was in excess of its carrying value.
During the first quarter of 2018, Teva identified an increase in certain components of the weighted average cost of capital (“WACC”), such as an increase in the risk free interest and the unlevered beta. The Company addressed these changes in rates as an indication for impairment and performed an additional impairment test as of March 31, 2018.
Based on its revised analysis, Teva recorded a goodwill impairment of $180 million related to its Rimsa reporting unit in the first quarter of 2018. The remaining goodwill allocated to this reporting unit is $706 million as of March 31, 2018. This impairment was driven by the change in fair value, including the discount rate updated for the WACC change noted above, and the change in allocated net assets to the reporting unit. See note 3.
Based on current macro-economic developments and capital markets anticipation, a possible increase in the risk free interest rate of 0.5% may result in an increase to Teva’s WACC by approximately the same amount and consequently in an additional impairment of $70 million and $100 million with respect to Rimsa and the Growth Markets reporting units, respectively.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
For Teva’s remaining reporting units, the percentage difference between estimated fair value and estimated carrying value in the first quarter of 2018 was 6%, 10%, 21% and 49% for Teva’s Growth Markets, Europe, North America and other reporting units, respectively.
The current projections related to AUSTEDO and the resolution of the opioid and price fixing litigation in North America are significant assumptions in Teva’s future projections. Additionally, certain parts of its business volumes, particularly in Europe, were impacted by the
March 31, | December 31, | |||||||||||||||
Weighted average interest rate as of March 31, 2022 | Maturity | 2022 | 2021 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Convertible senior debentures | 0.25 | % | 2026 | 23 | 23 | |||||||||||
| Current maturities of long-term liabilities (1) | 2,054 | 1,403 | ||||||||||||||
Total short-term debt | $ | 2,077 | $ | 1,426 | ||||||||||||
| (1) | In April 2022, Teva repaid $302 million of its 3.25% senior notes at maturity. |
NOTE 8 – Earnings per share:
Basic earnings per share are computed by dividing net results attributable to
In computing diluted earnings per share for the three months ended March 31, 2018 and 2017, basic earnings per share was adjusted to take into account the potential dilution that could occur upon the exercise of options andnon-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 64 million (including shares that may be issued due to unpaid dividends to date) for the three months ended March 31, 2018 and 59 million for the three months ended March 31, 2017, as well as for the0.25% convertible senior debentures fordue 2026 was $23 million as of March 31, 2022 and December 31, 2021. These convertible senior debentures include a “net share settlement” feature according to which the respective periods, since both had an anti-dilutive effect on earnings per share.
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.
Weighted average interest rate as of March 31, 2022 | Maturity | March 31, 2022 | December 31, 2021 | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Senior notes EUR 1,500 million | 1.13 | % | 2024 | 698 | 708 | |||||||||||
Sustainability-linked senior notes EUR 1,500 million (1)(*) | 4.38 | % | 2030 | 1,674 | 1,699 | |||||||||||
Senior notes EUR 1,300 million | 1.25 | % | 2023 | 660 | 670 | |||||||||||
Sustainability-linked senior notes EUR 1,100 million (2)(*) | 3.75 | % | 2027 | 1,228 | 1,246 | |||||||||||
Senior notes EUR 1,000 million | 6.00 | % | 2025 | 1,117 | 1,134 | |||||||||||
Senior notes EUR 900 million | 4.50 | % | 2025 | 1,004 | 1,020 | |||||||||||
Senior notes EUR 750 million | 1.63 | % | 2028 | 833 | 844 | |||||||||||
Senior notes EUR 700 million (3) | 3.25 | % | 2022 | 302 | 307 | |||||||||||
Senior notes EUR 700 million | 1.88 | % | 2027 | 780 | 792 | |||||||||||
Senior notes USD 3,500 million | 3.15 | % | 2026 | 3,496 | 3,496 | |||||||||||
Senior notes USD 3,000 million | 2.80 | % | 2023 | 1,453 | 1,453 | |||||||||||
Senior notes USD 2,000 million | 4.10 | % | 2046 | 1,986 | 1,986 | |||||||||||
Senior notes USD 1,250 million | 6.00 | % | 2024 | 1,250 | 1,250 | |||||||||||
Senior notes USD 1,250 million | 6.75 | % | 2028 | 1,250 | 1,250 | |||||||||||
Senior notes USD 1,000 million | 7.13 | % | 2025 | 1,000 | 1,000 | |||||||||||
Sustainability-linked senior notes USD 1,000 million (2)(*) | 4.75 | % | 2027 | 1,000 | 1,000 | |||||||||||
Sustainability-linked senior notes USD 1,000 million (1)(*) | 5.13 | % | 2029 | 1,000 | 1,000 | |||||||||||
Senior notes USD 844 million | 2.95 | % | 2022 | 714 | 715 | |||||||||||
Senior notes USD 789 million | 6.15 | % | 2036 | 783 | 783 | |||||||||||
Senior notes CHF 350 million | 0.50 | % | 2022 | 378 | 382 | |||||||||||
Senior notes CHF 350 million | 1.00 | % | 2025 | 380 | 383 | |||||||||||
Total senior notes | 22,985 | 23,118 | ||||||||||||||
Other long-term debt | 2 | 2 | ||||||||||||||
Less current maturities | (2,054 | ) | (1,403 | ) | ||||||||||||
Less debt issuance costs | (93 | ) | (100 | ) | ||||||||||||
Total senior notes and loans | $ | 20,840 | $ | 21,617 | ||||||||||||
| (1) | If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.125%-0.375% per annum, from and including May 9, 2026. |
| (2) | If Teva fails to achieve certain sustainability performance targets, a one-time premium payment of0.15%-0.45% out of the principal amount will be paid at maturity or upon earlier redemption, if such redemption is on or after May 9, 2026. |
| (3) | In April 2022, Teva repaid $302 million of its 3.25% senior notes at maturity. |
NOTE 9 – Revenue from contracts with customers:
On January 1, 2018, Teva adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. The cumulative effect of initially applying the new revenue standard was immaterial.
Revenue recognition prior to the adoption of the new revenue standard
Please refer to note 1 to the consolidated financial statements and critical accounting policies included in our Annual Report on Form10-K for the year ended December 31, 2017 for a summary of our significant accounting policies
Revenue recognition following the adoption of the new revenue standard
A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.
The amount of consideration to which Teva expects to be entitled varies as a result of rebates, chargebacks, returns and other sales reserve and allowances (“SR&A”) the Company offers its customers and their customers, as well as the occurrence or nonoccurrence of future events, including milestone events. A minimum amount of variable consideration is recorded concurrently with the satisfaction of performance obligations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimates of variable consideration are based on historical experience and the specific terms in the individual agreements (which the Company believes approximates expected value). Rebates and chargebacks are the largest components of SR&A. For further description of SR&A components and how they are estimated, see “Variable consideration” below.
Shipping and handling costs after control over a product has transferred to a customer are accounted for as a fulfillment cost and are recorded under S&M expenses.
Teva does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less. The Company’s credit terms to customers are in average between thirty and ninety days.
The Company generally recognizes the incremental costs of obtaining contracts as an expense since the amortization period of the assets that the Company otherwise would have recognized is one year or less. The costs are recorded under S&M expenses. Similarly, Teva does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Disaggregation of revenue
The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues see note 17.
| March 31, 2018 | ||||||||||||||||||||
| North America | Europe | Growth Markets | Other activities | Total | ||||||||||||||||
| (U.S. dollars in millions) | ||||||||||||||||||||
Sale of goods | 2,168 | 1,429 | 519 | 177 | 4,293 | |||||||||||||||
Licensing arrangements | 32 | 10 | 20 | 2 | 64 | |||||||||||||||
Distribution | 331 | 3 | 153 | — | 487 | |||||||||||||||
Other | — | — | 58 | 163 | 221 | |||||||||||||||
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| $ | 2,531 | $ | 1,442 | $ | 750 | $ | 342 | $ | 5,065 | |||||||||||
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| March 31, 2017 | ||||||||||||||||||||
| North America | Europe | Growth Markets | Other activities | Total | ||||||||||||||||
| (U.S. dollars in millions) | ||||||||||||||||||||
Sale of goods | 2,824 | 1,287 | 529 | 196 | 4,836 | |||||||||||||||
Licensing arrangements | 121 | 1 | 1 | 1 | 124 | |||||||||||||||
Distribution | 295 | 53 | 125 | — | 473 | |||||||||||||||
Other | — | — | 63 | 154 | 217 | |||||||||||||||
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| $ | 3,240 | $ | 1,341 | $ | 718 | $ | 351 | $ | 5,650 | |||||||||||
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Nature of revenue streams
Revenue from sales of goods, including sales to distributors is recognized when the customer obtains control of the product. This generally occurs when products are shipped once the Company has a present right to payment, legal title, and risk and rewards of ownership are obtained by the customer.
Licensing arrangements performance obligations generally include intellectual property (“IP”) rights, certain R&D and contract manufacturing services. The Company accounts for IP rights and services separately if they are distinct – i.e. if they are separately identifiable from other items in the arrangement and if the customer can benefit from them on their own or with other resources that are readily available to the customer. The consideration is allocated between IP rights and services based on their relative stand-alone selling prices.
Revenue for distinct IP rights is accounted for based on the nature of the promise to grant the license. In determining whether the Company’s promise is to provide a right to access its IP or a right to use its IP, the Company considers the nature of the IP to which the customer will have rights. IP is either functional IP which has significant standalone functionality or symbolic IP which does not have significant standalone functionality. Revenue from functional IP is recognized at the point in time when control of the distinct license is transferred to the customer, when the Company has a present right to payment and risks and rewards of ownership are transferred to the customer. Revenue from symbolic IP is recognized over the access period to the Company’s IP.
Revenue from sales based milestones and royalties promised in exchange for a license of IP is recognized only when, or as, the later of subsequent sale or the performance obligation to which some or all of the sales-based royalty has been allocated, has been satisfied. Revenues from licensing arrangements included royalty income of $21 million and $105 million for the three months ended March 31, 2018 and 2017, respectively. The amount recognized in 2017 includes royalty income resulting from the Ninlaro® transaction.
Distribution revenues are derived from sales of third-party products for which the Company acts as distributor, mostly in the United States via Anda and in Israel. The Company is the principal in these arrangements and therefore records revenue on a gross basis as it controls the promised goods before transferring these goods to the customer. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment and legal title, and risk and rewards of ownership are obtained by the customer.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Other revenues are primarily comprised of contract manufacturing services, sales of medical devices, and other miscellaneous items. The Company is generally the principal in these arrangements and therefore records revenue on a gross basis as it controls the promised goods before transferring these goods to the customer. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment, legal title, and risk and rewards of ownership are obtained by the customer.
Contract assets and liabilities
Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.
Contract liabilities are mainly comprised of deferred revenues, which were immaterial as of March 31, 2018 and December 31, 2017, respectively.
Variable consideration
Variable consideration mainly includes 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 trade receivables.
The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions. The following briefly describes the nature of each deduction and how provisions are estimated:
Rebates
Rebates are primarily related to volume incentives and are offered to key customers to promote loyalty. These rebate programs provide that, upon the attainment ofpre-established volumes or the attainment of revenue milestones for a specified period, the customer receives a rebate. Since rebates are contractually agreed upon, they are estimated based on the specific terms in each agreement based on historical trends and expected sales. Externally obtained inventory levels are evaluated in relation to estimates made for rebates payable to indirect customers.
Medicaid and Other Governmental Rebates
Pharmaceutical manufacturers whose products are covered by the Medicaid program are required to rebate to each state a percentage of their average manufacturer’s price for the products dispensed. Many states have also implemented supplemental rebate programs that obligate manufacturers to pay rebates in excess of those required under federal law. The Company estimates these rebates based on historical trends of rebates paid, as well as on changes in wholesaler inventory levels and increases or decreases in sales.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Chargebacks
The Company has arrangements with various third parties, such as managed care organizations and drug store chains, establishing prices for certain of Teva’s products. While these arrangements are made between the Company and the customers, the customers independently select a wholesaler from which they purchase the products. Alternatively, certain wholesalers may enter into agreements with the customers, with Teva’s concurrence, which establish the pricing for certain products which the wholesalers provide. Under either arrangement, Teva will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to the wholesaler and the customer’s contract price. Provisions for chargebacks involve estimates of contract prices of over 2,000 products and multiple contracts with multiple wholesalers. The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers and therefore will not necessarily fluctuate in proportion to an increase or decrease in sales. Provisions for estimating chargebacks are calculated using historical chargeback experience and/or expected chargeback levels for new products and anticipated pricing changes. Teva considers current and expected price competition when evaluating the provision for chargebacks. Chargeback provisions are compared to externally obtained distribution channel reports for reasonableness. The Company regularly monitors the provision for chargebacks and makes adjustments when the Company believes that actual chargebacks may differ from estimated provisions.
Other Promotional Arrangements
Other promotional or incentive arrangements are periodically offered to customers, specifically related to the launch of products or other targeted promotions. Provisions are made in the period for which the Company can estimate the incentive earned by the customer, in accordance with the contractual terms. The Company regularly monitors the provision for other promotional arrangements and makes adjustments when Teva believes that the actual provision may differ from the estimated provisions.
Shelf Stock Adjustments
The custom in the pharmaceutical industry is generally to grant customers a shelf stock adjustment based on the customers’ existing inventory contemporaneously with decreases in the market price of the related product. The most significant of these relate to products for which an exclusive or semi-exclusive period exists. Provisions for price reductions depend on future events, including price competition, new competitive launches and the level of customer inventories at the time of the price decline. Teva regularly monitors the competitive factors that influence the pricing of its products and customer inventory levels and adjust these estimates where appropriate.
Returns
Returns primarily relate to customer returns of expired products which, the customer has the right to return up to one year following the expiration date. Such returned products are destroyed and credits and/or refunds are issued to the customer for the value of the returns. Accordingly, no returned assets are recoded in connection with those products. The returns provision is estimated by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Revenue subject to returns is estimated based on the lag time from time of sale to date of return. The estimated lag time is developed by analyzing historical experience. Additionally, The Company considers specific factors, such as levels of inventory in the distribution channel, product dating and expiration, size and maturity of launch, entrance of new competitors, changes in formularies or packaging and any changes to customer terms, for determining the overall expected levels of returns.
