UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~

2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number

001-16174

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Exact name of registrant as specified in its charter)


~~Israel~~		~~Not Applicable~~
Israel		Not Applicable
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

5 Basel Street, Petach Tikva, ISRAEL		4951033
(Address of principal executive offices)		(Zip code)

+972 (3)

914-8171

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

~~+972(3) 914-8171~~

~~(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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

~~Non-accelerated~~ ~~filer~~	☐
Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Act). Yes

☐

☒

As of ~~October~~September 30, ~~2018,~~2019, the registrant had ~~1,018,711,443~~1,092,089,421 ordinary shares outstanding.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “ADS(s)” are to Teva’s American Depositary Share(s). References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA (formerly IMS Health Inc.), a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “Actavis Generics” are to the generic pharmaceuticals business we purchased from Allergan plc (“Allergan”) on August 2, 2016. References to “R&D” are to Research and Development, references to “IPR&D” are to

in-process

R&D, references to “S&M” are to Selling and Marketing and references to “G&A” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form

10-Q,

and the reports and documents incorporated by reference in this Quarterly Report on Form

10-Q,

may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly

from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:

•

~~our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; competition for our specialty products, especially COPAXONE~~^®, our leading medicine, which faces competition from existing and potential additional generic versions and orally-administered alternatives; competition from companies with greater resources and capabilities; efforts of pharmaceutical companies to limit the use of generics, including through legislation and regulations; consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our products, both from competing products and increased regulation; delays in launches of new products and our ability to achieve expected results from investments in our product pipeline; our ability to take advantage of high-value opportunities; the difficulty and expense of obtaining licenses to proprietary technologies; and the effectiveness of our patents and other measures to protect our intellectual property rights;

our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; competition for our specialty products, especially COPAXONE

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

or AUSTEDO

; competition from companies with greater resources and capabilities; efforts of pharmaceutical companies to limit the use of generics, including through legislation and regulations; consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our products, both from competing products and increased regulation; delays in launches of new products and our ability to achieve expected results from investments in our product pipeline; our ability to take advantage of high-value opportunities; the difficulty and expense of obtaining licenses to proprietary technologies; and the effectiveness of our patents and other measures to protect our intellectual property rights;

our substantial indebtedness, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us;

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

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

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

and other factors discussed in this Quarterly Report on Form

10-Q

and in our Annual Report on Form

10-K

for the year ended December 31, ~~2017,~~2018, including in the sections ~~thereof~~ captioned “Risk ~~Factors” and “Forward Looking Statements,~~Factors.” ~~and in our subsequent quarterly reports on Form10-Q~~ ~~and other filings with the Securities and Exchange Commission, which are available atwww.sec.gov~~ ~~andwww.tevapharm.com~~. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

~~(U.S. dollars in millions)~~

~~(Unaudited)~~

September 30, December 31,
2018 2017
ASSETS

Current assets:

Cash and cash equivalents
$ 1,875 $ 963
Trade receivables
5,665 7,128
Inventories
4,866 4,924
Prepaid expenses
911 1,100
Other current assets
483 701
Assets held for sale
81 566

Total current assets
13,881 15,382
Deferred income taxes
427 574
Othernon-current assets
722 932
Property, plant and equipment, net
7,101 7,673
Identifiable intangible assets, net
15,345 17,640
Goodwill
27,585 28,414

Total assets
$ 65,061 $ 70,615

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt
$ 2,673 $ 3,646
Sales reserves and allowances
6,701 7,881
Trade payables
1,626 2,069
Employee-related obligations
712 549
Accrued expenses
2,232 3,014
Other current liabilities
886 724
Liabilities held for sale
— 38

Total current liabilities
14,830 17,921
Long-term liabilities:

Deferred income taxes
2,478 3,277
Other taxes and long-term liabilities
1,803 1,843
Senior notes and loans
26,816 28,829

Total long-term liabilities
31,097 33,949

Commitments and contingencies, see note 16

Total liabilities
45,927 51,870

Equity:

Teva shareholders’ equity:

Preferred shares of NIS 0.10 par value per mandatory convertible preferred share; September 30, 2018 and December 31, 2017: authorized 5.0 million shares; issued 3.7 million shares
3,825 3,631
Ordinary shares of NIS 0.10 par value per share; September 30, 2018 and December 31, 2017: authorized 2,495 million shares; issued 1,125 million shares and 1,124 million shares, respectively
54 54
Additionalpaid-in capital
23,404 23,479
Accumulated deficit
(3,072 ) (3,808 )
Accumulated other comprehensive loss
(2,335 ) (1,848 )
Treasury shares as of September 30, 2018 and December 31, 2017 — 106 million ordinary shares and 107 million ordinary shares, respectively
(4,146 ) (4,149 )

17,730 17,359

Non-controlling interests
1,404 1,386

Total equity
19,134 18,745

Total liabilities and equity
$ 65,061 $ 70,615

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

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~CONSOLIDATED STATEMENTS OF INCOME (LOSS)~~

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

(Unaudited)

   Three months ended Nine months ended
   September 30, September 30,
   2018 2017 2018 2017
Net revenues
   $ 4,529 $ 5,617 $ 14,295 $ 16,987
Cost of sales
   2,508 2,967 7,865 8,643


Gross profit
   2,021 2,650 6,430 8,344
Research and development expenses
   311 531 918 1,432
Selling and marketing expenses
   743 843 2,224 2,745
General and administrative expenses
   309 372 954 1,101
Other asset impairments, restructuring and other items
   658 550 2,080 1,209
Goodwill impairment
   —   —   300 6,100
Legal settlements and loss contingencies
   19 (20 ) (1,239 ) 324
Other income
   (35 ) (4 ) (334 ) (100 )


Operating income (loss)
   16 378 1,527 (4,467 )
Financial expenses, net
   229 259 736 704


Income (loss) before income taxes
   (213 ) 119 791 (5,171 )
Tax benefits
   (26 ) (494 ) (56 ) (462 )
Share in losses of associated companies, net
   10 3 76 10


Net income (loss)
   (197 ) 610 771 (4,719 )
Net income attributable tonon-controlling interests
   11 15 35 11


Net income (loss) attributable to Teva
   (208 ) 595 736 (4,730 )


��

Dividends on preferred shares
   65 65 195 195


Net income (loss) attributable to ordinary shareholders
   $ (273 ) $ 530 $ 541 $ (4,925 )


Earnings (loss) per share attributable to ordinary shareholders:

Basic
   $ (0.27 ) $ 0.52 $ 0.53 $ (4.85 )


Diluted
   $ (0.27 ) $ 0.52 $ 0.53 $ (4.85 )


Weighted average number of shares (in millions):

Basic
   1,018 1,017 1,018 1,016


Diluted
   1,018 1,017 1,020 1,016


	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,241		$	1,782
Trade receivables		5,254			5,822
Inventories		4,636			4,731
Prepaid expenses		976			899
Other current assets		416			468
Assets held for sale		18			92

Total current assets		12,542			13,794
Deferred income taxes		331			368
Other non-current assets		727			731
Property, plant and equipment, net		6,643			6,868
Operating lease right-of-use assets		468			—
Identifiable intangible assets, net		11,878			14,005
Goodwill		24,657			24,917

Total assets	$	57,246		$	60,683

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	3,130		$	2,216
Sales reserves and allowances		6,137			6,711
Trade payables		1,688			1,853
Employee-related obligations		583			870
Accrued expenses		1,748			1,868
Other current liabilities		820			804

Total current liabilities		14,107			14,322
Long-term liabilities:
Deferred income taxes		1,462			2,140
Other taxes and long-term liabilities		2,546			1,727
Senior notes and loans		23,812			26,700
Operating lease liabilities		394			—

Total long-term liabilities		28,215			30,567

Commitments and contingencies , see note 16
Total liabilities		42,322			44,889

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; September 30, 2019 and December 31, 2018: authorized 2,495 million shares; issued 1,198 million shares and 1,196 million shares, respectively		56			56
Additional paid-in capital		27,293			27,210
Accumulated deficit		(7,066	)		(5,958	)
Accumulated other comprehensive loss		(2,365	)		(2,459	)
Treasury shares as of September 30, 2019 and December 31, 2018 — 106 million ordinary shares		(4,128	)		(4,142	)

		13,790			14,707

Non-controlling interests		1,134			1,087

Total equity		14,925			15,794

Total liabilities and equity	$	57,246		$	60,683

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME (LOSS)

(U.S. dollars in ~~millions)~~

millions, except share and per share data)

(Unaudited)

   Three months ended Nine months ended
   September 30, September 30,
   2018 2017 2018 2017
Net income (loss)
   $ (197 ) $ 610 $ 771 $ (4,719 )
Other comprehensive income (loss), net of tax:

Currency translation adjustment
   (105 ) 264 (577 ) 1,136
Unrealized gain (loss) from derivative financial instruments
   19 (49 ) 75 (118 )
Unrealized gain (loss) fromavailable-for-sale securities
   1 (17 ) —   20
Unrealized gain (loss) on defined benefit plans
   1 1 —   (12 )


Total other comprehensive income (loss)
   (84 ) 199 (502 ) 1,026


Total comprehensive income (loss)
   (281 ) 809 269 (3,693 )
Comprehensive income (loss) attributable tonon-controlling interests
   (26 ) 11 20 75


Comprehensive income (loss) attributable to Teva
   $     (255) $     798 $      249 $     (3,768)


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

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

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

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

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

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

Dividends on preferred shares		—			65			—			195

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

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

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

Weighted average number of shares (in millions):
Basic		1,092			1,018			1,091			1,018

Diluted		1,092			1,018			1,091			1,020

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

(Unaudited)

   Nine months ended
September 30,
   2018 2017
Operating activities:

Net income (loss)
   $ 771 $ (4,719 )
Adjustments to reconcile net income (loss) to net cash provided by operations:

Net change in operating assets and liabilities
   (1,521 ) (1,717 )
Depreciation and amortization
   1,460 1,584
Impairment of long-lived assets
   1,501 564
Deferred income taxes, net and uncertain tax positions
   (650 ) (733 )
Goodwill impairment
   300 6,100
Stock-based compensation
   122 106
Impairment of equity investment
   103 —
Research and development in process
   54 175
Net gain from sale of long-lived assets and investments
   (53 ) (48 )
Other items
   (8 ) 9
Venezuela impairment of net monetary assets
   —   45


Net cash provided by operating activities
   2,079 1,366


Investing activities:

Beneficial interest collected in exchange for securitized trade receivables
   1,372 962
Proceeds from sales of business, investments and long-lived assets
   880 1,607
Purchases of property, plant and equipment
   (438 ) (607 )
Purchases of investments and other assets
   (56 ) (194 )
Other investing activities
   34 (277 )
Acquisitions of subsidiaries, net of cash acquired
   —   43


Net cash provided by investing activities
   1,792 1,534


Financing activities:

Repayment of senior notes and loans and other long-term liabilities
   (6,989 ) (1,005 )
Proceeds from senior notes and loans, net of issuance costs
   4,434 507
Net change in short-term debt
   (262 ) (1,630 )
Other financing activities
   (13 ) (69 )
Dividends paid on ordinary shares
   (12 ) (814 )
Dividends paid on preferred shares
   (10 ) (195 )
Dividends paid tonon-controlling interests
   —   (38 )


Net cash used in financing activities
   (2,852 ) (3,244 )


Translation adjustment on cash and cash equivalents
   (107 ) 36


Net change in cash and cash equivalents
   912 (308 )
Balance of cash and cash equivalents at beginning of period
   963 988


Balance of cash and cash equivalents at end of period
   $ 1,875 $ 680


Non-cash financing and investing activities:

Beneficial interest obtained in exchange for securitized trade receivables
   $ 1,345 $ 911


	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	(307)		$	(197)		$	(1,076)		$	771
Other comprehensive income (loss), net of tax:
Currency translation adjustment		(138	)		(105	)		(5	)		(577	)
Unrealized gain from derivative financial instruments		87			19			124			75
Unrealized gain (loss) from available-for-sale securities		(2	)		1			(1	)		—
Unrealized gain (loss) on defined benefit plans		—			1			(1	)		—

Total other comprehensive income (loss)		(53	)		(84	)		117			(502	)

Total comprehensive income (loss)		(360	)		(281	)		(959	)		269
Comprehensive income (loss) attributable to non-controlling interests		7			(26	)		56			20

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

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Teva shareholders’ equity

Ordinary shares

Number of
shares

(in
millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

compre
hensive

(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at June 30, 2018

1,124

54

3,760

23,426

(2,864)

(2,289)

(4,149
)

17,938

1,430

19,368

Comprehensive loss

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

1

**

**

Issuance of Treasury Shares

(1
)

3

2

2

Stock-based compensation expense

44

44

44

Dividends to preferred shareholders

65

(65
)

—

Balance at September 30,
2018

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

*
Mandatory convertible preferred shares.
**
Represents an amount less than $0.5 million.

Teva shareholders’ equity

Ordinary shares

Number of
shares

(in

millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at June 30, 2019

1,198

56

—

27,258

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

1,128

15,251

Comprehensive income (loss)

(314
)
(53
)

(367
)
7

(360
)
Issuance of Shares

**

**

**

Stock-based compensation expense

35

35

35

Balance at September 30,
2019

1,198
$
56

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

* Mandatory convertible preferred shares.
** Represents an amount less than 0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Teva shareholders’ equity

Ordinary shares

Number of
shares
(in

millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at December

31,

2017

1,124

54

3,631

23,479

(3,803
)

(1,853
)

(4,149
)

17,359

1,386

18,745

Cumulative effect of new accounting standard

(5
)

5
—
Comprehensive income (loss)

736

(487
)
249

20

269

Issuance of Treasury Shares

(1
)

3

2

2

Dividends to preferred shareholders

194

(194
) —
Issuance of shares

1

**
**
Stock-based compensation expense

120

120

120

Transactions with non-controlling

interests

(2
)

(2
)

Balance at September 30, 2018

1,125

$
54

$
3,825

$
23,404

$
(3,072
)

$
(2,335
)

$
(4,146
)

$
17,730

$
1,404

$
19,134

* Mandatory convertible preferred shares.
**
Represents an amount less than
$
0.5 million.

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at December 31, 2018

1,196

56

—

27,210

(5,958
)

(2,459
)

(4,142
)

14,707

1,087

15,794

Comprehensive income (loss)

(1,108
)

94

(1,015
)

56

(959
)
Issuance of Shares

2

**

**

Issuance of Treasury Shares

(8
)

14

6

6

Stock-based compensation expense

99

99

99

Transactions with
non-controlling
interests

(8
)

(8
)
Other

(8
)

(8
)

(8
)
Balance at September 30,
2019

1,198

$
56

—

$
27,293

$
(7,066
)

$
(2,365
)

$
(4,128
)

$
13,790

$
1,134

$
14,925

*
Mandatory convertible preferred shares.
**
Represents an amount less than
$
0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
9

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)

Nine months ended
September 30,

2019

2018

Operating activities:

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

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

Depreciation and amortization

1,306

1,460

Impairment of long-lived assets

1,302

1,501

Net change in operating assets and liabilities

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

(652
)
(650
)
Stock-based compensation

99

122

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

10

(53
)
Other items

5

(8
)
Goodwill impairment

—

300

Impairment of equity investment

—

103

In process research and development

—

54

Net cash provided by operating activities

210

2,079

Investing activities:

Beneficial interest collected in exchange for securitized trade receivables

1,108

1,372

Purchases of property, plant and equipment

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

169

880

Other investing activities

59

34

Purchases of investments and other assets

(5
)
(56
)

Net cash provided by investing activities

925

1,792

Financing activities:

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

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

96

(262
)
Tax withholding payments made on shares and dividends

(52
)
(22
)
Other financing activities

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

—

4,434

Net cash used in financing activities

(1,685
)
(2,852
)

Translation adjustment on cash and cash equivalents

9

(107
)

Net change in cash and cash equivalents

(541
)
912

Balance of cash and cash equivalents at beginning of period

1,782

963

Balance of cash and cash equivalents at end of period

$
1,241

$
1,875

Non-cash
financing and investing activities:

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

Amounts may not add up due to rounding
The accompanying notes are an integral part of the financial statements.
10

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of presentation:

The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form

10-Q

should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form

10-K

for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission (“SEC”). Amounts as of December 31, ~~2017~~2018 were derived from the audited balance sheet at that date, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included. Certain comparative figures have been reclassified to conform to current presentation. The results of operations for the

nine

months ended

September

30, ~~2018~~2019 are not necessarily indicative of results that could be expected for the entire fiscal year.

Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.

Note 2 – Significant accounting policies:

Recently adopted accounting pronouncements

~~On January 1,~~

In June 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. See note 9 for further discussion.

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

2018-07

“Improvement to Nonemployee Share-Based Payments Accounting.” This guidance ~~on changes~~simplifies the accounting for

non-employee

share-based payment transactions. The amendments specify that ASC 718 applies to ~~terms and conditions of~~all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing 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. 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 update ~~in the first quarter~~as of ~~2018. 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~~January 1, 2019 with no material impact on its consolidated financial statements.

In August ~~2016,~~2017, the FASB issued ASU

2017-12

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

non-financial

and financial risk components and aligns the recognition and presentation of ~~cash flows. The guidance addresses eight specific issues: debt prepayment or debt extinguishment costs; settlement~~the effects of ~~certain debt instruments; contingent consideration payments made after a business combination; proceeds from~~ the ~~settlement of insurance claims; proceeds from~~hedging instrument and the ~~settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest~~hedged item in ~~securitization transactions; and separately identifiable cash flows and application of predominance principle. The amendments should be applied retrospectively.~~the financial statements. Teva adopted the provisions of this update ~~in the first quarter~~as of 2018. This resulted in the reclassification of $962 million of beneficial interest in securitization transactions from operating activities to investing activities for the nine month period ended September 30, 2017.

January 1, 2019 with no material impact on its consolidated financial statements.

In ~~January~~February 2016, the FASB issued ~~guidance which updates certain aspects of recognition, measurement, presentation and disclosure of equity investments.~~ASU

2016-02

“Leases.” The guidance establishes a

right-of-use

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

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

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

use-of

hindsight.

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

non-lease

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

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

The adoption of this ~~update in~~ standard has a material effect on Teva’s financial statements. The most significant impact is reflected in: (i)

effective as of January 1, 2019,

the ~~first quarter~~recognition of ~~2018. Following~~approximately $553 million ROU assets and $561 million lease liabilities on Teva’s balance sheet for its operating leases of real estate, vehicles and equipment (the difference between the additional lease assets and lease liabilities did not have material impact on the retained earnings), and (ii) the requirement to provide significant new disclosures regarding Teva’s leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a material impact on Teva’s consolidated statements of income and consolidated statements of cash flows. Also, the ~~Company recorded a $5 million opening balance reclassification from accumulated other comprehensive loss to retained earnings.~~Company’s accounting for finance leases remained substantially unchanged. See note ~~10.~~

20 for further discussion.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Recently issued accounting pronouncements, not yet adopted

In April 2019, the FASB issued ASU

2019-04

“Codification Improvements to Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).” This ASU provides clarifications for three topics related to financial instruments accounting. The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In November 2018, the FASB issued ASU

2018-18

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

unit-of-account

guidance in ASC 808 to align with guidance in ASC 606 and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. The guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and should be applied retrospectively. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-15

“Intangibles—Goodwill and

other—Internal-use

software (Subtopic

350-40):

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

internal-use

software. The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-13

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

income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance ~~will need to~~must be applied on a retrospective basis and others on a prospective basis. The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In July 2018, the FASB issued a codification improvement, which does not prescribe any new accounting guidance, but instead provides minor improvements and clarifications to various FASB accounting guidance. Certain updates are applicable immediately while others provide for a transition period until the next fiscal year beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

~~In June 2018, the FASB issued guidance which simplifies the accounting fornon-employee~~ share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance will be effective for fiscal years beginning after December 31, 2018, although early adoption is permitted. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial statements.

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. The Company does not expect that the adoption of this guidance will have a significant impact 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, including interim periods within those fiscal years (early adoption is permitted for any interim and annual financial statements that have not yet been issued). Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.

In June 2016, the FASB issued ~~guidance~~ASU

2016-13

“Financial Instruments—Credit Losses—Measurement of Credit Losses on ~~financial instruments. The~~Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for 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,~~

Reclassifications of prior periods

During 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). In Januaryfourth quarter of 2018, the ~~FASB issued an update~~Company changed its accounting policy for the presentation of royalty payments to third parties that ~~permits an entity to elect an optional transition practical expedient to~~are not ~~evaluate land easements that existed or expired before~~involved in the ~~entity’s adoption~~production of ~~the new standard and that were not~~products. Teva previously accounted for royalty payments to such third parties as ~~leases. In July 2018, the FASB issued both codification improvements, which clarify how~~S&M expenses. Royalties paid to ~~apply certain aspects of the new lease standard and an update. The update provided to either adopt at the earliest period presented using~~ a ~~modified retrospective approach, or to continue applying the guidance under the current lease standard~~party that is involved in the ~~comparative periods presented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment to the opening balance~~production process are classified as cost of ~~retained earnings on the date of adoption.~~sales. The Company ~~expects~~believes this change in accounting policy is preferable in order to apply the guidance using the cumulative-effect approach, thereby applying the new guidance at the effective date, without adjusting the comparative periods and, if necessary, recognizing a cumulative-effect adjustmentbe aligned with industry practice of classifying all royalty payments related to ~~the opening balance~~currently marketed products in cost of ~~retained earnings in the period of adoption.~~

sales. The Company ~~is performing a comprehensive evaluation~~now reports all royalty payments as cost of sales. The Company has retrospectively adjusted prior periods to reflect this change and the impact of the ~~adoption~~change for the first

second

and thir

quarters of ~~this guidance, which includes assessing the Company’s lease portfolio, implementation~~2018 was an increase in cost of sales of $33 million

$28 million

nd $

million

, respectively, with a new enterprise-wide lease management system to meet reporting requirements, assessing the impact to business processes and implementation of internal controls over financial reporting and related disclosure requirements. The Company is working closely with the software system developer, as the timely readiness of the lease software system is critical to ensure an efficient and effective adoption of the standard. 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 new~~right-of-use~~ assets and lease liabilities on the Company’s consolidated balance sheet for leases currently classified as operating leases. The Company does not, however, expect a material impact to its consolidated statements of income.

corresponding decrease in S&M expenses.

NOTE 3 – Certain transactions:

Business acquisitions:

Actavis Generics and Anda acquisitions

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

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

The final cash consideration for the Actavis Generics acquisition was subject to certain net working capital adjustments. 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 for which Allergan made a

one-time

payment of $703 million to ~~Teva. The Agreement also provides that~~ Teva ~~and Allergan will jointly dismiss~~to settle the working capital ~~dispute arbitration, as well as actual or potential claims~~adjustments 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).~~2015. As the measurement period has ended, this amount was recorded as a gain under legal settlements and loss contingencies in the first quarter of 2018.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Rimsa

On March 3, 2016, Teva completed the 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’s

pre-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~~2 lawsuits were filed: a

pre-emptive

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

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

one-time

payment to Teva. Teva’s breach of contract claim was subsequently dismissed by the court. As the measurement period has ended, this payment was recorded as a gain under legal settlements and loss contingencies in the first quarter of 2018. ~~This settlement was approved by the court and Teva’s breach of contract claim was subsequently dismissed.~~

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 would 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 $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 businesses 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.

sale:

The table below summarizes the major classes of assets and liabilities included as held for sale as of September 30, ~~2018~~2019 and December 31, ~~2017:~~

   September 30, 2018    December 31, 2017
   (U.S. $ in millions)
Inventories
   —      39
Property, plant and equipment, net (*)
   41    16
Identifiable intangible assets, net
   —      236
Goodwill (*)
   40    275




Total assets of the disposal group classified as held for sale in the consolidated balance sheets
   $ 81    $ 566




Other taxes and long-term liabilities
   —      38




Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets
   $ —      $ 38

~~(*)~~

~~Mainly comprised of certain facilities in Israel.~~

2018:


	September 30, 2019			December 31, 2018
	(U.S. $ in millions)
Property, plant and equipment, net		24			92
Goodwill		—			51
Adjustments of assets held for sale to fair value		(6	)		(51	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	18		$	92

Other significant agreements:

The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized ~~below.~~

~~PGT Healthcare Partnership~~

belo

Eli Lilly and Alder BioPharmaceuticals

In ~~April~~December 2018, Teva ~~signed a separation~~entered into an agreement with Eli Lilly, resolving the ~~Procter & Gamble Company (“P&G”)~~European Patent Office opposition they had filed against Teva’s AJOVY

patents. The settlement agreement with Lilly also resolved Lilly’s action to ~~terminate Teva’s joint venture with P&G, PGT Healthcare partnership (“PGT”) which~~revoke the ~~two companies established~~patent protecting AJOVY in ~~2011 to marketover-the-counter~~ ~~(“OTC”) medicines. Teva will continue to maintain its OTC business on an independent basis.~~

~~The separation became effective on July 1, 2018. As part of~~ the separation, Teva transferred to P&G the shares it held in New Chapter Inc. and ownership rights in an OTC plant located in India. Teva will continue to provide certain services to P&G after the separation for a transition period.

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

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

~~Alder BioPharmaceuticals~~

United Kingdom.

On January 8, 2018, Teva signed a global license agreement with Alder BioPharmaceuticals (“Alder”). The agreement validates Teva’s IP and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder will receive a

non-exclusive

license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the ~~U.S.~~United States and worldwide, excluding Japan and Korea. Teva received a $25 million upfront payment that was recognized as revenue during the first quarter of ~~2018, which was recognized as revenue.~~2018. The agreement stipulates additional milestone payments to Teva of up to $175 million, as well as future royalties.

1
3

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

PGT Healthcare Partnership

In July 2018, Teva terminated its joint venture with the Procter & Gamble Company (“P&G”), PGT Healthcare partnership (“PGT”), which the two companies established in 2011 to market
over-the-counter
(“OTC”) medicines. Teva will continue to maintain its OTC business on an independent basis.

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

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

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

pre-agreed

amount as compensation for their contribution to the partnership.

Otsuka

On May 12, 2017, Teva entered into a license and collaboration agreement with Otsuka Pharmaceutical Co. Ltd. (“Otsuka”), providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for ~~fremanezumab~~AJOVY in Japan and, if approved, to commercialize the product in Japan. Otsuka paid Teva an upfront payment of $50 million in consideration for the transaction. Teva may receive additional milestone payments upon filing with Japanese regulatory authorities, receipt of regulatory approval and achievement of certain revenue targets. Otsuka will also pay Teva royalties on ~~fremanezumab~~AJOVY sales in Japan.

Attenukine

In December 2016, Teva entered into a license agreement for research, development, manufacture and commercializing of Attenukine^TM technology with a subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”). Teva received a $30 million upfront payment. The agreement stipulates additional milestone payments to Teva of up to $280 million, as well as future royalties.

~~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

TRUXIMA

and

HERZUMA

, 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.

Regeneron

In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share equally in the global commercial rights to this product, as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 as part of the agreement. Milestone payments of $25 million, $35 million and ~~$35~~$60 million were paid in the second quarter of 2017, ~~and~~ the first quarter of 2018 ~~respectively,~~ and ~~a provision of $60 million was recorded in~~ the ~~third~~fourth quarter of ~~2018.~~

2018, respectively.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:

   September 30,
2018    December 31,
2017
   (U.S. $ in millions)
Finished products
   $ 2,679    $ 2,689
Raw and packaging materials
   1,395    1,454
Products in process
   609    597
Materials in transit and payments on account
   183    184




   $ 4,866    $ 4,924


	September 30,		December 31,
	2019		2018
	(U.S. $ in millions)
Finished products	$	2,517	$	2,665
Raw and packaging materials		1,338		1,328
Products in process		621		590
Materials in transit and payments on account		160		148

Total	$	4,636	$	4,731

NOTE 5 – Property, plant and equipment:

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

   September 30,
2018    December 31,
2017
   (U.S. $ in millions)
Machinery and equipment
   $ 5,783    $ 5,809
Buildings
   3,179    3,329
Computer equipment and other assets
   2,115    2,016
Payments on account
   538    634
Land⁽¹⁾
   361    390




   11,976    12,178
Less—accumulated depreciation
   4,875    4,505




   $ 7,101    $ 7,673

~~(1)~~

~~Land includes long-term leasehold rights in various locations, with useful lives between 30 and 99 years.~~


	September 30,			December 31,
	2019			2018
	(U.S. $ in millions)
Machinery and equipment	$	5,678		$	5,691
Buildings		3,037			3,143
Computer equipment and other assets		2,120			2,097
Payments on account		616			514
Land		364			351

		11,816			11,796
Less—accumulated depreciation		(5,172	)		(4,928	)

Total	$	6,643		$	6,868

NOTE 6 – Identifiable intangible assets:

Identifiable intangible assets consisted of the following:

   Gross carrying amount net of
impairment    Accumulated amortization    Net carrying amount
   September 30,    December 31,    September 30,    December 31,    September 30,    December 31,
   2018    2017    2018    2017    2018    2017
   (U.S. $ in millions)
Product rights
   $ 21,094    $ 21,011    $ 9,132    $ 8,276    $ 11,962    $ 12,735
Trade names
   610    617    82    55    528    562
Research and development in process
   2,855    4,343    —      —      2,855    4,343












Total
   $ 24,559    $ 25,971    $ 9,214    $ 8,331    $ 15,345    $ 17,640


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2019		2018		2019		2018		2019		2018
	(U.S. $ in millions)
Product rights	$	19,698	$	20,361	$	10,182	$	9,565	$	9,516	$	10,796
Trade names		596		606		117		91		479		515
In process research and development		1,883		2,694		—		—		1,883		2,694

Total	$	22,177	$	23,661	$	10,299	$	9,656	$	11,878	$	14,005

Product rights and trade names

Product rights and trade names are assets presented at amortized cost. ~~These assets~~Product rights and trade names represent a portfolio of pharmaceutical products from various categories with a weighted average ~~amortization~~ life of approximately 1112 years.