Prompt Pay Discounts
Prompt pay discounts are offered to most customers to encourage timely payment. Discounts are estimated at the time of invoice based on historical discounts in relation to sales. Prompt pay discounts are almost always utilized by customers. As a result, the actual discounts do not vary significantly from the estimated amount.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
SR&A to U.S. customers comprised approximately 86% of the Company’s total SR&A as of March 31, 2018, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the period ended March 31, 2018 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 Sales Reserves and Allowances | Total | |||||||||||||||||||||||||
| (U.S. dollars in millions) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 196 | $ | 3,077 | $ | 1,908 | $ | 1,849 | $ | 780 | $ | 267 | $ | 7,881 | $ | 8,077 | ||||||||||||||||
Provisions related to sales made in current year period | 136 | 1,865 | 357 | 2,711 | 70 | 103 | 5,106 | 5,242 | ||||||||||||||||||||||||
Provisions related to sales made in prior periods | 2 | (19 | ) | 3 | (1 | ) | 21 | (8 | ) | (4 | ) | (2 | ) | |||||||||||||||||||
Credits and payments | (157 | ) | (2,051 | ) | (349 | ) | (2,927 | ) | (119 | ) | (139 | ) | (5,585 | ) | (5,742 | ) | ||||||||||||||||
Translation differences | 1 | 9 | 2 | 1 | 1 | (1 | ) | 12 | 13 | |||||||||||||||||||||||
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Balance at March 31, 2018 | $ | 178 | 2,881 | $ | 1,921 | $ | 1,633 | $ | 753 | $ | 222 | $ | 7,410 | $ | 7,588 | |||||||||||||||||
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NOTE 10 – Accumulated other comprehensive loss:
The components of, and changes within, accumulated other comprehensive losses attributable to Teva are presented in the table below:
| Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||
| Foreign currency translation adjustments | Available-for- sale securities | Derivative financial instruments | Actuarial gains/(losses) and prior service (costs)/credits | Total | ||||||||||||||||
Balance as of December 31, 2017* | $ | (1,316 | ) | $ | 1 | $ | (442 | ) | $ | (91 | ) | $ | (1,848 | ) | ||||||
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Other comprehensive income (loss) before reclassifications | 156 | 1 | (51 | ) | — | 106 | ||||||||||||||
Amounts reclassified to the statements of income | — | — | 7 | — | 7 | |||||||||||||||
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Net other comprehensive income (loss) before tax | 156 | 1 | (44 | ) | — | 113 | ||||||||||||||
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Net other comprehensive income (loss) after tax** | 156 | 1 | (44 | ) | — | 113 | ||||||||||||||
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Balance as of March 31, 2018 | $ | (1,160 | ) | $ | 2 | $ | (486 | ) | $ | (91 | ) | $ | (1,735 | ) | ||||||
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| * | Interest rate adjustments and a potential one-time premium payment related to the |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
| Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||
| Foreign currency translation adjustments | Available-for- sale securities | Derivative financial instruments | Actuarial gains/(losses) and prior service (costs)/credits | Total | ||||||||||||||||
Balance, December 31, 2016 | $ | (2,769 | ) | $ | (7 | ) | $ | (302 | ) | $ | (81 | ) | $ | (3,159 | ) | |||||
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Other comprehensive income/(loss) before reclassifications | 448 | 90 | 2 | (9 | ) | 531 | ||||||||||||||
Amounts reclassified to the statements of income | (52 | ) | (35 | ) | 6 | 1 | (80 | ) | ||||||||||||
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Net other comprehensive income/(loss) before tax | 396 | 55 | 8 | (8 | ) | 451 | ||||||||||||||
Corresponding income tax | — | (1 | ) | — | (5 | ) | (6 | ) | ||||||||||||
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Net other comprehensive income/(loss) after tax* | 396 | 54 | 8 | (13 | ) | 445 | ||||||||||||||
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Balance, March 31, 2017 | $ | (2,373 | ) | $ | 47 | $ | (294 | ) | $ | (94 | ) | $ | (2,714 | ) | ||||||
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NOTE 11 – Debt obligations:
Short-term debt:
| Weighted average interest rate as of March 31, 2018 | Maturity | March 31, 2018 | December 31, 2017 | |||||||||||
| (U.S. $ in millions) | ||||||||||||||
Term loan JPY 28.3 billion(5) | JPY LIBOR+0.25% | 2018 | $ | — | $ | 251 | ||||||||
Convertible debentures | 0.25% | 2026 | * | 514 | 514 | |||||||||
Other | 11.68% | 2018 | 2 | 1 | ||||||||||
Current maturities of long-term liabilities |
| 786 | 2,880 | |||||||||||
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Total short term debt |
| $ | 1,302 | $ | 3,646 | |||||||||
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
| Weighted average interest rate as of March 31, 2018 | Maturity | March 31, 2018 | December 31, 2017 | |||||||||
| % | (U.S. $ in millions) | |||||||||||
Senior notes EUR 1,750 million | 0.38% | 2020 | $ | 2,152 | $ | 2,095 | ||||||
Senior notes EUR 1,500 million | 1.13% | 2024 | 1,837 | 1,788 | ||||||||
Senior notes EUR 1,300 million | 1.25% | 2023 | 1,593 | 1,550 | ||||||||
Senior notes EUR 1,000 million(3) | 2.88% | 2019 | — | 1,199 | ||||||||
Senior notes EUR 900 million(1) | 4.50% | 2025 | 1,109 | — | ||||||||
Senior notes EUR 750 million | 1.63% | 2028 | 915 | 891 | ||||||||
Senior notes EUR 700 million(1) | 3.25% | 2022 | 863 | — | ||||||||
Senior notes EUR 700 million | 1.88% | 2027 | 859 | 837 | ||||||||
Senior notes USD 3,500 million | 3.15% | 2026 | 3,492 | 3,492 | ||||||||
Senior notes USD 3,000 million | 2.20% | 2021 | 2,997 | 2,996 | ||||||||
Senior notes USD 3,000 million | 2.80% | 2023 | 2,992 | 2,992 | ||||||||
Senior notes USD 2,000 million | 1.70% | 2019 | 2,000 | 2,000 | ||||||||
Senior notes USD 2,000 million | 4.10% | 2046 | 1,984 | 1,984 | ||||||||
Senior notes USD 1,500 million(3) | 1.40% | 2018 | — | 1,500 | ||||||||
Senior notes USD 1250 million(2) | 6.00% | 2024 | 1,250 | — | ||||||||
Senior notes USD 1250 million(2) | 6.75% | 2028 | 1,250 | — | ||||||||
Senior notes USD 844 million | 2.95% | 2022 | 863 | 864 | ||||||||
Senior notes USD 789 million | 6.15% | 2036 | 781 | 781 | ||||||||
Senior notes USD 700 million | 2.25% | 2020 | 700 | 700 | ||||||||
Senior notes USD 613 million | 3.65% | 2021 | 623 | 624 | ||||||||
Senior notes USD 588 million | 3.65% | 2021 | 587 | 587 | ||||||||
Senior notes CHF 450 million | 1.50% | 2018 | 472 | 461 | ||||||||
Senior notes CHF 350 million | 0.50% | 2022 | 367 | 360 | ||||||||
Senior notes CHF 350 million | 1.00% | 2025 | 368 | 360 | ||||||||
Senior notes CHF 300 million | 0.13% | 2018 | 314 | 308 | ||||||||
Fair value hedge accounting adjustments | (16 | ) | (2 | ) | ||||||||
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Total senior notes | 30,352 | 28,367 | ||||||||||
Term loan USD 2.5 billion(4) | LIBOR +1.1375% | 2018 | — | 285 | ||||||||
Term loan USD 2.5 billion(4) | LIBOR +1.50% | 2017-2020 | — | 2,000 | ||||||||
Term loan JPY 58.5 billion(5) | JPY LIBOR +0.55% | 2022 | — | 519 | ||||||||
Term loan JPY 35 billion(6) | 1.42% | 2019 | — | 311 | ||||||||
Term loan JPY 35 billion(6) | JPY LIBOR +0.3% | 2018 | — | 311 | ||||||||
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Total loans | — | 3,426 | ||||||||||
Debentures USD 15 million(7) | 7.20% | 2018 | — | 15 | ||||||||
Other | 7.31% | 2026 | 5 | 5 | ||||||||
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Total debentures and others | 5 | 20 | ||||||||||
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Less current maturities | (786 | ) | (2,880 | ) | ||||||||
Derivative instruments | 16 | 2 | ||||||||||
Less debt issuance costs | (137 | ) | (106 | ) | ||||||||
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Total long-term debt | $ | 29,450 | $ | 28,829 | ||||||||
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Debt development
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, (as defined), if any.
Long term The long-term debt outlined in the above table is generally redeemable at any time at varying redemption prices plus accrued and unpaid interest.
franc.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 12 – Fair value measurement:
Teva’s financial instruments consist mainly of cash and cash equivalents, investment in securities, current andnon-current receivables, short-term debt, current andnon-current payables, contingent consideration, senior notes and loans, convertible senior debentures and derivatives.
The fair value of the financial instruments included in working capital andnon-current receivables and payables approximates their carrying value. The fair value of term loans and bank facilities mostly 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 thatabove-mentioned circumstances, would be received to sell an asset or paid to transfer a liabilityresult in an orderly transaction between market participants atevent of default in all borrowings under the measurement date.
The accounting standard establishesRCF and, when greater than 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)specified threshold amount as set forth 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. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value.
There were no transfers between Level 1, Level 2 and Level 3 during the first quarter of 2018.
Financial items carried at fair value as of March 31, 2018 and December 31, 2017 are classified in the tables below in one of the three categories described above:
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
| March 31, 2018 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 6 | $ | — | $ | — | $ | 6 | ||||||||
Cash, deposits and other | 1,412 | — | — | 1,412 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 58 | — | — | 58 | ||||||||||||
Other, mainly debt securities | 13 | — | 19 | 32 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives - options and forward contracts | — | 15 | — | 15 | ||||||||||||
Asset derivatives - cross currency swaps | — | 4 | — | 4 | ||||||||||||
Liabilities derivatives - options and forward contracts | — | (18 | ) | — | (18 | ) | ||||||||||
Liabilities derivatives - interest rate and cross-currency swaps | — | (141 | ) | — | (141 | ) | ||||||||||
Contingent consideration* | — | — | (708 | ) | (708 | ) | ||||||||||
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Total | $ | 1,489 | $ | (140 | ) | $ | (689 | ) | $ | 660 | ||||||
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| December 31, 2017 | ||||||||||||||||
| Level 1 | �� | Level 2 | Level 3 | Total | ||||||||||||
| (U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||
Cash, deposits and other | 958 | — | — | 958 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 65 | — | — | 65 | ||||||||||||
Structured investment vehicles | — | — | — | — | ||||||||||||
Other, mainly debt securities | 14 | — | 18 | 32 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives - options and forward contracts | — | 17 | — | 17 | ||||||||||||
Asset derivatives - cross-currency swaps | — | 25 | — | 25 | ||||||||||||
Liability derivatives - options and forward contracts | — | (15 | ) | — | (15 | ) | ||||||||||
Liabilities derivatives - interest rate and cross-currency swaps | — | (98 | ) | — | (98 | ) | ||||||||||
Contingent consideration* | — | — | (735 | ) | (735 | ) | ||||||||||
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Total | $ | 1,042 | $ | (71 | ) | $ | (717 | ) | $ | 254 | ||||||
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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 U.S. 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.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:
| Three months ended March 31, 2018 | ||||
| (U.S. $ in millions) | ||||
Fair value at the beginning of the period | $ | (717 | ) | |
Revaluation of debt securities | 1 | |||
Adjustments to provisions for contingent consideration: | ||||
Actavis Generics transaction | (6 | ) | ||
Labrys transaction | (1 | ) | ||
Eagle transaction | (1 | ) | ||
Settlement of contingent consideration: | ||||
Eagle transaction | 35 | |||
|
| |||
Fair value at the end of the period | $ | (689 | ) | |
|
| |||
Financial instruments not measured at fair value
Financial instruments measured on a basis other than fair value mostly consisteach series of senior notes and convertiblesustainability-linked senior debenturesnotes is outstanding, could lead to an event of default under the Company’s senior notes and sustainability-linked senior notes due to cross acceleration provisions.
| Estimated fair value* | ||||||||
| March 31, 2018 | December 31, 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Senior notes included under senior notes and loans | $ | 26,365 | $ | 23,459 | ||||
Senior notes and convertible debentures included under short-term debt | 1,242 | 2,713 | ||||||
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| |||||
Total | $ | 27,607 | $ | 26,172 | ||||
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
issued.
| March 31, 2018 | December 31, 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Cross-currency swap – cash flow hedge | $ | 588 | $ | 588 | ||||
Cross-currency swap – net investment hedge | 1,000 | 1,000 | ||||||
Interest rate swap – fair value hedge | 500 | 500 | ||||||
derivative financial instruments. As of March 31, 2022 the fair value of these derivative instruments is negligible.
| Fair value | ||||||||||||||||
| Designated as hedging instruments | Not designated as hedging instruments | |||||||||||||||
| March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Asset derivatives: | ||||||||||||||||
Other current assets: | ||||||||||||||||
Option and forward contracts | $ | — | $ | — | $ | 15 | $ | 17 | ||||||||
Othernon-current assets: | ||||||||||||||||
Cross-currency swaps – cash flow hedge | 4 | 25 | — | — | ||||||||||||
Liability derivatives: | ||||||||||||||||
Other current liabilities: | ||||||||||||||||
Option and forward contracts | — | — | (18 | ) | (15 | ) | ||||||||||
Other taxes and long-term liabilities: | ||||||||||||||||
Cross-currency swaps – net investment hedge | (125 | ) | (96 | ) | — | — | ||||||||||
Senior notes and loans: | ||||||||||||||||
Interest rate swaps – fair value hedge | (16 | ) | (2 | ) | — | — | ||||||||||
Derivatives on foreign exchange contracts mainly hedge Teva’s balance sheet items
Fair value | ||||||||
Not designated as hedging instruments | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Reported under | (U.S. $ in millions) | |||||||
Asset derivatives: | ||||||||
Other current assets: | ||||||||
Option and forward contracts | $ | 56 | $ | 30 | ||||
Liability derivatives: | ||||||||
Other current liabilities: | ||||||||
Option and forward contracts | (31 | ) | (23 | ) | ||||
Financial expenses, net | Net revenues | |||||||||||||||
Three months ended, | Three months ended, | |||||||||||||||
March 31, 2022 | March 31, 2021 | March 31, 2022 | March 31, 2021 | |||||||||||||
Reported under | (U.S. $ in millions) | |||||||||||||||
Line items in which effects of hedges are recorded | $ | 258 | $ | 290 | $ | (3,661 | ) | $ | (3,982 | ) | ||||||
Option and forward contracts (1) | (5 | ) | (70 | ) | 0 | 0 | ||||||||||
Option and forward contracts economic hedge (2) | 0 | 0 | (19 | ) | (28 | ) | ||||||||||
Certain
| (1) | Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses, net. |
| (2) | Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies to protect its projected operating results for 2021 and 2022. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. In the first quarter of 2022, the positive impact from these derivatives recognized under revenues was $19 million. In the first quarter of 2021, the positive impact from these derivatives recognized under revenues was $28 million. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. |
2021, respectively.
In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as a fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500$3,000 million notional amountamount. Settlement of outstanding debt.
In eachthese transactions resulted in cash proceeds of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the first and second quartersdebt.
debt.
Other impairments, restructuring and other items consisted of the following:
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Restructuring expenses | $ | 247 | $ | 130 | ||||
Integration expenses | — | 23 | ||||||
Contingent consideration | 8 | 21 | ||||||
Impairments of long-lived assets | 432 | 11 | ||||||
Other | 20 | 55 | ||||||
|
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| |||||
Total | $ | 707 | $ | 240 | ||||
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In determining the estimated fair value of long-lived assets, Teva utilized a discounted cash flow model. The key assumptions within the model related to forecasting future revenue and operating income, an appropriate WACC and an appropriate terminal value based on the nature of the long-lived asset. The Company’s updated forecasts of net cash flows for the impaired assets reflect, among others, the following: (i) for IPR&D assets, the impact of changes to the development programs, the projected development and regulatory timeframes and the risks associated with these assets; and (ii) for product rights, pricing and volume projections, as well as patent life and any significant changes to the competitive environment.
As a result of Teva’s plant rationalization acceleration, following the two year restructuring plan that was announced in December 2017, to the extent the Company will change its plans on any given asset and/or the assumptions underlying such plan, there could be additional impairments in the future.
Impairments
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Restructuring
In the first quarter of 2018,2022, Teva recorded $247expenses of $1,124 million of restructuring expenses,in legal settlements and loss contingencies, compared to $130$104 million in the first quarter of 2017.2021. The expenses in the first quarter of 20182022 were primarilymainly related to headcount reductions across all functions.
Since Teva’s announcementan update of its restructuring plan, the Company reduced its global headcount by approximately 6,200 full-time-equivalent employees.
Teva alsoestimated settlement provision recorded a $226 million impairment of property, plant and equipment related to restructuring costs as detailed in “— Impairments” above.
connection with the remaining opioid cases. The following table provides the components of costs associated with Teva’s restructuring plan, including costs related to exit and disposal activities:
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 228 | $ | 95 | ||||
Other | 19 | 35 | ||||||
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| |||||
Total | $ | 247 | $ | 130 | ||||
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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, 2018 | $ | (294 | ) | $ | (17 | ) | $ | (311 | ) | |||
Provision | (228 | ) | (19 | ) | (247 | ) | ||||||
Utilization and other* | 129 | 7 | 136 | |||||||||
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| |||||||
Balance as of March 31, 2018 | $ | (393 | ) | $ | (29 | ) | $ | (422 | ) | |||
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NOTE 15 – Legal settlements and loss contingencies:
Legal settlements and loss contingencies for the three months ended March 31, 2018 resulted in income of $1.3 billion compared to expenses of $20 million for the three months ended March 31, 2017. The income in the first quarter of 2018 consisted primarily of2021 were mainly due to the working capital adjustment with Allergan, the Rimsa settlement and a reversal of the reserve recorded in the second quarter of 2017 with respect toprovision for the carvedilol patent litigation, following the reversal of the verdict granting the award to GSK. litigation.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes$2,710 million, respectively. In connection with Teva’s provision for legal settlements and loss contingencies as of March 31, 2022 and December 31, 2021, related to Consolidated Financial Statements
(Unaudited)
the Ontario Teachers Securities Litigation, Teva also recognized an insurance receivable.
contingencies:
disclosure, or were substantially resolved.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
district court. In 2014, Teva Canada succeeded in its challenge of the bortezomib (the generic equivalent of Velcade®) product and mannitol ester patents under the Patented Medicines (Notice Of Compliance) Regulations (“PM(NOC)”). Teva commenced sales in the first quarter of 2015. At2021, Teva recognized a provision based on its offer to settle such matter.
2021.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Additionally, Cephalon and Teva have reached a settlement with 48 state attorneys general, which was approved by the court on November 7, 2016. Certain other claimants, including the State of California, have given notices of potential claims related to these settlement agreements. Teva has produced documents and information in response to discovery requests issued by the California Attorney General’s office as part of its ongoing investigation of generic competition to PROVIGIL.
In May 2015, Cephalon entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed itsantitrust claims against Cephalon in the FTC Modafinil Actionrelated to certain finished modafinil products (marketed as PROVIGIL
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Following an investigation initiated byterm of the Modafinil Consent Decree was extended until 2029.
imposed fines.
A provision for these matters and related litigations in Georgia that have since been settled was included in the financial statements.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
In November 2013, a putative class action was 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 andend-payer plaintiffs, as well as retailers acting in their individual capacities, and those cases were consolidated as a multidistrict litigation in federal court in California. On February 21, 2017, the court granted both the indirect purchaser plaintiffs’ and the direct purchaser plaintiffs’ motions for class certification. We reached an agreement to settle the multidistrict litigation with the various plaintiff groups in the first quarter of 2018. A provision for these settlements has been included in the financial statements, and on March 20, 2018, the direct purchaser andend-payor plaintiffs moved the court to preliminarily approve their respective settlements. The FTC has also filed suit to challenge the Lidoderm® settlement, initially bringing antitrust claims against Watson, Endo, and Allergan in Pennsylvania federal court in March 2016, and then later voluntarily dismissing those claims andre-filing 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 a complaint against Allergan and Watson, and that complaint was also assigned to the California court presiding over the multidistrict litigation. After the FTC dismissed its claims in Pennsylvania, but before itre-filed them in California, Watson and Allergan filed suit against the FTC in the same Pennsylvania federal court where the agency had initially brought its lawsuit, seeking a declaratory judgment that the FTC’s claims are not authorized by statute, or, in the alternative, that the FTC does not have statutory authority to pursue a disgorgement remedy. That declaratory judgment action remains pending, and the court in California has stayed both the FTC’s claims and the State of California’s claims against Allergan and Watson, pending the outcome of the declaratory judgment action in Pennsylvania. Annual sales of Lidoderm® at the time of the settlement were approximately $1.2 billion, and were approximately $1.4 billion at the time ActavisTeva launched its generic version of Niaspan
Since November 2013, numerous lawsuits have been filed in various federal courts by purported classes 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. Teva and BI’s motion to dismiss was denied in March 2015. On April 11, 2017, the Orange County District Attorney filed a complaint for violations of California’s Unfair Competition Law based on the Aggrenox® patent litigation settlement. Annual sales of Aggrenox® were approximately $340 million at the time of the settlement and approximately $455 million at the time generic competition began in July 2015. Teva has settled with the putative class of direct purchasers and theopt-out direct purchaser plaintiffs. Additionally, on January 8, 2018, Teva reached an agreement to settle with the end payer class plaintiffs, and subsequently settled with two of theopt-out end payer plaintiffs, Humana and Blue Cross/Blue Shield of Louisiana. The settlement with the end payer class was preliminarily approved by the court on March 6, 2018. A provision has been included in the financial statements for this matter.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic
In June 2014, two groupsmillion, respectively.
In September 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”)Amgen and Teva in the U.S. District Court for the Eastern District of Pennsylvania alleging that they violated the antitrust laws when they entered into aJanuary 2, 2019 settlement agreement to resolve the AndroGel®between Amgen and Teva, resolving patent litigation and a supply agreement under which AbbVie would supply authorized generic product for TriCorover cinacalcet (generic Sensipar to Teva. 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 granted Teva’s motion to dismiss the FTC’s claim as to Teva. The FTC’s motions for reconsideration and for entry of partial final judgment to permit an immediate appeal were denied, so the FTC cannot appeal the dismissal until its claims against AbbVie are resolved. The Court granted the FTC’s summary judgment motion that AbbVie’s patent infringement lawsuit against Teva in the AndroGel patent litigation was objectively baseless. A bench trial for the FTC’s case against AbbVie began in February 2018 and concluded in April 2018. The court has not yet issued its decision.Since May 2015, two lawsuits have been filed in the U.S. District Court for the Southern District of New York by a purported class of direct purchasers of, and a purported class of end payers for, Namenda IR® (memantine hydrochloride) against Forest Laboratories, LLC (“Forest” and Actavis PLC, the innovator, and several generic manufacturers, including Teva. Teva is only a defendant in the end payer case and defendants moved to dismiss the claims made by the end payers. The lawsuits allege, among other things, that the settlement agreements between Forest and the generic manufacturers (including Forest’s November 2009 settlement agreement with Teva), violated the antitrust laws. On September 13, 2016,November 30, 2020, the district court denied defendants’ motionsTeva’s motion to dismiss but stayedin part, and on February 16, 2021, plaintiffs filed amended complaints. On March 30, 2021, Teva again moved to dismiss those claims based on plaintiffs’ failure to allege both that the cases with respectsettlement violated the antitrust laws and that the settlement caused any actual injury to plaintiffs. On March 11, 2022, the claims brought under state law, which aredistrict court denied Teva’s motion to dismiss in part. Teva intends to request that the only claims asserted against Teva.district court certify its rulings for review by the United States Court of Appeals for the Third Circuit. Annual sales of Namenda IRSensiparsettlement were approximately $1.1 billion, and are currently approximately $1.4 billion.
January 2, 2019 settlement.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
A response was submitted and an oral hearing was held. On December 18, 2017, the CMA issued a Statementstatement of Draft Penalty Calculation. A response was submitted and an oral hearing was held. No final decision regarding infringement of competition law has yet been issued by the CMA. Onobjections on March 3, 2017,2017) as well as the CMA issued a second statement of objection in respect of certain additional allegations (relatingCMA’s subsequent investigation relating to the same products and covering part of the same time period as for the first statement of objections) against Actavis UK, Allergan, and a number of other companies, which was later reissued to include certain Auden Mckenzie entities. A response was submitted and an oral hearing was held.anti-competitive agreement with Waymade. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, pursuant toin connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court onagainst Actavis UK as a resultin relation to the December 16, 2016 and March 3, 2017 statements of the investigations in respect ofobjections, 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,damages. On October 6, 2021, Accord UK and Auden Mckenzie appealed the CMA’s decision. A provision for the estimated exposure for Teva expectsrelated 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 matterfines and/or damages has been recorded in purchase accounting relatedthe financial statements.
In November 2016, three putative indirect purchaser class actions were filed in federal courts in Wisconsin, Massachusetts and Florida against Shire U.S., Inc. and Shire LLC (collectively, “Shire”) and Actavis, 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. On December 30, 2016 and January 11, 2017, two additional similar actions were filed, also in Massachusetts federal court, against Shire and Actavis or Teva (as successor to Actavis) byrepresent putative classes of direct purchaser plaintiffs. All fiveand indirect purchasers and
settlement.
A number of state attorneys general have filed various actions against Teva and/or certain of its subsidiaries, including certain Actavis subsidiaries, relating to reimbursements or drug price reporting under Medicaid or other programs. Such price reporting is alleged to have caused governments and others to pay inflated reimbursements for covered drugs. Teva and its subsidiaries have reached settlements in most of these cases, and remain parties to active litigation in Illinois. The Actavis subsidiaries remain parties to active litigation in Illinois and Utah. A provision for the cases has been included in the financial statements. Trial in the Illinois case against Teva concluded in the fourth quarter of 2013, and post-trial briefing was submitted. On June 28, 2017, after several years, the court issued a Memorandum Order After Trial finding liability against Teva, but reserved its decision on damages. Teva denies any liability and sought reconsideration of the order, which was denied. A hearing on damages is scheduled for August 8, 2018. The State of Illinois is seeking approximately $90 million in compensatory damages. Any such damages ultimately awarded by the court are subject to automatic trebling. In addition, the state is seeking statutory penalties ranging from $362 million to approximately $1.2 billion. Teva will continue to argue that any damages and penalties should be significantly less than the amount sought by the state. In August 2013, in the Mississippi case against Watson, the court ruled in favor of the state, awarding $12.4 million in compensatory damages and civil penalties. In March 2014, the court awarded the state an additional $17.9 million in punitive damages. A provision for these amounts has been included in the financial statements. Watson appealed both the original and the punitive damage awards. On January 11, 2018, the Mississippi Supreme Court affirmed the judgment in favor of the State of Mississippi and against Watson in all respects.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
On February 9, 2018, the judgment was fully satisfied and on February 16, 2018, the trial court discharged the appeal bond fully concluding this matter. In Utah, claims against Watson that were dismissed in their entirety by the trial court are now on appeal.