Amortization of intangible assets ~~was~~amounted to $255 million and $297 million ~~and $357 million for~~in the three months ended September 30, 2019 and 2018, ~~and 2017, respectively~~respectively.

Amortization of intangible assets amounted to $823 million and $909 million ~~and $1,088 million for~~in the

nine

months ended September 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~Amortization~~

IPR&D

Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is ~~recorded under cost of sales or S&M expenses, depending on the nature~~comprised mainly of the ~~asset.~~

~~The fair value of acquired identifiable intangible assets is generally determined using an income approach. This method starts with a forecast of all expected future net cash flows associated with~~following acquisitions and related assets: various generic products (Actavis Generics) – $1,626 million; various generic products (Rimsa) – $46 million; and AUSTEDO – $211 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and ~~then adjusts the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.~~

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 and then calculates, if required, the discounted value of cash flow by applying an appropriate discount rate to the undiscounted cash flow streams. Teva then 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 carrying value over fair value based on the discounted cash flows.

~~The more significant estimates and assumptions inherent~~may be impaired 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 of $519 million and $355 million for~~future periods.

In the three months ended September 30, ~~2018 and 2017, respectively and $1,246~~2019, Teva reclassified $15 million ~~and $409 million for the nine months ended September 30, 2018 and 2017, respectively. Impairments~~ of ~~identifiable intangible assets are recorded in earnings under other asset impairments, restructuring and other items. See note 14.~~

~~Additional reductions to~~products from IPR&D ~~intangibles relate to reclassification~~ to product rights following regulatory ~~approvals of generic products and impairments of assets due to development status, changes in projected launch date or changes in commercial projections related to products under development.~~

approval.

In the first

nine

months of ~~2018,~~2019, Teva reclassified ~~approximately $553~~$271 million ~~relating to certain~~of products from IPR&D to product rights following regulatory approval, mainly ~~$444~~$174 million in connection with ~~AJOVY (fremanezumab)~~methylphenidate ER.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Intangible assets impairment

Impairments of long-lived intangible assets for the three months ended September 30, 2019 and ~~$103~~2018 were $177 million and $519 million, respectively. Impairments in ~~connection with mesalamine.~~

the

third

quarter of 2019 consisted

	a)	Identifiable product rights of $99 million, mainly due to s upply ch a ll e nges in connection with products primarily marketed in Hong Kong .

IPR&D assets of $78 million, mainly

to generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate) in the United States.

Impairments of long-lived intangible assets for the

nine

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

nine

months of 2019 consisted of:

Identifiable product rights of $667 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States.

IPR&D assets of $539 million, mainly

to: (i) $355 million of

various

generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate) in the United States

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

evlimid

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

concer

ing

the future market share of

a number of

products within Teva’s Actavis Generics pipeline in Europe.

NOTE 7 – Goodwill:

The changes in the carrying amount of goodwill for the period ended September 30, ~~2018~~2019 were as follows:

   Generics Specialty Other Total North
America Europe International
Market Other Total
   (U.S. $ in millions) (U.S. $ in millions)
Balance as of December 31,
2017⁽¹⁾
   $ 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


Balance as of January
1, 2018
   —   —   —   —   11,144 9,001 5,404 2,865 28,414
Goodwill impairment⁽³⁾
   —   —   —   —   —   —      (300 ) —   (300 )
Goodwill disposal⁽²⁾
   —   —   —   —   —   (65 ) (14 ) —   (79 )
Goodwill reclassified as assets to held for
sale
   —   —   —   —   —   —   —   (40 ) (40 )
Translation differences
   —   —   —   —   (21 ) (338 ) (50 ) (1 ) (410 )


Balance as of September
30, 2018⁽¹⁾
   $ —   $ —   $ —   $ —   $ 11,123 $ 8,598 $ 5,040 $ 2,824 $ 27,585


	North America			Europe			International Markets		Other		Total
	(U.S. $ in millions)
Balance as of January 1, 2019 (1)	$	11,098		$	8,653		$	2,479	$	2,687	$	24,917
Changes during the period:
Goodwill disposal		(23	)		(5	)		—		—		(28	)
Translation differences		11			(300	)		57		—		(232	)

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

(1)	Accumulated goodwill impairment as of September 30, ~~2018~~2019 and ~~December 31, 2017~~January 1, 2019 was approximately ~~$18.3 billion and $18.0 billion, respectively.~~ $ 21.0 billion.

~~(2)~~

~~Due to the divestment of the women’s health business, the sale of Actavis Brazil and other activity.~~

~~(3)~~

~~Due to the goodwill impairment related to the Rimsa and/or Mexico reporting unit.~~

~~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 International 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 began reporting its financial results under this structure in the first quarter of 2018.

In addition to these three segments, Teva has other ~~activities,~~sources of revenues, primarily the sale of ~~active pharmaceutical ingredients (“API”)~~APIs to third parties, ~~and~~ certain contract manufacturing ~~services.~~services and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. See note 17.

~~Following~~

Teva determines the ~~announcement~~fair value 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 the income approach. The income approach is a ~~relative~~forward-looking approach for estimating fair ~~value allocation. In conjunction~~value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the ~~goodwill reallocation, Teva performed~~reporting unit, which includes the application of a ~~goodwill impairment test~~terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the WACC, adjusted for the ~~balances in its adjusted~~relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva could face impairment of goodwill allocated to these reporting units ~~utilizing~~in the ~~same annual operating plan (“AOP”) and long range plan model that were used in its 2017 annual impairment test;~~future.

During the ~~Company concluded~~first quarter of 2019, management assessed developments during the quarter to determine if it was more likely than not that the fair value of ~~each reporting unit was in excess~~any of its reporting units was below its carrying ~~value.~~

~~During~~amount. This includes the International Markets, Medis and Europe reporting units, which had headroom

of 6%

or less as of December 31, 2018. As part of this assessment, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period. In addition, Teva analyzed the aggregate fair value of its reporting units, calculated as part of the annual goodwill impairment test performed in the fourth quarter of 2018, compared to its market capitalization. Despite the decrease in share price during the first quarter of ~~2018, Teva identified an increase in certain components~~2019 compared to the average share price used to assess the reasonableness of the ~~weighted average cost~~results of ~~capital (“WACC”), such as an increase~~the cash flow projections used for the goodwill impairment analysis in the ~~risk free interest and~~fourth quarter of 2018, management believed that its fair value assessment was reasonably supported by Teva’s market capitalization. Based on this assessment, management concluded that it was not more likely than not that the ~~unlevered beta. The Company addressed these changes in rates as an indication for impairment and performed an additional impairment test~~fair value of any of the reporting units was below its carrying value as of March 31, ~~2018.~~

~~Based on its revised analysis, Teva recorded a goodwill impairment~~2019 and, therefore, no quantitative assessments were performed

Table of ~~$180 million related~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to its Rimsa reporting unit in the first quarter of 2018. The remaining goodwill allocated to this reporting unit was $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.

Consolidated Financial Statements

(Unaudited)

In the second quarter of ~~2018,~~2019, the Company completed its long-range planning (“LRP”) process. The LRP is part of Teva’s internal financial planning and budgeting processes and is discussed and reviewed by Teva’s management and its board of directors. Certain events and changes in circumstances, reflected in the LRP, indicated that it was more likely than not that the carrying value of certain reporting units ~~exceeded~~may exceed their fair ~~value:~~

value. The following analysis was performed based upon the June 30, 2019 assessment:

~~Historically, Rimsa had been carved out as~~

International Markets

Management noted a ~~separate reporting unit due to~~further decrease in the ~~significant operational challenges. Teva wanted to ensure that any impairment~~profitability projections in the Japanese market related to ~~Rimsa would be recorded, by separating it from the International Markets reporting unit. During the second quarter of 2018, Rimsa~~new price regulation and ~~Teva Mexico substantially completed the integration process and as~~further generic competition. Consequently, management conducted a ~~result Teva decided~~quantitative analysis to ~~utilize the combined Mexico reporting unit for goodwill impairment testing, as opposed to “Rimsa only” in prior periods.~~

Following the integration, and although the remediation plan is progressing in connection with Rimsa legacy products, Teva estimates that the recovery time will be longer than initially planned, specifically in connection with the time to regain lost market share. As a result, the Company recorded an additional goodwill impairment charge of $120 million related to its ~~Mexico reporting unit in the second quarter of 2018.~~

Additionally, the Company identified further developments with respect to legislation proposed by the Russian Ministry of Health. The draft legislation includes, among other items, amendments in the mechanism of regulating prices for vital and essential medicines. The suggested amendments triggered a public discussion between authorities and pharmaceutical companies, which ended in the second quarter of 2018, followed by an internal discussion by the relevant authorities. The estimated impact of developments and uncertainties with respect to the final legislation in Russia were reflected in the LRP and triggered an impairment test for the International Markets reporting unit, ~~and related intangible assets, significantly decreasing the~~which resulted in no impairment.

The percentage difference between ~~the~~ estimated fair value and estimated carrying value offor the International Markets reporting unit ~~from 6%~~is 4%.

The Company used a terminal growth rate of 2.3% and a discount rate of 10.74%. If Teva holds all other assumptions constant, a reduction in the terminal value growth rate of 0.4% or an increase in discount rate of 0.3% would result in an impairment related to ~~2%; however~~its International Markets reporting unit.

North America

Management believes that the sharp decline in the Company’s share price, which commenced May 2019, was mainly a result of events related to increased publicity surrounding certain litigations in the United States. Management considered the sharp decline in share price as an indication that it was more likely than not that the carrying value of its North America reporting unit exceeded its fair value.

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

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

The Company used a terminal growth rate of 2.0% and a discount rate of 10.0%. If Teva holds all other assumptions constant, a reduction in the terminal value growth rate of 0.9% or an increase in discount rate of 0.6% would result in an impairment ~~was recorded.~~

related to its North America reporting unit.

Remaining reporting units

After assessing the totality of relevant events and circumstances, Teva determined that ~~as of the second quarter of 2018,~~ it is not more likely than not that the fair value of its remaining reporting units is less than their carrying amount.

In light of the integration and the progress toward operational remediation in Rimsa as discussed above, Teva concluded that commencing July 1, 2018, it would no longer view Mexico separately from the International Markets reporting unit and accordingly will no longer perform impairment testing on Mexico as a separate reporting unit.

During the third quarter of 2018, Teva identified an increase in the risk free interest rate, which caused an increase in WACC. In addition, certain currencies in countries included in Teva’s International Markets reporting unit experienced significant devaluations. Teva addressed these events as an indication for impairment and performed an additional impairment test for the International Markets and Europe reporting units as of September 30, 2018. Teva assumed that the currency devaluations would cause price increases of its imported goods to those countries which would not be completely offset by corresponding price adjustments to the selling price of Teva’s goods. These changes decreased the

The percentage difference between ~~the~~ estimated fair value and estimated carrying value ~~of the International Markets reporting unit from 2% to 1% and of~~for the Europe, ~~reporting unit from 6% to 4%, however, no impairment charge was recorded for either reporting unit.~~

~~In the third quarter of 2018, the fair value exceeded the estimated carrying value by 36%~~Medis and ~~43% for North America and Other~~TAPI reporting units ~~respectively.~~

~~Based on current macro-economic developments~~is 22%, 45% and ~~capital markets assumptions and holding all other assumptions constant, an increase in~~15%, respectively.

Market Capitalization

Teva analyzed the risk free interest rate of 0.5% would result in an increase to Teva’s WACC by approximately the same amount and consequently in a change in fair value of the International Markets reporting unit of $653 million, resulting in an impairment of $605 million. In addition, the same change in the Europe reporting unit would result in a change in fair value of $871 million, resulting in an impairment of $243 million.

~~Teva determines the~~aggregate fair value of its reporting units ~~using~~as compared to its market capitalization in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis.

During the second quarter of 2019, Teva noted its market capitalization was significantly below management’s assessment of the aggregate fair value of its reporting units. Management analyzed the difference and the underlying factors

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

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

Management believes that the remaining difference in fair value is attributable to market concerns regarding certain litigation risks, namely from the ~~income approach. The income approach is~~opioid and price fixing litigations, and concern surrounding the Company’s cash flow and overall liquidity. Management believes that these concerns led to an acute reaction, which resulted in further decline in the share price. Although ultimately the outcome of the relevant cases will not be known in the near term, developments in these cases, likely to occur through the end of 2019, are expected to clarify the outlook with regards to the opioid litigation, which may result in a ~~forward-looking approach for estimating~~share price recovery. Consequently, management believes that this disparity results from a market value not reflective of the underlying fair value of its reporting units and ~~utilizes~~therefore it would be inappropriate to record an impairment charge in the ~~2018 remaining year~~second quarter of 2019 related thereto.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

During the third quarter of 2019, management assessed developments during the quarter to determine if it was more likely than not that the fair value of any of the Company’s reporting units was below its carrying amount. As part of this assessment, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast ~~projections~~available for ~~growth off~~each period.

In October 2019, Teva reached a settlement with two counties in Ohio and confirmed that ~~base with~~it had reached an ~~associated price erosion, as well as terminal growth rate. Within the income approach, the method that was used is the discounted cash flow method. Teva started~~agreement in principle with a ~~forecast~~group of ~~all the expected net cash flows associated~~

ttorneys

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

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

Management will continue to monitor business conditions and potential events or circumstances that could have a terminal value, and then applied a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is basednegative effect on the ~~WACC, adjusted for~~estimated fair value of the ~~relevant risk associated with country-specific characteristics. If any of these expectations were to vary materially from~~Company.

Based on assumptions in place at this time, if Teva’s ~~assumptions, Teva could face impairment of goodwill allocated to these reporting units~~share price does not recover in the ~~future.~~

near term, this may lead to a goodwill impairment charge of up to an aggregated amount of approximately $5,000 million in its North America and International Markets reporting units. Future impairment charges, if any, reflecting conditions at that time may be materially different.

NOTE 8 – Earnings (Loss) per share:

Basic earnings and loss per share are computed by dividing net results attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding (including fully vested restricted share units (“RSUs”)) during the period, net of treasury shares.

In computing ~~the~~ diluted loss per share for the three months ended September 30, 2019 and 2018, no account was taken of the potential dilution of the assumed exercise of employee stock options and

non-vested

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

Additionally,

in the t

hree months ended September 30, 2018,

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

(including shares issued due to unpaid dividends

up to

that date), since they had an anti-dilutive effect on loss per share

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

70.6

million ADSs in December 2018.

In computing the diluted loss per share for the nine months ended September 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and

non-vested

RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share. Diluted earnings per share for the ~~three months ended September 30, 2017 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 66 million (including shares that may be issued due to unpaid dividends to date) for the three months ended September 30, 2018 and 59 million for the three months ended September 30, 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on earnings (loss) per share.

~~Diluted earnings per share for the~~ nine months ended September 30, 2018 take into account the potential dilution that could occur upon the exercise of options and

non-vested

RSUs granted under employee stock compensation plans, using the treasury stock method. ~~In computing loss per share for the nine months ended September 30, 2017, no account was taken of the potential dilution by the assumed exercise of employee stock options andnon-vested~~ ~~RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.~~

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

million ~~(including~~

shares ~~that may be~~

(including shares issued due to unpaid dividends

that

date) for the nine months ended September 30, 2018, ~~and 59 million for the nine months ended September 30, 2017,~~ as well as for the convertible senior debentures, ~~for the respective periods,~~ since both had an anti-dilutive effect on earnings ~~(loss)~~ per share.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 9 – Revenue from contracts with customers:

On January 1, 2018, Teva adopted the 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 Teva’s Annual Report on Form10-K~~ ~~for the year ended December 31, 2017 for a summary of the 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, based on the practical expedient. 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.

Disaggregation of revenue

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

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










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










   Three months ended September 30, 2017
   North America    Europe    International
Markets    Other activities    Total
   (U.S. $ in millions)
Sale of goods
   2,724    1,321    672    168    4,885
Licensing arrangements
   25    —      1    1    27
Distribution
   294    59    146    —      499
Other
   —      —      63    143    206










   $ 3,043    $ 1,380    $ 882    $ 312    $ 5,617










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










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










   Nine months ended September 30, 2017
   North America    Europe    International
Markets    Other activities    Total
   (U.S. $ in millions)
Sale of goods
   8,338    3,848    1,862    567    14,615
Licensing arrangements
   249    2    36    4    291
Distribution
   864    166    406    —      1,436
Other
   1    —      181    463    645










   $ 9,452    $ 4,016    $ 2,485    $ 1,034    $ 16,987

~~Nature~~


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

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

§ Represents an amount less than $1 million.


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

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


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

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

§ Represents an amount less than $1 million.

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

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

Table of ~~revenue streams~~

~~Revenue from sales of goods, including sales~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes 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 and 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, is satisfied. Revenues from licensing arrangements included royalty income of $31 million and $27 million for the three months ended September 30, 2018 and 2017, respectively. Revenues from licensing arrangements included royalty income of $82 million and $239 million for the nine months ended September 30, 2018 and 2017, respectively. The amounts recognized in 2017 include 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.

Other revenues are primarily comprised of contract manufacturing services, sales of medical devices, and other miscellaneous items. 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.

~~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 September 30, 2018 and December 31, 2017, respectively.~~

Consolidated Financial Statements

(Unaudited)

Variable consideration

Variable consideration mainly includes sales reserves and allowances (“SR~~&A,~~&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 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 provide a rebate to each state as 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.

~~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.

SR&A to U.S. customers comprised approximately ~~84%~~82% of the Company’s total SR&A as of September 30, ~~2018,~~2019, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the ~~period~~nine months ended September 30, ~~2018~~2019 were as follows:

Sales Reserves and Allowances
Reserves
included in
Accounts
Receivable,
net Rebates Medicaid and
other
governmental
allowances Chargebacks Returns Other Total reserves
included in
Sales Reserves
and Allowances Total
(U.S.$ 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
380 4,956 931 7,738 232 309 14,166 14,546
Provisions related to sales made in prior periods
7 (39 ) 17 3 21 (19 ) (17 ) (10 )
Credits and payments
(412 ) (5,082 ) (1,288 ) (8,203 ) (364 ) (354 ) (15,291 ) (15,703 )
Translation differences
— (20 ) (4 ) (3 ) (4 ) (7 ) (38 ) (38 )

Balance at September 30, 2018
$ 171 2,892 $ 1,564 $ 1,384 $ 665 $ 196 $ 6,701 $ 6,872


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S. $ in millions)
Balance at December 31, 2018	$	175		$	3,006		$	1,361		$	1,530		$	638		$	176		$	6,711		$	6,886
Provisions related to sales made in current year period		334			4,004			760			7,196			195			308			12,463			12,797
Provisions related to sales made in prior periods		3			(28	)		(2	)		(1	)		23			(7	)		(15	)		(12	)
Credits and payments		(356	)		(4,276	)		(882	)		(7,299	)		(251	)		(295	)		(13,003	)		(13,359	)
Translation differences		—			(14	)		(4	)		(1	)		(1	)		1			(19	)		(19	)

Balance at Septe mber 30, 2019	$	156			2,692		$	1,233		$	1,425		$	604		$	183		$	6,137		$	6,293

NOTE 10 – Accumulated other comprehensive loss:

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

   Net Unrealized Gains/(Losses) Benefit Plans
   Foreign
currency
translation
adjustments Available-for-
sale securities    Derivative
financial
instruments Actuarial
gains/(losses)
and prior
service
(costs)/credits Total
   (U.S.$ in millions)
Balance as of December 31, 2017 *
   $ (1,316 ) $ 1    $ (442 ) $ (91 ) $ (1,848 )
Other comprehensive income (loss) before reclassifications
   (562 ) —      54 —   (508 )
Amounts reclassified to the statements of income
   —      21 2 23




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




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




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


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

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

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

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

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

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

**	Amounts do not include a ~~$15~~$ 15 million gain from foreign currency translation adjustments attributable to non-controlling interests.

   Net Unrealized Gains/(Losses) Benefit Plans
   Foreign
currency
translation
adjustments Available-for-
sale securities Derivative
financial
instruments Actuarial
gains/(losses)
and prior
service
(costs)/credits Total
   (U.S.$ in millions)
Balance, December 31, 2016
   $ (2,769 ) $ (7 ) $ (302 ) $ (81 ) $ (3,159 )
Other comprehensive income (loss) before reclassifications
   1,124 56 (138 ) (9 ) 1,033
Amounts reclassified to the statements of income
   (52 ) (41 ) 20 2 (71 )


Net other comprehensive income (loss) before tax
   1,072 15 (118 ) (7 ) 962
Corresponding income tax
   —   5 —   (5 ) —


Net other comprehensive income (loss) after tax *
   1,072 20 (118 ) (12 ) 962


Balance, September 30, 2017
   $ (1,697 ) $ 13 $ (420 ) $ (93 ) $ (2,197 )

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Net Unrealized Gains (Losses)									Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities			Derivative financial instruments			Actuarial gains (losses) and prior service (costs) c redits			Total
	(U.S. $ in millions)
Balance as of December 31, 2018	$	(2,055	)	$	1		$	(327	)	$	(78	)	$	(2,459	)

Other comprehensive income (loss) before reclassifications *		(28	)		(1	)		103			**			74
Amounts reclassified to the statements of income		—			—			21			—			21

Net other comprehensive income (loss) before tax		(28	)		(1	)		124			**			95
Corresponding income tax		—			—			—			**			**

Net other comprehensive income (loss) after tax		(28	)		(1	)		124			(1	)		94

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

*	Amounts do not include a ~~$64~~$ 23 million gain from foreign currency translation adjustments attributable to non-controlling interests.

**	Represents an amount less than $0.5 million.

NOTE 11 –

Debt obligations:

a. Short-term debt:

   Weighted average interest rate as of
September 30, 2018 Maturity September 30,
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
   9.37% 2018 1    1
Current maturities of long-term liabilities
   2,158    2,880




Total short term debt
   $ 2,673    $ 3,646


	Weighted average interest rate as of September 30, 2019			Maturity		September 30, 2019		December 31, 2018
						(U.S. $ in millions)
Bank and financial institutions		—			—	$	—	$	2
Revolving Credit Facility		LIBOR+1.6	%		—		100		—
Convertible debentures		0.25	%		2026		514		514
Current maturities of long-term liabilities							2,516		1,700

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

��

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term debt:


	Weighted average interest rate as of September 30, 2019		Maturity		September 30, 2019			December 31, 2018
					(U.S. $ in millions)
Senior notes EUR 1,660 million		0.38%		2020	$	1,816		$	1,897
Senior notes EUR 1,500 million		1.13 %		2024		1,633			1,707
Senior notes EUR 1,300 million		1.25%		2023		1,416			1,480
Senior notes EUR 900 million		4.50%		2025		985			1,029
Senior notes EUR 750 million		1.63%		2028		814			850
Senior notes EUR 700 million		3.25%		2022		766			801
Senior notes EUR 700 million		1.88%		2027		764			798
Senior notes USD 3,500 million		3.15%		2026		3,494			3,493
Senior notes USD 3,000 million		2.20%		2021		2,998			2,997
Senior notes USD 3,000 million		2.80%		2023		2,994			2,993
Senior notes USD 1,556 million (1)		1.70%		2019		—			1,700
Senior notes USD 2,000 million		4.10%		2046		1,985			1,985
Senior notes USD 1,250 million		6.00%		2024		1,250			1,250
Senior notes USD 1,250 million		6.75%		2028		1,250			1,250
Senior notes USD 844 million		2.95%		2022		857			860
Senior notes USD 789 million		6.15%		2036		782			782
Senior notes USD 700 million		2.25%		2020		700			700
Senior notes USD 613 million		3.65%		2021		619			621
Senior notes USD 588 million		3.65%		2021		587			587
Senior notes CHF 350 million		0.50%		2022		354			356
Senior notes CHF 350 million		1.00%		2025		354			356
Fair value hedge accounting adjustments						—			(9	)
Total senior notes						26,417			28,483
Other long-term debt		0.96%		2026		1			12
Less current maturities						(2,516	)		(1,700	)
Derivative instruments						—			9
Less debt issuance costs						(89	)		(104	)
Total senior notes and loans					$	23,812		$	26,700

*(1)	~~Net-share~~ ~~settlement feature exercisable at any time.~~

~~Senior notes and loans:~~

   Weighted average interest
rate as of September 30, 2018 Maturity    September 30,
2018 December 31,
2017
   %    (U.S. $ in millions)
Senior notes EUR 1,660 million⁽⁸⁾
   0.38% 2020    $ 1,924 $ 2,095
Senior notes EUR 1,500 million
   1.13% 2024    1,731 1,788
Senior notes EUR 1,300 million
   1.25% 2023    1,501 1,550
Senior notes EUR 1,000 million⁽³⁾
   2.88% 2019    —   1,199
Senior notes EUR 900 million⁽¹⁾
   4.50% 2025    1,045 —
Senior notes EUR 750 million
   1.63% 2028    863 891
Senior notes EUR 700 million⁽¹⁾
   3.25% 2022    812 —
Senior notes EUR 700 million
   1.88% 2027    810 837
Senior notes USD 3,500 million
   3.15% 2026    3,493 3,492
Senior notes USD 3,000 million
   2.20% 2021    2,997 2,996
Senior notes USD 3,000 million
   2.80% 2023    2,993 2,992
Senior notes USD 1,700 million⁽⁸⁾
   1.70% 2019    1,700 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 1,250 million⁽²⁾
   6.00% 2024    1,250 —
Senior notes USD 1,250 million⁽²⁾
   6.75% 2028    1,250 —
Senior notes USD 844 million
   2.95% 2022    862 864
Senior notes USD 789 million
   6.15% 2036    782 781
Senior notes USD 700 million
   2.25% 2020    700 700
Senior notes USD 613 million
   3.65% 2021    622 624
Senior notes USD 588 million
   3.65% 2021    587 587
Senior notes CHF 450 million
   1.50% 2018    458 461
Senior notes CHF 350 million
   0.50% 2022    357 360
Senior notes CHF 350 million
   1.00% 2025    357 360
Senior notes CHF 300 million⁽⁹⁾
   0.13% 2018    —   308
Fair value hedge accounting adjustments
      (24 ) (2 )


Total senior notes
      29,054 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


Total loans
      —   3,426
Debentures USD 15 million⁽⁷⁾
   7.20% 2018    —   15
Other
   7.78% 2026    6 5


Total debentures and others
      6 20


Less current maturities
      (2,158 ) (2,880 )
Derivative instruments
      24 2
Less debt issuance costs
      (110 ) (106 )


Total senior notes and loans
      $ 26,816 $ 28,829

~~(1)~~

~~In March 2018,~~During the first six months of 2019, Teva ~~Pharmaceutical Finance Netherlands II B.V., a Teva finance subsidiary, issued senior notes in an aggregate~~repurchased and canceled approximately $

144

million principal amount of ~~€1.6 billion.~~

~~(2)~~

~~In March 2018, Teva Pharmaceutical Finance Netherlands III B.V., a Teva finance subsidiary, issued senior notes in an aggregate principal amount of $2.5 billion.~~

~~(3)~~

~~In March 2018, Teva redeemed in full~~ its ~~$1.5 billion 1.4%~~$

1,700

million

1.7

% senior notes due in July ~~2018 and its €1.0 billion 2.88% senior notes due in April~~ 2019.

~~(4)~~

~~During the first quarter of 2018, Teva prepaid approximately $2.3 billion principal amount of the remaining term loan facilities.~~

~~(5)~~
During the first quarter of 2018, Teva prepaid in full JPY 86.8 billion principal amount of the outstanding term loan facilities of which JPY 28.3 billion were in short-term debt as of December 31, 2017.

~~(6)~~

~~During the first quarter of 2018, Teva prepaid in full JPY 70 billion of its 1.42% and JPY LIBOR+0.3% outstanding term loans.~~

~~(7)~~

~~During the first quarter of 2018, Teva prepaid in full $15 million of its outstanding debentures.~~

~~(8)~~

In September 2018, Teva consummated a cash tender offer for certain of its outstanding senior notes. As a result of the offer, Teva redeemed $300 million aggregate principal amount of its 1.7% senior notes and €90 million principal amount of its 0.38% senior notes.