Severalqui tam complaints have been unsealed in recent years as a result of government decisions not to participate in the cases. The following is a summary of certain government investigations, qui tam actions and related matters.
In January 2014, Teva received a civil investigative demand from the U.S. Attorney for the Southern DistrictDepartment of New York seeking documents and information from January 1, 2006 related to sales, marketing and promotion of COPAXONE and AZILECT, focusing on educational and speaker programs. The demand states that the government is investigating possible civil violations 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 by the court, which revealed that the U.S. Attorney had notified the court in November 2014 that it had declined to intervene in and proceed with the lawsuit. The qui tam relators, however, are moving forward with the lawsuit. In June 2015, Teva filed motions to dismiss the complaint. In February 2016, the court stayed its decision on the relators’ claims based on state and local laws, denied Teva’s motions 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, which Teva answered in April 2016. The parties are currently engaged in discovery.
Beginning in May 2014 various 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 and agencies across the country. There are actions currently pending against Teva and its affiliates that have been brought by various states, subdivisions and state agencies in both State and Federal Courts. Most of the Federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio. In addition to the complaints filed by states, state agencies and political subdivisions, private class action lawsuits have been filed in Arkansas, Massachusetts, Ohio and Pennsylvania. Several counties in various states and the State of Delaware have commenced an action against Anda, Inc. (and other distributor and manufacturer defendants) alleging that Anda, Inc. failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the diversion of such products to individuals who used them for other than legitimate medical purposes. The 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 and seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. None of the complaints specifies the exact amount of damages at issue. Teva and its affiliates that are defendants in the various lawsuits deny all allegations asserted in these complaints and have filed or will be filing motions to dismiss where possible. On April 11, 2018, the judge in the multidistrict litigation issued a case management order setting the first trial for March 2019. On April 27, 2018, Teva received subpoena requests from the DOJ seeking documents relating to the manufacture, marketing and sale of opioids. Teva intends to comply with this subpoena. 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. Teva is cooperating with these investigations, which are ongoing, and cannot predict at this time the outcome.
On June 21, 2016, Teva USA received a subpoena from theJustice (“DOJ”) Antitrust Division of the DOJ seeking documents and other information relating to the marketing and pricing of certain of Teva USA’sUSA generic products and communications with competitors about such products. ActavisOn August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three count indictment charging Teva USA with criminal felony Sherman Act violations. See
OnSubsequently, 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 (specifically, section 1 of the Sherman Act) alleging price fixing of generic products in the United States. AnThat complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these attorneys general filed another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional products. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed on March 1, 2017 adding twenty additional statesa third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA, in a similar complaint relating to dermatological generics products. On September 9, 2021, the named plaintiffs and adding supplemental state law claims.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notesstates’ attorneys general amended their third complaint to, Consolidated Financial Statements
(Unaudited)
Theamong other things, add California as a plaintiff. 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. On August 3, 2017, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred this action to the generic drug multidistrict litigation pending in federal court in Pennsylvania, which is discussed in greater detail below. On July 17, 2017, a new complaint was filed in the District Court of Connecticut on behalf of four additional states – Arkansas, Missouri, New Mexico and West Virginia, as well as the District of Columbia. These plaintiffs were not previously party to the State Attorney General action that commenced in December 2016. This complaint, which the JPML has alsoAll such complaints have been transferred to the generic drug multidistrict litigation discussed below, makes the same factual allegations and claims that are at issue in the earlier State Attorneys General complaint. On October 31, 2017 the attorneys general of 45 states plus Puerto Rico and theEastern District of Columbia filed a motion for leave to file anPennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general November 1, 2019 amended complaint, referenced above, along with certain complaints filed by private plaintiffs, to proceed first in this action. The proposedthe litigation as bellwether complaints. Teva moved the court to reconsider that ruling. On February 9, 2021, Teva’s motion to reconsider that ruling was granted, and on May 7, 2021, the Court chose the attorneys’ general third complaint filed on June 10, 2020 and subsequently amended complaint names Actavisto serve as a defendantbellwether complaint in the Pennsylvania MDL, along with certain complaints filed by private plaintiffs. Teva settled with the State of Mississippi for $925,000 in June 2021 and with the State of Louisiana for $1,450,000 in March 2022. Pursuant to these settlements, both states have dismissed their claims against Actavis and Teva USA, as well as certain former employees of Actavis and Teva and adds new allegations and claims to those appearingUSA. On December 9, 2021, the Court entered an order setting the schedule for the proceedings in the prior complaints. Defendants have opposedbellwether cases. The order did not include trial dates, but provides for the motion.
parties to complete briefing on motions for summary judgement in early 2024.
Ondetriment of a class of private payors. The action is in its early stages.
For several years, Teva had conducted a voluntary worldwide investigation into business practices that may have implications underAugust 2020, the U.S. Foreign Corrupt Practices Act (“FCPA”), following the receipt, beginningAttorney’s office in 2012, of subpoenas and informal document requests from the SEC and the DOJ with respect to compliance with the FCPA in certain countries. In December 2016, Teva reachedBoston, Massachusetts brought a resolution with the SEC and DOJ to fully resolve these FCPA matters. The resolution, which relates to conduct in Russia, Mexico and Ukraine from 2007 to 2013, provides for penalties of approximately $519 million (reservedcivil action in the financial statements inU.S. District Court for the third quarterDistrict of 2016), which includes a fine, disgorgement and prejudgment interest; a three-year deferred prosecution agreement for Teva; a guilty plea by Teva’s Russian subsidiary to criminal charges ofMassachusetts alleging violations of the anti-bribery provisionsfederal Anti-Kickback Statute, and asserting causes of action under the FCPA; consentfederal False Claims Act and state law. It is alleged that Teva caused the submission of false claims to entryMedicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients. An adverse judgment may involve damages, civil penalties and injunctive remedies. On October 19, 2020, Teva filed a motion to dismiss the complaint on the grounds that
On July 17, 2017, a lawsuit was filed in the U.S. District Court for the Southern District of Ohio derivatively on behalf of the Teva Employee Stock Purchase Plan, and alternatively as a putative class action lawsuit on behalf of individuals who purchased Teva stock through that plan. That lawsuit seeks unspecified damages, legal fees, interest, and costs. The complaint alleges that Teva failed to maintain adequate financial controlsIn July 2017, August 2017, and June 2019, other putative securities class actions were filed in other federal courts based on the facts underpinning Teva’s FCPA deferred prosecution agreement,similar allegations, and also based on allegations substantially similar to those in the putative class action securities lawsuit pending in U.S. District Court for the District of Connecticut, discussed above. On November 29, 2017, the Court granted Teva’s motion to transfer the litigationcases have been transferred to the U.S. District Court for the District of Connecticut where the putative class action securities lawsuit is pending. On December 29,Connecticut. Between August 2017 the parties jointly moved to stay the case pending resolution of the motions to dismissand January 2022, twenty-three complaints were filed in the consolidated putative securities class action described above.
On August 3, 2017, a securities lawsuit was filed in the U.S. District Court for the District of Connecticut by OZ ELS Master Fund, Ltd., OZ Special Funding, L.P, OZ Enhanced Master Fund, Ltd., Gordel Capital Limited, OZ Global Equity Opportunities Master Fund, Ltd., OZ Master Fund, Ltd., and OZ Global Special Investments Master Fund L.P. The complaint asserts thatagainst Teva and certain of its current and former officers violatedand directors seeking unspecified compensatory damages, legal fees, costs and expenses. The similar claims in these complaints have been brought on behalf of plaintiffs, in various forums across the federal securities lawscountry, who have indicated that they intend to
On August 21, 2017, a putative class action securities lawsuit was filed by Elliot Grodko in the U.S. District Court for the Eastern District of Pennsylvania against Teva and certain of its former officers alleging, among other things, violations of Section 10(b) of the Securities and Exchange Act of 1934, as amended and SEC Rule
On August 30, 2017,remaining individual defendants. A motion to approve a putative securities class action was also filed by Barry Bakerin the Central District Court in Israel, which has been stayed pending the U.S. litigation, with similar allegations to those made in the above complaint filed in the U.S. District Court for the Eastern District of Pennsylvania on behalf of purchasers of Teva’s securities between November 15, 2016 and August 2, 2017 seeking unspecified damages, legal fees, interest, and costs. The complaint alleges that Teva and certain officers violated the federal 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 case with the Grodko case, discussed above. On April 10, 2018, the Court granted Teva’s motion to transfer this action to the District of Connecticut where the Ontario Teachers securities litigation is currently pending.
Pennsylvania.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
NotesEU settlement agreements, opioids, the U.S. price-fixing investigations and allegations related to Consolidated Financial Statements
(Unaudited)
Motions to approve securities class actions against Teva and certain of its current and former directors and officers were filed in Israel with allegationsthe DOJ’s complaint regarding proper disclosure of the above-mentioned pricing investigation as well as lack of disclosure of negative developmentsCopaxone patient assistance program in the generic sector and erosion of the prices of Teva’s products as were presented in the second quarter financial reporting of Teva. Other motions were filed in Israel to approve a derivative action, discovery and a class action related to alleged claims regarding Teva’s above-mentioned FCPA resolution with the SEC and DOJ.
U.S.
several issues. Teva has protested the 2008-2012 and 2013-2016 decrees before the Central District Court in Israel.
Other assets impairments, restructuring and other items:
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Impairments of long-lived tangible assets (1) | $ | 16 | $ | 48 | ||||
Contingent consideration | 33 | 3 | ||||||
Restructuring | 57 | 81 | ||||||
Other | 21 | 4 | ||||||
Total | $ | 128 | $ | 137 | ||||
| (1) | Including impairments related to exit and disposal activities . |
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Restructuring | ||||||||
Employee termination | $ | 52 | $ | 79 | ||||
Other | 5 | 2 | ||||||
Total | $ | 57 | $ | 81 | ||||
Employee termination costs | Other | Total | ||||||||||
(U.S. $ in millions ) | ||||||||||||
Balance as of January 1, 2022 | $ | (131 | ) | $ | (7 | ) | $ | (138 | ) | |||
Provision | (52 | ) | (5 | ) | (57 | ) | ||||||
Utilization and other* | 59 | 6 | 65 | |||||||||
Balance as of March 31, 2022 | $ | (124 | ) | $ | (6 | ) | $ | (130 | ) | |||
Employee termination costs | Other | Total | ||||||||||
(U.S. $ in millions ) | ||||||||||||
Balance as of January 1, 2021 | $ | (115 | ) | $ | (7 | ) | $ | (122 | ) | |||
Provision | (79 | ) | (2 | ) | (81 | ) | ||||||
Utilization and other* | 33 | 2 | 35 | |||||||||
Balance as of March 31, 2021 | $ | (161 | ) | $ | (7 | ) | $ | (168 | ) | |||
| * | Includes adjustments for foreign currency translation. |
three months ended March 31, 2022, 0 account was taken of the potential dilution that could occur upon the exercise of options and
All the above changes were reflected through retroactive revisiontable below:
Net Unrealized Gains (Losses) | Benefit Plans | |||||||||||||||
Foreign currency translation adjustments | Derivative financial instruments | Actuarial gains (losses) and prior service (costs) credits | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Balance as of December 31, 2021, net of taxes | $ | (2,274 | ) | $ | (324 | ) | $ | (85 | ) | $ | (2,683 | ) | ||||
Other comprehensive income (loss) before reclassifications | (4 | ) | — | — | (4 | ) | ||||||||||
Amounts reclassified to the statements of income | — | 7 | 7 | |||||||||||||
Net other comprehensive income (loss) before tax | (4 | ) | 7 | 0 | 3 | |||||||||||
Corresponding income tax | (7 | ) | — | — | (7 | ) | ||||||||||
Net other comprehensive income (loss) after tax* | (11 | ) | 7 | 0 | (4 | ) | ||||||||||
Balance as of March 31, 2022, net of taxes | $ | (2,285 | ) | $ | (317 | ) | $ | (85 | ) | $ | (2,687 | ) | ||||
| * | Amounts do not include a $53 million loss from foreign currency translation adjustments attributable to non-controlling interests. |
Net Unrealized Gains (Losses) | Benefit Plans | |||||||||||||||
Foreign currency translation adjustments | Derivative financial instruments | Actuarial gains (losses) and prior service (costs) credits | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Balance as of December 31, 2020, net of taxes | $ | (1,919 | ) | $ | (363 | ) | $ | (117 | ) | $ | (2,399 | ) | ||||
Other comprehensive income (loss) before reclassifications | (174 | ) | — | (174 | ) | |||||||||||
Amounts reclassified to the statements of income | — | 9 | — | 9 | ||||||||||||
Net other comprehensive income (loss) before tax | (174 | ) | 9 | — | (165 | ) | ||||||||||
Corresponding income tax | 33 | (2 | ) | — | 31 | |||||||||||
Net other comprehensive income (loss) after tax* | (141 | ) | 7 | — | (134 | ) | ||||||||||
Balance as of March 31, 2021, net of taxes | $ | (2,060 | ) | $ | (356 | ) | $ | (117 | ) | $ | (2,534 | ) | ||||
| * | Amounts do not include a $67 million loss from foreign currency translation adjustments attributable tonon-controlling interests. |
Teva now operates its business and reports its financial results in three segments:
a)
| (a) | North America segment, which includes the United States and Canada. |
| (b) | Europe segment, which includes the European Union, the United Kingdom and certain other European countries. |
| (c) | International Markets segment, which includes all countries other than those in the North America and Europe segments. |
b) Europe segment, which includes the European Union and certainan
c) Growth Markets segment, which includes all countries other than those in the North America and Europe segments.
pharmaceutical companies through its affiliate Medis.