~~(9)~~

In July ~~2018,~~2019, Teva repaid at maturity ~~CHF 300~~$

1,556

million of its ~~0.13%~~

1.7

% senior notes.

~~Long term~~

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~~

Long-term debt as of September 30, ~~2018~~2019 is effectively denominated (taking into consideration cross currency swap agreements) in the following currencies: U.S. dollar ~~63%~~68%, euro ~~34%~~29% and Swiss franc 3%.

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $3$2.3 billion ~~syndicated~~ revolving credit facility (“RCF”)~~, which was not utilized as of September 30, 2018, as well as internally generated funds.~~ .

In ~~connection with the requirements of the RCF,~~April 2019, the Company entered into ~~negative pledge agreements with~~a $2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion revolving credit facility. The RCF contains certain ~~banks~~covenants, including certain limitations on incurring liens and ~~institutional investors. Under the agreements, the Company~~indebtedness and ~~its subsidiaries have undertaken not to register floating charges on assets in favor~~maintenance 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,~~time. The net debt to EBITDA ratio limit is 6.25x through December 31, 2019, gradually declines to 5.75x in the third and fourth quarters of 2020, and continues to ~~fulfill other restrictions, as stipulated by~~gradually decline over the ~~agreements.~~remaining term of the RCF.

The RCF can be used for general corporate purposes, including repaying existing debt. As of September 30, ~~2018,~~2019,

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

quarterly

report

on Form 10-Q

0 amounts

re outstanding under the RCF. Based on current and forecasted results, the Company ~~did~~expects that it will not ~~have any outstanding debt under~~exceed the financial covenant thresholds set forth in the RCF ~~which is its only debt subject~~within one year from the date these financial statements are issued.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~the net debt to EBITDA covenant. Assuming utilization~~Consolidated Financial Statements

(Unaudited)

Under specified circumstances, including

non-compliance

with any of the ~~RCF, and under specified circumstances, includingnon-compliance~~ ~~with such~~ covenants described above and the unavailability of any waiver, amendment or other modification thereto, ~~and~~ the ~~expiration of any applicable grace period thereto, substantially all~~Company will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under the Company’s ~~debt could be negatively impacted bynon-compliance~~ ~~with such covenants. The Company has~~senior notes due to cross acceleration provisions.

Teva expects that it will continue to have sufficient cash resources to ~~meet~~support its debt service payments and all other financial obligations ~~in the ordinary course of business for at least twelve months~~within one year from the date ~~of the release of this quarterly report.~~

that these financial statements are issued.

NOTE 12 – Fair value measurement:

Teva’s financial instruments consist mainly of cash and cash equivalents, investment in securities, current and

non-current

receivables, short-term debt, current and

non-current

payables, contingent consideration, senior notes and loans, convertible senior debentures and derivatives.

The fair value of the financial instruments included in working capital and

non-current

receivables and payables approximates their carrying value. The fair value of ~~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 that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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

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

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

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

There were no material transfers between Level 1, Level 2 and Level 3 during the first nine months of ~~2018.~~

2019.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Financial items carried at fair value as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are classified in the tables below in one of the three categories described above:

   September 30, 2018
   Level 1    Level 2    Level 3    Total
   (U.S. $ in millions)
Cash and cash equivalents:

Money markets
   $ 302    $ —      $ —      $ 302
Cash, deposits and other
   1,573    —      —      1,573
Investment in securities:

Equity securities
   53    —      —      53
Other, mainly debt securities
   2    —      18    20
Derivatives:

Asset derivatives—options and forward contracts
   —      23    —      23
Asset derivatives—cross currency swaps
   —      42    —      42
Liabilities derivatives—options and forward contracts
   —      (14 )    —      (14 )
Liabilities derivatives—interest rate and cross-currency swaps
   —      (82 )    —      (82 )
Contingent consideration*
   —      —      (717 )    (717 )








Total
   $ 1,930    $ (31 )    $ (699 )    $ 1,200








   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
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 )








Total
   $ 1,042    $ (71 )    $ (717 )    $ 254


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

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


	December 31, 2018
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	203	$	—		$	—		$	203
Cash, deposits and other		1,579		—			—			1,579
Investment in securities:
Equity securities		51		—			—			51
Other, mainly debt securities		2		—			10			12
Derivatives:
Asset derivatives—options and forward contracts		—		18			—			18
Asset derivatives—interest rate and cross-currency swaps		—		58			—			58
Liability derivatives—options and forward contracts		—		(26	)		—			(26	)
Liability derivatives—interest rate and cross-currency swaps		—		(50	)		—			(50	)
Contingent consideration*		—		—			(507	)		(507	)

Total	$	1,835	$	—		$	(497	)	$	1,338

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

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

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

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the activity for those financial ~~assets~~

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

   Nine months ended
September 30, 2018
   (U.S. $ in millions)
Fair value at the beginning of the period
   $ (717 )
Adjustments to provisions for contingent consideration:

Actavis Generics transaction
   (21 )
Labrys transaction
   (17 )
Eagle transaction
   (46 )
Settlement of contingent consideration:

Eagle transaction
   102


Fair value at the end of the period
   $ (699 )


	Nine months ended September 30, 2019
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(497	)
Revaluation of debt securities		3
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		96
Eagle transaction		(100	)
Settlement of contingent consideration:
Eagle transaction		80

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

Financial instruments not measured at fair value

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

   Estimated fair value*
   September 30,    December 31,
   2018    2017
   (U.S. $ in millions)
Senior notes included under senior notes and loans
   $ 24,775    $ 23,459
Senior notes and convertible senior debentures included under short-term debt
   2,614    2,713




Total
   $ 27,389    $ 26,172


	Fair value*
	September 30,		December 31,
	2019		2018
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	19,097	$	23,560
Senior notes and convertible senior debentures included under short-term debt		2,933		2,140

Total	$	22,030	$	25,700

*	The fair value was ~~estimated~~ based on quoted market ~~prices, where available.~~ price.

NOTE 13 – Derivative instruments and hedging activities:

a.	Foreign exchange risk management:

In the first nine months of 2019, approximately 50% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks.

The Company enters into forward exchange contracts, purchases and writes options in order to hedge the currency exposure on balance sheet items. In addition, the Company takes measures to reduce exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the companies within the Teva group. The currency hedged items are usually denominated in the following main currencies: the new Israeli shekel (NIS), the euro (EUR), the Swiss franc (CHF), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD),the Polish zloty (PLN), the Indian rupee (INR) and other European and Latin American currencies.

Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.

The Company hedges against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and entered into cross-currency swaps and forward contracts in order to hedge such an exposure.

Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

b.	Interest risk management:

The Company raises capital through various debt instruments, including straight notes that bear a fixed or variable interest rate, bank loans, securitizations and convertible debentures. In some cases, the Company has swapped from a fixed to a floating interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.

c.	Derivative instruments notional amounts

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

   September 30,
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


	September 30,		December 31,
	2019		2018
	(U.S. $ in millions)
Cross-currency swap — cash flow hedge	$	588	$	588
Cross-currency swap—net investment hedge		1,000		1,000
Interest rate swap — fair value hedge		—		500

	$	1,588	$	2,088

d.	Derivative instrument outstanding:

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

   Fair value
   Designated as hedging
instruments Not designated as hedging
instruments
   September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017
Reported under
   (U.S. $ in millions)
Asset derivatives:

Other current assets:

Option and forward contracts
   $ —   $ —   $ 23 $ 17
Othernon-current assets:

Cross-currency swaps—cash flow hedge
   42 25 —   —
Liability derivatives:

Other current liabilities:

Option and forward contracts
   —   —   (14 ) (15 )
Other taxes and long-term liabilities:

Cross-currency swaps—net investment hedge
   (58 ) (96 ) —   —
Senior notes and loans:

Interest rate swaps—fair value hedge
   (24 ) (2 ) —   —

~~Derivatives on foreign exchange contracts mainly hedge Teva’s balance sheet items~~


	Fair value
	Designated as hedging instruments					Not designated as hedging instruments
	September 30, 2019		December 31, 2018			September 30, 2019			December 31, 2018
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—	$	—		$	40		$	18
Other non-current assets:
Cross-currency swaps — cash flow hedge		103		58			—			—
Cross-currency swaps— net investment hedge		2		—			—			—
Liability derivatives:
Other current liabilities:
Option and forward contracts		—		—			(18	)		(26	)
Other taxes and long-term liabilities:
Cross-currency swaps — net investment hedge		—		(41	)		—			—
Senior notes and loans:
Interest rate swaps — fair value hedge		—		(9	)		—			—

The table below provides information regarding the location and amount of

pre-tax

(gains) losses from ~~currency exposure but~~derivatives designated in fair value or cash flow hedging relationships:


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

*	Represents an amount less than $0.5 million.

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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


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

*	Represents an amount less than $0.5 million.

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

The table below provides information regarding the location and amount of

pre-tax

(gains) losses from derivatives not designated as hedging ~~instruments for accounting purposes.~~ instruments:


	Financial expenses, net						Net revenues
	Three months ended,						Three months ended,
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded		211			229			(4,264	)		(4,529	)
Option and forward contracts (4)	$	(35	)	$	(6	)	$	—		$	—
Option and forward contracts Economic hedge (5)		—			—			(4	)		1

	Financial expenses, net						Net revenues
	Nine months ended,						Nine months ended,
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded		635			736			(12,896	)		(14,295	)
Option and forward contracts (4)	$	(42	)	$	(11	)	$	—		$	—
Option and forward contracts Economic hedge (5)		—			—			*			*

*	Represents an amount less than $0.5 million.

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

(2)

In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement with a notional amount of $500 million maturing in 2020. These cross currency swaps were designated as a net investment hedge of Teva’s foreign subsidiaries euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. With respect to these cross currency swap agreements, Teva recognized gains which mainly reflect the differences between the

float-for-float

interest rates paid and received. No amounts were reclassified from accumulated other comprehensive income into income related to the sale of a subsidiary.

(3)

In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500 million notional amount of outstanding debt. With respect to this interest rate swap agreement, Teva recognized a loss which mainly reflects the differences between the fixed interest rate and the

floating

interest

rate.

In the

third quarter of 2

019, Teva terminated this interest rate swap agreement. The settlement of these transactions resulted in a gain position of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior

notes and loans, are amortized under financial expenses-net over the life of the debt as additional interest ex

pense

(4)

Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses—net.

(5)

Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on the

uro (EUR), the British

ound (GBP), the Russian

uble (RUB) and some other currencies denominated revenues with respect to the quarter for which such instruments are purchased. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments are recognized on the balance sheet at their fair value, with changes in the fair value recognized under 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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to such derivatives, gains of $11 million and losses of $72 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $6 million and losses of $14 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively. Such losses and gains offset the revaluation of the balance sheet items which is also recorded under financial expenses, net.

During the second quarter of 2018, the Company entered into option contracts and designed these transactions to limit the exposure of foreign exchange fluctuations on the euro denominated revenues with respect to the quarter for which such instruments are purchased. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments are recognized on the balance sheet at their fair value, with changes in the fair value recognized under 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. During the third quarter of 2018, the impact of such derivative instruments was immaterial.

With respect to the interest rate and cross-currency swap agreements, gains of $1 million and $4 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $0.5 million and $1 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively. Such gains mainly reflect the differences between the fixed interest rate and the floating interest rate.

Consolidated Financial Statements

(Unaudited)

e.	Matured forward starting interest rate swaps and treasury lock agreements:

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

Certain of the forward starting interest rate swaps and treasury lock agreements matured

during the first half of 2016. In July 2016, in connection with the debt issuances, Teva terminated the remaining forward starting interest rate swaps and treasury lock agreements. The termination of these transactions resulted in a loss position of ~~$493~~ $

493

million, of which ~~$242~~ $

242

million were settled on October 7, 2016 and the remaining amount was settled in January 2017. The change in fair value of these instruments recorded ~~as part of~~in other comprehensive income is(loss) will be amortized under financial ~~expenses, net~~

expenses-net

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

With respect to the forward starting interest rate swaps and treasury lock agreements, losses of ~~$21~~$7 million were recognized under financial expenses, net for the three months ended September 30, 2019 and 2018, and losses of $22 million and ~~$20~~$21 million were recognized under financial expenses, net for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018

, respectively ~~and losses of $7 million were recognized under financial expenses, net for each of the three months ended September 30, 2018 and 2017.~~

In the third quarter of 2016, Teva terminated interest rate swap agreements designated as fair value hedge relating to ~~certain~~its 2.95% senior ~~notes.~~notes due 2022 with respect to $844 million notional amount and its 3.65% senior notes due 2021 with respect to $450 million notional amount. Settlement of these transactions resulted in a gain position of $41 million. The fair value hedge accounting adjustments of these instruments, which

were

recorded under senior notes and loans, ~~will be~~are amortized under financial

expenses

net

over the life of the ~~debt.~~ debt as additional interest expense.

With respect to ~~these terminated~~the interest rate swap agreements,

terminated in 2016 and in 2019 as described above,

gains of $5 million were recognized under financial expenses, net for both the nine months ended September 30, 2018 and 2017, and gains of $2 million were recognized under financial expenses, net for both the three months ended September 30, 2018 and 2017.

In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement maturing in 2020 with a notional amount of $500 million. These cross currency swaps were designated as a net investment hedge of Teva’s euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. The effective portion of the hedge will be determined by looking into changes in spot exchange rate. The change in fair value of the cross currency swap attributable to changes other than those due to fluctuations in the spot exchange rates are excluded from the assessment of hedge effectiveness and are reported directly in the statement of income.

~~With respect to these cross currency swap agreements, gains of $22~~ $3

million and ~~$8 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $6 million and $4~~ $2

million were recognized under financial expenses, net for the three months ended September 30, ~~2018~~2019 and ~~2017, respectively.~~

2018,

respectively

and gains of $6 million

and $5 million

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

, respectively

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

~~Other impairments, restructuring and other items consisted of the following:~~

   Three months ended
September 30,    Nine months ended
September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)
Restructuring expenses
   $ 88    $ 72    $ 442    $ 300
Integration and acquisition expenses
   4    31    9    87
Contingent consideration
   29    18    84    179
Impairments of long-lived assets
   521    408    1,501    564
Other
   16    21    44    79








Total
   $ 658    $ 550    $ 2,080    $ 1,209

~~In determining the estimated fair value~~


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

Total	$	160	$	139	$	263	$	834

(1)	Including impairments related to exit and disposal activities

Impairments

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

million and $

million, respectively.

Impairments of long-lived tangible assets ~~reflect, among others,~~for the ~~following: (i) for IPR&D assets,~~nine months ended September 30, 2019 and 2018 were $

million and $

255

million, respectively.

Teva may record additional impairments in 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,~~future, to the extent ~~the Company will change~~it changes its plans on any given asset and/or the assumptions underlying such ~~plan, there could be additional impairments in the future.~~

~~Impairments~~

~~Impairments~~plans as a result of ~~long-lived intangible assets in the third quarter of 2018 were $519 million, mainly consisting of:~~

IPR&D assets of $306 million, mainly related to revaluation of generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, legal landscape, launch date or discount rate).

Identifiable product rights of $185 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics currently marketed in the United States and supply constraints.

~~Impairments of property,~~its plant ~~and equipment of $2 million.~~

rationalization plan.

~~Impairments of long-lived intangible assets in the first nine months of 2018 were $1,246 million, mainly consisting of:~~

Contingent consideration

IPR&D assets of $867 million, mainly related to revaluation of generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, legal landscape, launch date or discount rate).

Identifiable product rights of $328 million due to updated market assumptions regarding price and volume of products acquired from Actavis Generics currently marketed in the United States and supply constraints.

~~Impairments of property, plant and equipment in the first nine months of 2018 were $255 million, mainly consisting of:~~

~~$155 million related to the restructuring plan, including:~~

~~$113 million related to site closures in Israel; and~~

~~$42 million related to the consolidation of headquarters and distribution sites in the United States.~~

~~Other impairment costs, mainly $64 million related to a plant located in India in connection with the P&G separation agreement. See note 3.~~

~~Restructuring~~

In the three months ended September 30, ~~2018,~~2019, Teva recorded ~~$88~~an expense of $51 million ~~of restructuring expenses,~~for contingent consideration, compared to ~~$72~~an expense of $29 million in the three months ended September 30, ~~2017.~~

2018. The expenses in the third quarter of 2019 were mainly related to a change in the estimated future royalty payments from Eagle Pharmaceuticals, Inc. (“Eagle”) in connection with bendamustine sales.

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

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

), which was part of the Actavis Generics acquisition.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Restructuring

In the three months ended September 30, 2019, Teva recorded ~~$442~~$61 million of restructuring expenses, compared to ~~$300~~$88 million in the ~~first~~three months ended September 30, 2018.

In the nine months ended September 30, 2019, Teva recorded $140 million of ~~2017. The~~restructuring expenses, compared to $442 million in the ~~first~~ nine months ~~of 2018 were primarily related to headcount reductions across all functions.~~

ended September 30, 2018.

Since the announcement of its restructuring plan, Teva reduced its global headcount by ~~approximately 9,100~~11,554 full-time-equivalent employees.

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

~~During the first nine months of 2018 Teva recorded a $155 million impairment~~impairments of property, plant and equipment related to restructuring costs ~~as detailed in “— Impairments” above.~~

of $8 million and $2 million, respectively.

During the nine months ended September 30, 2019 and 2018, Teva recorded impairments of property, plant and equipment related to restructuring costs of $29 million and $155 million, respectively.

The following tables provide the components of costs associated with Teva’s restructuring plan, including other costs associated with Teva’s restructuring plan and recorded under different items:

Three months ended September 30,


2018

2017


(U.S. $ in millions)

Restructuring

Employee termination

$
62


$
54

Other


26



18





Total

$
88


$
72






Three months ended September 30,


2018

2017


(U.S. $ in millions)

Other

Cost of sales

$
8


$
3

Selling and marketing expenses


—



3

Other items


16



—


Nine months ended September 30,


2018

2017


(U.S. $ in millions)

Restructuring

Employee termination

$
380


$
228

Other


62



72





Total

$
442


$
300






Nine months ended September 30,


2018

2017


(U.S. $ in millions)

Other

Cost of sales

$
23


$
5

Selling and marketing expenses


—



3

Other items


54



—


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

Total	$	61	$	88


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

Total	$	140	$	442

The following table provides the components of and changes in the Company’s restructuring accruals:

   Employee
termination costs    Other    Total
   (U.S. $ in millions)
Balance as of January 1, 2018

$
(294
)

$
(17
)

$
(311
)
Provision


(380
)


(62
)


(442
)
Utilization and other*


418



51



469







Balance as of September 30, 2018

$
(256
)

$
(28
)

$
(284
)


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

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

*	Includes adjustments for foreign currency translation.

Significant regulatory events

In July 2018, the FDA completed an inspection of Teva’s manufacturing plant in Davie, Florida in the United States, and issued a FormFDA-483 to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, Teva received a warning letter from the FDA that contains four enumerated concerns related to production, quality control, and investigations at this site.

Teva is working diligently to ~~investigate~~remediate the FDA’s ~~observations~~concerns in a manner consistent with ~~Current Good Manufacturing Practices (CGMPs)~~current good manufacturing practice (CGMP) requirements, and to address those ~~observations~~concerns as quickly and as thoroughly as possible. ~~The impact of such investigation and remediation on the financial statements in the third quarter of 2018 was immaterial. However, if~~If Teva is unable to remediate the warning letter findings ~~in a timely manner, Teva~~to the FDA’s satisfaction, it may face additional consequences, including ~~potential~~ delays in FDA approval for future products from the site, ~~other~~ financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, ~~and other~~ costs of ~~remediation.~~

additional remediation and possible FDA enforcement action. Teva expects to generate approximately $63

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

230

million

2020

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of ~~an unexpected~~a previously unknown impurity called NDMA found in ~~the~~valsartan API ~~provided by a third party supplier, Zhejiang Huahai~~

~~Pharmaceutical (“Zhejiang”), used in the production of such medicines. On September 28, 2018, the FDA issued an import ban on all APIs and other drug products made~~supplied to Teva by Zhejiang ~~in its Chuannan site into the United States. On the same date, the EU authorities issued to Zhejiang a statement ofnon-compliance~~ for the manufacture of valsartan (and its intermediates) for EU medicines produced in the Chuannan site, thus prohibiting marketing authorization holders in the EU from using such valsartan materials in the production of finished products. On October 15,Huahai Pharmaceutical. Since July 2018, ~~the EU authorities announced that Zhejiang was under increased supervision~~Teva has been actively engaged with ~~respect to other APIs produced by Zhejiang. Many~~ regulatory agencies around the world ~~continue to review information relating to~~in reviewing its valsartan ~~medicines~~ and ~~the~~other sartan products ~~as a group. The~~for NDMA and other related impurities and, where necessary, has initiated additional voluntary recalls.

As of September 30, 2019, the accumulated impact of this recall on ~~the Company’s~~Teva’s financial statements ~~in the first nine months of 2018~~

was ~~$46~~$55 million, primarily related to ~~recall~~inventory reserves and ~~inventory reserves. Depending on the scope of regulatory actions, duration of the API outage and severity of the impurity,~~returns. Teva ~~may face additional~~expects to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter, for which litigation costs are currently being incurred. Teva may also incur additional customer penalties, impairments ~~and/or other~~and litigation ~~costs.~~

costs going forward.

NOTE 15 – Legal settlements and loss contingencies:

In the

third

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

third

quarter of 2018.

The expense in the third quarter of ~~2018,~~2019 was mainly related to an increase in the ~~Company~~estimated settlement provision recorded ~~expenses~~in connection with the remaining opioid cases.

In the first nine months of ~~$19~~2019, Teva recorded an expense of $1,171 million ~~for~~in legal settlements and loss contingencies, compared to income of ~~$20 million in the third quarter of 2017.~~

~~In the first nine months of 2018, Teva recorded income of~~ $1,239 ~~million in connection with legal settlements, compared to an expense of $324~~ million in the first nine months of ~~2017.~~2018. The ~~income~~expense in the first nine months of ~~2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa~~2019 was mainly related to

an estimated settlement ~~and reversal of the reserve~~provision recorded in connection with the ~~second quarter of 2017 with respect to the carvedilol patent litigation.~~

remaining opioid cases.

As of September 30, ~~2018~~2019 and December 31, ~~2017~~2018, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses was ~~$663~~$1,601 million and ~~$1,232~~$562 million, respectively.

NOTE 16 – Commitments and ~~Contingencies:~~

contingencies:

General

From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, as described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva generally believes that it has meritorious defenses to the actions brought against it and vigorously pursues the defense or settlement of each such action. Except as described below, Teva does not currently have a reasonable basis to estimate the loss, or range of loss, that is reasonably possible with respect to matters disclosed in this note.

Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters that the Company has determined no longer meet the materiality threshold for disclosure.

If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.

In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.

Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA (formerly IMS Health Inc.) data.

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

10-K

for the year ended December 31, 2018.

Intellectual Property Litigation

From time to time, Teva seeks to develop generic versions of patent-protected pharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity,

enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.

Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic version even though litigation is still pending. To the extent Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva, which could be material to its results of operations and cash flows in a given period.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty and it may also be able, in certain circumstances, to be compensated for its lost profits. The amount of a reasonable royalty award would generally be calculated based on the sales of Teva’s product. The amount of lost profits would generally be based on the lost sales of the patentee’s product. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.

Teva is also involved in litigation regarding patents in other ~~countries~~cou

tries where it does business, particularly in ~~Europe, where Teva has in recent years increased the number of launches of its generic versions of branded pharmaceuticals prior to the expiration of the innovator’s patents.~~Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.

In July 2014, GlaxoSmithKline (“GSK”) sued Teva in Delaware federal court for infringement of a patent expiring in June 2015 directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of GSK’s Coreg^{®
) in September 2007. Teva vigorously disputed GSK’s claims on the merits and also disputed the amount and nature of GSK’s alleged damages. A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of $235.5 million, not includingpre-
or post-judgment interest. Teva filedFollowing post-trial motions for judgment as a matter of law askingfiled by the court to overturn the jury verdictparties, on inducement, invalidity, and the award of lost profits damages, and GSK filed post-trial motions asking the court to increase the damages amount in light of the willful infringement finding and to set the interest rate(s) to be applied to the total damages amount. On March 28, 2018, the district court issued an opinion overturning the jury verdict and instead found no induced infringement by Teva, thereby finding that Teva did not owe any damages. Thedamages; the district court also denied Teva’s motion seeking to overturn the jury verdict with respect to invalidity and denied GSK’s motion seeking to increaseinvalidity. The provision that was originally included in the damages award. financial statements following the damages
verdictin
this matter was reversed following the opinion overturning the verdict as the exposure was no longer considered probable.
On May
25,
2018 GSK appealed the decision,, both parties filed an appeal. A hearingwas held on
September
4,
2019 and Teva filed an appeal of certain adverse rulings.awaits the Court’s decision.
If the appeal of the district court’s decision is decided against Teva, the case would be remanded to the district court for it to consider Teva’s other legal and equitable defenses that have not yet been considered by the district court. The provision that was included in the financial statements for this matter has been reversed as the exposure is no longer considered probable.}

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

neric eq

ivalent 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. At the time of Teva’s launch in 2015, annual sales of Velcade were approximately 94 million Canadian dollars. Additionally, Teva commenced an action under Section 8 of PM(NOC) to recover damages for being kept off of the market during the PM(NOC) proceedings. Janssen and Millennium filed a counterclaim for infringement of the same two patents as well as a patent covering a process to prepare bortezomib. The product patent expired in October 2015; the other patents expire in January 2022 and March 2025. On December 20,In 2017, Teva entered into an agreement with Janssen and Millennium which limits the damages payable by either party depending on the outcome of the infringement/impeachment action. As a result, the most Janssen and Millennium could recover is 200 million Canadian dollars (approximately $159 million) plus post-judgment interest. The trial, which is limited to the issue of patent validity and infringement, began on January 29, 2018 and concluded on March 8, 2018. OnIn June 27, 2018, the court issued its opinion in Teva’s favor and ruled that Janssen and Millennium are to pay Teva 5 million Canadian dollars in Section 8 damages. On September 28, 2018, Janssen and Millennium filed an appeal, of this decision with respectwhich was denied by the appellate court on November 4, 2019. Janssen
andMillennium may apply for a leave to two of the patents subject
appealto the original proceedings. IfCanadian Supreme Court.}

f the decision is

ultimately

overturned, ~~on appeal,~~ Teva could owe the capped damages set forth above. In addition to the potential damages that could be awarded, ~~if Janssen and Millennium are ultimately successful in this claim,~~ Teva could be ordered to cease sales of its bortezomib product.

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

Aloxi^{®
), and in November 2015, the U.S. District Court for the District of New Jersey ruled against Teva. Teva appealed this decision and, in May 2017, the Federal Circuit Court of Appeals reversed the district court’s ruling and found the asserted patents invalid. In January 2018, full appellate review of that decision was denied. Helsinn filed an appeal with the USU.S. Supreme Court, which was granted on June 25, 2018. Oral argument has been scheduled for December 4, 2018. Ifgranted. On January 22, 2019, the Supreme Court reversesaffirmed the appellate court’s decision finding the case may be remandedasserted patent invalid. Helsinn has no further opportunity to the district court.appeal this patent decision. Separately, in October 2014, Helsinn filed an additional claim on later-acquired patents, but that litigation was stayed pendingpatents. On January 30, 2018, the outcome of the original case. Following the appellate court’s decision in
Teva’s favor in the original case, Helsinn reopened the stayed case on the later-acquired patent and filed a motiondistrict court denied Helsinn’s request for a preliminary injunction based on that later-acquired patent. On January 30, 2018, the District Court of New Jersey denied Helsinn’s request for a preliminary injunction.these later acquired patents. Teva launched its generic palonosetron IV solution after obtaining final regulatory approval on March 23, 2018. If Teva ultimately loses either oneand Helsinn agreed on a settlement in principle to settle their dispute regarding palonosetron, pending completion of final documentation. A provision with respect to the settlement in principle was included in the financial statements.}

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

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

inter partes

review, the Patent Trials and Appeals Board (“PTAB”) found the patent to be invalid. In October 2018, the District Court for the District of New Jersey also found the patent to be invalid. Teva ~~may be ordered, by the court, to cease sales of~~launched its generic 250mg product ~~and/or pay damages to Helsinn. Aloxi~~^® ~~annual sales as of~~in November ~~2017 were $459 million in~~2018. On May 14, 2019, the U.S.

Court of Appeals affirmed that Janssen’s patent is invalid. That decision became final on June 20, 2019. Janssen

did not

seek U.S. Supreme Court review of this decision

this

matter is considered closed.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Product Liability Litigation

Teva’s business inherently exposes it to potential product liability claims. Teva maintains a program of insurance, which may include commercial insurance, self-insurance (including direct risk retention), or a combination of both approaches, in amounts and on terms that it believes are reasonable and prudent in light of its business and related risks. However, Teva sells, and will continue to sell, pharmaceuticals that are not covered by its product liability insurance; in addition, it may be subject to claims for which insurance coverage is denied as well as claims that exceed its policy limits. Product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, Teva may not be able to obtain the type and amount of ~~commercial~~ insurance it desires, or any ~~commercial~~ insurance on reasonable terms, in all of its markets.