3 and note 6.
| North America | Europe | Growth Markets | ||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
| (U.S. $ in millions) | (U.S. $ in millions) | (U.S. $ in millions) | ||||||||||||||||||||||
Revenues | $ | 2,531 | $ | 3,240 | $ | 1,442 | $ | 1,341 | $ | 750 | $ | 718 | ||||||||||||
Gross profit | 1,432 | 2,080 | 797 | 734 | 313 | 292 | ||||||||||||||||||
R&D expenses | 188 | 267 | 73 | 106 | 24 | 47 | ||||||||||||||||||
S&M expenses | 305 | 441 | 255 | 279 | 134 | 158 | ||||||||||||||||||
G&A expenses | 126 | 139 | 91 | 79 | 41 | 48 | ||||||||||||||||||
Other income | (102 | ) | (73 | ) | 1 | 2 | (8 | ) | (1 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment profit | $ | 915 | $ | 1,306 | $ | 377 | $ | 268 | $ | 122 | $ | 40 | ||||||||||||
|
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|
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| |||||||||||||
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S.$ in millions) | ||||||||
North America profit | $ | 915 | $ | 1,306 | ||||
Europe profit | 377 | 268 | ||||||
Growth Markets profit | 122 | 40 | ||||||
|
|
|
| |||||
Total segment profit | 1,414 | 1,614 | ||||||
Profit of other activities | 21 | 7 | ||||||
|
|
|
| |||||
| 1,435 | 1,621 | |||||||
Amounts not allocated to segments: | ||||||||
Amortization | 310 | 320 | ||||||
Other asset impairments, restructuring and other items | 707 | 240 | ||||||
Goodwill impairment | 180 | — | ||||||
Gain on divestitures, net of divestitures related costs | (93 | ) | — | |||||
Inventorystep-up | — | 64 | ||||||
Other R&D expenses | 22 | — | ||||||
Costs related to regulatory actions taken in facilities | 1 | 34 | ||||||
Legal settlements and loss contingencies | (1,278 | ) | 20 | |||||
Other unallocated amounts | 61 | 48 | ||||||
|
|
|
| |||||
Consolidated operating income | 1,525 | 895 | ||||||
|
|
|
| |||||
Financial expenses, net | 271 | 207 | ||||||
|
|
|
| |||||
Consolidated income before income taxes | $ | 1,254 | $ | 688 | ||||
|
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| |||||
Three months ended March 31, | ||||||||||||
2022 | ||||||||||||
North America | Europe | International Markets | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 1,737 | $ | 1,156 | $ | 492 | ||||||
Gross profit | 890 | 694 | 286 | |||||||||
R&D expenses | 143 | 58 | 20 | |||||||||
S&M expenses | 245 | 196 | 97 | |||||||||
G&A expenses | 112 | 59 | 29 | |||||||||
Other income | (11 | ) | § | (40 | ) | |||||||
Segment profit | $ | 402 | $ | 381 | $ | 179 | ||||||
Three months ended March 31, | ||||||||||||
2021 | ||||||||||||
North America | Europe | International Markets | ||||||||||
(U.S. $ in millions) | ||||||||||||
Revenues | $ | 1,989 | $ | 1,214 | $ | 490 | ||||||
Gross profit | 1,074 | 688 | 260 | |||||||||
R&D expenses | 160 | 66 | 18 | |||||||||
S&M expenses | 229 | 214 | 96 | |||||||||
G&A expenses | 111 | 70 | 26 | |||||||||
Other income | (3 | ) | § | (2 | ) | |||||||
Segment profit | $ | 577 | $ | 338 | $ | 122 | ||||||
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
North America profit | $ | 402 | $ | 577 | ||||
Europe profit | 381 | 338 | ||||||
International Markets profit | 179 | 122 | ||||||
Total reportable segments profit | 962 | 1,036 | ||||||
Profit of other activities | 52 | 41 | ||||||
Total segments profit | 1,013 | 1,077 | ||||||
Amounts not allocated to segments: | ||||||||
Amortization | 200 | 242 | ||||||
Other assets impairments, restructuring and other items | 128 | 137 | ||||||
Intangible asset s impairments | 149 | 79 | ||||||
Legal settlements and loss contingencies | 1,124 | 104 | ||||||
Other unallocated amounts | 127 | 82 | ||||||
Consolidated operating income (loss) | (713 | ) | 434 | |||||
Financial expenses, net | 258 | 290 | ||||||
Consolidated income (loss) before income taxes | $ | (971 | ) | $ | 144 | |||
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S.$ in millions) | ||||||||
North America segment | ||||||||
Generic products | $ | 1,088 | $ | 1,415 | ||||
COPAXONE | 476 | 797 | ||||||
BENDEKA / TREANDA | 181 | 156 | ||||||
ProAir | 130 | 121 | ||||||
QVAR | 107 | 84 | ||||||
AUSTEDO | 30 | — | ||||||
Distribution | 331 | 295 | ||||||
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S.$ in millions) | ||||||||
Europe segment | ||||||||
Generic products | $ | 997 | $ | 850 | ||||
COPAXONE | 153 | 152 | ||||||
Respiratory products | 113 | 84 | ||||||
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S.$ in millions) | ||||||||
Growth Markets segment |
| |||||||
Generic products | $ | 488 | $ | 486 | ||||
COPAXONE | 16 | 21 | ||||||
Distribution | 153 | 125 | ||||||
A significant portion2021:
North America | Three months ended March 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Generic products | $ | 899 | $ | 1,053 | ||||
AJOVY | 36 | 31 | ||||||
AUSTEDO | 154 | 146 | ||||||
BENDEKA ® /TREANDA® | 82 | 91 | ||||||
COPAXONE | 86 | 164 | ||||||
Anda | 342 | 289 | ||||||
Other | 139 | 215 | ||||||
Total | $ | 1,737 | $ | 1,989 | ||||
Europe | Three months ended March 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Generic products | $ | 876 | $ | 865 | ||||
AJOVY | 30 | 16 | ||||||
COPAXONE | 72 | 100 | ||||||
Respiratory products | 71 | 93 | ||||||
Other | 107 | 140 | ||||||
Total | $ | 1,156 | $ | 1,214 | ||||
International markets | Three months ended March 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Generic products | $ | 388 | $ | 392 | ||||
AJOVY | 6 | 1 | ||||||
COPAXONE | 10 | 12 | ||||||
Other | 88 | 85 | ||||||
Total | $ | 492 | $ | 490 | ||||
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Gain on divestitures, net of divestitures related costs(1) | $ | 93 | — | |||||
Section 8 and similar payments(2) | 99 | 75 | ||||||
Gain on sale of assets | 8 | — | ||||||
Other, net | 3 | (3 | ) | |||||
|
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| |||||
Total other income | $ | 203 | $ | 72 | ||||
|
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| |||||
March 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 276 | $ | — | $ | — | $ | 276 | ||||||||
Cash, deposits and other | 1,899 | — | — | 1,899 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 16 | — | — | 16 | ||||||||||||
Other | 6 | — | 1 | 7 | ||||||||||||
Restricted cash | 75 | — | — | 75 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 56 | — | 56 | ||||||||||||
Liability derivatives: | ||||||||||||||||
| Options and forward contracts | — | (31 | ) | — | (31 | ) | ||||||||||
Bifurcated embedded derivatives | — | — | § | 0 | ||||||||||||
Contingent consideration* | — | — | (197 | ) | (197 | ) | ||||||||||
Total | $ | 2,272 | $ | 25 | $ | (196 | ) | $ | 2,101 | |||||||
December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(U.S. $ in millions) | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money markets | $ | 220 | $ | — | $ | — | $ | 220 | ||||||||
Cash, deposits and other | 1,945 | — | — | 1,945 | ||||||||||||
Investment in securities: | ||||||||||||||||
Equity securities | 18 | — | — | 18 | ||||||||||||
Other | 6 | — | 1 | 7 | ||||||||||||
Restricted cash | 33 | — | — | 33 | ||||||||||||
Derivatives: | ||||||||||||||||
Asset derivatives—options and forward contracts | — | 30 | — | 30 | ||||||||||||
Liability derivatives: | ||||||||||||||||
| Options and forward contracts | — | (23 | ) | — | (23 | ) | ||||||||||
| Bifurcated embedded derivatives | — | — | § | 0 | ||||||||||||
Contingent consideration* | — | — | (176 | ) | (176 | ) | ||||||||||
Total | $ | 2,222 | $ | 7 | $ | (175 | ) | $ | 2,054 | |||||||
Represents an amount less than $0.5 million. |
Contingent consideration represents liabilities recorded at fair value in |
NOTE 19 – Income Taxes:
In
Level 3 measurement within the fair value hierarchy. The Company recognized the income tax effectsfair value of the Tax Cuts and Jobs Act (“TCJA”) in its audited consolidated financial statements included incontingent consideration is based on several factors, such as: the Company’s Annual Report on Form10-K for the year ended December 31, 2017, in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the TCJA was enacted into law. The guidance also provides for a measurement period of up to one yearcash flows projected from the enactment date forsuccess of unapproved product candidates; the Companyprobability 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 accountingdevelopment 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 of 100% was used in the U.S. tax law changes. As such,fair value calculation to reflect inherent regulatory and commercial risk of the Company’s financial results forcontingent
Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||
(U.S. $ in millions) | ||||||||
Fair value at the beginning of the period | $ | (175 | ) | (258 | ) | |||
Redemption of debt securities | 0 | (9 | ) | |||||
Bifurcated embedded derivatives | § | 0 | ||||||
Adjustments to provisions for contingent consideration: | ||||||||
Actavis Generics transaction | (31 | ) | (3 | ) | ||||
Eagle transaction | (2 | ) | 0 | |||||
Settlement of contingent consideration: | ||||||||
Eagle transaction | 23 | 25 | ||||||
Additional contingent consideration resulting from Novetide acquisition* | (11 | ) | 0 | |||||
Fair value at the end of the period | $ | (196 | ) | $ | (245 | ) | ||
| § | Represents an amount less than $0.5 million. |
| * | In January 2022, Teva acquired 100% ownership of Novetide Ltd. (“Novetide”), which was previously accounted for as “investment in associated companies”. This transaction was accounted for as a business combination. Total consideration for the transaction included cash and certain contingent royalty payments through 2034. As part of the transaction, Teva recognized a gain under “Share in (profits) losses of associated companies, net”, reflecting the difference between the book value of its investment in Novetide and its fair value as of the date Teva completed its acquisition. |
The statutory Israeli corporate tax rate is 23% in 2018. Our tax rate differs from the Israeli statutory tax rate, mainly due to the mix of profits generated in various jurisdictions where tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.
fair value (level 1 inputs):
Estimated fair value* | ||||||||
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
Senior notes and sustainability-linked senior notes included under senior notes and loans | $ | 19,858 | $ | 21,477 | ||||
Senior notes and convertible senior debentures included under short-term debt | 2,067 | 1,426 | ||||||
Total | $ | 21,925 | $ | 22,903 | ||||
| * | The fair value was estimated based on quoted market prices. |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In November 2017, we announced a new organizational structure and leadership changes to enable strategic alignment across our portfolios, regions and functions.
services and an
Highlights
Significant highlights of the first quarter of 20182022 included:
Transactions
On January 31, 2018, we completed the sale of a portfolio of products to CVC Capital Partners Fund VI for $703other assets, partially offset by $157 million in cash. The portfoliocash used for capital investment and $7 million in cash used for acquisition of products, which is marketed and sold outsidebusinesses, net of cash acquired. During the United States, includes the women’s health products OVALEAP®, ZOELY®, SEASONIQUE®, COLPOTROPHINE® and other specialty products such as ACTONEL®.
In April 2018,first quarter of 2021, we signed a separation agreement with P&G to terminate the PGT Healthcare partnership that the two companies established in 2011 to market OTC medicines. We will continue to maintain our OTC business on an independent basis. The separation is planned to become effective July 1, 2018, subject to receiptgenerated free cash flow of applicable regulatory approvals. As part$59 million.
The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements.
| Percentage of Net Revenues | Percentage Change 2018 - 2017 | |||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2018 | 2017 | |||||||||||
| % | % | % | ||||||||||
Net revenues | 100.0 | 100.0 | (10 | ) | ||||||||
Gross profit | 46.4 | 50.2 | (17 | ) | ||||||||
Research and development expenses | 6.3 | 7.6 | (27 | ) | ||||||||
Selling and marketing expenses | 15.2 | 17.0 | (20 | ) | ||||||||
General and administrative expenses | 6.5 | 6.5 | (10 | ) | ||||||||
Other asset impairments, restructuring and other items | 14.0 | 4.2 | 195 | |||||||||
Goodwill impairment | 3.6 | — | § | |||||||||
Legal settlements and loss contingencies | (25.2 | ) | 0.4 | — | ||||||||
Other income | (4.0 | ) | (1.3 | ) | 182 | |||||||
Operating income | 30.0 | 15.8 | 70 | |||||||||
Financial expenses, net | 5.4 | 3.7 | 31 | |||||||||
Income before income taxes | 24.6 | 12.1 | 82 | |||||||||
Income taxes (benefit) | 0.9 | 1.0 | (15 | ) | ||||||||
Share in (profits) losses of associated companies, net | 1.4 | (0.1 | ) | — | ||||||||
Net income attributable tonon-controlling interests | 0.3 | (0.1 | ) | — | ||||||||
Net income attributable to Teva | 22.0 | 11.3 | 74 | |||||||||
Dividends on preferred shares | 1.3 | 1.2 | § | |||||||||
Net income attributable to ordinary shareholders | 20.7 | 10.1 | 82 | |||||||||
2021
| Three months ended March 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (U.S.$ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 2,531 | 100 | % | $ | 3,240 | 100 | % | ||||||||
Gross profit | 1,432 | 57 | % | 2,080 | 64 | % | ||||||||||
R&D expenses | 188 | 8 | % | 267 | 8 | % | ||||||||||
S&M expenses | 305 | 12 | % | 441 | 14 | % | ||||||||||
G&A expenses | 126 | 5 | % | 139 | 4 | % | ||||||||||
Other income | (102 | ) | (4 | %) | (73 | ) | (2 | %) | ||||||||
|
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| |||||||
Segment profit* | $ | 915 | 36 | % | $ | 1,306 | 40 | % | ||||||||
|
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Three months ended March 31, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 1,737 | 100 | % | $ | 1,989 | 100 | % | ||||||||
Gross profit | 890 | 51.2 | % | 1,074 | 54.0 | % | ||||||||||
R&D expenses | 143 | 8.2 | % | 160 | 8.0 | % | ||||||||||
S&M expenses | 245 | 14.1 | % | 229 | 11.5 | % | ||||||||||
G&A expenses | 112 | 6.4 | % | 111 | 5.6 | % | ||||||||||
Other income | (11 | ) | (0.7 | %) | (3 | ) | § | |||||||||
Segment profit* | $ | 402 | 23.1 | % | $ | 577 | 29.0 | % | ||||||||
| * | Segment profit does not include amortization and certain other items. |
Anda. Generic products COPAXONE BENDEKA / TREANDA ProAir QVAR AUSTEDO Distribution 2021: Truxima§ 20182022 were $2.5 billion,$1,737 million, a decrease of $709$251 million, or 22%13%, compared to the first quarter of 2017,2021, mainly due to adverse market dynamicsa decrease in the U.S. generics market, a decline in COPAXONE revenues due to generic competition and the loss of revenues from the sale of our women’s health business,generic products and COPAXONE, partially offset by higher revenues from AUSTEDO, BENDEKA and TREANDA, QVAR and our distribution business.Revenues in the United States, our largest market, were $2.4 billion in the first quarter of 2018, a decrease of $719 million, or 23%, compared to the first quarter of 2017.20182022 and 2017: Three months ended
March 31, Percentage
Change 2018 2017 2017-2018 (U.S.$ in millions) $ 1,088 $ 1,415 (23 %) 476 797 (40 %) 181 156 16 % 130 121 7 % 107 84 27 % 30 — N/A 331 295 12 % $ 899 $ 1,053 (15 %) 36 31 16 % 154 146 6 % 82 91 (10 %) 86 164 (48 %) 342 289 18 % 139 215 (35 %) $ 1,737 $ 1,989 (13 %) 2018 decreased by 23% to $1.1 billion,2022 were $899 million, a decrease of 15% compared to the first quarter of 2017,2021, mainly due to increased competition on key products and lower volumes, partially offset by higher revenues from lenalidomide capsules (the generic version of Revlimidcontinued price erosion.20182022 were methylphenidate extended-release tablets (ConcertaTruxima authorized generic)sildenafil citrate tabletslenalidomide capsules (the generic version of RevlimidViagraEpiPen), daptomycin injection (the generic equivalent of Cubicin), amphetamine salt tablets (the generic equivalent of Adderall IR®estradiol vaginal cream (the generic equivalentalbuterol sulfate inhalation aerosol (our ProAir
COPAXONE
Revenues of COPAXONE in our North America segment were 74% of global COPAXONE revenues in the first quarter of 2018, compared to 82% in the first quarter of 2017.
COPAXONE global sales accounted for approximately 13% of our global revenues in the first quarter of 2018 and a significantly higher percentagedecrease in glatiramer acetate market share due to availability 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. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved in the European Union.
COPAXONE 40 mg/mL is protected by five U.S. Orange Book patents that expire in 2030. These patents have been challenged in proceedings in the United States. We are appealing certain adverse U.S. District Court, Patent Trial and Appeal Board decisions to defend these patents in the United States. At least one competitor has fully launched its generic version of COPAXONE 40 mg/mL. This launch, prior to final resolution of the pending patent litigation, should be considered an “at-risk” launch, which means that if the pending litigation is resolved in our favor, the company selling this generic product could face significant damages claims and other potential remedies. COPAXONE 40 mg/mL is also protected by one European patent expiring in 2030. This patent is being challenged in Italy and Norway and has been opposed at the European Patent Office. The U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected.
alternative therapies.
BENDEKAand TREANDA combined antibodies, such as Ocrevus
ProAir revenues in our North America segment in the first quarter of 2018 increased by 7% to $130 million, compared to the first quarter of 2017, mainly due to higher volumes. ProAir is the second-largest short-acting beta-agonist in the market, with an exit market share of 46.1% in terms of total number of prescriptions during the first quarter of 2018, compared to 47.7% in the first quarter of 2017.
QVARrevenues in our North America segment in the first quarter of 2018 increased by 27% to $107 million, compared to the first quarter of 2017. We launched QVAR® RediHaler™ in the first quarter of 2018. The increase in sales in the first quarter of 2018 was mainly due to slightly higher wholesaler stocking for all QVAR family products in connection with the launch. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of 29.4% in terms of total number of prescriptions during the first quarter of 2018, compared to 38.1% in the first quarter of 2017.
AUSTEDOrevenues in our North America segment in the first quarter of 2018 were $30 million. 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.
Distribution revenues in our North America segment, which are generated by Anda, increased by 12% to $331$289 million in the first quarter of 2018, compared to the first quarter of 2017,2021, mainly due to the severe cold, cough and influenza seasonhigher demand for COVID-related products. Anda, our distribution business in the first quarter of 2018, which increased demand for certain medicines. Our Anda businessUnited States, distributes generic, specialty and OTC pharmaceutical products from various third party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the secondary distribution market by maintaining high inventory levels for a broad offering of products, competitive pricing and offering next day delivery throughout the United States and competitive pricing.
States.
Product Name | Brand Name | Launch | Total Annual U.S. Branded Sales at Time of Launch (U.S.$ in millions (IQVIA))* | |||||
Estradiol Vaginal Cream, USP, 0.01% | Estrace® | January | $ | 304 | ||||
Methylphenidate Hydrochloride Extended-Release Capsules (LA), CII 20 mg, 30 mg & 40 mg | Ritalin LA® ER | January | $ | 97 | ||||
Busulfan Injection 6 mg/mL, 60 mg | Busulfex® | January | $ | 86 | ||||
Trientine Hydrochloride Capsules, USP 250 mg | Syprine® | February | $ | 147 | ||||
Hydrocortisone Butyrate Cream USP, 0.1% (Lipophilic) | Locoid Lipocream® | February | $ | 6 | ||||
Minocycline Hydrochloride Extended-Release Tablets, USP 65 mg & 115 mg | Solodyn® ER | February | $ | 148 | ||||
Lansoprazole Delayed-Release Orally Disintegrating Tablets 15 mg & 30 mg | Prevacid® SoluTab™ DR ODT | March | $ | 184 | ||||
Tiagabine Hydrochloride Tablets 12 mg & 16 mg ** | Gabitril® | March | $ | 9 | ||||
Palonosetron Hydrochloride Injection 0.05 mg/mL, 0.25 mg | Aloxi® | March | $ | 452 | ||||
Mesalamine Delayed-Release Tablets, USP 1.2 g | Lialda® DR | March | $ | 1,128 | ||||
Product Name | Brand Name | Launch Date | Total Annual U.S. Branded Sales (U.S. $ in millions (IQVIA)) * | |||||
Fluticasone Propionate and Salmeterol Inhalation Powder, USP | Advair Diskus ® | March | $ | 2,940 | ||||
Lenalidomide Capsules, 5, 10, 15, & 25 mg | Revlimid ® capsules | March | $ | 2,143 | ||||
Diclofenac Potassium Capsules | Zipsor ® Liquid FilledCapsules | March | $ | 20 | ||||
| * | The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch. |
Generic Name Eltrombopag tablets, 12.5 mg, 25 mg & 75 mg Esomeprazole magnesium delayed-release capsules, 20 mg Ingenol mebutate gel, 0.05% Nicotine polacrilex mini mint lozenges, 2 mg & 4 mg Perampanel tablets, 2 mg, 4 mg, 6 mg, 8 mg & 10 mg Rotigotine transdermal system, 1 mg/24 hr, 2 mg/24 hr, 3 mg/24 hr, 4 mg/24 hr, 6 mg/24 hr & 8 mg/24 hr Ticagrelor tablets, 60 mg & 90 mg Brand Name Total U.S. Annual Branded
Market (U.S. $ in millions (IQVIA))* Promacta® $ 200 Nexium® DR $ 85 Picato® $ 17 Nicorette® $ 68 Fycompa® $ 68 Neupro® $ 143 Brilinta® $ 712
Generic Name | Brand Name | Total Annual U.S. Branded Sales (U.S. $ in millions (IQVIA)) * | ||||
Midostaurin Capsules, 25 mg | Rydapt ® | $ | 88 | |||
Riociguat Tablets | Adempas ® | $ | 12 | |||
Gefitinib Tablets, 250 mg | Iressa ® | $ | 6 | |||
| * | The figures presented are for the twelve months ended in the calendar quarter immediately prior to re-launch. |
In the first quarter
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see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
and lower gross profit from COPAXONE.
and COPAXONE.
2021.
direct to consumer promotional expenses related to AUSTEDO.
North America Other Income
Other income from our North America segment in the first quarter of 2018 was $102 million, an increase of 40% compared to $73 million in the first quarter of 2017. The increase was mainly due to higher Section 8 recoveries from multiple cases in Canada. Section 8 of the Patented Medicines (Notice of Compliance) Regulations relates to recoveries of lost revenue related to patent infringement proceedings.
2021.
discussed above.
| Three months ended March 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (U.S.$ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 1,442 | 100 | % | $ | 1,341 | 100 | % | ||||||||
Gross profit | 797 | 55 | % | 734 | 55 | % | ||||||||||
R&D expenses | 73 | 5 | % | 106 | 8 | % | ||||||||||
S&M expenses | 255 | 18 | % | 279 | 21 | % | ||||||||||
G&A expenses | 91 | 6 | % | 79 | 6 | % | ||||||||||
Other expenses | 1 | § | 2 | § | ||||||||||||
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Segment profit* | $ | 377 | 26 | % | 268 | 20 | % | |||||||||
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2021:
Three months ended March 31, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 1,156 | 100 | % | $ | 1,214 | 100 | % | ||||||||
Gross profit | 694 | 60.0 | % | 688 | 56.6 | % | ||||||||||
R&D expenses | 58 | 5.0 | % | 66 | 5.4 | % | ||||||||||
S&M expenses | 196 | 17.0 | % | 214 | 17.7 | % | ||||||||||
G&A expenses | 59 | 5.1 | % | 70 | 5.8 | % | ||||||||||
Other income | § | § | § | § | ||||||||||||
Segment profit* | $ | 381 | 32.9 | % | $ | 338 | 27.8 | % | ||||||||
* Segment profit does not include amortization and certain other items. § Represents an amount less than $0.5 million or 0.5%, as applicable. | ||||||||||||||||
exchange rate fluctuations of $67 million, net of hedging effects.
| Three months ended | Percentage | |||||||||||
| March 31, | Change | |||||||||||
| 2018 | 2017 | 2017-2018 | ||||||||||
| (U.S.$ in millions) | ||||||||||||
Generic products | $ | 997 | $ | 850 | 17 | % | ||||||
COPAXONE | 153 | 152 | 1 | % | ||||||||
Respiratory products | 113 | 84 | 35 | % | ||||||||
2021:
Three months ended March 31, | Percentage Change | |||||||||||
2022 | 2021 | 2022-2021 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 876 | $ | 865 | 1 | % | ||||||
AJOVY | 30 | 16 | 94 | % | ||||||||
COPAXONE | 72 | 100 | (29 | %) | ||||||||
Respiratory products | 71 | 93 | (24 | %) | ||||||||
Other | 107 | 140 | (24 | %) | ||||||||
Total | $ | 1,156 | $ | 1,214 | (5 | %) | ||||||
COPAXONEresponse to the
Revenues of COPAXONE in our Europe segment were 24% of global COPAXONE revenues$16 million in the first quarter of 2018, compared2021, mainly due to 16%growth in the first quarter of 2017.
European countries in which AJOVY had previously been launched, as well as launches and reimbursements in additional European countries.
Respiratory products
price reductions.
markets.
Development (R&D) Expenses” below.
2021.
write-offs.
2021.
2022.
2021.
The profit of
Growthdiscussed above.
| Three months ended March 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (U.S.$ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 750 | 100 | % | $ | 718 | 100 | % | ||||||||
Gross profit | 313 | 42 | % | 292 | 41 | % | ||||||||||
R&D expenses | 24 | 4 | % | 47 | 7 | % | ||||||||||
S&M expenses | 134 | 18 | % | 158 | 22 | % | ||||||||||
G&A expenses | 41 | 5 | % | 48 | 7 | % | ||||||||||
Other income | (8 | ) | (1 | %) | (1 | ) | § | |||||||||
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Segment profit* | $ | 122 | 16 | % | $ | 40 | 6 | % | ||||||||
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2022 | 2021 | |||||||||||||||
(U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
Revenues | $ | 492 | 100 | % | $ | 490 | 100 | % | ||||||||
Gross profit | 286 | 58.1 | % | 260 | 53.0 | % | ||||||||||
R&D expenses | 20 | 4.0 | % | 18 | 3.6 | % | ||||||||||
S&M expenses | 97 | 19.8 | % | 96 | 19.6 | % | ||||||||||
G&A expenses | 29 | 5.9 | % | 26 | 5.3 | % | ||||||||||
Other income | (40 | ) | (8.1 | %) | (2 | ) | § | |||||||||
Segment profit* | $ | 179 | 36.4 | % | $ | 122 | 24.9 | % | ||||||||
| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
Growth
During the first quarter of 2022, the impact of this conflict on our International Markets segment results of operations and financial condition was immaterial. Consistent with our foreign exchange risk management hedging programs, we enter into hedges to hedge our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. In the first quarter of 2022, prior to escalation of the conflict, we took measures to reduce our operational cash balances in Russia and Ukraine and we are monitoring the solvency of our customers in Russia and Ukraine and taking measures, where practicable, to mitigate our exposure to risks related to the conflict in the region. However, the duration, severity and global implications (including potential inflation and devaluation consequences) of the conflict cannot be predicted at this time and could have an effect on our business, including on our exchange rate exposure, supply chain, operational costs and commercial presence in these markets.
on customer stocking and purchasing patterns.