Competition Matters

As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva obtained a license to market a generic version of the drug, often years before the patents expire.

Teva and its subsidiaries have increasingly been named as defendants in cases that allege antitrust violations arising from such settlement agreements. The plaintiffs in these cases, which are usually direct and indirect purchasers of pharmaceutical products, and often assert claims on behalf of classes of all direct and indirect purchasers, typically allege that (1) Teva received something of value from the innovator in exchange for an agreement to delay generic entry, and (2) significant savings could have been realized if there had been no settlement agreement and generic competition had commenced earlier. These class action cases seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the generic price allegedly would have been and disgorgement of profits, which are automatically ~~trebled~~tripled under the relevant statutes, plus attorneys’ fees and costs. The alleged damages generally depend on the size of the branded market and the length of the alleged delay, and can be ~~substantial –~~ substantial—potentially measured in multiples of the annual brand ~~sales –~~ sales—particularly where the alleged delays are lengthy or branded drugs with annual sales in the billions of dollars are involved.

Teva believes that its settlement agreements are lawful and serve to increase competition, and has defended them vigorously. In Teva’s experience to date, these cases have typically settled for a fraction of the high end of the damages sought, although there can be no assurance that such outcomes will continue.

In June 2013, the ~~United States~~U.S. Supreme Court held, in Federal Trade Commission v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws.

This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.

In April 2006, certain subsidiaries of Teva were named in a class action lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania. The case alleges that the settlement agreements entered into between Cephalon, Inc., now a Teva subsidiary (“Cephalon”), and various generic pharmaceutical companies in late 2005 and early 2006 to resolve patent litigation involving certain finished modafinil products (marketed as PROVIGIL^{®
) were unlawful because they had the effect of excluding generic competition. The case also alleges that Cephalon improperly asserted its PROVIGIL patent against the generic pharmaceutical companies. The first lawsuit was broughtfiled by King Drug Company of Florence, Inc. on behalf of itself and as a proposed class action on behalf of any other person or entity that purchased PROVIGIL directly from Cephalon. Similar allegations were made in other complaints, including those filed on behalf of a proposedpurported class of end payersdirect purchasers. Similar complaints were also filed by a purported class of PROVIGIL, byindirect purchasers, certain individual end payers, by certain retail chain pharmacies and by Apotex, Inc. (collectively, these cases are referred to as the “Philadelphia Modafinil Action”). Separately, Apotex challenged Cephalon’s PROVIGIL patent and, in October 2011, the court found the patent to be invalid and unenforceable based on inequitable conduct. This decision was affirmed on appeal in April 2013. Teva has either settled or reached agreements in principle to settle with all of the plaintiffs in the Philadelphia Modafinil Action. However, one of the end payers, United Healthcare Services, took the position that it is not bound by the settlement that was agreed to on its behalf and brought a separate action in Minnesota federal court, which was transferred to the U.S. District Court for the Eastern District of Pennsylvania, where Teva had filed suit to enforce the settlement. A bench trial was held in April 2018, and the court issued its opinion on September 19, 2018, ruling in Teva’s favor
and holding that United Healthcare is bound by the settlement. On October 16, 2018, United Healthcare moved the court to amend its final judgment and to clarify that the final judgment does not address how settlement proceeds should be allocated among United Healthcare and the other end payers. That motion was denied on October 30, 2018. 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, including2016, and on July 23, 2019, reached a settlement with the State of California, have given notices of potential claims related to these settlement agreements. Teva has produced documentswhich is pending final court approval, and information in response to discovery requests issuedis fully covered by the California Attorney General’s office as partsettlement fund explained below.}

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~PROVIGIL.~~

Consolidated Financial Statements

The remaining balance of the settlement fund ~~does not cover any judgments or settlements outside~~after consideration of the ~~United States.~~

~~Following~~

settlement with the

State of California noted above is approximately $

million. In February 2019, in connection with the settlement of other unrelated FTC antitrust lawsuits, as described below, Teva and the FTC agreed to amend certain non

financial provisions of the Modafinil Consent Decree and to restart its

ten-year

term.

Additionally, following an investigation initiated by the European Commission in April 2011 regarding a modafinil patent settlement in Europe, the European Commission issued a Statement of Objections in July 2017 against both Cephalon and Teva alleging that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil. ~~Teva submitted its defense in writing and an oral hearing was held.~~ No final decision regarding infringement has yet been taken by the European Commission. The sales of modafinil in the European Economic Area during the last full year of the alleged infringement amounted to EUR 46.5 million.

In January 2009, the FTC and the State of California filed a complaint for injunctive relief in California federal court alleging that a September 2006 patent lawsuit settlement between Watson Pharmaceuticals, Inc. (“Watson”), ~~now a~~ from wh

ich

Teva ~~subsidiary,~~later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”) relating to AndroGel^{®
1% (testosterone gel) violated the antitrust laws. Additional lawsuits alleging similar claims were later filed by private plaintiffs (including plaintiffs purporting to represent classes of similarly situated claimants as well as direct purchaserretailer plaintiffs filing separately) and the various actions were consolidated in a multidistrict litigation in Georgia federal court. The defendants filed various summary judgment motions on September 29, 2017, whichOn February 22, 2019, the district court grantedFTC stipulated to the dismissal of its claims against Watson, in part, and deniedexchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. Teva also settled with most of the retailer plaintiffs in part, on June 13, 2018. The direct-purchaser plaintiffs movedApril 2019.O
n July 16, 2018, the direct purchaser plaintiffs’ motion for class certification on February 9, 2018 and that motion was denied on July 16, 2018. The direct-purchaser plaintiffs have not sought to immediately appeal the denial of such class certification.denied. As a result, the three direct purchasers that had sought class certification can proceedare now proceeding as individual plaintiffs, but anyand trial on their claims has been scheduled to begin in February 2020. In addition, in August 2019, certain other memberdirect-purchaser plaintiffs (who would have been members of the proposed direct purchaser class, will needhad it been certified) filed their own claims in federal court in Philadelphia, challenging (in one complaint) both the September 2006 settlement between Watson and Solvay referenced above, as well as Teva’s December 2011 settlement with AbbVie involving AndroGel®
and TriCor®
, referenced below. The defendants have moved the Philadelphia court to file a separate, individual lawsuit if it wishes to participate in the litigation. The court has ordered a bench trial on the FTC’stransfer all of these claims to start on February 25, 2019, with a jury trial on the private plaintiffs’ claims to be scheduled thereafter.same Georgia federal court that has been presiding over the multidistrict litigation, and that motion remains pending. Annual sales of AndroGel^{®
1% were approximately}}

$350 million at the time of the settlement ~~were approximately $350 million,~~ and ~~annual sales of the AndroGel franchise (AndroGel~~^® ~~1% and AndroGel~~^® ~~1.62%) were~~ approximately $140 million ~~and $1.05 billion, respectively,~~

at the time Actavis launched its generic version of AndroGel^{®
1% in November 2015.
A provision for this case was included in the financial statements.}

In December 2011, three groups of plaintiffs sued Wyeth and Teva for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving extended release venlafaxine (generic Effexor^{XR® XR)
) entered into in November 2005. The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the United StatesU.S. District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In October 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases, after which the parties agreed that the court’s reasoning applied equally to the indirect purchaser cases. Plaintiffs appealed and, onin August 21, 2017, the Third Circuit reversed the district court’s decision and remanded for further proceedings. On November 20, 2017, Teva and Wyeth filed a petition for a writ of certiorari in the United States Supreme Court. That petition was denied on February 20, 2018, and litigation has resumed before the district court. Annual sales of Effexor^{XR® XR
were approximately $2.6 billion at the time of settlement and at the time Teva launched its generic versions were launched version of Effexor XR®
in July 2010.}}

In February 2012, two purported classes of direct-purchaser plaintiffs sued GSK and Teva in New Jersey federal court for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving lamotrigine (generic Lamictal^{®
) entered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the court dismissed the case, but in June 2015, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further proceedings. In December 2018, the court granted the direct-purchaser plaintiffs’ motion for class certification. On February 19, 2016, Teva and GSK filed aMarch 18, 2019, the appeals court granted the defendants’ petition for a writ of certiorari in the United States Supreme Court, which was denied on November 7, 2016. In the meantime, litigation has resumed beforeimmediate appellate review and the district court and direct-purchaser plaintiffs moved for class certification in June 2018. That motion has been fully briefed and remains pending.stayed the litigation pending the outcome of the appeal. Annual sales of Lamictal^{®
were approximately $950 million at the time of the settlement and approximately $2.3 billion at the time Teva launched its generic competition commenced version of Lamictal®
in July 2008.}}

In April 2013, purported classes of direct purchasers of, and end payers for, Niaspan^{® (extended
(extended release niacin) sued Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005 to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout
2015 and in January 2016, several individual direct purchaser
opt-out
plaintiffs filed complaints with allegations nearly identical to those of the direct purchaser class.class and, inAugust 2019, the district court certified
the direct-purchaser class, although the court has yet to rule on the
indirect purchaser’ pending motion
for class certification. In October 2016, the District Attorney for Orange County, California, filed a similar complaint, which has since been amended, in California state court, alleging violations of state law. Defendants moved to strike the District Attorney’s claims for restitution and civil penalties to the extent not limited to alleged activity occurring in Orange County. The Superior Court denied that motion, but defendants appealed, and on May 31, 2018, themotion. The Court of Appeal Fourthsubsequently reversed the decision and review of the Appellate District, reversed and instructed the Superior Court to grant defendants’ motion. The District Attorney petitioned the California Supreme Court to review the Court of Appeal’s decision. The petition was granted on August 22, 2018, and the District Attorney filed its opening briefdecision is now pending before the California Supreme Court on September 21, 2018.Court. Annual sales of Niaspan^{®
were approximately $416 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic competition commenced version of Niaspan®
in September 2013.}}

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
(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. Teva reached an agreement to settlesettled the multidistrict litigation with the various plaintiff groups in the first quarter of 2018. A2018 and a provision for these settlements has beenwas included in the financial statements, and in September 2018, the district court gave final approval for the settlements with the direct purchaser andend-payer plaintiffs.statements. 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. The FTC later voluntarily dismissed those claims and refiled them (along with a stipulated order for permanent injunction to settle its claims against Endo) in the same California federal court in which the private multidistrict litigation referenced above was pending. On February 3, 2017, the State of California filed its own complaint against Allergan and Watson, and that complaint was also assigned to the California federal court presiding over the multidistrict litigation. AfterOn February 22, 2019, the FTC dismissed its claims in Pennsylvania, but before itre-filed them in California, Watsonagainst Actavis and Allergan, filed suit againstin exchange for Teva’s agreement to amend 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 disgorgement. The federal court in California stayed both the FTC’s claimsModafinil Consent Decree, as described above. On July 23, 2019 Teva and the State of California’s claimsCalifornia also reached a settlement agreement. On September 16, 2019, end-payers Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan filed their own lawsuit against AllerganWatson, and Watson, pending the outcome of the declaratory judgment actionother defendants, in Pennsylvania. On October 29, 2018, the PennsylvaniaMichigan state court. That lawsuit was subsequently removed to federal court dismissed that declaratory judgment action for lack of jurisdiction. Annual sales of Lidoderm^® at the time of the settlement were approximately $1.2 billion, and were approximately $1.4 billion at the time Actavis launched its generic version in September 2013.
remains pending.}}

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/
(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. Teva has settled with the putative classes of direct purchasers and end payers, as well as with the

opt-out

direct purchaser plaintiffs, and with two of the

opt-out

end payer ~~plaintiffs, Humana and Blue Cross/Blue Shield of Louisiana.~~plaintiffs. A provision ~~has been~~with respect to the settlements was included in the financial ~~statements for this matter.~~statements. The district court overruled certain objections to the end payer settlement, including objections made by the Orange County District Attorney, and approved ~~such~~the settlement. The District Attorney subsequently appealed the court’s approval to the Second Circuit.

Opt-outs

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

were approximately ~~$340~~$

340

million at the time of the settlement and approximately ~~$455~~$

455

million at the time Teva launched its authorized generic ~~competition began~~ version of Aggrenox

in July 2015.

Since January 2014, numerous lawsuits have been filed in the U.S. District Court for the Southern District of New York by purported classes of end payers for, and direct purchasers of, Actos^{®
and Acto plusActoplus Met^® (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers, including Teva, Actavis and Watson. The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers (including Takeda’s December 2010 settlement agreement with Teva) violated the antitrust laws. The Courtcourt dismissed the end payer lawsuits against all defendants in September 2015. In October 2015, the end payers appealed that ruling, and on March 22, 2016, a stipulation was filed dismissing Teva and the other generic defendants from the appeal. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time after the Court of Appeals forfollowing the Second Circuit’s decision. Defendants had moved to dismiss decision}

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

the direct purchasers’ ~~original complaint. Supplemental briefing on that motion based on~~

claims against the ~~new allegations in the amended complaint was completed on June 29, 2017~~generic manufacturers (including Teva, Actavis

, and ~~oral argument was held on October 23, 2018.~~

Watson).

At the time of the settlement, annual sales of Actos^{®
and Actoplus Met were approximately $3.7 billion and annual sales of ACTO plus Met^® were approximately $500 million.million, respectively. At the time Teva launched its authorized generic
competition commenced version of Actos
®
and Actoplus Met in August 2012, annual sales of Actos^{®
and Actoplus Met were approximately $2.8 billion and annual sales of ACTO plus Met^® were approximately $430 million.
In June 2014, two groups of end payers sued AstraZeneca and Teva, as well as Ranbaxy and Dr. Reddy’s, in the Philadelphia Court of Common Pleas for violating the antitrust laws by entering into settlement agreements to resolve the esomeprazole (generic Nexium^®) patent litigation (the “Philadelphia Esomeprazole Actions”). These end payers had opted out of a class action that was filed in the Massachusetts federal court in September 2012 and resulted in a jury verdict in December 2014 in favor of AstraZeneca and Ranbaxy (the “Massachusetts Action”). Prior to the jury verdict, Teva settled with all plaintiffs in the Massachusetts Action for $24 million. The allegations in the Philadelphia Esomeprazole Actions are nearly identical to those in the Massachusetts Action. The Philadelphia Esomeprazole Actions were stayed pending resolution of the Massachusetts Action, which was on appeal to the Court of Appeals for the First Circuit with respect to the claims against thenon-settling defendants, AstraZeneca and Ranbaxy. On November 21, 2016, the First Circuit affirmed the district court’s judgment in favor of AstraZeneca and Ranbaxy, and the plaintiffs’ petitions for rehearing and rehearing en banc were denied on January 10, 2017.
million, respectively.}}

In September 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”) as well as Teva in ~~the U.S. District Court for the Eastern District of Pennsylvania~~

federal court in Philadelphia

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

December 2011settlement

agreement to resolve the AndroGel^{®
patent litigation and a supply agreement under which AbbVie agreed to supply Teva with an authorized generic version of TriCor^{®
. The FTC alleges that Teva agreed to delay the entry of its generic testosterone gel product in exchange for entering into the TriCor supply agreement. In May 2015, the court dismissed the FTC’s claim concerning the settlement and supply agreements, and thus dismissed Teva from the case entirely. The FTC proceeded with a separate claim against AbbVie alone and in June 2018, following a bench trial, the court held that AbbVie had violated the antitrust laws by filing sham patent infringement lawsuits against both Teva and Perrigo in the underlying AndroGel patent litigation. The court ordered AbbVie to pay $448 million in disgorgement but declined to award injunctive relief. The FTC has since filed a notice of appeal as to, among other things, the district court’s May 2015 dismissal of the FTC’s claim against Teva, referencedbut in February 2019, the FTC stipulated to dismiss Teva from its appeal, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above.
Since May 2015,}}

n August 2019, two ~~lawsuits have been~~groups of direct-purchaser plaintiffs filed similar claims against AbbVie and Teva, in the ~~U.S. District Court for~~same federal court in Philadelphia where the ~~Southern District~~FTC’s claims had been pending. The first group is challenging Teva’s December 2011 settlement with AbbVie, while the second group is challenging that settlement, as well as the September 2006 AndroGel

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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In May 2015, a purported class of end payers for Namenda IR^{® (memantine
(memantine hydrochloride) filed a lawsuit against Forest Laboratories, LLC (“Forest”), the innovator, and several generic manufacturers, including Teva. Teva is only a defendant in the end payer case, in which defendants moved to dismiss the claims made by the end payers. The lawsuits allege,lawsuit alleges, among other things, that the settlement agreements between Forest and the generic manufacturers (including Forest’s November 2009 settlement agreement with Teva) to resolve patent litigation over Namenda IR®
violated the antitrust laws. On September 13, 2016, the court denied defendants’ motions to dismiss, but stayed the cases with respect to the claims brought under state law, which are the only claims asserted against Teva. The court lifted the stay on September 10, 2018 and has referred the parties to mediation. Annual sales of Namenda IR^{®
at the time of the settlement were approximately $1.1 billion and are currently approximately $1.4 billion.
$550 million at the time other manufacturers first launched generic versions of Namenda IR
®
in July 2015.}}

On ~~March 8,~~December 16, 2016, ~~and April 11, 2016, certain Actavis subsidiaries in the United Kingdom, including Auden Mckenzie Holdings Limited, received notices from~~ the U.K. Competition and Markets Authority (“CMA”) that it had launched formal investigations under Section 25 of the Competition Act of 1998 (“Competition Act”) into suspected breaches of competition law in connection with the supply of 10mg and 20mg hydrocortisone tablets. On December 16, 2016, the CMA issued a statement of objections (a provisional finding of infringement of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and ~~Allergan, which was later reissued to include~~ certain Auden Mckenzie ~~entities. A response was submitted~~entities alleging competition law breaches in connection with the supply of 10mg and ~~an oral hearing was held.~~20mg hydrocortisone tablets in the U.K. On December 18, 2017, the CMA issued a Statement 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.~~issued. On March 3, 2017, the CMA issued a second statement of ~~objection~~objections in respect of certain additional allegations (relating to the same products and covering part of the same time period as ~~for~~in 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~~On February 28, 2019, the CMA issued a third statement of objections with allegations of additional infringements relating to the supply of 10mg and ~~an oral hearing was held.~~20mg hydrocortisone tablets in the U.K against certain Auden Mckenzie entities and others. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, pursuant to which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK ~~as a result~~in relation to the December 18, 2017 and March 3, 2017 statements of ~~the investigations in respect of~~objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3. In the event of any such fines or damages, Teva expects to assert claims, including claims for breach of warranty, against the sellers of Auden Mckenzie. The terms of the purchase agreement may preclude a full recovery by Teva. A liability for this matter has been recorded in purchase accounting related to the acquisition of Actavis Generics. Further to the Master Purchase Agreement with Allergan whereby Teva agreed to indemnify Allergan for liabilities related to acquired assets, Teva agreed with Allergan to settle and release Teva’s indemnity claim and Allergan’s potential losses arising from the CMA in connection with this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3.

Since November 2016, ~~three~~several putative indirect purchaser and direct purchaser class actions were filed in federal courts in Wisconsin, Massachusetts and Florida against Shire U.S., Inc. and Shire LLC (collectively, “Shire”), Actavis and ~~Actavis,~~Teva, alleging that Shire’s 2013 patent litigation settlement with Actavis related to the ADHD drug Intuniv^{®
(guanfacine) violated various state consumer protection and antitrust laws. 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) by putative classes of direct purchaser plaintiffs. All five cases are now in Massachusetts federal court.}

In August 2019, the court ~~and on March 10, 2017, both~~denied the indirect ~~purchaser plaintiffs~~purchasers’ motion for class certification, and they filed a petition for immediate appellate review, which remains pending. The court granted the direct ~~purchaser plaintiffs filed~~

~~consolidated amended complaints.~~ purchasers’ motion for class certification in September 2019.

Annual sales of Intuniv^{®
were approximately $335 million at the time of the settlement and approximately $327 million at the time Actavis launched its generic competition began version of Intuniv®
in 2014.}

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

nst Amgen in Delaware federal court, alleging, among other things, that a January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar

), violated the antitrust laws. In March 2019, Cipla Limited amended its complaint to name Teva as an additional defendant, and putative classes of direct-purchaser and

end-payer

plaintiffs have also filed antitrust lawsuits in (since consolidated in federal court in Delaware) against Amgen and Teva related to the January 2, 2019 settlement. Both Cipla Limited and the putative class plaintiffs seek damages and injunctive relief and the defendants moved to dismiss their claims on October 15, 2019. Those motions remain pending.

Annual sales of Sensipar

in the United States were approximately $1.4 billion at the time Teva launched its generic version of Sensipar

in December 2018, and at the time of the January 2, 2019 settlement.

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States. Many of these investigations originate through what are known as

qui tam

complaints, in which the government reviews a complaint filed under seal by a whistleblower (a “relator”) that alleges violations of the federal False Claims Act. The government considers whether to investigate the allegations and will, in many cases, issue subpoenas requesting documents and other information, including conducting witness interviews. The government must decide whether to intervene and pursue the claims as the plaintiff. Once a decision is made by the government, the complaint is unsealed. If the government decides not to intervene, then the relator may decide to pursue the lawsuit on his own without the active participation of the government.

A number of state attorneys general have filed various actions against Teva and/or certain 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 states and others to pay inflated reimbursements for covered drugs. Teva and its subsidiaries have reached settlements in most of these cases. On October 4, 2018, Teva settled longstanding litigation filed by the State of Illinois against subsidiaries of Teva and Watson for a total settlement amount of $135 million, ~~to be~~the majority of which was paid ~~over time through January 2020.~~in December 2018. Teva accepted the settlement while denying any liability with respect to the claims made by the state. Pending the final settlement payment, the Illinois litigation is stayed. In August 2013, judgment was entered in a separate case brought by the State of Mississippi against Watson, pursuant to which Watson was ordered to pay compensatory damages amounting to $12.4 million. In March of 2014, the Mississippi court amended the judgment to also include punitive damages in the amount of $17.9 million. The judgment was affirmed in all respects by the Mississippi Supreme Court in January of 2018 and has since been satisfied in full. ~~The~~Certain Actavis subsidiaries ~~remain parties~~were dismissed by the trial court in an action brought by the State of Utah. That dismissal was affirmed by the Utah Court of Appeals on February 28, 2019. The State’s time to ~~active litigation in Utah where previously dismissed claims against Watson are~~seek further appellate review has expired and the matter is now ~~on appeal.~~concluded. A provision for these cases ~~has been~~was included in the financial statements.

Several

qui 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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In January 2014, Teva received a civil investigative demand from the U.S. ~~Attorney~~Att

rney for the Southern District 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 civilqui tam complaint concerning this matter were unsealed by the court ~~which revealed that~~after the ~~U.S. Attorney had notified the court in November 2014 that it had~~government 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.~~intervene. 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 completed discovery. In August 2018, Teva filed a~~complaint. Teva’s motion for summary judgment on all claims was denied on February 27, 2019. Teva has reached an agreement in principle to resolve relators’ claims, for which ~~is now pending before~~an estimated provision was included in the ~~court. No~~financial statements for the second quarter of 2019 with the remainder of such provisions recorded in the third quarter of 2019. Pending the parties’ efforts to finalize the settlement agreement and related matters and obtain necessary approvals, the court adjourned the previously scheduled trial date ~~has been set.~~

of August 19, 2019 until January 6, 2020.

In January 2014, a

qui tam

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

qui tam

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

the government’s interest to continue. Both motions are pending.

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

In May 2017, a

qui tam

action was filed against a number of Teva subsidiaries. The

qui tam

action was unsealed on June 13, 2018 after the government declined to intervene. The relator in the case alleges that Teva violated the False Claims Act by devising and engaging in promotional schemes that violate the Anti-Kickback Statute (“AKS”), resulting in false certifications of compliance with the AKS. Specifically, the relator alleges that Teva paid

in-kind

remuneration to physicians through reimbursement support and nursing services in order to increase the number of ~~Copaxone~~COPAXONE prescriptions. An amended complaint was filed on October 15, 2018. Teva ~~will move~~and the DOJ moved to dismiss ~~in November 2018.~~

~~Beginning in~~the case. These motions are pending.

Since May 2014, ~~various~~

more than

2,000 complaints ~~were~~have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of cities, counties, states, other governmental agencies

, tribes

and ~~agencies across the country. There are~~private plaintiffs (including various putative class actions ~~currently pending against Teva and its affiliates that have been brought by various states, subdivisions and state agencies~~of individuals) in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”)~~. In addition to~~ and many of the ~~complaints filed by states, state agencies and political subdivisions, over 1,500 total lawsuits have been~~cases filed in ~~various states, both in~~ state ~~and federal courts. Most of the federal class action cases, as well as~~

~~state cases that~~court have been removed ~~have been~~to federal court and consolidated into the MDL Opioid Proceeding.

Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas and Utah, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Absent resolutions, trials are expected to proceed in several states in 2020

Complaints asserting claims under similar provisions of different state law, generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ

and ~~FENTORA.~~FENTORA

. The complaints also assert claims related to Teva’s generic opioid products. In addition, ~~several dozen~~ approximately

350

complaints ~~filed by cities, counties and the State of Delaware~~ have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. ~~None~~Certain plaintiffs assert that the measure of damages is the entirety of the ~~complaints~~costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify ~~the exact amount~~multiple billions of ~~damages at issue. Teva and its affiliates that are defendants~~dollars in the ~~various~~aggregate as alleged damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants. An adverse resolution of any of these lawsuits ~~deny all~~or investigations may involve large monetary penalties, damages, and/or other forms of monetary and

non-monetary

relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows.

In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for

$85 million.

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

On ~~August 13, 2018,~~October 21, 2019, Teva reached a settlement with the ~~judge~~two plaintiffs in the MDL Opioid Proceeding ~~issued a revised case management order setting the first~~that was scheduled for trial for ~~September 2019. The court has also commenced motion~~the Track One case, Cuyahoga and Summit Counties of Ohio. Under the terms of the settlement, Teva will provide the two counties with opioid treatment medication

buprenorphine naloxone (sublingual tablets),

known by the brand name Suboxone®, with a value of

$25 million at wholesale acquisition cost and distributed over three years to dismiss briefing on certain issues in bellwether cases and the first set of briefing was completed in July 2018. On October 5, 2018, the court issued a Report & Recommendation on the first motion to dismiss filedhelp in the ~~bellwether cases,~~care and treatment of people suffering from addiction, and a cash payment in the amount of $20 million, to be paid in 4 payments over three years.

Also on October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement framework. The framework is designed to provide a mechanism by which ~~it denied defendants’ motions~~the Company attempts to ~~dismiss except for~~seek resolution of remaining potential and pending opioid claims by both the ~~common law public nuisance claim, which was dismissed. Motions~~U.S. states and political subdivisions

(i.e., counties, tribes and other plaintiffs)

thereof. Under this agreement, Teva would

provide

buprenorphine naloxone (sublingual tablets) with an estimated value of up to ~~dismiss in eight additional similar cases remain pending.~~approximately $23 billion at wholesale acquisition cost over

ten year

period

. In addition, ~~discovery has commenced~~Teva would also provide cash paymen

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Following these devel

pments, the Company considered a range of potential settlement outcomes. No single outcome in the ~~MDL Proceeding for three cases based~~range was considered to be more likely than any other outcome; accordingly, Teva accrued to the new low end of the range, resulting in ~~Ohio and fact discovery is ongoing. Other cases remain pending~~an increase in various state courts, including Oklahoma, where a trial is scheduled to begin in May 2019. In some jurisdictions, such as Connecticut, Illinois, New York, Pennsylvania and Texas, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Several state courts have allowed discovery to begin. Onour previously recorded estimated liability.

Separately,

on April 27

, 2018

, Teva received subpoena requests from the DOJ seeking documents relating to the manufacture, marketing and sale of opioids. In August 2019

, Teva received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York for documents related to the Company’s anti-diversion policies and procedures and distribution of its opioid medications, in what the Company understands to be part of a broader investigation into manufacturers’ and distributors’ monitoring programs and reporting under the Controlled Substances Act. In September 2019

, Teva received subpoenas from the New York State Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. The Company is ~~complying~~cooperating with ~~this subpoena.~~ NYDFS’s inquiry and producing documents in response to the various subpoenas and requests for information.

Currently, Teva cannot predict how the nationwide settlement framework agreement (if finalized) will affect these investigations.

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

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

On June 21, 2016, Teva USA received a subpoena from the DOJ Antitrust Division ~~of the DOJ~~ seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. Actavis received a similar subpoena in June 2015. Teva and Actavis are cooperating ~~fully~~ with the DOJ subpoena requests. On July 12, 2016, Teva USA received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. In 2015, Actavis received a similar subpoena from the Connecticut Attorney General.