| Three months ended | Percentage | |||||||||||
| March 31, | Change | |||||||||||
| 2018 | 2017 | 2017-2018 | ||||||||||
| (U.S.$ in millions) | ||||||||||||
Generic products | $ | 488 | $ | 486 | § | |||||||
COPAXONE | 16 | 21 | (24 | %) | ||||||||
Distribution | 153 | 125 | 22 | % | ||||||||
Three months ended March 31, | Percentage Change | |||||||||||
2022 | 2021 | 2022-2021 | ||||||||||
(U.S. $ in millions) | ||||||||||||
Generic products | $ | 388 | $ | 392 | (1 | %) | ||||||
AJOVY | 6 | 1 | 315 | % | ||||||||
COPAXONE | 10 | 12 | (11 | %) | ||||||||
Other | 88 | 85 | 4 | % | ||||||||
Total | $ | 492 | $ | 490 | § | |||||||
| § | Represents an amount less than 0.5%. |
GrowthInternational Markets segment in the first quarter of 2018,2022, which include OTC products, were flat compared to the first quarter of 2017.decreased by 1% in U.S. dollars. In local currency terms, revenues decreasedincreased by 3%, mainly due9% to the effect of the deconsolidation of our subsidiaries in Venezuela.COPAXONE revenues in our Growth Markets segment in the first quarter of 2018 decreased by 24% to $16$388 million, compared to the first quarter of 2017. In local currency terms, revenues decreased by 20%.For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.Distribution revenues in our Growth Markets segment in the first quarter of 2018 increased by 22% to $153 million, compared to the first quarter of 2017. In local currency terms, revenues increased by 13%.Growth Markets Gross ProfitGross profit from our Growth Markets segment in the first quarter of 2018 was $313 million, an increase of 7% compared to $292 million in the first quarter of 2017. The2021. This increase was mainly due to higher revenues in Japan, including a milestone payment from Takeda following approval of AZILECT®, and higher revenues in Israel,certain markets, partially offset by the deconsolidation of our subsidiarieslower sales in Venezuela and the loss of revenuesJapan resulting from the saledivestment mentioned above, as well as regulatory price reductions and generic competition to
Gross profit margin forInternational Markets segment, including in Japan in August 2021. We are moving forward with plans to launch AJOVY in other markets. AJOVY revenues in our GrowthInternational Markets segment in the first quarter of 2018 increased2022 were $6 million, compared to 41.7%, from 40.7%$1 million in the first quarter of 2017. This increase was mainly due to higher gross profit2021.
Growth Markets R&D Expenses
R&D expenses relating to our GrowthInternational Markets segment in the first quarter of 20182022 were $24$10 million a decrease of 49% compared to $47$12 million in the first quarter of 2017.
2021.
Growth
Growth2021.
Growthsettlement proceeds.
The profit of
During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results after concluding that we did not meet the accounting criteria for control over our wholly-owned subsidiaries in Venezuela and that we no longer had significant influence over such subsidiaries. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the first quarter of 2018. We recorded $21 million in revenues and $3 million in operating income in the first quarter of 2017 with respect to our subsidiaries in Venezuela. We exclude these changes in revenues and operating profit in Venezuela from any discussion of local currency results.
mentioned above.
were flat.
2021.
2021. See note 8d to our consolidated financial statements.
Gross profit as a percentage of revenues was 46.4% in the first quarter of 2018, compared to 50.2% in the first quarter of 2017.
2021. The decreaseincrease in gross profit margin was mainly driven by our network consolidation activities, as well as a percentage of revenues was mainly due to lower profitabilitychange in North America (5.1 points), the sale ofproduct portfolio mix in our women’s health business (0.9 points) and higher accelerated depreciation (0.4 points),International Markets segment, partially offset by inventorystep-up expenses (1.3 points), higher profitabilitythe unfavorable mix of generic products in Europe (0.9 points)our North America segment and remediation expenses (0.7 points).
lower revenues from COPAXONE.
Net R&D expenses in the first quarter of 2018 were $317 million, a decrease of 27% compared to the first quarter of 2017.
areas, as well as generic products including biosimilars.
neuroscience (in the pain and migraine and headache therapeutic areas), as well as various generics projects.
2021.
Phase 2 | Phase 3 | Pre-Submission | Under Regulatory Review | |||||
Novel Biologics | TEV-48574 Inflammatory Bowel Disease | Fasinumab Osteoarthritic Pain (March 2016) (1) | ||||||
Small Molecules | Deutetrabenazine Dyskinesia in Cerebral Palsy (September 2019) | Risperidone LAI Schizophrenia (2) | ||||||
Digital Respiratory | Digihaler ® (budesonide and formoterol fumarate dihydrate) (EU) | |||||||
QVAR ® Digihaler ® (beclomethasone dipropionate HFA)(U.S.) | ||||||||
| (1) | Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). Results for two phase 3 clinical trials, FACT OA1 and FACT OA2, were released on August 5, 2020, indicating that the co-primary endpoints for fasinumab 1 mg monthly were achieved. Fasinumab 1 mg monthly demonstrated significant improvements in pain and physical function over placebo at week 16 and week 24, respectively. Fasinumab 1 mg monthly also showed nominally significant benefits in physical function in two trials and pain in one trial, when compared to the maximumFDA-approved prescription doses ofnon-steroidal anti-inflammatory drugs for osteoarthritis. The FACT OA1 trial included an additional treatment arm, fasinumab 1 mg every two months, which showed numerical benefit over placebo, but did not reach statistical significance. In initial safety analyses from the phase 3 trials, there was an increase in arthropathies reported with fasinumab. In asub-group of patients from one phase 3 long-term safety trial, there was an increase in joint replacement with fasinumab 1 mg monthly treatment during theoff-drug follow-up period, although this increase was not seen in the other trials to date. |
| (2) | Developed under a license agreement with MedinCell. In August 2021, the FDA accepted the NDA for risperidone LAI, based on phase 3 data from two pivotal studies. In April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for risperidone LAI. We are reviewing our next steps based on the CRL and will work closely with the FDA to address their recommendations. |
Expenses”.
2021.
2021.
2021.
Impairments
Restructuring
Since announcing our restructuring plan, we reduced our global headcount by approximately 6,200 full-time-equivalent employees.
Goodwill Impairment
In the first quarter of 2018, we recorded a goodwill impairment of $180 million. This impairment was driven by the change in fair value, including the discount rate and the change in allocated net assets to the Rimsa reporting unit.2021. See note 79 to our consolidated financial statements.
Legal Settlements and Loss Contingencies
In the first quarter of 2018, we recorded income of $1.3 billion, compared to an expense of $20 million in the first quarter of 2017. The income in the first quarter of 2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa settlement and a reversal of the reserve recorded in the second quarter of 2017 with respect to the carvedilol patent litigation, following the reversal of the verdict granting the award to GSK (see note 16 to our consolidated financial statements).
Otheroperating income as a percentage of revenues was 4.0%of 10.9% in the first quarter of 2018, compared to 1.3%2021. Operating loss in the first quarter of 2017.
Operating Income
Operating income2022 was $1.5 billion in the first quarter of 2018, compared to $895mainly affected by legal settlements and loss contingencies.
The increase2022, compared to $290 million in operating income was mainly due to income from legal settlements and loss contingencies, higher operating income in our Europe and Growth Markets segments and net gain from the sale of our women’s health business during the first quarter of 2018, partially offset by higher other asset impairments, restructuring2021. Financial expenses in the first quarter of 2022 were mainly comprised of interest expenses of $238 million. Financial expenses in the first quarter of 2021 were mainly comprised of interest expenses of $239 million and other items, a goodwill impairment and lower operating income in our North America segment.
loss on revaluations of marketable securities of $64 million.
| Three months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S.$ in millions) | ||||||||
North America profit | $ | 915 | $ | 1,306 | ||||
Europe profit | 377 | 268 | ||||||
Growth Markets profit | 122 | 40 | ||||||
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Total segment profit | 1,414 | 1,614 | ||||||
Profit of other activities | 21 | 7 | ||||||
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| 1,435 | 1,621 | |||||||
Amounts not allocated to segments: | ||||||||
Amortization | 310 | 320 | ||||||
Other asset impairments, restructuring and other items | 707 | 240 | ||||||
Goodwill impairment | 180 | — | ||||||
Gain on divestitures, net of divestitures related costs | (93 | ) | — | |||||
Inventorystep-up | — | 64 | ||||||
Other R&D expenses | 22 | — | ||||||
Costs related to regulatory actions taken in facilities | 1 | 34 | ||||||
Legal settlements and loss contingencies | (1,278 | ) | 20 | |||||
Other unallocated amounts | 61 | 48 | ||||||
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Consolidated operating income | 1,525 | 895 | ||||||
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Financial expenses - net | 271 | 207 | ||||||
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Consolidated income before income taxes | $ | 1,254 | $ | 688 | ||||
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The increase in operating margin was 14.2 points, mainly due to legal settlements and loss contingencies (25.6 points), higher profits in our Europe (2.7 points) and Growth Markets (1.7 points) segments and the sale of our women’s health business (1.8 points), partially offset by higher other asset impairments, restructuring and other items (9.7 points), goodwill impairment (3.6 points) and lower profit in our North America segment (5.1 points).
During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the first quarter of 2018.
Financial Expenses, Net
Financial expenses were $271 million in the first quarter of 2018, compared to $207 million in the first quarter of 2017. The increase was mainly due to $60 million of early redemption charges and accelerated amortization of issuance costs related to the repayment of senior notes and term loans, partially offset by a $29 million gain derived from net foreign exchange losses and financial derivatives during the first quarter of 2018, compared to a $36 million gain from the sale of Mylan shares during the first quarter of 2017.
2021:
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
(U.S. $ in millions) | ||||||||
North America profit | $ | 402 | $ | 577 | ||||
Europe profit | 381 | 338 | ||||||
International Markets profit | 179 | 122 | ||||||
Total reportable segments profit | 962 | 1,036 | ||||||
Profit of other activities | 52 | 41 | ||||||
Total segments profit | 1,013 | 1,077 | ||||||
Amounts not allocated to segments: | ||||||||
Amortization | 200 | 242 | ||||||
Other assets impairments, restructuring and other items | 128 | 137 | ||||||
Intangible assets impairments | 149 | 79 | ||||||
Legal settlements and loss contingencies | 1,124 | 104 | ||||||
Other unallocated amounts | 127 | 82 | ||||||
Consolidated operating income (loss) | (713 | ) | 434 | |||||
Financial expenses, net | 258 | 290 | ||||||
Consolidated income (loss) before income taxes | $ | (971 | ) | $ | 144 | |||
The statutory Israeli corporate tax rate is 23% in 2018. Our tax rate differs from the Israeli statutory tax rate mainly dueinterest expense disallowances. See note 11 to the mix of profits generated in various jurisdictions where tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.
In future years, our effective tax rate is expected to increase following the enactment of the Tax Cuts and Jobs Act in the United States.
consolidated financial statements.
January 2022.
Net income attributable (Loss) Attributable to Teva
Net income attributable to ordinary shareholders was $1.1 billion in the first quarter of 2018,2022, compared to $580net income of $77 million in the first quarter of 2017. The difference from net income attributable to Teva is due to the aforementioned factors.
2021.
shares.
Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 64 million (including shares that may be issued due to unpaid dividends to date) for the three months ended March 31, 2018 and 59 million for the three months ended March 31, 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on earnings per share.
Diluted earnings per share were $1.03$0.86 in the first quarter of 2018,2022, compared to $0.57diluted earnings per share of $0.07 in the first quarter of 2017.
2021. See note 13 to our consolidated financial statements.
consolidated financial statements.
Trade receivables as of March 31, 2018, net of sales reserves and allowances (“SR&A”), were negative $1.1 billion, compared to negative $0.8 billion as of December 31, 2017, mainly due to the decrease in sales in the first quarter of 2018, compared with the fourth quarter of 2017.
As of March 31, 2018, we do not present any material assets held for sale following the completion of the sale of our woman’s health business. As of December 31, 2017, we presented net assets held for sale in the amount of $0.6 billion.
Accrued expenses as of March 31, 2018 were $2.6 billion, compared to $3.0 billion as of December 31, 2017. The decrease was mainly due to $0.4 billion in connection with legal settlements.
2021.
Investment2021. This decrease was mainly due to an update to the estimated settlement provision recorded in connection with the remaining opioid cases, offset by an increase in inventory levels and accounts receivables net of SR&A.
2021.
2021.
2018 Debt Balancetwo sustainability performance targets, (i) the company’s S&P ESG Score and Movements
(ii) number of new regulatory submissions in low and middle-income countries. The RCF margin may increase or decrease depending on the Company’s sustainability performance.
In January 2018 we prepaid in full $15 million of our U.S. dollar debentures.
During the first quarter of 2018, we prepaid in full $2.3 billion of our3-year and5-year U.S. dollar term loans, as well as JPY 156.8 billion of our term loans.
In March 2018, we completed debt issuances for an aggregate principal amount of $4.4 billion, consisting of senior notes with aggregate principal amounts of $2.5 billion and €1.6 billion with maturities ranging from four to ten years. The effective average interest rate of the notes issued is 5.3% per annum. See note 11 to our consolidated financial statements.
In March 2018, we redeemed in full our $1.5 billion 1.4% senior notes due in July 2018 and our Euro 1.0 billion 2.875% senior notes due in April 2019.
2021.
2021.
2021.
Cash flow generated from operating activities in the first quarter of 2018,2022 was mainly due to changes in working capital items resulting from a decrease in accounts receivables net of SR&A in connection with the decrease in revenues.
accounts receivables and $138 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $150 million in cash used for capital investment. The increase in the first quarter of 2022 resulted mainly from lower cash flow used in operating activities, partially offset by lower sales of assets.
In December 2017, we announced an immediate suspension of
We have suspended cash dividends on our mandatory convertible preferred shares in the first quarter of 2018 due to our accumulated deficit.
since December 2017.
Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone
In September 2017, we entered into a partnership agreement with Nuvelutionmultiple long-acting injectable products. The lead product candidate selected was risperidone LAI
Dividends on our mandatory convertible preferred shares (aggregate liquidation preference of approximately $3.7 billion) are payable on a cumulative basis when, as and if declared by our Board of Directors at an annual rate of 7%risperidone LAI. Teva is reviewing its next steps based on the liquidation preference of $1,000 per mandatory convertible preferred share. Declared dividends are paid in cash on March 15, June 15, September 15CRL and December 15 of each yearwill work closely with the FDA to and including December 15, 2018. We have suspended cash dividend payments on our mandatory convertible preferred shares.
address their recommendations.
Our principal sources of short-term liquidity are our existing cash investments, liquid securities and available credit facilities, primarily our $3 billion syndicated revolving credit facility (“RCF”), which was not utilized as of March 31, 2018, as well as internally generated funds.
Pursuant to the requirements of the RCF, we have entered into negative pledge agreements with certain banks and institutional investors. Under the agreements, we and certain subsidiaries have undertaken not to register floating charges on assets in favor of any third parties without the prior consent of the banks, to maintain certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time, and to fulfill other restrictions, as stipulated by the agreements. As of March 31, 2018, we did not have any outstanding debt under the RCF, which is our only debt subject to the net debt to EBITDA covenant. Assuming utilization of the RCF and under specified circumstances, includingnon-compliance with such covenants and the unavailability of any waiver, amendment or other modification thereto and the expiration of any applicable grace period thereto, substantially all of our other debt could be negatively impacted bynon-compliance with such covenants. We have sufficient resources to meet our financial obligations in the ordinary course of business for at least twelve months from the date of the release of this Quarterly Report.
2018
In the first quarter of 2018, we repaid debt in a total amount of approximately $6.5 billion and raised new debt in a total amount of approximately $4.4 billion. As of March 31, 2018, the total debt on the balance sheet is approximately $30.8 billion. See note 11 to our consolidated financial statements.
2021.
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (U.S. $ in millions) | ||||||||
Gain on divestitures, net of divestitures related costs | (93 | ) | — | |||||
Amortization of purchased intangible assets | 310 | 320 | ||||||
Restructuring expenses | 247 | 130 | ||||||
Inventorystep-up | — | 64 | ||||||
Capital loss from currency translation | — | 52 | ||||||
Equity compensation expenses | 30 | 36 | ||||||
Costs related to regulatory actions taken in facilities | 1 | 34 | ||||||
Acquisition, integration and related expenses | 2 | 23 | ||||||
Other R&D expenses | 22 | — | ||||||
Contingent consideration | 8 | 21 | ||||||
Legal settlements and loss contingencies | (1,278 | ) | 20 | |||||
Goodwill impairment | 180 | — | ||||||
Impairment of long-lived assets | 432 | 11 | ||||||
Othernon-GAAP items | 49 | 15 | ||||||
Financial expense (income) | 68 | (28 | ) | |||||
Minority interest | (8 | ) | (13 | ) | ||||
Impairments of equity investments | 94 | — | ||||||
Tax effect | (165 | ) | (186 | ) | ||||
The data so presented — after these exclusions — are the results used by management and our board
| Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||||||||||||||||||||
| U.S. dollars and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||
| GAAP | Non-GAAP Adjustments | Dividends on Preferred Shares | Non-GAAP | % of Net Revenues | GAAP | Non-GAAP Adjustments | Dividends on Preferred Shares | Non-GAAP | % of Net Revenues | |||||||||||||||||||||||||||||||||
| Gross profit (1) | 2,348 | 303 | 2,651 | 52 | % | 2,839 | 377 | 3,216 | 57 | % | ||||||||||||||||||||||||||||||||
| Operating income (loss) (1)(2) | 1,525 | (90 | ) | 1,435 | 28 | % | 895 | 726 | 1,621 | 29 | % | |||||||||||||||||||||||||||||||
| Net income attributable to ordinary shareholders (1)(2)(3)(4) | 1,055 | (101 | ) | 954 | 19 | % | 580 | 499 | 1,079 | 19 | % | |||||||||||||||||||||||||||||||
| Earnings per share attributable to ordinary shareholders - diluted | 1.03 | (0.09 | ) | 0.94 | 0.57 | 0.49 | 1.06 | |||||||||||||||||||||||||||||||||||
(1) | Amortization of purchased intangible assets | 264 | 267 | |||||||||||||||||||||||||||||||||||||||
| Inventorystep-up | — | 64 | ||||||||||||||||||||||||||||||||||||||||
| Costs related to regulatory actions taken in facilities | 1 | 34 | ||||||||||||||||||||||||||||||||||||||||
| Equity compensation expenses | �� | 6 | 5 | |||||||||||||||||||||||||||||||||||||||
| Other COGS related adjustments | 32 | 7 | ||||||||||||||||||||||||||||||||||||||||
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| Gross profit adjustments | 303 | 377 | ||||||||||||||||||||||||||||||||||||||||
(2) | Gain on divestitures, net of divestitures related costs | (93 | ) | — | ||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | 180 | — | ||||||||||||||||||||||||||||||||||||||||
| Restructuring expenses | 247 | 130 | ||||||||||||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | 46 | 53 | ||||||||||||||||||||||||||||||||||||||||
| Capital loss on currency translation | — | 52 | ||||||||||||||||||||||||||||||||||||||||
| Equity compensation expenses | 24 | 31 | ||||||||||||||||||||||||||||||||||||||||
| Acquisition, Integration and related expenses | 2 | 23 | ||||||||||||||||||||||||||||||||||||||||
| Other R&D expenses | 22 | — | ||||||||||||||||||||||||||||||||||||||||
| Contingent consideration | 8 | 21 | ||||||||||||||||||||||||||||||||||||||||
| Legal settlements and loss contingencies | (1,278 | ) | 20 | |||||||||||||||||||||||||||||||||||||||
| Impairment of long-lived assets | 432 | 11 | ||||||||||||||||||||||||||||||||||||||||
| Other operating related adjustments | 17 | 8 | ||||||||||||||||||||||||||||||||||||||||
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| (393 | ) | 349 | ||||||||||||||||||||||||||||||||||||||||
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| Operating income adjustments | (90 | ) | 726 | |||||||||||||||||||||||||||||||||||||||
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(3) | Financial expense (income) | 68 | (28 | ) | ||||||||||||||||||||||||||||||||||||||
| Tax effect | (165 | ) | (186 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of equity investment | 94 | — | ||||||||||||||||||||||||||||||||||||||||
| Minority interest | (8 | ) | (13 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
| Net income adjustments | (101 | ) | 499 | |||||||||||||||||||||||||||||||||||||||
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Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||
| GAAP | Excluded for non-GAAP measurement | Non-GAAP | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | Legal settlements and loss contingencies | Impairment of long lived assets | Restructuring costs | Costs related to regulatory actions taken in facilities | Equity compensation | Contingent consideration | Other non-GAAP items* | Other items | ||||||||||||||||||||||||||||||||||||
Net revenues | 3,661 | 3,661 | ||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 1,921 | 178 | 1 | 5 | 62 | 1,675 | ||||||||||||||||||||||||||||||||||||||
Gross profit | 1,740 | 178 | 1 | 5 | 62 | 1,986 | ||||||||||||||||||||||||||||||||||||||
Gross profit margin | 47.5 | % | 54.2 | % | ||||||||||||||||||||||||||||||||||||||||
R&D expenses | 225 | 4 | 221 | |||||||||||||||||||||||||||||||||||||||||
S&M expenses | 584 | 22 | 7 | 3 | 552 | |||||||||||||||||||||||||||||||||||||||
G&A expenses | 296 | 8 | 36 | 252 | ||||||||||||||||||||||||||||||||||||||||
Other income | (52 | ) | — | (52 | ) | |||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 1,124 | 1,124 | — | |||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 128 | 16 | 57 | 33 | 21 | — | ||||||||||||||||||||||||||||||||||||||
Intangible assets impairments | 149 | 149 | — | |||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | (713 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | 1,013 | |||||||||||||||||||||||||||||||||
Financial expenses, net | 258 | 11 | 247 | |||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (971 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | 11 | 766 | ||||||||||||||||||||||||||||||||
Income taxes | 2 | (140 | ) | 142 | ||||||||||||||||||||||||||||||||||||||||
Share in (profits) losses of associated companies, net | (21 | ) | (22 | ) | 1 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | (952 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | (152 | ) | 623 | |||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 3 | (11 | ) | 14 | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | (955 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | (163 | ) | 609 | |||||||||||||||||||||||||||||||
EPS - Basic | (0.86 | ) | 1.41 | 0.55 | ||||||||||||||||||||||||||||||||||||||||
EPS - Diluted | (0.86 | ) | 1.41 | 0.55 | ||||||||||||||||||||||||||||||||||||||||
Non-GAAP
| * | Other non-GAAP items include 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 certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of our plants and other unusual events. |
Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||
| GAAP | Excluded for non-GAAP measurement | Non-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 | |||||||||||||||||||||||||||||||||||||||
Net revenues | 3,982 | 3,982 | ||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | 2,104 | 215 | 5 | 6 | 41 | 1,838 | ||||||||||||||||||||||||||||||||||||||||||
Gross profit | 1,878 | 215 | 5 | 6 | 41 | 2,144 | ||||||||||||||||||||||||||||||||||||||||||
Gross profit margin | 47.2 | % | 53.8 | % | ||||||||||||||||||||||||||||||||||||||||||||
R&D expenses | 254 | 5 | 5 | 244 | ||||||||||||||||||||||||||||||||||||||||||||
S&M expenses | 585 | 27 | 9 | 549 | ||||||||||||||||||||||||||||||||||||||||||||
G&A expenses | 290 | 11 | — | 278 | ||||||||||||||||||||||||||||||||||||||||||||
Other income | (5 | ) | — | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||
Legal settlements and loss contingencies | 104 | 104 | — | |||||||||||||||||||||||||||||||||||||||||||||
Other assets impairments, restructuring and other items | 137 | 48 | 81 | 3 | 4 | — | ||||||||||||||||||||||||||||||||||||||||||
Intangible assets impairments | 79 | 79 | — | |||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 434 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | 1,077 | |||||||||||||||||||||||||||||||||||||
Financial expenses, net | 290 | 64 | 227 | |||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | 144 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | 64 | 851 | ||||||||||||||||||||||||||||||||||||
Income taxes | 62 | (85 | ) | 146 | ||||||||||||||||||||||||||||||||||||||||||||
Share in (profit) losses of associated companies – net | (3 | ) | 2 | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | 84 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | (19 | ) | 709 | |||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | 7 | (3 | ) | 10 | ||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Teva | 77 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | (22 | ) | 699 | |||||||||||||||||||||||||||||||||||
EPS - Basic | 0.07 | 0.57 | 0.64 | |||||||||||||||||||||||||||||||||||||||||||||
EPS - Diluted | 0.07 | 0.56 | 0.63 | |||||||||||||||||||||||||||||||||||||||||||||
| * | Other non-GAAP items include 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 certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of our plants and other unusual events. |
$851 million. Our
products we expect to sell this year.
The preparation
As applicablesignificant accounting policies, see note 1 to our consolidated financial statements the most significant estimates and assumptions relate to purchase price allocation on acquisitions, including determination of useful lives and contingent consideration; determining the valuation and recoverability of intangible assets and goodwill; and assessing sales reserves and allowances, uncertain tax positions, valuation allowances, contingencies, restructuring costs and inventory valuation.
Please refer to note 1 in the consolidated financial statements and critical accounting policies“Critical Accounting Policies” included in our Annual Report on Form
2021.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our outstanding debt obligations, the corresponding interest rates, currency and repayment schedules as of March 31, 2018 are set forth in the table below in U.S. dollar equivalent terms, taking into account recent changes in our debt movement:
Currency | Total Amount | Interest Rate Ranges | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 & thereafter | ||||||||||||||||||||||||||||
| (U.S. dollars in millions) | ||||||||||||||||||||||||||||||||||||
Fixed Rate: | ||||||||||||||||||||||||||||||||||||
USD | 18,433 | 1.70 | % | 6.75 | % | — | 2,000 | 700 | 3,620 | 863 | 11,250 | |||||||||||||||||||||||||
Euro | 9,914 | 0.38 | % | 3.85 | % | — | — | 2,152 | 587 | 863 | 6,312 | |||||||||||||||||||||||||
CHF | 1,521 | 0.13 | % | 1.50 | % | 786 | 367 | 368 | ||||||||||||||||||||||||||||
USD convertible debentures* | 514 | 0.25 | % | 0.25 | % | 514 | — | — | — | — | — | |||||||||||||||||||||||||
Floating Rate: | ||||||||||||||||||||||||||||||||||||
USD | 500 | 2.80 | % | 2.80 | % | — | — | — | — | — | 500 | |||||||||||||||||||||||||
JPY | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Others | 7 | 8.00 | % | 13.00 | % | 2 | — | — | — | — | 5 | |||||||||||||||||||||||||
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Total: | 30,889 | $ | 1,302 | $ | 2,000 | $ | 2,852 | $ | 4,207 | $ | 2,093 | $ | 18,435 | |||||||||||||||||||||||
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Less debt issuance costs | (137 | ) | ||||||||||||||||||||||||||||||||||
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Total: | $ | 30,752 | ||||||||||||||||||||||||||||||||||
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ITEM 4. | CONTROLS AND PROCEDURES |
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.procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and proceduresprocedures” (as defined in Rule1934)1934, as of the end of the period covered by this Quarterly Report, has concluded that, as of such date, Teva’s disclosure controls and procedures were effective to ensure that the information required in the reports that we file or submit under the Exchange Actamended, 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 ourTeva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.control. Control over Financial Reportingperiod covered by this Quarterly Report,quarter ended March 31, 2022, there were no changes in Teva’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
2022.
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 March 31, 2018.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
Not applicable.
ITEM 6. | EXHIBITS |
| * | Filed herewith. |
| TEVA PHARMACEUTICAL INDUSTRIES LIMITED | ||||||
| Date: May 3, | By: | /s/ | ||||
| Name: | Eli Kalif | |||||
| Title: | Executive Vice President, Chief Financial Officer (Duly Authorized Officer) | |||||
78