On December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law ~~(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 same attorneys general filed yet another antitrust complaint against Actavis and Teva, plus other companies and individuals, alleging price-fixing and market allocation as concerns additional generic products. The complaint alleges that Teva was ~~filed on March 1, 2017 adding twenty~~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 ~~states to~~products, many of which were not previously at issue in the ~~named plaintiffs and adding supplemental state law claims. The~~Pennsylvania MDL. In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. 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 the District of Columbia filed a motion for leave to file an amended complaint in this action. The proposed amended complaint names Actavis and Teva as defendants, and adds new allegations and claims to those appearing in the prior complaints. Defendants have opposed the motion. On June 5, 2018, the District Court for the Eastern District of Pennsylvania ~~granted the attorneys general’s motion to amend.~~

(“Pennsylvania MDL”).

Beginning on March 2, 2016, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct purchaser

opt-out

plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix ~~increase, maintain and/or stabilize the~~ prices ~~of certain generic products,~~ and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On April 6, 2017, these cases were transferred to the ~~JPML entered an order transferring such~~Pennsylvania MDL. Additional cases brought by classes of direct or indirect purchasers for coordination or consolidation with the multidistrict litigation currently pending in the Eastern District of Pennsylvania. The panel subsequentlywere transferred ~~further cases~~ to that court and the plaintiffs filed consolidated amended complaints on August 15, 2017. ~~Defendants moved to dismiss certain of those consolidated amended complaints on October 6, 2017.~~ On October 16, 2018, the ~~pending~~court denied certain of the defendants’ motions to dismiss ~~were denied. Pursuant~~as to ~~orders dated~~certain federal claims, and on February ~~and April 2018,~~15, 2019, the court ~~overseeing~~granted in part and denied in part defendants’ motions to dismiss as to certain state law claims.

On July 18, 2019, certain individual plaintiffs commenced a civil action in the ~~multidistrict litigation lifted~~Pennsylvania Court of Common Pleas of Philadelphia County against many of the ~~stay of discovery on a limited basis to allow for document discovery andnon-merits~~ ~~based depositions.~~defendants in the Pennsylvania MDL, including Teva and Actavis, ~~deny having engaged in any conduct that would give rise to liability with respect to the above-mentioned subpoenas and civil suits.~~

but no complaint has been filed.

In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. Teva is cooperating ~~fully~~ with this subpoena.

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

In December 2016, Teva resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”) with the SEC and the ~~DOJ, as more fully described in Teva’s 2017 Annual Report.~~DOJ. The settlement included a fine, disgorgement and prejudgment interest; a three-year deferred prosecution agreement (“DPA”) for ~~Teva; a guilty plea by Teva’s Russian subsidiary to criminal charges of violations of the anti-bribery provisions of the FCPA; consent to entry of a final judgment against~~ Teva ~~resolving civil claims of violations of the anti-bribery, internal controls and books and records provisions of the FCPA;~~ and the retention of an independent compliance monitor for a period of three years. If, during the term of the DPA (approximately three years unless extended), the DOJ determines that Teva has committed a felony under federal law, provided deliberately false or misleading information or otherwise breached the DPA, Teva could be subject to prosecution and additional fines or penalties, including the deferred charges.

Following the above resolution with the SEC and DOJ, Teva has had requests for documents and information from various Russian government entities. In addition, on January 14, 2018, Teva entered into an arrangement for the Contingent Cessation of Proceedings pursuant to the Israeli Securities Law with the Government of Israel that ended the investigation of the Israeli government into the conduct that was subject to the FCPA investigation, and provided a payment of approximately $22 million.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. After those two lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut, the court appointed the Ontario Teachers’ Pension Plan Board as lead plaintiff (the “Ontario Teachers Securities Litigation”). The lead plaintiff then filed a consolidated amended complaint. On ~~December 1, 2017, Teva and the current and former officer and director defendants subsequently filed motions to dismiss the consolidated amended complaint, with prejudice. On~~ April 3, 2018, the court ~~granted~~dismissed the ~~motions to dismiss~~case without prejudice. ~~Lead~~The lead plaintiff filed a second amended complaint on June 22, 2018, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and August 3, 2017. The second complaint asserts that Teva and certain of its current and former officers and

directors violated federal securities laws in connection with Teva’s alleged failure to disclose pricing strategies for various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering materials issued during the class period. The second complaint seeks unspecified damages, legal fees, interest, and costs. Teva and the current and former officer and director defendants filed motions to dismiss the second complaint on September 14, 2018. ~~Lead plaintiff’s opposition to~~

On September 25, 2019, the court denied in substantial part and granted in part the defendants’ motions to ~~dismiss is due on November 9, 2018.~~

dismiss. The court has yet to establish a pre-trial schedule

On July 17, 2017, a lawsuit was filed in the U.S. District Court for the Southern District of Ohio derivatively on behalf of the Teva Employee Stock Purchase Plan, and alternatively as a putative class action lawsuit on behalf of individuals who purchased Teva stock through that plan. That lawsuit seeks unspecified damages, legal fees, interest and costs. The complaint alleges that Teva failed to maintain adequate financial controls based on the facts underpinning Teva’s FCPA DPA and also based on allegations substantially similar to those in the Ontario Teachers Securities Litigation. On November 29, 2017, the court granted Teva’s motion to transfer the litigation to the U.S. District Court for the District of Connecticut where the Ontario Teachers Securities Litigation is pending. On February 12, 2018, the district court stayed the case pending resolution of the motions to dismiss filed in the ~~consolidated putative securities class action~~Ontario Teachers Securities Litigation described above.

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

On August 3, 2017, a ~~securities~~ lawsuit was filed in the U.S. District Court for the District of Connecticut by OZ ELS Master Fund, Ltd. and related entities. The complaint asserts that Teva and certain of its current and former officers violated the federal securities laws in connection with Teva’s alleged failure to disclose Teva’s participation in an alleged anticompetitive scheme to fix prices and allocate markets for generic drugs in the United States. On August 30, 2017, the court entered an order deferring all deadlines pending the resolution of the motions to dismiss filed in the Ontario Teachers Securities Litigation described above.

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

On August 21 and 30, 2017, ~~each of~~ Elliot Grodko and Barry Baker filed a putative securities class ~~action~~actions in the U.S. District Court for the Eastern District of Pennsylvania purportedly on behalf of purchasers of Teva’s securities between November 15, 2016 and August 2, 2017 seeking unspecified damages, legal fees, interest, and costs. The complaints allege that Teva and certain of its current and former officers violated the federal securities laws and Israeli securities laws by making false and misleading statements in connection with Teva’s acquisition and integration of Actavis Generics. On November 1, 2017, the court consolidated the Baker and Grodko cases. On April 10, 2018, the court granted Teva’s motion to transfer the consolidated action to the District of Connecticut where the Ontario Teachers Securities Litigation is currently pending.

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

Between August 2018 and ~~October 2018, four~~ Ju

2019,

sixteen

complaints were filed against Teva and current and former officer and director defendants seeking unspecified compensatory and rescissory damages, legal fees, costs and expenses. The allegations in these complaints are substantially similar to the allegations in the Ontario Teachers Securities Litigation, but have been brought on behalf of plaintiffs that have “opted out” of the putative class in the Ontario Teachers Securities Litigation. The plaintiffs in these

“opt-out”

cases are Fir Tree Value Master Fund, L.P. and FT SOF V Holdings, LLC; The Phoenix Insurance Company Ltd., The Phoenix Pension Ltd., Excellence Gemel & Hishtalmut Ltd., Excellence Kesem ETNS and Excellence Mutual Fund; Nordea Investment Management AB; and the State of Alaska Department of Revenue, Treasury Division and the Alaska Permanent Fund Corporation, and they filed their complaints in the Court of Common Pleas of Montgomery County, Pennsylvania, ~~on August 3, 2018,~~ the U.S. District Court for the Eastern District of Pennsylvania ~~on August 3, 2018~~ and the U.S. District Court for the District of ~~Connecticut on October 10 and October 16, 2018, respectively. In the two cases filed in August 2018,~~Connecticut. Teva and the current and former officer and director defendants filed motions or stipulations to transfer the cases filed in Pennsylvania to the U.S. District Court for the District of Connecticut, where the Ontario Teachers Securities Litigation is pending. In

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

cases filed in, ~~October 2018,~~ or transferred to,

the ~~parties jointly moved to stay~~District of

Connecticut.

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

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

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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Environmental Matters

Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.

Although liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the allocation of

clean-up

and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent factors. Teva’s potential liability varies greatly at each of the sites; for some sites the costs of the investigation,

clean-up

and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other sites, Teva has taken an active role in identifying those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of

clean-up

costs from insurers, indemnitors, former site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged violations of federal, state, commonwealth or local requirements at some of Teva’s facilities may result in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of operations) and the recovery of certain costs and natural resource damages, and may require that corrective actions and enhanced compliance measures be implemented.

Other Matters

On February 1, 2018, former shareholders of Ception Therapeutics, Inc., a company that was acquired by and merged into Cephalon in 2010, prior to Cephalon’s acquisition by Teva, filed breach of contract and other related claims against the Company, Teva USA and Cephalon in the Delaware Court of Chancery. Among other things, the plaintiffs allege that Cephalon breached the terms of the 2010 Ception-Cephalon merger agreement by failing to exercise commercially reasonable efforts to develop and commercialize CINQAIR^{®
(reslizumab) for the treatment of eosinophilic esophagitis (EE)(“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). All defendants haveDefendants moved to dismiss the complaint and those motions remain pending.
on December 28, 2018, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract.}

NOTE 17 – Segments:

~~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 International 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. The Company began reporting its financial results under this structure in the first quarter of 2018.

~~In addition to these three segments, Teva has other activities, primarily the sale of API to third parties and certain contract manufacturing services.~~

~~All the above changes were reflected through retroactive revision of prior period segment information.~~

Since 2013 and until December 31, 2017, Teva had two reportable segments: generic and specialty medicines. The generic medicines segment included Teva’s OTC and API businesses. Teva’s other activities included distribution activities, sales of medical devices and certain contract manufacturing operation (“CMO”) services.

~~Teva now~~ operates its business and reports its financial results in ~~three~~3 segments:

(a)

North America segment, which includes the United States and Canada.

(b)

Europe segment, which includes the European Union and certain other European countries.

(c)

International Markets segment, which includes all countries other than those in the North America and Europe segments.

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

In addition to these three segments, Teva has other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an

out-licensing

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

Teva’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the three identified reportable segments, namely North America, Europe and International Markets, to make decisions about resources to be allocated to the segments and assess their performance.

Segment profit is comprised of gross profit for the segment less R&D expenses, S&M expenses, G&A expenses and other income related to the segment. Segment profit does not include amortization and certain other items.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Teva manages its assets on a company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review asset information by reportable segment and, therefore, Teva does not report asset information by reportable segment.

Teva’s CEO may review its strategy and organizational ~~structure.~~structure

from time to time

. Any changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 7.

a. Segment information:

   North America Europe International Markets
   Three months ended September 30,
   2018 2017 2018 2017 2018 2017
   (U.S. $ in millions)
Revenues
   $ 2,265 $ 3,043 $ 1,212 $ 1,380 $ 726 $ 882
Gross profit
   1,232 1,833 683 721 301 351
R&D expenses
   158 230 62 101 21 35
S&M expenses
   301 325 249 289 120 158
G&A expenses
   128 149 74 90 37 51
Other income (loss)
   (4 ) (1 ) 1 —   —   (3 )


Segment profit
   $ 649 $ 1,130 $ 297 $ 241 $ 123 $ 110


   North America Europe International Markets
   Nine months ended September 30,
   2018 2017 2018 2017 2018 2017
   (U.S. $ in millions)
Revenues
   $ 7,059 $ 9,452 $ 3,982 $ 4,016 $ 2,265 $ 2,485
Gross profit
   3,867 5,971 2,211 2,147 942 1,043
R&D expenses
   528 777 208 312 70 129
S&M expenses
   902 1,158 741 864 384 503
G&A expenses
   357 432 243 258 115 144
Other income
   (206 ) (82 ) (1 ) (15 ) (11 ) (4 )


Segment profit
   $ 2,286 $ 3,686 $ 1,020 $ 728 $ 384 $ 271

   Three months ended
September 30,    Nine months ended
September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)    (U.S. $ in millions)
North America profit
   $ 649    $ 1,130    $ 2,286    $ 3,686
Europe profit
   297    241    1,020    728
International Markets profit
   123    110    384    271








Total segment profit
   1,069    1,481    3,690    4,685
Profit (loss) of other activities
   35    (11 )    87    3








   1,104    1,470    3,777    4,688
Amounts not allocated to segments:

Amortization
   297    357    909    1,088
Other asset impairments, restructuring and other items
   658    550    2,080    1,209
Goodwill impairment
   —      —      300    6,100
Gain on divestitures, net of divestitures related costs
   (31 )    —      (114 )    —
Inventorystep-up
   —      —      —      67
Other R&D expenses
   60    150    82    176
Costs related to regulatory actions taken in facilities
   1    (1 )    6    48
Legal settlements and loss contingencies
   19    (20 )    (1,239 )    324
Other unallocated amounts
   84    56    226    143








Consolidated operating income (loss)
   16    378    1,527    (4,467 )








Financial expenses, net
   229    259    736    704








Consolidated income (loss) before income taxes
   $ (213 )    $ 119    $ 791    $ (5,171 )


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

Segment profit	$	565		$	341		$	130


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

Segment profit	$	649		$	297	$	123


	Nine months ended September 30, 2019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	6,169		$	3,611		$	2,145
Gross profit		3,155			2,066			877
R&D expenses		497			199			66
S&M expenses		756			637			348
G&A expenses		342			175			102
Other income		(6	)		(5	)		(2	)

Segment profit	$	1,566		$	1,060		$	363


	Nine months ended September 30, 2018
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	7,059		$	3,982		$	2,265
Gross profit		3,778			2,195			942
R&D expenses		528			208			70
S&M expenses		813			725			384
G&A expenses		357			243			115
Other income		(206	)		(1	)		(11	)

Segment profit	$	2,286		$	1,020		$	384

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


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

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the ~~nine~~three months and ~~three~~the nine months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended    Nine months ended
   September 30,    September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)    (U.S. $ in millions)
North America segment

Generic products
   $ 922    $ 1,233    $ 2,957    $ 3,979
COPAXONE
   463    819    1,403    2,475
BENDEKA / TREANDA
   161    179    502    498
ProAir
   107    155    352    399
QVAR
   36    83    173    265
AUSTEDO
   62    6    136    8
Distribution
   333    294    984    864
   Three months ended    Nine months ended
   September 30,    September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)    (U.S. $ in millions)
Europe segment

Generic products
   $ 845    $ 871    $ 2,749    $ 2,543
COPAXONE
   124    150    417    440
Respiratory products
   93    90    312    258

   Three months ended    Nine months ended
   September 30,    September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)    (U.S. $ in millions)
International Markets segment

Generic products
   $ 498    $ 629    $ 1,523    $ 1,720
COPAXONE
   14    18    52    65
Distribution
   149    146    456    406

2018:


	Three months ended September 30,
	2019		2018
	(U.S. $ in millions)
No rth Ameri ca
Generic products	$	914	$	922
COPAXONE		271		463
BENDEKA/TREANDA		124		161
ProAir*		71		107
QVAR		60		36
AJOVY		25		—
AUSTEDO		105		62
Anda		351		333
Other		131		182

Total	$	2,051	$	2,265

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


	Nine months ended September 30,
	2019		2018
	(U.S. $ in millions)
North America
Generic products	$	2,826	$	2,957
COPAXONE		753		1,403
BENDEKA/TREANDA		353		502
ProAir*		194		352
QVAR		183		173
AJOVY		68		—
AUSTEDO		276		136
Anda		1,080		984
Other		436		554

Total	$	6,169	$	7,059

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended September 30,
	2019		2018
	(U.S. $ in millions)
Europe
Generic products	$	836	$	845
COPAXONE		106		124
Respiratory products		87		93
Other		134		150

Total	$	1,163	$	1,212


	Nine months ended September 30,
	2019		2018
	(U.S. $ in millions)
Europe
Generic products	$	2,599	$	2,749
COPAXONE		327		417
Respiratory products		267		312
Other		417		504

Total	$	3,611	$	3,982


	Three months ended September 30,
	2019		2018
	(U.S. $ in millions)
International markets
Generic products	$	474	$	498
COPAXONE		20		14
Distribution		176		149
Other		66		65

Total	$	736	$	726


	Nine months ended September 30,
	2019		2018
	(U.S. $ in millions)
International markets
Generic products	$	1,404	$	1,523
COPAXONE		46		52
Distribution		491		456
Other		204		233

Total	$	2,145	$	2,265

A significant portion of Teva’s revenues, and a higher proportion of the profits, come from the manufacture and sale of patent-protected pharmaceuticals. Many of Teva’s specialty medicines are covered by several patents that expire at different times. Nevertheless, once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, Teva no longer has patent exclusivity on these products, and subject to regulatory approval, generic pharmaceutical manufacturers are able to produce and market similar (or purportedly similar) products and sell them for a lower price. The ~~commencement~~launch of generic competition, even in the form of

non-equivalent

products, can result in a substantial decrease in revenues for a particular specialty medicine in a very short time. Any ~~such~~ expiration or loss of IPsuch intellectual property rights could therefore significantly adversely affect Teva’s results of operations and financial condition.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 18 – Other income:

   Three months ended September 30,    Nine months ended September 30,
   2018    2017    2018    2017
   (U.S. $ in millions)    (U.S. $ in millions)
Gain on divestitures, net of divestitures related costs⁽¹⁾
   $ 31    —      $ 114    —
Section 8 and similar payments⁽²⁾
   1    —      195    83
Gain on sale of assets
   1    —      9    —
Other, net
   2    4    16    17








Total other income
   $ 35    $ 4    $ 334    $ 100


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019			2018
	(U.S. $ in millions)				(U.S. $ in millions)
Gain on divestitures, net of divestitures related costs (1)	$	3		31	$	12			114
Section 8 and similar payments (2)		—		1		—			195
Gain (loss) on sale of assets		3		1		(1	)		9
Other, net		8		2		19			16
Total other income	$	14	$	35	$	29		$	334

(1)	Mainly related to the divestment of the women’s health business and the dissolution of PGT ~~dissolution~~ in 2018. ~~See note 3.~~

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

NOTE 19 – Income ~~Taxes:~~

taxes:

In the third quarter of 2019, Teva recognized a tax

expense

million

pre-tax

loss

292

million

. In the third quarter of 2018, Teva recognized a tax benefit of ~~$26~~

million

, or 12%, on

pre-tax

loss of ~~$213 million. In the third quarter of 2017, Teva recognized a tax benefit of $494~~

213

million on~~pre-tax~~ ~~income of $119 million.~~

. Teva’s tax rate for the third quarter of ~~2018~~2019 was mainly affected by impairments, amortization

, legal settlements with low corresponding tax effect

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

In the first

nine

months of ~~products sold in different geographies. Teva’s tax rate for the third quarter of 2017 was mainly affected by~~2019, Teva recognized a~~one-time~~ tax benefit ~~associated with the utilization~~ of ~~Actavis Generics historical capital losses.~~

159

million

, or 13%, on

pre-tax

loss of

1,226

million

. In the first

nine

months of 2018, Teva recognized a tax benefit of ~~$56~~

million

pre-tax

income of ~~$791 million. In the first nine months of 2017, income taxes were $462~~

791

million on~~pre-tax~~ ~~loss of $5,171 million.~~

. Teva’s tax rate for the first

nine

months of ~~2018~~2019 was mainly affected by~~one-time~~ impairments, amortization

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

and interest disallowance as ~~well as~~a result of the ~~mix of products sold in different geographies.~~

~~The Company recognized the income tax effects of the~~U.S. Tax Cuts and Jobs ~~Act (“TCJA”) in its audited consolidated financial statements included in 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 year from the enactment date for the Company to complete the accounting for the U.S. tax law changes. The Company’s financial results for the year ended December 31, 2017 included a $112 million provisional estimate for its~~one-time~~ ~~deemed repatriation taxes liability. In the third quarter of 2018, the Company recorded an additional provision of $40 million, due to an increase in repatriation taxes as a result of theon-going~~ ~~analysis of the earnings of relevantnon-US~~ subsidiaries, partially offset by a decrease for U.S. foreign tax credits, pursuant to guidance issued by the U.S. Department of Treasury and revisions to the Company’s estimates since the assessment date. The amounts recorded remain provisional and may require further adjustments as new guidance becomes available.

Act.

The statutory Israeli corporate tax rate is ~~23%~~ 23

in ~~2018.~~ 2019.

Teva’s tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.

Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. Trial in this case is scheduled to begin in November 2019. A final and binding decision against Teva in this case may lead to an impairment in the amount of $146 million.

NOTE 20 – Leases:

Leases prior to the adoption of the new Lease Standard

Teva leases real estate, cars and equipment for use in its operations, which are classified as operating leases. In addition to rent, the leases may require Teva to pay directly for fees, insurance, maintenance and other operating expenses. Rental expense for the nine months ended September 30, 201

and the 12 months ended December 31, 201

, was $131 million and $175 million, respectively. The Company also has capital leases for properties.

Leases following the adoption of the new Lease Standard

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

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

Operating leases are included in operating lease

right-of-use

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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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

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

non-lease

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

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

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

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

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

The new Lease Standard will have no impact on Teva’s debt-covenant compliance under its RCF.

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

The components of operating lease cost for the three months ended and nine months ended September 30, 2019 were as follows:


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

Total operating lease cost	$	46	$	131

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


	Nine months ended
	September 30, 2019
	(U.S. $ in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	130
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$	70

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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


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

Total operating lease liabilities	$	510



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

Maturities of operating lease liabilities were as follows:


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

Total operating lease payments	$	641
Less: imputed interest		131

Present value of lease liabilities	$	510


	December 31, 2018
	(U.S. $ in millions)
2019	$	193
2020		154
2021		118
2022		91
2023		66
2024 and thereafter		283

Total lease payments	$	905

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

2020

with lease terms of 9 to 12 years.

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

128

million.

As of September 30, 2019, Teva’s total finance lease assets and finance lease liabilities are $77 million and $29 million, respectively. The difference between those amounts is mainly due to prepaid payments.

Table of Contents

ITEM 2.

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

Business Overview

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

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

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

~~In November 2017, we announced a new organizational structure and leadership changes to enable strategic alignment across our portfolios, regions and functions.~~

Our Business Segments

We ~~now~~ operate our business through three segments: North America, Europe and International Markets. ~~The purpose of the new~~Each business segment manages our entire product portfolio in its region, including generics, specialty medicines and OTC products. This structure ~~is to enable stronger~~enables strong alignment and integration between operations, commercial regions, R&D and our global marketing and portfolio function, ~~in order to optimize~~optimizing our product lifecycle across therapeutic areas. ~~We began reporting our financial results under this structure in the first quarter of 2018.~~

In addition to these three segments, we have other activities, primarily the sale of ~~active pharmaceutical ingredients (“API”)~~APIs to third parties and certain contract manufacturing services.

~~The data presented in this report for prior periods have been conformed~~

In December 2017, we announced a comprehensive restructuring plan intended to ~~reflect~~significantly reduce our cost base, unify and simplify our organization and improve business performance, profitability, cash flow generation and productivity. This plan is intended to reduce our total cost base by $3 billion by the ~~changes to our segment reporting commencing in the first quarter~~end of ~~2018.~~

2019.

Highlights

Significant highlights ofin the third quarter of ~~2018~~2019 included:

•

~~On September 14, 2018, the FDA approved AJOVY~~^TM ~~(fremanezumab-vfrm) injection for the preventive treatment of migraine in adults. We launched the product immediately upon approval.~~

Revenues in the third quarter of ~~2018~~2019 were ~~$4,529~~$4,264 million, a decrease of ~~19%~~6%, or ~~18%~~5% in local currency terms, compared to the third quarter of ~~2017.~~

2018, mainly due to generic competition to COPAXONE

•

, a decline in revenues from BENDEKA

/ TREANDA

and certain other specialty products in the United States, as well as declines in revenues in Russia and Japan, partially offset by higher revenues from AUSTEDO

, AJOVY

and QVAR

in the United States.

Our North America segment generated revenues of $2,265 million and profit of $649 million in the third quarter of 2018. Revenues decreased by 26% compared to the third quarter of 2017, mainly due to a decline in revenues of COPAXONE^®~~, as well as a decline in revenues in our U.S. generics business, a decline in revenues of ProAir~~^® ~~and QVAR~~^® ~~and the loss of revenues from the sale of our women’s health business, partially offset by higher revenues from AUSTEDO~~^®~~and our North America distribution business. Profit decreased by 43% mainly due to lower revenues, partially offset by cost reductions and efficiency measures as part of the restructuring plan.~~

~~Our Europe~~ segment generated revenues of ~~$1,212~~$2,051 million and profit of ~~$297~~$565 million in the third quarter of ~~2018.~~2019. Revenues decreased by ~~12%, or 11% in local currency terms,~~9% compared to the third quarter of ~~2017,~~2018, mainly due to a decline in revenues from COPAXONE and certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR. Profit decreased by 13%, mainly due to the ~~loss of~~changes in revenues ~~from the closure of our distribution business in Hungary, the sale of our women’s health business and a decline in COPAXONE revenues due to the entry of competing glatiramer acetate products,~~described above, partially offset by ~~new generic product launches. Profit increased by 23% mainly due to~~ cost reductions and efficiency measures as part of the restructuring plan.

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

Our International Markets segment generated revenues of ~~$726~~$736 million and profit of ~~$123~~$130 million in the third quarter of ~~2018.~~2019. Revenues ~~decreased~~increased by ~~18%, or 12%~~1% in both U.S. dollars and local currency terms, compared to the third quarter of ~~2017,~~2018. The increase in revenues was mainly due to higher distribution activities in Israel, partially offset by lower sales in Japan and ~~Russia, the effect of the deconsolidation of our subsidiaries in Venezuela and the loss of revenues from the sale of our women’s health business.~~Russia. Profit increased by ~~12%~~6%, mainly due to cost reductions and efficiency measures as part of the restructuring plan.

~~Other~~

Intangible asset impairments ~~restructuring and other items~~ were ~~$658~~$177 million in the third quarter of ~~2018, mainly comprised of a $521 million impairment of long-lived assets and $88 million of restructuring expenses. Other asset impairments, restructuring and other items were $550~~2019, compared to $519 million in the third quarter of ~~2017.~~

2018. The impairment expenses in the third quarter of 2019 were related to identifiable product rights of $99 million and IPR&D assets of $78 million. These impairments were mainly related to products acquired from Actavis Generics in the United States and Hong Kong.

Operating loss was $81 million in the third quarter of 2019, compared to income ~~was~~of $16 million in the third quarter of ~~2018,~~2018. The decrease was mainly due to higher provisions in connection with legal settlements and loss contingencies, partially offset by lower intangible asset impairments, lower R&D expenses and higher profit in our Europe segment.

In the third quarter of 2019, we recorded an expense of $468 million in legal settlements and loss contingencies, compared to ~~$378~~$19 million in the third quarter of ~~2017.~~2018. The ~~decrease in operating income was mainly due to lower gross profit and higher impairment charges recorded~~expense in the third quarter of ~~2018.~~

2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the remaining opioid cases.

Exchange rate movements between the third quarter of ~~2018~~2019 and the third quarter of ~~2017~~2018 negatively impacted revenues by ~~$80~~$55 million and operating income by ~~$34~~$19 million.

Table of Contents

As of September 30, ~~2018,~~2019, our debt was ~~$29,489~~$26,942 million, compared to ~~$30,237~~$28,726 million as of June 30, ~~2018,~~2019. The decrease was mainly due to ~~a debt tender offer completed in September 2018 and~~ repayment at maturity of our $1,556 million 1.7% senior notes, ~~in July 2018.~~

as well as decreased exchange rate fluctuations.

Cash flow generated from operating activities during the third quarter of 2019 was $325 million, compared to $421 million in the third quarter of ~~2018,~~2018. The decrease in cash flow in the third quarter of 2019 was mainly due to lower revenues and a reduction in sales reserves associated with the revenue decline.

Cash flow generated from operating activities in the third quarter of 2019, net of cash received for capital investments and beneficial interest collected in exchange for securitized trade receivables, was $551 million, compared to ~~$795~~$704 million in the third quarter of ~~2017,~~2018. The decrease in cash flow in the third quarter of 2019 was mainly due to ~~lower net income and~~the reasons mentioned above, as well as higher ~~payments related to restructuring liabilities~~capital investments during the third quarter of 2019 compared to the third quarter of 2018.

Transactions

On ~~July 1, 2018,~~October 10, 2019, we entered into an agreement to sell and lease back the land and building of our ~~PGT Healthcare partnership with P&G~~distribution center in Israel. Net proceeds from the asset sale amounted to $128 million. See also note 20 to our consolidated financial statements.

Changes in Senior Management

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

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

In October 2019, Iris Beck-Codner stepped down from her role as Executive Vice President, Global Brand and Communications. Mark Sabag, Executive Vice President, Global Human Resources, assumed the responsibilities of the ~~separation, we transferred to P&G the shares we held in New Chapter Inc.~~Global Brand and ~~ownership rights in an OTC plant located in India.~~

~~We will continue to maintain our OTC business on an independent basis and to provide certain services to P&G after the separation for a transition period.~~

Communications function.

Results of Operations

Comparison of Three Months Ended September 30, ~~2018~~2019 to Three Months Ended September 30, ~~2017~~

2018

The following table sets forth, for the periods indicated, certain financial data derived from our ~~U.S. GAAP~~ financial statements:

   Percentage of Net Revenues
   Three Months Ended
September 30, Percentage
Change

   2018 2017 2018 -2017
   % % %
Net revenues
   100.0 100.0 (19 )
Gross profit
   44.6 47.2 (24 )
Research and development expenses
   6.9 9.5 (41 )
Selling and marketing expenses
   16.4 15.0 (12 )
General and administrative expenses
   6.8 6.6 (17 )
Other asset impairments, restructuring and other items
   14.5 9.8 20
Legal settlements and loss contingencies
   0.4 (0.4 ) —
Other income
   (0.8 ) (0.1 ) 775
Operating income
   0.4 6.7 (96 )
Financial expenses, net
   5.1 4.6 (12 )
Income (loss) before income taxes
   (4.7 ) 2.1 —
Tax benefit
   (0.6 ) (8.8 ) (95 )
Share in losses of associated companies, net
   0.2 0.1 —
Net income attributable tonon-controlling interests
   0.2 0.3 —
Net income (loss) attributable to Teva
   (4.6 ) 10.6 —
Dividends on preferred shares
   1.4 1.2
Net income (loss) attributable to ordinary shareholders
   (6.0 ) 9.4 —


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

§	Represents an amount less than 0.5%.

Table of Contents

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended September 30,
   2018 2017
   (U.S. $ in millions /% of Segment Revenues)
Revenues
   $ 2,265    100 % $ 3,043    100 %
Gross profit
   1,232    54.4 % 1,833    60.2 %
R&D expenses
   158    7.0 % 230    7.6 %
S&M expenses
   301    13.3 % 325    10.7 %
G&A expenses
   128    5.7 % 149    4.9 %
Other income
   (4 )    § (1 )    §






Segment profit^*
   $ 649    28.7 % $ 1,130    37.1 %

2018:


	Three months ended September 30,
	2019					2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,051		100	%	$	2,265		100.0	%
Gross profit		1,048		51.1	%		1,196		52.8	%
R&D expenses		156		7.6	%		158		7.0	%
S&M expenses		219		10.7	%		265		11.7	%
G&A expenses		112		5.5	%		128		5.7	%
Other (income) expense		(5	)	§			(4	)	§

Segment profit*	$	565		27.5	%	$	649		28.7	%

Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below for additional information.

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the third quarter of ~~2018~~2019 were ~~$2,265~~$2,051 million, a decrease of ~~$778~~$214 million, or ~~26%~~9%, compared to the third quarter of ~~2017,~~2018, mainly due to a decline in revenues of COPAXONE ~~a decline in revenues in our U.S. generics business, a decline in revenues of ProAir~~ and ~~QVAR and the loss of revenues from the sale of our women’s health business,~~certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and ~~our distribution business.~~

QVAR.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended
September 30,
Percentage
Change

   2018    2017    2017 -2018
   (U.S. $ in millions)
Generic products
   $ 922    $ 1,233    (25 %)
COPAXONE
   463    819    (43 %)
BENDEKA / TREANDA
   161    179    (10 %)
ProAir
   107    155    (31 %)
QVAR
   36    83    (57 %)
AUSTEDO
   62    6    870 %
Distribution
   333    294    13 %

2018:

Three months ended
September 30,

Percentage
Change

2019

2018

2019-2018

(U.S. $ in millions)

Generic products
$
914
$
922

(1
%)
COPAXONE

271

463

(41
%)
BENDEKA/TREANDA

124

161

(23
%)
ProAir
®
*

71

107

(34
%)
QVAR

60

36

68
%
AJOVY

25

—

NA

AUSTEDO

105

62

71
%
Anda

351

333

5
%
Other

131

182

(28
%)

Total
$
2,051
$
2,265

(9
%)

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

Generic products

revenues in our North America segment in the third quarter of ~~2018 decreased by 25% to $922~~2019 were $914 million flat compared to the third quarter of ~~2017,~~2018, mainly due to new generic product launches, offset by market dynamics, including product mix and price erosion in our U.S. generics ~~business, additional competition to methylphenidate extended-release tablets (Concerta~~^® ~~authorized generic) and portfolio optimization, primarily as part of the restructuring plan.~~

business.

Among the most significant generic products we sold in North America in the third quarter of ~~2018~~2019 were ~~daptomycin~~epinephrine injection (the generic equivalent of ~~Cubicin~~^{EpiPen®
), tadalafilalbuterol sulfate inhalation aerosol (ProAir®
HFA authorized generic of Teva’s specialty product), lidocaine transdermal patch (the generic equivalent of Lidoderm Patch®
), amphetamine salt tablets (the generic equivalent of Cialis^{Adderall IR®
) and methylphenidate extended-release tablets (Concerta^{icatibant acetate injection (the generic equivalent of Firazyr® authorized generic)
).}}}

In the third quarter of ~~2018,~~2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~547~~391 million total prescriptions (based on trailing twelve months), representing ~~14.1%~~10.6% of total U.S. generic prescriptions according to IQVIA data.

Table of Contents

COPAXONE

revenues in our North America segment in the third quarter of ~~2018~~2019 decreased by ~~43%~~41% to ~~$463~~$271 million, compared to the third quarter of ~~2017,~~2018, mainly due to generic competition in the United States.

COPAXONE revenues in the United States were ~~$446~~$257 million in the third quarter of ~~2018.~~

2019.

Revenues of COPAXONE in our North America segment were ~~77%~~68% of global COPAXONE revenues in the third quarter of ~~2018,~~2019, compared to ~~83%~~77% in the third quarter of ~~2017.~~

2018.

COPAXONE global sales accounted for approximately ~~13%~~9% of our global revenues in the third quarter of ~~2018~~2019 and a significantly higher percentage of our profits and cash flow from operations during this period.

The FDA approved generic versions of COPAXONE 40 mg/mL in October 2017 and February 2018 and a second generic version of COPAXONE 20 mg/mL in October ~~2017.~~2017 in the United States. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved in the European Union.

On October 12, 2018, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) handed down its ruling in the consolidated appeal of decisions from the U.S. District Court and Patent Trial and Appeal Board, relating to patents covering COPAXONE 40 mg/ml. The CAFC found all claims at issue to be invalid, and we are currently evaluating our options for further appeals.

COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in ~~Italy and Norway and has been opposed at~~various jurisdictions. In October 2017, the ~~European Patent Office. The~~ U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected.

The patent was upheld by the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.

The market for MS treatments continues to develop, particularly with the ~~recent~~ approvals of generic versions of COPAXONE discussed above, as well as additional generic versions expected to be approved in the future. Oral treatments for MS, such as Tecfidera^{®
, Gilenya^{®
and Aubagio^{®
, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies.}}}

BENDEKA

and

TREANDA

combined revenues in our North America segment in the third quarter of ~~2018~~2019 decreased by ~~10%~~23% to ~~$161~~$124 million, compared to the third quarter of ~~2017,~~2018, mainly due to ~~lower volumes, partially offset~~the June 2018 launch of Belrapzo

ready-to-dilute

bendamustine hydrochloride) by ~~higher pricing. Our partner,~~ Eagle Pharmaceuticals, Inc. (“Eagle”). In July 2018, Eagle, prevailed in its suit in the U.S. district court against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. The FDA has appealed the district court’s decision, but barring a reversal by the appellate court, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022.

In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In addition, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses. In September 2019, a patent infringement action against four of the five ANDA filers for generic versions of BENDEKA was tried in the United States District Court for the District of Delaware. We await a decision from the court, which could come as early as the first half of 2020. The asserted patents expire in 2031.

ProAir

revenues in our North America segment in the third quarter of ~~2018~~2019 decreased by ~~31%~~34% to ~~$107~~$71 million, compared to the third quarter of ~~2017,~~2018, mainly due to lower volumes and lower net pricing. In January 2019, we launched our own ProAir authorized generic in the United States following the launch of a generic version of Ventolin

HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in “generic products” above. ProAir is the second-largest short-acting beta-agonist in the market, with an exit market share of ~~45.2%~~25.3% (46.5% including our ProAir HFA authorized generic) in terms of total number of prescriptions for albuterol inhalers during the third quarter of ~~2018,~~2019, compared to ~~46.2%~~45.2% in the third quarter of ~~2017.~~2018. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo Pharmaceuticals (“Perrigo”) ~~permitting~~, under which Perrigo is now permitted to launch its generic ~~product in limited quantities once it receives FDA approval and without quantity limitations after June 2018.~~product. In November 2017, we settled another patent challenge to ProAir HFA with Lupin Pharmaceuticals, Inc.

(“Lupin”), et al. permitting Lupin to launch its generic product on September 23, 2019, or earlier under certain circumstances. To date, no generic competition has been launched.

QVAR

revenues in our North America segment in the third quarter of ~~2018 decreased~~2019 increased by ~~57%~~68% to ~~$36~~$60 million, compared to the third quarter of ~~2017. The decrease in sales in the third quarter of~~ 2018, which was ~~mainly~~a transition period due to ~~lower volumes during this quarter following wholesaler stocking in the first quarter of 2018 in connection with~~ the launch of QVAR^{® RediHaler™
RediHaler™
. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of 21.7%19.9% in terms of total number of prescriptions during the third quarter of 2018,2019, compared to 37.9%21.7% in the third quarter of 2017.
AUSTEDO2018.}

AJOVY

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

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

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

Table of Contents

We have filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly has also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation, and the litigation in the district court has been stayed pending resolution of the IPRs. The patent office hearing on the first set of six IPRs is scheduled for November 22, 2019 and the hearing on the remaining three IPRs is scheduled for January 8, 2020. In addition, we have entered into separate agreements with Alder Biopharmaceuticals and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO

revenues in our North America segment in the third quarter of 2019 increased by 71%, to $105 million, compared to $62 ~~million.~~ million in the third quarter of 2018.

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

~~Distribution~~

Anda

revenues in our North America segment ~~which are generated by Anda,~~in the third quarter of 2019 increased by ~~13%~~5% to $351 million, compared to $333 million in the third quarter of 2018, ~~compared to the third quarter of 2017,~~ mainly due to higher volumes. ~~Our~~ Anda, our distribution business in the United States, distributes generic, specialty and OTC pharmaceutical products from various third party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the secondary distribution market by maintaining high inventory levels for a broad offering of products, competitive pricing and offering next day delivery throughout the United ~~States and competitive pricing.~~

States.

Product Launches and Pipeline

In the third quarter of ~~2018,~~2019, we launched the generic version of the following branded products in North America:

Product Name
   Brand
Name Launch
Date    Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))^*
Budesonide Extended-Release Tablets, 9 mg
   Uceris ^® ER July    $ 199
Romidepsin for Injection, 10 mg/vial
   Istodax ^® August    $ 52
Cisatracurium Besylate Injection, USP 2 mg/mL, 10 mg, 10 mg/mL, 200 mg & 2 mg/mL, 20 mg
   Nimbex ^® September    $ 49
Tadalafil Tablets, USP 2.5 mg, 5 mg, 10 mg & 20 mg
   Cialis ^® September    $ 1,926

Product Name

Brand Name

Launch

Date

Total Annual U.S.

Branded Sales at Time

of Launch

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

Oseltamivir phosphate for oral suspension, 6 mg / mL

Tamiflu

July

281

Icatibant injection, 30 mg / 3 mL

Firazyr

July

304

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

Lyrica

July

5,456

Ramelteon tablets, 8 mg

Rozerem

July

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

Ziac

August

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

Doryx

August

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

Myfortic

August

180

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

EpiPen

and EpiPen Jr

August

201

Minocycline hydrochloride extended-release tablets, USP, 55 mg

Solodyn

August

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

***

August

—

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

Kenalog

-40

August

135

Acyclovir cream, 5% ****

Zovirax

August

Fosaprepitant for injection, 150 mg/Vial

***

September

—

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

Remodulin

September

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

**	Authorized generic – Teva brand.

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

****	Authorized generic.

Table of Contents

Our generic products pipeline in the United States includes, as of September 30, ~~2018, 310~~2019, 244 product applications awaiting FDA approval, including 9381 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended June 30, ~~2018~~2019 exceeding ~~$120~~$112 billion, according to IQVIA. Approximately 70% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to ~~107~~98 of these products, or ~~130~~119 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$68~~$73 billion in U.S. brand sales for the twelve months ended June 30, ~~2018,~~2019, according to IQVIA.

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

so-called ~~“authorized~~

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

In the third quarter of ~~2018,~~2019, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a

30-month

regulatory stay lapses or a

180-day

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


~~Generic Name~~	~~Brand Name~~			~~Total U.S. Annual Branded~~ ~~Market (U.S. $~~ in millions (IQVIA))*
~~Nicotine Polacrilex Mini Lozenges, 2 mg & 4 mg (Ice Mint)~~		~~Nicorette~~	^®	—
~~Azelaic Acid Foam, 15%~~		~~Finacea~~	^®	~~$ 58~~
~~Saxagliptin Tablets, 2.5mg & 5mg~~		~~Onglyza~~	^®	~~$383~~
~~Mesalamine Extended-Release Capsules USP, 375 mg~~		~~Apriso~~	^®	~~$282~~
~~Oxcarbazepine Extended-Release Tablets, 150 mg, 300 mg & 600 mg~~		~~Oxtellar~~	^®XR	~~$123~~
~~Ingenol Mebutate Gel, 0.015%~~		~~Picato~~	^®	~~$ 61~~
~~Clindamycin Phosphate and Benzoyl Peroxide Gel, 1.2%/3.75%~~		~~Onexton~~	^®	~~$125~~
~~Axitinib Tablets, 1 mg & 5 mg~~		~~Inlyta~~	^®	~~$120~~
~~Mesalamine Delayed-Release Capsules, 400mg~~		~~Delzicol~~	^®	~~$140~~


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

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

~~In the third quarter~~

Table of ~~2018,~~Contents

Below is a description of key products in our specialty pipeline ~~consisted~~as of ~~the following products:~~

September 30, 2019:


~~Product~~	~~Potential~~ ~~Indication(s)~~	~~Route of~~ ~~Administration~~
Product	Potential Indication(s)	Route of Administration	Development Phase (date entered phase 3)			Comments
CNS, Neurology and Neuropsychiatry
AUSTEDO (deutetrabenazine)	Tourette syndrome	Oral		3 (December 2017)		Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and be responsible for commercialization.
	Dyskinesia in cerebral palsy	Oral		3 (September 2019)
~~Laquinimod~~ TV-46000 (risperidone LAI)	~~Huntington disease~~ Schizophrenia	~~Oral~~ LAI	—		Based on the negative outcome of the phase 2 clinical trial, we will not continue the clinical development of laquinimod. We terminated the development and license agreement and returned the development and commercialization rights to Active Biotech in September 2018.
~~TV-46000~~ ~~(risperidone LAI)~~	~~Schizophrenia~~	~~LAI~~	3 (April 2018)

~~Product~~

~~Potential Indication(s)~~

~~Route of~~
~~Administration~~
~~Development Phase~~
~~(date entered phase 3)~~
~~Comments~~
Migraine and Pain

~~AJOVY (fremanezumab)~~
fremanezumab (anti CGRP)
~~Chronic and episodic migraine~~
Post traumatic
headache

Subcutaneous
~~Approved by FDA~~
~~and launched~~
~~(September 2018);~~
~~Response package~~
~~submitted for~~
~~Marketing~~
~~Authorization~~
~~Application~~
~~(“MAA”) to the~~
~~European~~
~~Medicines Agency~~
~~(“EMA”)~~
~~(September 2018)~~
2

~~On September 14, 2018, the FDA approved AJOVY (fremanezumab-vfrm) injection for the preventive treatment of migraine in adults. We launched the product immediately upon approval.~~
We filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly’s planned marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Eli Lilly has also submitted inter partes review petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against them in the litigation.
~~Episodic~~
~~cluster headache~~
~~Subcutaneous~~ ~~3 (November 2016)~~
~~Post traumatic headache~~
fibromyalgia

Subcutaneous

2

~~Fasinumab~~
fasinumab

Osteoarthritis pain

Subcutaneous

3 (March 2016)

Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”).
In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W).
Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

Chronic lower
back pain

Subcutaneous
2
3 (December 2017)

~~Product~~
~~Potential Indication(s)~~
~~Route of~~
~~Administration~~
~~Development Phase~~
~~(date entered phase 3)~~
~~Comments~~
Respiratory

CINQAIR/CINQAERO

Severe asthma with
eosinophilia

Subcutaneous

3 (August 2015)
~~In January 2018, we announced that the phase 3 study did not meet its primary endpoint. We are reviewing the full data to determine next steps.~~
Discontinued.
ProAir ~~e-RespiClick™~~
e-RespiClick
™

Bronchospasm and exercise induced bronchitis

Oral inhalation
~~Submitted to~~
Approved by FDA
(~~September 2017)~~
~~Resubmitted to~~
~~FDA (August~~
December 2018)
~~Following feedback from the FDA, changes on application were implemented resulting in are-submission~~ ~~of the supplemental new drug application to the FDA on August 30, 2018.~~
AirDuo
®
Digihaler
TM
Treatment of asthma in patients aged 12 years and older
Oral inhalation
Approved by FDA (July 2019)
Oncology

~~CT-P10~~
TRUXIMA
®
(formerly
CT-P10)

(biosimilar ~~candidate~~ to
Rituxan^®
US)
~~Submitted to~~
Approved by FDA
~~(2017)~~
~~Resubmitted to~~
~~FDA (2018)~~
(November 2018)
Approved in Canada (April 2019)
~~Developed under a collaboration agreement with Celltrion, Inc. (“Celltrion”). The FDA acknowledged~~
Expected to launch in the ~~resubmission of the marketing~~U.S. in November 2019.
~~CT-P06~~
HERZUMA
®
(formerly
CT-P06)

(biosimilar ~~candidate~~ to
Herceptin^®
US)
~~Submitted to FDA~~
~~(2017)~~
~~Resubmitted to~~
Approved by
FDA ~~(2018)~~
(December 2018)
Approved in Canada (September 2019)
~~approvals forCT-P10~~ ~~andCT-P06.~~ ~~The review period is approximately six months. On October 10, 2018, the FDA Oncologic Drugs Advisory Committee unanimously recommended to approveCT-P10. The~~ FDA will take the committee’s recommendation into consideration before taking action on the Biologics License Application (BLA) for the proposed Rituxan biosimilar. We have reached an agreement with Genentech to settle the patent litigation on~~CT-P10,~~ ~~which includes a licensed entry date.~~

Table of Contents

North America Gross Profit

Gross profit from our North America segment in the third quarter of ~~2018~~2019 was ~~$1,232~~$1,048 million, a decrease of ~~33%~~12%, compared to ~~$1,833~~$1,196 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues from COPAXONE, as well as a decline in sales of certain other specialty products, partially offset by increases in sales of AUSTEDO, QVAR and ~~generic products.~~

AJOVY.

Gross profit margin for our North America segment in the third quarter of ~~2018~~2019 decreased to ~~54.4% from 60.2%~~51.1%, compared to 52.8% in the third quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues from COPAXONE ~~revenues (6.2 points).~~

and certain other specialty products, partially offset by improved gross profit margin of generic products.

North America R&D Expenses

R&D expenses relating to our North America segment in the third quarter of ~~2018~~2019 were ~~$158~~$156 million, a decrease of ~~31%~~1%, compared to ~~$230~~$158 million in the third quarter of ~~2017.~~

2018.

For a description of our R&D expenses in the third quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

North America S&M Expenses

S&M expenses relating to our North America segment in the third quarter of ~~2018~~2019 were ~~$301~~$219 million, a decrease of 7%17%, compared to ~~$325~~$265 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring ~~plan.~~

plan, partially offset by increased expenses related to AJOVY.

North America G&A Expenses

G&A expenses relating to our North America segment in the third quarter of ~~2018~~2019 were ~~$128~~$112 million, a decrease of ~~14%~~12%, compared to ~~$149~~$128 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring ~~plan.~~

plan, partially offset by legal expenses.

North America Other Income

(Expense)

Other income from our North America segment in the third quarter of ~~2018~~2019 was $4$5 million, compared to $1other income of $4 million in the third quarter of ~~2017.~~

2018.

North America Profit

Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

Profit from our North America segment in the third quarter of ~~2018~~2019 was ~~$649~~$565 million, a decrease of ~~43%~~13%, compared to ~~$1,130~~$649 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues from COPAXONE, ~~and generic~~as well as a decline in sales of certain other specialty products, partially offset by increases in sales of AUSTEDO, QVAR and AJOVY, as well as cost reductions and efficiency measures as part of the restructuring plan.

Table of Contents

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended September 30,
   2018 2017
   (U.S. $ in millions /% of Segment Revenues)
Revenues
   $ 1,212    100.0 % $ 1,380    100 %
Gross profit
   683    56.4 % 721    52.2 %
R&D expenses
   62    5.1 % 101    7.3 %
S&M expenses
   249    20.5 % 289    20.9 %
G&A expenses
   74    6.1 % 90    6.5 %
Other expenses
   1    § —    §






Segment profit*
   $ 297    24.5 % 241    17.5 %

2018:


	Three months ended September 30,
	2019						2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,163			100	%	$	1,212	100	%
Gross profit		662			56.9	%		676	55.8	%
R&D expenses		63			5.4	%		62	5.1	%
S&M expenses		206			17.7	%		242	20.0	%
G&A expenses		56			4.9	%		74	6.1	%
Other (income) expense		(4	)		§			1	§
				��
Segment profit*	$	341			29.3	%	$	297	24.5	%

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the third quarter of ~~2018~~2019 were ~~$1,212~~$1,163 million, a decrease of ~~12%~~4% or ~~$168~~$49 million, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~decreased by 11%,~~were flat, mainly due to ~~the loss~~strong new generic product launches and higher sales of ~~revenues from the closure of our distribution business in Hungary, the sale of our women’s health business and~~OTC products, mostly offset by a decline in COPAXONE revenues due to ~~the entry of~~ competing glatiramer acetate ~~products, partially offset by new generic product launches.~~

products.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended
September 30,
Percentage
Change

   2018    2017    2017-2018
   (U.S. $ in millions)
Generic products
   $ 845    $ 871    (3 %)
COPAXONE
   124    150    (17 %)
Respiratory products
   93    90    3 %

2018:

Three months ended
September 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
836
$
845

(1
%)
COPAXONE

106

124

(14
%)
Respiratory products

87

93

(7
%)
Other

134

150

(10
%)

Total
$
1,163
$
1,212

(4
%)

Generic products

revenues in our Europe segment in the third quarter of ~~2018,~~2019, including OTC products, decreased by 3%1% to ~~$845~~$836 million, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~decreased~~increased by ~~1%,~~4% compared to the third quarter of 2018, mainly due to ~~the loss of revenues from the termination of the PGT joint venture and generic price reductions, partially offset by~~strong new generic product ~~launches.~~

launches and higher sales of OTC products.

COPAXONE

revenues in our Europe segment in the third quarter of ~~2018~~2019 decreased by ~~17%~~14% to ~~$124~~$106 million, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues decreased by ~~16%~~10%, mainly due to price reductions and volume decline resulting from ~~the entry of~~ competing glatiramer acetate products.

Revenues of COPAXONE in our Europe segment were ~~21%~~27% of global COPAXONE revenues in the third quarter of ~~2018,~~2019, compared to ~~15%~~21% in the third quarter of ~~2017.~~

2018.

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

Respiratory products

revenues in our Europe segment in the third quarter of ~~2018 increased~~2019 decreased by 3%7% to ~~$93~~$87 million, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased~~decreased by 4%2%, mainly due to lower sales in the ~~launch~~United Kingdom.

AJOVY

was granted a Marketing Authorization by the European Medicines Agency (“EMA”) in the European Union in a centralized process in April 2019. AJOVY launched in Germany on May 15, 2019 and we continue to progress with launches in other European Union countries. For information about AJOVY patent protection, see “—North America Revenues—Revenues by Major Product” above.

Table of ~~BRALTUS~~^® ~~in 2017.~~

Contents

Product Launches and Pipeline

As of September 30, ~~2018,~~2019, our generic products pipeline in Europe included ~~576~~509 generic approvals relating to 8166 compounds in ~~172~~135 formulations, and approximately ~~1,280~~1,140 marketing authorization applications pending approval in 37 European countries, relating to ~~180~~135 compounds in ~~346~~276 formulations ~~including two applications pending with the EMA for one strength~~ in 30 countries.

For information regarding our specialty pipeline and launches in the third quarter of ~~2018,~~2019, see “—North America Segment —Product Launches and Pipeline.”

Europe Gross Profit

Gross profit from our Europe segment in the third quarter of ~~2018~~2019 was ~~$683~~$662 million, a decrease of 5%2% compared to ~~$721~~$676 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to ~~the loss of revenues from the sale of our women’s health business and~~ a decline in COPAXONE ~~revenues.~~

revenues and the impact of currency fluctuations, partially offset by new generic product launches.

Gross profit margin for our Europe segment in the third quarter of ~~2018~~2019 increased to ~~56.4%~~56.9%, ~~from 52.2%~~compared to 55.8% in the third quarter of ~~2017.~~2018. The increase was mainly due to lower cost of goods (3.4 points) and the closure of our distribution business in Hungary (2.6 points), partially offset by a decline in COPAXONE revenues (0.7 points) and the sale of our women’s health business (0.8 points).

sold related to network optimization.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the third quarter of ~~2018~~2019 were ~~$62~~$63 million, ~~a decrease~~an increase of ~~39%~~2% compared to ~~$101~~$62 million in the third quarter of ~~2017.~~

2018.

For a description of our R&D expenses in the third quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the third quarter of ~~2018~~2019 were ~~$249~~$206 million, a decrease of ~~14%~~15% compared to ~~$289~~$242 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the third quarter of ~~2018~~2019 were ~~$74~~$56 million, a decrease of ~~18%~~24% compared to ~~$90~~$74 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

Europe Profit

Profit of our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

Profit from our Europe segment in the third quarter of ~~2018~~2019 was ~~$297~~$341 million, an increase of ~~23%~~15%, compared to ~~$241~~$297 million in the third quarter of ~~2017.~~2018. The increase was mainly due to strong new generic product launches and cost reductions and efficiency measures as part of the restructuring ~~plan.~~

plan, partially offset by the impact of currency fluctuations.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended September 30,
   2018 2017
   (U.S. $ in millions /
% of Segment Revenues)
Revenues
   $ 726    100.0 % $ 882    100 %
Gross profit
   301    41.5 % 351    39.8 %
R&D expenses
   21    2.9 % 35    4.0 %
S&M expenses
   120    16.5 % 158    17.9 %
G&A expenses
   37    5.1 % 51    5.8 %
Other income
   —      § (3 )    §






Segment profit*
   $ 123    16.9 % $ 110    12.5 %

2018:


	Three months ended September 30,
	2019					2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	736		100	%	$	726	100	%
Gross profit		295		40.1	%		301	41.4	%
R&D expenses		21		2.8	%		21	2.9	%
S&M expenses		114		15.4	%		120	16.5	%
G&A expenses		32		4.3	%		37	5.1	%
Other (income) expense		(1	)	§			—	§

Segment profit*	$	130		17.7	%	$	123	16.9	%

§	Represents an amount less than 0.5%.

International Markets Revenues

Our International Markets segment includes all countries other than those in our North America and Europe segments. Our key international markets are Israel, Japan ~~Israel~~ and Russia. The countries in this category range from highly regulated, pure generic markets, such as Israel, to hybrid markets, such as Japan, to branded generics oriented markets, such as Russia and certain Commonwealth of Independent States (CIS), Latin American and Asia Pacific markets.

Table of Contents

Revenues from our International Markets segment in the third quarter of ~~2018~~2019 were ~~$726~~$736 million, ~~a decrease~~an increase of ~~$156~~$10 million, or ~~18%~~1%, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~decreased 12%~~increased 1% compared to the third quarter of ~~2017,~~2018, mainly due to higher distribution activities in Israel, partially offset by lower sales in Japan and ~~Russia, the effect of the deconsolidation of our subsidiaries in Venezuela and loss of revenues from the sale of our women’s health business.~~

Russia.

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the three months ended September 30, ~~2018~~2019 and ~~2017:~~

   Three months ended
September 30,
Percentage
Change

   2018    2017    2017-2018
   (U.S. $ in millions)
Generic products
   $ 498    $ 629    (21 %)
COPAXONE
   14    18    (24 %)
Distribution
   149    146    2 %

2018:

Three months ended
September 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
474
$
498

(5
%)
COPAXONE

20

14

39
%
Distribution

176

149

18
%
Other

66

65

3
%

Total
$
736
$
726

1
%

Generic products

revenues in our International Markets segment in the third quarter of ~~2018,~~2019, which include OTC products, decreased by ~~21%~~5% to ~~$498~~$474 million, compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues decreased by ~~15%~~5%, mainly due to lower sales in Japan resulting from ~~regulatory pricing reductions and~~ generic competition to

off-patented

products, as well as lower sales in ~~Russia, loss of revenues from the termination of the PGT joint venture and the effect of the deconsolidation of our subsidiaries in Venezuela.~~

Russia.

COPAXONE

revenues in our International Markets segment in the third quarter of ~~2018 decreased~~2019 increased by ~~24%~~39% to $20 million, compared to $14 million ~~compared to~~in the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~decreased~~increased by 2%46%.

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

Distribution

revenues in our International Markets segment in the third quarter of ~~2018~~2019 increased by 2%18% to $176 million, compared to $149 million ~~compared to~~in the third quarter of ~~2017.~~2018. In local currency terms, revenues increased by ~~4%.~~

15%, mainly due to agreements with new distribution partners.

International Markets Gross Profit

Gross profit from our International Markets segment in the third quarter of ~~2018~~2019 was ~~$301~~$295 million, a decrease of ~~14%~~2% compared to ~~$351~~$301 million in the third quarter of ~~2017.~~

2018.

Gross profit margin for our International Markets segment in the third quarter of ~~2018 increased~~2019 decreased to ~~41.5%~~40.1%, ~~from 39.8%~~compared to 41.4% in the third quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to ~~higher gross profit resulting from~~ changes in product mix in certain countries, mainly Israel, Russia and Mexico, as well as lower cost of goods (6.4 points), partially offset by the Venezuela deconsolidation (3.2 points) and lower revenues in Japan (1.5 points).

mix.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the third quarter of ~~2018~~2019 were $21 million, ~~a decrease of 40%~~flat compared to ~~$35 million in~~ the third quarter of ~~2017.~~

2018.

For a description of our R&D expenses in the third quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the third quarter of ~~2018~~2019 were ~~$120~~$114 million, a decrease of ~~24%~~5% compared to ~~$158~~$120 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the third quarter of ~~2018~~2019 were ~~$37~~$32 million, a decrease of ~~27%~~15% compared to ~~$51~~$37 million in the third quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

International Markets Profit

Profit of our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

Profit from our International Markets segment in the third quarter of ~~2018~~2019 was ~~$123~~$130 million, an increase of 6%, compared to ~~$110~~$123 million in the third quarter of ~~2017.~~2018. The increase was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

~~During the fourth quarter~~

Table 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 third quarter of 2018. We recorded $38 million in revenues and $24 million in operating income in the third 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.

Contents

Other Activities

We have other sources of revenues, primarily the sale of ~~API~~APIs to third parties, ~~and~~ certain contract manufacturing ~~services.~~services and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.

Our revenues from other activities in the third quarter of ~~2018 increased by~~2019 were $314 million, a decrease of 4% ~~to $326 million~~ compared to the third quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased~~decreased by 7%2%.

API sales to third parties in the third quarter of ~~2018~~2019 were ~~$171~~$176 million, ~~flat~~an increase of 3%, in both U.S. dollar and local currency terms, compared to the third quarter of ~~2017. In local currency terms, revenues increased by 1%.~~

2018.

Teva Consolidated Results

Revenues

Revenues in the third quarter of ~~2018~~2019 were ~~$4,529~~$4,264 million, a decrease of ~~19%~~6%, or ~~18%~~5% in local currency terms, compared to the third quarter of ~~2017,~~2018, mainly due to generic competition to COPAXONE, ~~price erosion~~a decline in ~~our U.S. generics business~~revenues from BENDEKA/TREANDA and ~~loss of~~certain other specialty products in the United States, as well as a decline in revenues ~~following~~in Russia and Japan, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR in the ~~divestment of certain products and discontinuation of certain activities.~~United States. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the third quarter of ~~2018~~2019 negatively impacted revenues by ~~$80~~$55 million compared to the third quarter of ~~2017.~~

2018.

Gross Profit

Gross profit in the third quarter of ~~2018~~2019 was ~~$2,021~~$1,830 million, a decrease of ~~24%~~7% compared to the third quarter of ~~2017.~~2018. The decrease was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit as a percentage of revenues was ~~44.6%~~42.9% in the third quarter of ~~2018,~~2019, compared to ~~47.2%~~43.7% in the third quarter of ~~2017.~~

2018.

The decrease in gross profit as a percentage of revenues was mainly due to lower profitability in North America, resulting mainly from a decline in COPAXONE revenues due to generic competition, ~~and price erosion in our U.S. generics business (4.3 points), the sale of our women’s health business (1.0 points) and higher accelerated depreciation (0.3 points),~~ partially offset by lower amortization expenses ~~(1.4 points),~~and higher profitability in Europe, ~~(1.1 points) and International Markets (0.6 points).~~

resulting mainly from lower cost of goods sold related to network optimization.

Research and Development (R&D) Expenses

Net R&D expenses in the third quarter of ~~2018~~2019 were ~~$311~~$240 million, a decrease of ~~41%~~23% compared to the third quarter of ~~2017.~~

2018.

Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.

Our R&D activities for specialty products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) life cycle management and post-approval studies for marketed products; and (v) indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects, such as the costs of internal administration, infrastructure and personnel.

In the third quarter of ~~2018,~~2019, our R&D expenses were primarily related to generic products in our North America segment, as well as specialty product candidates in the pain, migraine, headache and respiratory therapeutic areas, with additional activities in selected other areas.

Our lower R&D expenses in the third quarter of ~~2018~~2019, compared to the third quarter of ~~2017~~2018, primarily resulted from cost of labor reductions, pipeline optimization and project terminations, ~~phase 3 studies that have ended and related headcount reductions,~~ partially offset by ~~a provision related to the Regeneron collaboration. See note 3 to our consolidated financial statements.~~

increased investment in early stage projects.

R&D expenses as a percentage of revenues were 5.6% in the third quarter of 2019, compared to 6.9% in the third quarter of ~~2018, compared to 9.5% in the third quarter~~2018.

Table of ~~2017.~~

Contents

Selling and Marketing (S&M) Expenses

S&M expenses in the third quarter of ~~2018~~2019 were ~~$743~~$595 million, a decrease of ~~12%~~15% compared to the third quarter of ~~2017.~~2018. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were ~~16.4%~~13.9% in the third quarter of ~~2018,~~2019, compared to ~~15%~~15.4% in the third quarter of ~~2017.~~

2018.

General and Administrative (G&A) Expenses

G&A expenses in the third quarter of ~~2018~~2019 were ~~$309~~$285 million, a decrease of ~~17%~~8% compared to the third quarter of ~~2017.~~2018. Our G&A expenses were primarily the result of the factors discussed above under “—North America Segment— G&A Expenses,” “—Europe Segment— G&A Expenses” and “—International Markets Segment— G&A ~~Expenses,~~Expenses.” ~~as well as cost reductions in certain corporate functions as part of the restructuring plan.~~

G&A expenses as a percentage of revenues were 6.7% in the third quarter of 2019, compared to 6.8% in the third quarter of ~~2018, compared to 6.6%~~2018.

Intangible Asset Impairments

We recorded expenses of $177 million for identifiable intangible asset impairments in the third quarter of ~~2017.~~

2019, compared to expenses of $519 million in the third quarter of 2018. See note 6 to our consolidated financial statements.

Goodwill Impairment

No goodwill impairments were recorded in the third quarter of 2019 and 2018.

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

We recorded expenses of ~~$658~~$160 million for other ~~asset~~assets impairments, restructuring and other items in the third quarter of ~~2018,~~2019, compared to expenses of ~~$550~~$139 million in the third quarter of ~~2017.~~2018. See note 14 to our consolidated financial statements.

Significant regulatory events

In July 2018, the FDA completed an inspection of our manufacturing plant in Davie, Florida in the United States, and issued a Form

FDA-483

to the site. In October 2018, the FDA notified us that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, we received a warning letter from the FDA that contains four enumerated concerns related to production, quality control and investigations at this site. We are working diligently to ~~investigate~~remediate the FDA’s ~~observations~~concerns in a manner consistent with ~~Current Good Manufacturing Practices (CGMPs) and to address those observations~~current good manufacturing practice (CGMP) requirements as quickly and as thoroughly as possible. ~~The impact of such investigation and remediation on the financial statements in the third quarter of 2018 was immaterial. However, if~~If we are unable to remediate the warning letter findings ~~in a timely manner,~~to the FDA’s satisfaction, we may face additional consequences, including delays in FDA approval for future products from the site, ~~other~~ financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, ~~and other~~ costs of ~~remediation.~~

additional remediation and possible FDA enforcement action. We expect to generate approximately $63 million in revenues from this site in the remainder of 2019 and approximately $230 million in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.

In July 2018, we announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of ~~an unexpected~~a previously unknown impurity called NDMA found in ~~the~~valsartan API ~~provided~~supplied to us by ~~a third party supplier,~~ Zhejiang Huahai ~~Pharmaceutical (“Zhejiang”), used in the production of such medicines. On September 28,~~Pharmaceutical. Since July 2018, ~~the FDA issued an import ban on all APIs and other drug products made by Zhejiang in its Chuannan site into the U.S. On the same date, the EU authorities issued to Zhejiang a statement ofnon-compliance~~ for the manufacture of valsartan (and its intermediates) for EU medicines in the Chuannan site, thus prohibiting marketing authorization holders in the EU from using such valsartan materials in the production of finished products. On October 15, 2018, the EU authorities announced that Zhejiang was under increased supervisionwe have been actively engaged with ~~respect to other APIs produced by Zhejiang. Many~~ regulatory agencies around the world ~~continue to review information relating to~~in reviewing our valsartan ~~medicines~~ and ~~the~~other sartan products ~~as a group. The~~for NDMA and other related impurities and, where necessary, have initiated additional voluntary recalls. As of September 30, 2019, the accumulated impact of this recall on ~~the~~our financial statements ~~in the first nine months of 2018~~ was ~~$46~~$55 million, primarily related to ~~recall~~inventory reserves and ~~inventory reserves. Depending on the scope of regulatory actions, duration of the API outage and severity of the impurity, we may face additional~~returns. We expect to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter. We may also incur additional customer penalties, impairments ~~and/or other~~and litigation ~~costs.~~

costs going forward.

Restructuring

In the third quarter of ~~2018,~~2019, we recorded ~~$88~~$61 million of restructuring expenses, compared to ~~$72~~$88 million in the third quarter of ~~2017.~~2018. The expenses in the third quarter of ~~2018~~2019 were primarily related to headcount reductions across all functions as part of the restructuring plan announced in 2017.

The

two-year

restructuring plan announced in 2017 is intended to reduce our total cost base by $3 billion by the end of 2019.

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Since the announcement, we reduced our global headcount by ~~approximately 9,100~~11,554 full-time-equivalent employees.

Legal Settlements and Loss Contingencies

In the third quarter of ~~2018,~~2019, we recorded an expense of ~~$19~~$468 million in legal settlements and loss contingencies, compared to ~~income of $20~~$19 million in the third quarter of ~~2017.~~

2018. The expense in the third quarter of 2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the remaining opioid cases. See note 16 to our consolidated financial statements.

Other Income

Other income in the third quarter of ~~2018~~2019 was ~~$35~~$14 million, compared to $4$35 million in the third quarter of ~~2017. Other income~~2018.

Operating Income (Loss)

Operating loss was ~~primarily the result of the final net asset distribution as part of the PGT dissolution.~~

~~Other income as a percentage of revenues was 0.8%~~$81 million in the third quarter of ~~2018,~~2019, compared to ~~0.1% in the third quarter~~operating income of ~~2017.~~

~~Operating Income~~

~~Operating income was~~ $16 million in the third quarter of ~~2018,~~2018.

Operating income (loss) as a percentage of revenues was 1.9% in the third quarter of 2019, compared to ~~$378~~0.4% in the third quarter of 2018. The decrease was mainly due to higher provisions in connection with legal settlements and loss contingencies, partially offset by lower intangible asset impairments, lower R&D expenses and higher profit in our Europe segment.

Financial Expenses, Net

Financial expenses were $211 million in the third quarter of ~~2017. The decrease in operating income was mainly due~~2019, compared to ~~lower gross profit and higher impairment charges recorded in the third quarter of 2018.~~

The following table presents a reconciliation of our segment profits to our consolidated operating income and to consolidated income (loss) before income taxes for the three months ended September 30, 2018 and 2017:

   Three months ended
September 30,
   2018    2017
   (U.S. $ in millions)
North America profit
   $ 649    $ 1,130
Europe profit
   297    241
International Markets profit
   123    110




Total segment profit
   1,069    1,481
Profit (loss) of other activities
   35    (11 )




   1,104    1,470
Amounts not allocated to segments:

Amortization
   297    357
Other asset impairments, restructuring and other items
   658    550
Goodwill impairment
   —      —
Gain on divestitures, net of divestitures related costs
   (31 )    —
Inventorystep-up
   —      —
Other R&D expenses
   60    150
Costs related to regulatory actions taken in facilities
   1    (1 )
Legal settlements and loss contingencies
   19    (20 )
Other unallocated amounts
   84    56




Consolidated operating income (loss)
   16    378




Financial expenses, net
   229    259




Consolidated income (loss) before income taxes
   $ (213)    $ 119

~~The decrease in operating margin was 6.4 points, mainly due a decline in gross profit (1.8 points) and higher impairment charges recorded in the third quarter of 2018 (4.7 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 third quarter of 2018.

~~Financial Expenses, Net~~

~~Financial expenses were~~ $229 million in the third quarter of ~~2018, compared to $259 million~~2018. Financial expenses in the third quarter of ~~2017.~~

2019 were mainly comprised of interest expenses of $219 million. Financial expenses in the third quarter of 2018 were mainly comprised of interest expenses of $240 million. ~~Financial expenses in~~

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended September 30, 2019 and 2018:


	Three months ended September 30,
	2019			2018
	(U.S. $ in millions)
North America profit	$	565		$	649
Europe profit		341			297
International Markets profit		130			123

Total segments profit		1,036			1,069
Profit of other activities		16			35

		1,051			1,104
Amounts not allocated to segments:
Amortization		255			297
Other assets impairments, restructuring and other items		160			139
Goodwill impairment		—			—
Intangible asset impairments		177			519
Gain on divestitures, net of divestitures related costs		(3	)		(31	)
Other R&D expenses (income)		(7	)		60
Costs related to regulatory actions taken in facilities		11			1
Legal settlements and loss contingencies		468			19
Other unallocated amounts		72			84

Consolidated operating income (loss)		(81	)		16

Financial expenses, net		211			229

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

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Tax Rate

In the third quarter of ~~2017 were mainly comprised~~2019, we recognized a tax expense of ~~interest expenses~~$11 million, on

pre-tax

loss of ~~$219 million and an approximately $30 million impairment of our net monetary assets in Venezuela.~~

~~Tax Rate~~

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

pre-tax

loss of $213 ~~million. In the third quarter of 2017, we recognized a tax benefit of $494 million, onpre-tax~~ ~~income of $119~~ million. Our tax rate for the third quarter of ~~2018~~2019 was mainly affected by impairments, amortization, legal settlements with low corresponding tax effect and interest disallowance as a result of the ~~mix of products sold in different geographies.~~

U.S. Tax Cuts and Jobs Act.

The statutory Israeli corporate tax rate is 23% in ~~2018.~~2019. Our tax rate differs from the Israeli statutory tax rate mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.

Share in Losses (Income) of Associated Companies, Net

Share in losses of associated companies, net in the third quarter of ~~2018~~2019 was ~~$10~~$4 million, compared to $3$10 million in the third quarter of ~~2017.~~

2018.

Net Income (Loss)

Net loss attributable to Teva was $314 million in the third quarter of 2019, compared to net loss of $208 million in the third quarter of ~~2018, compared to net income of $595 million in the third quarter of 2017.~~

2018.

Net loss attributable to ordinary shareholders was $314 million in the third quarter of 2019, compared to net loss of $273 million in the third quarter of ~~2018, compared to net income of $530 million in the third quarter of 2017.~~

2018.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended September 30, 2019 and 2018 were 1,092 million and ~~2017 were~~ 1,018 million ~~and 1,017 million~~ shares, respectively.

In computing loss per share for the three months ended September 30, 2019 and 2018, no account was taken of the potential dilution by the assumed exercise of employee stock options and

non-vested

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

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 66 million shares (including shares ~~that may be~~ issued due to unpaid dividends up to that date) for the three months ended September 30, 2018, ~~and 59 million shares for the three months ended September 30, 2017, as well as for the convertible senior debentures for the respective periods,~~ since ~~both~~they had an anti-dilutive effect on loss per share.

Diluted loss per share was $0.29 in the third quarter of 2019, compared to diluted loss per share of $0.27 in the third quarter of ~~2018, compared to earnings per share of $0.52 in the third quarter of 2017.~~

2018.

Share Count for Market Capitalization

We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and performance share units (“PSUs”)~~, as well as~~ and the conversion of our convertible senior debentures, ~~and mandatory convertible preferred shares,~~ in each case, at period end.

As of September 30, ~~2018~~2019 and ~~2017,~~2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,107 million and 1,111 million, ~~and 1,083 million,~~ respectively.

Impact of Currency Fluctuations on Results of Operations

In the third quarter of ~~2018,~~2019, approximately ~~51%~~50% of our revenues ~~came from sales outside~~were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Israeli shekel, Canadian dollar and Russian ruble) impact our results.

During the third quarter of 2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on a quarterly average compared to quarterly average basis): Argentinian peso by 37%, British pound by 5% and euro by 4%. The following main currencies relevant to our operations increased in value against the U.S. dollar: Japanese yen by 4% and new Israeli shekel by 3%.

As a result, exchange rate movements during the third quarter of 2019 negatively impacted overall revenues by $55 million and our operating income by $19 million, in comparison with the third quarter of 2018.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

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Comparison of Nine Months Ended September 30, 2019 to Nine Months Ended September 30, 2018

The factors used to explain quarterly changes on a year-over-year basis are also generally relevant to a comparison of the results for the nine months ended September 30, 2019 and 2018. Additional factors affecting the nine months comparison are described below.

The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements:


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

Segment Information

North America Segment

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


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

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

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

§	Represents an amount less than 0.5%.

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North America Revenues

Our North America segment includes the United ~~States.~~States and Canada. Revenues from our North America segment in the first nine months of 2019 were $6,169 million, a decrease of $890 million, or 13%, compared to the first nine months of 2018.

Revenues by Major Products and Activities

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


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

Total	$	6,169	$	7,059

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

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North America Gross Profit

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

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

North America R&D Expenses

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

North America S&M Expenses

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

North America G&A Expenses

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

North America Other Income (Expense)

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

North America Profit

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

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Europe Segment

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


	Nine months ended September 30,
	2019					2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	3,611		100	%	$	3,982		100	%
Gross profit		2,066		57.2	%		2,195		55.1	%
R&D expenses		199		5.5	%		208		5.2	%
S&M expenses		637		17.6	%		725		18.2	%
G&A expenses		175		4.8	%		243		6.1	%
Other (income) expense		(5	)	§			(1	)	§

Segment profit*	$	1,060		29.4	%	$	1,020		25.6	%

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

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first nine months of 2019 were $3,611 million, a decrease of 9% or $371 million, compared to the first nine months of 2018. In local currency terms, revenues decreased by 4% compared to the first nine months of 2018, mainly due to a decline in COPAXONE revenues due to competing glatiramer acetate products and the termination of the PGT joint venture, partially offset by new generic product launches.

Revenues by Major Products and Activities

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


	Nine months ended September 30,				Percentage Change 2018-2019
	2019		2018		Percentage Change 2018-2019
	(U.S. $ in millions)
Generic products	$	2,599	$	2,749		(5	%)
COPAXONE		327		417		(22	%)
Respiratory products		267		312		(14	%)
Other		417		504		(17	%)

Total	$	3,611	$	3,982		(9	%)

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Europe Gross Profit

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

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

Europe R&D Expenses

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

Europe S&M Expenses

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

Europe G&A Expenses

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

Europe Profit

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

International Markets Segment

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


	2019					2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,145		100	%	$	2,265		100	%
Gross profit		877		40.9	%		942		41.6	%
R&D expenses		66		3.1	%		70		3.1	%
S&M expenses		348		16.2	%		384		16.9	%
G&A expenses		102		4.7	%		115		5.1	%
Other (income) expense		(2	)	§			(11	)	§

Segment profit*	$	363		16.9	%	$	384		16.9	%

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

§	Represents an amount less than 0.5%.

International Markets Revenues

Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first nine months of 2019 were $2,145 million, a decrease of $120 million, or 5%, compared to the first nine months of 2018. In local currency terms, revenues decreased by 1% compared to the first nine months of 2018.

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Revenues by Major Products and Activities

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


	Nine months ended September 30,				Percentage Change 2018-2019
	2019		2018		Percentage Change 2018-2019
	(U.S. $ in millions)
Generic products	$	1,404	$	1,523		(8	%)
COPAXONE		46		52		(12	%)
Distribution		491		456		8	%
Other		204		233		(13	%)

Total	$	2,145	$	2,265		(5	%)

International Markets Gross Profit

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

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

International Markets R&D Expenses

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

International Markets S&M Expenses

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

International Markets G&A Expenses

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

International Markets Profit

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

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Other Activities

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

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

Teva Consolidated Results

Revenues

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

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

Gross Profit

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

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

Research and Development (R&D) Expenses

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

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

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Selling and Marketing (S&M) Expenses

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

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

General and Administrative (G&A) Expenses

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

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

Intangible Asset Impairments

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

Goodwill Impairment

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

Other Asset Impairments, Restructuring and Other Items

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

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Legal Settlements and Loss Contingencies

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

Other Income

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

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

Operating Income (Loss)

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

Financial Expenses, Net

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

Financial expenses in the first nine months of 2019 were mainly comprised of interest expenses of $672 million, partially offset by $36 million of interest income. Financial expenses in the first nine months of 2018 were mainly comprised of interest expenses of $689 million, $60 million of early redemption charges and accelerated amortization related to the repayment of senior notes and term loans in the first quarter of 2018, as well as a $22 million loss resulting from our hedging and derivatives activities, partially offset by $33 million of interest income.

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the nine months ended September 30, 2019 and 2018:


	Nine months ended September 30,
	2019			2018
	(U.S. $ in millions)
North America profit	$	1,566		$	2,286
Europe profit		1,060			1,020
International Markets profit		363			384

Total segments profit		2,989			3,690
Profit (loss) of other activities		92			87

		3,081			3,777
Amounts not allocated to segments:
Amortization		823			909
Other asset impairments, restructuring and other items		263			834
Goodwill impairment		—			300
Intangible asset impairments		1,206			1,246
Gain on divestitures, net of divestitures related costs		(12	)		(114	)
Other R&D expenses		(7	)		82
Costs related to regulatory actions taken in facilities		28			6
Legal settlements and loss contingencies		1,171			(1,239	)
Other unallocated amounts		201			226

Consolidated operating income (loss)		(591	)		1,527

Financial expenses, net		635			736

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

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Tax Rate

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

pre-tax

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

pre-tax

income of $791 million. Our tax rate for the first nine months of 2019 was mainly affected by impairments, amortization, legal settlements with low corresponding tax effect and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.

Share in Losses (Income) of Associated Companies, Net

Share in losses of associated companies, net in the first nine months of 2019 was $8 million, compared to share in losses of $76 million in the first nine months of 2018.

Net Income (Loss)

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

Net loss attributable to ordinary shareholders was $1,108 million in the first nine months of 2019, compared to net income of $541 million in the first nine months of 2018.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the nine months ended September 30, 2019 and 2018 were 1,091 million and 1,020 million shares, respectively.

In computing diluted loss per share for the nine months ended September 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and

non-vested

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

Diluted earnings per share for the nine months ended September 30, 2018 take into account the potential dilution that could occur upon the exercise of options and

non-vested

RSUs granted under employee stock compensation plans, using the treasury stock method.

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 68 million shares (including shares issued due to unpaid dividends up to that date) for the nine months ended September 30, 2018, as well as for the convertible senior debentures, since both had an anti-dilutive effect on earnings per share.

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

Impact of Currency Fluctuations on Results of Operations

In the first nine months of 2019, approximately 50% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results. During the third quarter of 2018, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on an annual average compared to annual average basis): Argentinean peso by 45%, Turkish lira by 37%, Russian ruble by 10%, Hungarian forint by 6%,Israeli shekel, Canadian dollar ~~by 4%, Israeli shekel by 2%, Polish zloty by 2%, Swiss franc by 2%, euro by 1%, Japanese yen by 0.5% and British pound by 0.4%.~~

As a result, exchange rate movements during the third quarter of 2018 negatively impacted overall revenues by $80 million and our operating income by $34 million, in comparison with the third quarter of 2017.

~~Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a3-year~~ ~~period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.~~

~~Comparison of Nine Months Ended September 30, 2018 to Nine Months Ended September 30, 2017~~

The factors used to explain quarterly changes on a year-over-year basis are also generally relevant to a comparison of the results for the nine months ended September 30, 2018 and 2017. Additional factors affecting the nine months comparison are described below.

~~The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements:~~

   Percentage of Net Revenues
Nine months ended
September 30,    Percentage
Change
2018-2017
   2018    2017
   %    %    %
Net revenues
   100.0    100.0    (16 )
Gross profit
   45.0    49.1    (23 )
Research and development expenses
   6.4    8.4    (36 )
Selling and marketing expenses
   15.6    16.2    (19 )
General and administrative expenses
   6.7    6.5    (13 )
Other asset impairments, restructuring and other items
   14.6    7.1    72
Goodwill impairment
   2.1    36    (95 )
Legal settlements and loss contingencies
   (8.7 )    1.9    —
Other income
   (2.3 )    (0.6 )    234
Operating income (loss)
   10.7    (26.2 )    —
Financial expenses, net
   5.1    4.1    5
Income (loss) before income taxes
   5.5    (30.3 )    —
Tax benefit
   (0.4 )    (2.7 )    (88 )
Share in losses of associated companies, net
   0.5    0.1    660
Net income (loss) attributable tonon-controlling interests
   (0.2 )    0.1    —
Net income (loss) attributable to Teva
   5.1    (27.8 )    —
Dividends on preferred shares
   1.4    1.1    —
Net income (loss) attributable to ordinary shareholders
   3.8    (29.0 )    —

~~Segment Information~~

~~North America Segment~~

~~The following table presents revenues, expenses and profit for our North America segment for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended September 30,
   2018 2017
   (U.S. $ in millions /% of Segment Revenues)
Revenues
   $ 7,059 100 % $ 9,452 100.0 %
Gross profit
   3,867 54.8 % 5,971 63.2 %
R&D expenses
   528 7.4 % 777 8.2 %
S&M expenses
   902 12.8 % 1,158 12.3 %
G&A expenses
   357 5.1 % 432 4.6 %
Other income
   (206 ) (2.9 %) (82 ) (0.9 %)


Segment profit*
   $ 2,286 32.4 % $ 3,686 39.0 %

~~North America Revenues~~

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first nine months of 2018 were $7,059 million, a decrease of $2,393 million, or 25%, compared to the first nine months of 2017.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our North America segment by major products and activities for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended
   September 30,
Percentage
Change

   2018    2017    2017-2018
   (U.S. $ in millions)
Generic products
   $ 2,957    $ 3,979    (26 %)
COPAXONE
   1,403    2,475    (43 %)
BENDEKA / TREANDA
   502    498    1 %
ProAir
   352    399    (12 %)
QVAR
   173    265    (35 %)
AUSTEDO
   136    8    1708 %
Distribution
   984    864    14 %

~~North America Gross Profit~~

~~Gross profit from our North America segment in the first nine months of 2018 was $3,867 million, a decrease of 35% compared to $5,971 million in the first nine months of 2017.~~

~~Gross profit margin for our North America segment in the first nine months of 2018 decreased to 54.8% from 63.2% in the first nine months of 2017.~~

~~North America R&D Expenses~~

~~R&D expenses relating to our North America segment in the first nine months of 2018 were $528 million, a decrease of 32% compared to $777 million in the first nine months of 2017.~~

~~North America S&M Expenses~~

~~S&M expenses relating to our North America segment in the first nine months of 2018 were $902 million, a decrease of 22% compared to $1,158 million in the first nine months of 2017.~~

~~North America G&A Expenses~~

~~G&A expenses relating to our North America segment in the first nine months of 2018 were $357 million, a decrease of 17% compared to $432 million in the first nine months of 2017.~~

~~North America Other Income~~

~~Other income from our North America segment in the first nine months of 2018 was $206 million, compared to $82 million in the first nine months of 2017.~~

~~North America Profit~~

~~Profit from our North America segment in the first nine months of 2018 was $2,286 million, a decrease of 38% compared to $3,686 million in the first nine months of 2017.~~

~~Europe Segment~~

~~The following table presents revenues, expenses and profit for our Europe segment for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended
September 30,
   2018 2017
   (U.S. $ in millions / % of Segment Revenues)
Revenues
   $ 3,982    100 % $ 4,016    100 %
Gross profit
   2,211    55.5 % 2,147    53.5 %
R&D expenses
   208    5.2 % 312    7.7 %
S&M expenses
   741    18.6 % 864    21.4 %
G&A expenses
   243    6.1 % 258    6.4 %
Other income
   (1 )    § (15 )    §






Segment profit*
   $ 1,020    25.6 % $ 728    18.1 %

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

~~Europe Revenues~~

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first nine months of 2018 were $3,982 million, a decrease of 1% or $34 million, compared to the first nine months of 2017. In local currency terms, revenues decreased by 7% compared to the first nine months of 2017.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our Europe segment by major products and activities for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended
   September 30,
Percentage
Change

   2018    2017    2017-2018
   (U.S. $ in millions)
Generic products
   $ 2,749    $ 2,543    8 %
COPAXONE
   417    440    (5 %)
Respiratory products
   312    258    21 %

~~Europe Gross Profit~~

~~Gross profit from our Europe segment in the first nine months of 2018 was $2,211 million, an increase of 3% compared to $2,147 million in the first nine months of 2017.~~

~~Gross profit margin for our Europe segment in the first nine months of 2018 increased to 55.5% from 53.5% in the first nine months of 2017.~~

~~Europe R&D Expenses~~

~~R&D expenses relating to our Europe segment in the first nine months of 2018 were $208 million, a decrease of 33% compared to $312 million in the first nine months of 2017.~~

~~Europe S&M Expenses~~

~~S&M expenses relating to our Europe segment in the first nine months of 2018 were $741 million, a decrease of 14% compared to $864 million in the first nine months of 2017.~~

~~Europe G&A Expenses~~

~~G&A expenses relating to our Europe segment in the first nine months of 2018 were $243 million, a decrease of 6% compared to $258 million in the first nine months of 2017.~~

~~Europe Profit~~

~~Profit from our Europe segment in the first nine months of 2018 was $1,020 million, an increase of 40% compared to $728 million in the first nine months of 2017.~~

~~International Markets Segment~~

~~The following table presents revenues, expenses and profit for our International Markets segment for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended September 30,
   2018 2017
   (U.S. $ in millions / % of Segment Revenues)
Revenues
   $ 2,265    100 % $ 2,485    100 %
Gross profit
   942    41.6 % 1,043    42.0 %
R&D expenses
   70    3.0 % 129    5.2 %
S&M expenses
   384    16.9 % 503    20.2 %
G&A expenses
   115    5.0 % 144    5.8 %
Other income
   (11 )    § (4 )    §






Segment profit*
   $ 384    17.0 % $ 271    10.9 %

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

~~International Markets Revenues~~

Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first nine months of 2018 were $2,265 million, a decrease of $220 million, or 9%, compared to the first nine months of 2017. In local currency terms, revenues decreased by 7% compared to the first nine months of 2017.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our International Markets segment by major products and activities for the nine months ended September 30, 2018 and 2017:~~

   Nine months ended
   September 30,
Percentage
Change

   2018    2017    2017-2018
   (U.S. $ in millions)
Generic products
   $ 1,523    $ 1,720    (11 %)
COPAXONE
   52    65    (20 %)
Distribution
   456    406    12 %

~~International Markets Gross Profit~~

~~Gross profit from our International Markets segment in the first nine months of 2018 was $942 million, a decrease of 10% compared to $1,043 million in the first nine months of 2017.~~

~~Gross profit margin for our International Markets segment in the first nine months of 2018 decreased to 41.6%, from 42.0% in the first nine months of 2017.~~

~~International Markets R&D Expenses~~

~~R&D expenses relating to our International Markets segment in the first nine months of 2018 were $70 million, a decrease of 46% compared to $129 million in the first nine months of 2017.~~

~~International Markets S&M Expenses~~

~~S&M expenses relating to our International Markets segment in the first nine months of 2018 were $384 million, a decrease of 24% compared to $503 million in the first nine months of 2017.~~

~~International Markets G&A Expenses~~

~~G&A expenses relating to our International Markets segment in the first nine months of 2018 were $115 million, a decrease of 20% compared to $144 million in the first nine months of 2017.~~

~~International Markets Profit~~

~~Profit from our International Markets segment in the first nine months of 2018 was $384 million, compared to $271 million in the first nine months of 2017.~~

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 nine months of 2018. We recorded $83 million in revenues and $28 million in operating income in the first nine months 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.

~~Other Activities~~

~~Our revenues from other activities in the first nine months of 2018 decreased by 4% to $989 million. In local currency terms, revenues decreased by 6%.~~

~~API sales to third parties in the first nine months of 2018 decreased by 6% to $537 million. In local currency terms, revenues decreased by 7%.~~

~~Teva Consolidated Results~~

~~Revenues~~

~~Revenues in the first nine months of 2018 were $14,295 million, a decrease of 16%, or 17% in local currency terms, compared to the first nine months of 2017.~~

~~Exchange rate movements during the first nine months of 2018 compared to the first nine months of 2017 positively impacted revenues by $253 million.~~

~~Gross Profit~~

~~Gross profit in the first nine months of 2018 was $6,430 million, a decrease of $1,914 million, compared to the first nine months of 2017.~~

~~Gross profit as a percentage of revenues was 45.0% in the first nine months of 2018, compared to 49.1% in the first nine months of 2017.~~

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

~~Net R&D expenses in the first nine months of 2018 were $918 million, a decrease of 36% compared to the first nine months of 2017.~~

~~R&D expenses as a percentage of revenues were 6.4% in the first nine months of 2018, compared to 8.4% in the first nine months of 2017.~~

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

~~S&M expenses in the first nine months of 2018 were $2,224 million, a decrease of 19% compared to the first nine months of 2017.~~

~~S&M expenses as a percentage of revenues were 15.6% in the first nine months of 2018, compared to 16.2% in the first nine months of 2017.~~

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

~~G&A expenses in the first nine months of 2018 were $954 million, a decrease of 13% compared to the first nine months of 2017.~~

~~G&A expenses as a percentage of revenues were 6.7% in the first nine months of 2018, compared to 6.5% in the first nine months of 2017.~~

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

We recorded expenses of $2,080 million for other asset impairments, restructuring and other items in the first nine months of 2018, compared to expenses of $1,209 million in the first nine months of 2017. See note 14 to our consolidated financial statements.

~~Goodwill Impairment~~

In the first nine months of 2018, we recorded goodwill impairments of $300 million compared to a $6.1 billion goodwill impairment charge recorded in the first nine months of 2017. See note 7 to our consolidated financial statements.

~~Legal Settlements and Loss Contingencies~~

In the first nine months of 2018, we recorded income of $1,239 million, compared to an expense of $324 million in the first nine months of 2017. The income in the first nine months of 2018 consisted primarily of the working capital adjustment settlement with Allergan, the Rimsa settlement and reversal of the reserve recorded in the second quarter of 2017 with respect to the carvedilol patent litigation, following reversal of the verdict in GSK’s favor (see note 15 to our consolidated financial statements).

~~Other Income~~

~~Other income in the first nine months of 2018 was $334 million, compared to $100 million in the first nine months of 2017.~~

~~Other income as a percentage of revenues was 2.3% in the first nine months of 2018, compared to 0.6% in the first nine months of 2017.~~

~~Operating Income (Loss)~~

~~Operating income was $1,527 million in the first nine months of 2018, compared to a loss of $4,467 million in the first nine months of 2017.~~

   Nine months ended
   September 30,
   2018    2017
   (U.S. $ in millions)
North America profit
   $ 2,286    $ 3,686
Europe profit
   1,020    728
International Markets profit
   384    271




Total segment profit
   3,690    4,685
Profit of other activities
   87    3




   3,777    4,688
Amounts not allocated to segments:

Amortization
   909    1,088
Other asset impairments, restructuring and other items
   2,080    1,209
Goodwill impairment
   300    6,100
Gain on divestitures, net of divestitures related costs
   (114 )    —
Inventorystep-up
   —      67
Other R&D expenses
   82    176
Costs related to regulatory actions taken in facilities
   6    48
Legal settlements and loss contingencies
   (1,239 )    324
Other unallocated amounts
   226    143




Consolidated operating income (loss)
   1,527    (4,467 )




Financial expenses, net
   736    704




Consolidated income (loss) before income taxes
   $ 791    $ (5,171 )

~~Financial Expenses, Net~~

~~Financial expenses were $736 million in the first nine months of 2018, compared to $704 million in the first nine months of 2017.~~

Financial expenses in the first nine months of 2018 were mainly comprised of interest expenses of $689 million and $60 million of early redemption charges and accelerated amortization related to the repayment of senior notes and term loans in the first quarter of 2018. Financial expenses in the first nine months of 2017 were mainly comprised of interest expenses of $654 million and $61 million loss from net foreign exchange fluctuations and financial derivatives.

~~Tax Rate~~

~~In the first nine months of 2018, we recognized a tax benefit of $56 million, onpre-tax~~ ~~income of $791 million. In the first nine months of 2017, we recognized a tax benefit of $462 million, onpre-tax~~ ~~loss of $5,171 million. Our tax rate for the first nine months of 2018 was mainly affected byone-time~~ ~~legal settlements and divestments with a low corresponding tax effect as well as the mix of products sold in different geographies.~~

~~Share in Losses of Associated Companies, Net~~

~~Share in losses of associated companies, net in the first nine months of 2018 was $76 million, compared to share in losses of $10 million in the first nine months of 2017.~~

~~Net Income (Loss)~~

~~Net income attributable to Teva was $736 million in the first nine months of 2018, compared to net loss of $4,730 million in the first nine months of 2017.~~

~~Net income attributable to ordinary shareholders was $541 million in the first nine months of 2018, compared to net loss of $4,925 million in the first nine months of 2017.~~

~~Diluted Shares Outstanding and Earnings (Loss) per Share~~

The weighted average diluted shares outstanding used for the fully diluted share calculation for the nine months ended September 30, 2018 and 2017 were 1,020 million and 1,016 million shares, respectively.

~~Diluted earnings per share for the nine months ended September 30, 2018, take into account the potential dilution that could occur upon the exercise of options andnon-vested~~ RSUs granted under employee stock compensation plans, using the treasury stock method. In computing loss per share for the nine months ended September 30, 2017, no account was taken of the potential dilution by the assumed exercise of employee stock options and~~non-vested~~ ~~RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.~~

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 68 million shares (including shares that may be issued due to unpaid dividends to date) for the nine months ended September 30, 2018 and 59 million shares for the nine months ended September 30, 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on earnings (loss) per share.

~~Diluted earnings per share were $0.53 in the first nine months of 2018, compared to a loss per share of $4.85 in the first nine months of 2017.~~

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

In the first nine months of 2018, approximately 52% of our revenues came from sales outside of the United States. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results. During the first nine months of ~~2018,~~2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinean peso by ~~35%~~44%, ~~Turkish lira~~Polish zloty by ~~22% and~~7%, Russian ruble by 5% (compared on a nine-monthly average basis). During the first nine months of 2018, the following main currencies relevant to our operations increased in value against the U.S. dollar: Polish zloty by 8%6%, euro by ~~7%,~~6% and British pound by 6%~~, Hungarian forint by 4%, new Israeli shekel by 2% and Japanese yen by 2%~~ (all compared on a ~~nine-monthly~~nine-month average basis).

As a result, exchange rate movements during the first nine months of ~~2018 positively~~2019 negatively impacted overall revenues by ~~$253~~$357 million and ~~increased~~ our operating income by ~~$17~~$110 million, in comparison to the first nine months of ~~2017.~~

2018.

Liquidity and Capital Resources

Total balance sheet assets were ~~$65,061~~$57,246 million as of September 30, ~~2018,~~2019, compared to ~~$67,030~~$59,424 million as of June 30, ~~2018.~~

2019.

Our working capital balance, which includes trade receivables net of SR&A, inventories, prepaid expenses and other current assets, trade payables, employee-related obligations, accrued expenses and other current liabilities, was ~~negative $232~~$306 million as of September 30, ~~2018,~~2019, compared to negative ~~$121~~$65 million as of June 30, ~~2018.~~

2019.

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Accrued expenses as of September 30, 2019, were $1,748 million, compared to $2,335 million as of June 30, 2019. The lower accrued expenses in the third quarter of 2019 resulted mainly from a reclassification of provisions made under legal settlements and loss contingencies in the second quarter of 2019 to long-term liabilities.

Investment in property, plant and equipment in the third quarter of ~~2018~~2019 was approximately ~~$139~~$169 million, compared to ~~$136~~$112 million in the second quarter of ~~2018.~~2019. Depreciation ~~was $171 million~~ in ~~each of~~ the third quarter ~~and~~of 2019 was $151 million, compared to $153 million in the second quarter of ~~2018.~~

2019.

Cash and cash equivalents and short-term and long-term investments as of September 30, ~~2018~~2019 were ~~$1,948~~$1,301 million, compared to ~~$1,942~~$2,232 million as of June 30, ~~2018,~~2019. The decrease in the third quarter of 2019 was mainly due to ~~utilization~~repayment at maturity of ~~total~~our $1,556 million 1.7% senior note in July 2019, partially offset by cash generated ~~for debt repayment.~~

during the quarter.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion revolving credit facility (“RCF”).

In April 2019, we entered into a $2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion ~~syndicated~~ revolving ~~line~~credit facility. The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of ~~credit,~~certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which ~~was not utilized as of September 30, 2018, as well as internally generated funds, which we believe are sufficient~~becomes more restrictive over time. The net debt to ~~meet our financial obligations~~EBITDA ratio limit is 6.25x through December 31, 2019, gradually declines to 5.75x in the ~~ordinary course~~third and fourth quarters of ~~business~~2020, and continues to gradually decline over the remaining term of the RCF.

The RCF can be used for ~~at least twelve months.~~

~~Debt Balance and Movements~~

general corporate purposes, including repaying existing debt. As of September 30, ~~2018,~~2019, $100 million were outstanding under the RCF. As of the date of this quarterly report on Form 10-Q, no amounts are outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.

Under specified circumstances, including

non-compliance

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

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

Debt Balance and Movements

As of September 30, 2019, our debt was ~~$29,489~~$26,942 million, compared to ~~$30,237~~$28,726 million as of June 30, ~~2018.~~2019. The decrease was mainly due to ~~the $405 million debt tender offer completed in September 2018 as well as~~ repayment at maturity of our ~~CHF 300~~$1,556 million ~~0.13%~~1.7% senior ~~note.~~

~~In January 2018, we prepaid in full $15 million of our U.S. dollar debentures.~~

notes, as well as exchange rate fluctuations.

During the first quarter of ~~2018,~~2019, we ~~prepaid in full $2.3 billion of our3-year~~repurchased and~~5-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~~ canceled approximately $126 million principal amount of $4.4 billion, consisting of senior notes with aggregate principal amounts of $2.5 billion and EUR 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%~~$1,700 million 1.7% senior notes due in July ~~2018~~2019.

During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our ~~Euro 1.0 billion 2.875%~~$1,574 million 1.7% senior notes due ~~in April~~July 2019.

In July ~~2018,~~2019, we repaid at maturity our ~~CHF 300~~$1,556 million ~~0.13%~~1.7% senior notes.

~~In September 2018,~~

During the third quarter of 2019, we ~~completed a debt tender offer which resulted in a decrease of $405~~borrowed $500 million ~~comprised of:~~

~~$300~~under the RCF and repaid $400 million of ~~our $2.0 billion 1.7% senior notes due in July~~such borrowings. As of September 30, 2019,

~~EUR 90~~ $100 million was outstanding under the RCF. As of ~~our EUR 1.75 billion 0.38% senior notes due in July 2020~~

the date of this Quarterly Report on Form

10-Q,

~~In October 2018, we repaid at maturity our CHF 450 million 1.5% senior notes.~~

no amounts were outstanding under the RCF.

Our debt as of September 30, ~~2018~~2019 was effectively denominated in the following currencies: 65% in U.S. dollars, ~~31%~~32% in euros and 4%3% in Swiss francs.

The portion of total debt classified as short-term as of September 30, ~~2018~~2019 was 9%12%, compared to 4%10% as of June 30, ~~2018, due to a net increase in current maturities.~~

2019.

Our financial leverage was ~~61%~~64% as of September 30, ~~2018, the same~~2019, a slight decrease compared to 65% as of June 30, ~~2018.~~

2019.

Our average debt maturity was approximately ~~6.9~~6.4 years as of September 30, ~~2018,~~2019, compared to ~~7.0~~6.3 years as of June 30, ~~2018.~~

2019.

Total Equity

Total equity was ~~$19,134~~$14,925 million as of September 30, ~~2018,~~2019, compared to ~~$19,368~~$15,251 million as of June 30, ~~2018.~~2019. The decrease was mainly due to a$307 million of net loss ~~of $197 million for~~and the ~~three months ended September 30, 2018 and a~~ negative impact of ~~$105~~$138 million ~~due to currency devaluations against the U.S. dollar,~~from exchange rate fluctuations, partially offset by ~~an increase~~$87 million of ~~$44 million in stock based compensation expenses and $19 million in~~ unrealized gain ~~associated with hedging activities.~~

from derivative financial instruments in the third quarter of 2019.

Exchange rate fluctuations affected our balance sheet, as approximately ~~53%~~36% of our net assets in the third quarter of ~~2018~~2019 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to June 30, ~~2018,~~2019, changes in currency rates had a negative impact of ~~$105~~$138 million on our equity as of September 30, ~~2018,~~2019, mainly due to the changes in value against the U.S. dollar of: the ~~Japanese yen~~Polish zloty by 1%7%, the ~~Indian rupee~~Chilean peso by ~~14%~~7%, the ~~Turkish lira~~euro by ~~60%~~4%, the ~~Russian ruble~~Bulgarian lev by ~~14%~~4% and the ~~Argentinean peso~~British pound by ~~122%~~3%. All comparisons are on a

quarter-end

basis.

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Cash Flow

Cash flow generated from operating activities during the third quarter of ~~2018~~2019 was ~~$421~~$325 million, compared to ~~$795~~$421 million in the third quarter of ~~2017.~~2018. The decrease in the third quarter of 2019 was mainly due to lower ~~net income~~revenues and ~~higher payments related to restructuring liabilities during~~a reduction in sales reserves associated with the ~~third quarter of 2018.~~

revenue decline.

Cash flow generated from operating activities in the third quarter of ~~2018,~~2019, net of cash ~~used~~received for capital investments and beneficial interest collected in exchange for securitized trade receivables, was ~~$704~~$551 million, compared to ~~$920~~$704 million in the third quarter of ~~2017.~~

2018. The decrease in cash flow ~~generated from operating activities net of cash used for~~was mainly due to the reasons mentioned above, as well as higher capital investments ~~and beneficial interest collected in exchange for securitized trade receivables is lower~~during the third quarter of 2019 compared to the ~~decrease in cash flow generated from operating activities, mainly due to lower capital expenditures.~~

third quarter of 2018.

Dividends

~~In December 2017, we announced an immediate suspension of~~

We have not paid dividends on our ordinary shares ~~and~~or ADSs ~~and that dividends on our mandatory convertible preferred shares will be evaluated on a quarterly basis per current practice.~~

~~We have suspended cash dividends on our mandatory convertible preferred shares in the third quarter of 2018 due to our accumulated deficit.~~

since December 2017.

Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities.

In September 2016, we entered into an agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. We paid Regeneron $250 million upfront and will share equally with Regeneron in the global commercial benefits of this product, as well as ongoing associated R&D costs of approximately $1.0 billion. Milestone payments of $25 million, $35 million and ~~$35~~$60 million were paid in the second quarter of 2017, ~~and~~ the first quarter of 2018 ~~respectively,~~ and ~~a provision of $60 million was recorded in~~ the ~~third~~fourth quarter of ~~2018.~~

2018, respectively.

In October 2016, we entered into an exclusive partnership with Celltrion to commercialize two of Celltrion’s biosimilar products in development for the U.S. and Canadian markets. We paid Celltrion $160 million, of which up to $60 million is refundable or creditable under certain circumstances. We will share the profit from the commercialization of these products with Celltrion.

These two products, TRUXIMA and HERZUMA, were approved by the FDA in November and December 2018, respectively. TRUXIMA is expected to launch in the U.S. in November 2019.

In September 2017, we entered into a partnership agreement with Nuvelution for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage clinical development, driving all operational aspects of the phase 3 program, and we will lead the regulatory process and be responsible for commercialization. Upon and subject to FDA approval of AUSTEDO for Tourette syndrome, we will pay Nuvelution a

pre-agreed

return.

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% on the liquidation preference of $1,000 per mandatory convertible preferred share. Declared dividends are paid in cash on March 15, June 15, September 15 and December 15 of each year to and including December 15, 2018. We have suspended cash dividend payments on our mandatory convertible preferred shares.

We are committed to pay royalties to owners of

know-how,

partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

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 September 30, 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 September 30, 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, including~~non-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 by~~non-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~~

2019 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in ~~our Quarterly Report on Form10-Q~~ ~~for the period ended March 31, 2018 and in~~ Item 7 of our Annual Report on Form

10-K

for the year ended December 31, ~~2017,~~2018, other than as set forth below. ~~These changes are the result~~

For a description of ~~debt movements during the third quarter of 2018, as described under~~our new revolving credit facility entered into in April 2019, see “—~~2018 Debt Balance~~Liquidity and ~~Movements”~~Capital Resources” above.

In the third quarter of 2018, we completed a debt tender offer which resulted in a decrease of $405 million to our debt. As of September 30, 2018, our debt was $29,489 million. See note 11 to our consolidated financial statements.

Supplemental
Non-GAAP
Income Data

We utilize certain

non-GAAP

financial measures to evaluate performance, in conjunction with other performance metrics. The ~~data presented in~~following are examples of how we utilize the ~~tables below are the results used by~~

non-GAAP

measures:

our management and ~~our board~~Board of ~~directors~~Directors use the

non-GAAP

measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of ~~management. For example, each year we prepare a detailed work plan for the next fiscal year. This work plan is used to manage the business and to measure the performance of management. All such plans~~management;

our annual budgets are prepared on a ~~basis comparable to the presentation below, without taking into account those elements that are excluded from our~~

non-GAAP ~~financial~~

basis; and

senior management’s annual compensation is derived, in part, using these

non-GAAP

measures. In addition, when management presents financial updates to the board of directors at its quarterly meetings, presentations are made comparing the current fiscal quarterly results against: (i) the comparable quarter of the prior year, (ii) the immediately preceding fiscal quarter and (iii) the work plan. Such presentations are based on the~~non-GAAP~~ ~~financial measures reflected in the tables below. Moreover, while there are always~~While qualitative factors and ~~elements of~~ judgment ~~involved in the granting of~~also affect annual ~~cash~~ bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to ~~our~~the work plan, which ~~are~~is based on the ~~same~~

non-GAAP ~~financial measures~~

presentation set forth below.

~~The data presented below arenon-GAAP~~

Table of Contents

Non-GAAP

financial measures have no standardized meaning and ~~should not be considered replacements for GAAP results.~~accordingly have limitations in their usefulness to investors. We provide such

non-GAAP

data because management believes that ~~it provides~~such data provide useful information to investors. However, investors are cautioned that,~~non-GAAP~~ unlike financial measures prepared in accordance with U.S. GAAP,

non-GAAP

measures may not be comparable with the calculation of similar measures for other ~~companies, unlike financial measures prepared in accordance with GAAP.~~companies. These

non-GAAP

financial measures are presented solely to permit investors to ~~better~~more fully understand how management assesses our performance. The limitations of using ~~these~~

non-GAAP

financial measures as performance measures are that they provide a view of our results of operations without including all events during a period ~~such as the effects of mergers and acquisitions, related restructuring and other charges,~~ and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

~~In determining our~~

Investors should consider

non-GAAP

financial measures ~~we have excluded items~~ in ~~the past,~~addition to, and ~~would expect~~not as replacements for, or superior to, ~~continue to~~measures of financial performance prepared in accordance with GAAP.

In arriving at our

non-GAAP

presentation, we exclude items ~~in the future,~~ that either have a

non-recurring

impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

~~acquisition or divestment related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventorystep-up~~ ~~andin-process~~ ~~R&D acquired in development arrangements;~~

amortization of purchased intangible assets;

legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and scope;

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

~~significantone-time~~ ~~financing~~

acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and ~~devaluation losses;~~

other professional fees, inventory

step-up

and

in-process

R&D acquired in development arrangements;

expenses related to our equity compensation;

significant

one-time

financing costs ~~related to significant regulatory actions taken at our facilities (such as uncapitalized production costs, consulting expenses or write-offs of inventory related to remediation);~~

~~legal settlements and/or loss contingencies, due to the difficulty in predicting their timing~~ and ~~amounts;~~

devaluation losses;

~~impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;~~

deconsolidation charges;

~~material~~

unusual tax ~~and~~ items;

other awards or ~~settlements, both~~settlement amounts, either paid ~~and~~or received;

other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, such as inventory write-offs or related consulting costs, or other unusual events; and

corresponding tax effects of the foregoing items.

~~Investors should consider~~

The following tables present supplemental
non-GAAP ~~financial measures~~
data, in ~~addition to, and not as replacements for, or superior to, measures~~U.S. dollar, which we believe facilitates an understanding of ~~financial performance prepared in accordance with U.S. GAAP.~~

the factors affecting our business. In these tables, we exclude the following amounts:

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The following table presents the GAAP measures, related
non-GAAP
adjustments and the corresponding
non-GAAP
amounts for the applicable periods:

Three Months Ended September 30, 2018
U.S.$ and shares in millions (except per share amounts)
Excluded for non GAAP measurement
GAAP Amorti-
zation
of
purchased
intangible
assets Legal
settlements
and loss
contin-
gencies Impair-
ment
of long-
lived
assets Other
R&D
expenses Acquisition,
integration
and related
expenses Restruc-
turing
costs Costs
related to
regulatory
actions
taken in
facilities Equity
compen-
sation Contin-
gent
conside-
ration Gain on
sale of
business Other
non
GAAP
items Other
items Non
GAAP
COGS 2,508 246 1 7 30 2,224
R&D 311 60 7 1 243
S&M 743 51 14 678
G&A 309 17 8 284

Other income (35 ) (31 ) (4 )
Legal settlements and loss contingencies 19 19 —
Impairments, restructuring and other 658 521 4 88 29 16 —
Financial expenses 229 (7 ) 236
Corresponding tax effect (26 ) (111 ) 85
Share in losses of associated companies – net 10 9 1
Net income attributable tonon-controlling interests 11 (12 ) 23

Total reconciled items 297 19 521 60 4 88 1 45 29 (31 ) 55 (121 )

EPS—Basic (0.27 ) 0.95 0.68
EPS—Diluted (0.27 ) 0.95 0.68


	Three Months Ended September 30, 2019
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contingencies		Impair- ment of long- lived assets		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compens- ation		Contin- gent conside- ration		Gain on sale of business			Other non GAAP items			Other items			Corres- ponding tax effect			Non GAAP
Cost of sales		2,435			220								11		7							35									2,162
R&D expenses		240													5							(7	)								242
S&M expenses		595			35										9																551
G&A expenses		285													14							1									270
Other (income) expense		(14	)																(3	)											(11	)
Legal settlements and loss contingencies		468					468																								—
Other assets impairments, restructuring and other items		160							28		61						51					21									—
Intangible assets impairment		177							177																						0
Financial expenses, net		211																							3						208
Income taxes		11																										(172	)		183
Share in losses of associated companies – net		4																													4
Net income (loss) attributable to non-controlling interests		7																							(12)						19

Total reconciled items					255		468		204		61		11		35		51		(3	)		51			(9	)		(172	)

EPS—Basic		(0.29	)																									0.87			0.58
EPS—Diluted		(0.29	)																									0.87			0.58

The

non-GAAP

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

Table of Contents


	Three Months Ended September 30, 2018
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP		Amorti- zation of purchased intangible assets		Legal settlements and loss contingencies		Impair- ment of long- lived assets		Other R&D expenses		Acquisition, integration and related expenses		Restru- cturing costs		Costs related to regulatory actions taken in facilities		Equity compens- ation		Contin- gent conside- ration		Other non GAAP items			Other items			Corres- ponding tax effect			Non GAAP
Cost of sales		2,552		246												1		7				30									2,268
R&D expenses		311								60								7				1									243
S&M expenses		699		51														14													634
G&A expenses		309																17				8									284
Other (income) expense		(35)																				(31	)								(4	)
Legal settlements and loss contingencies		19				19																									—
Other assets impairments, restructuring and other items		139						2				4		88						29		16									—
Intangible assets impairment		519						519																							—
Financial expenses, net		229																							(7	)					236
Income taxes		(26)																										(111	)		85
Share in losses of associated companies – net		10																							9						1
Net income (loss) attributable to non-controlling interests		11																							(12	)					23

Total reconciled items				297		19		521		60		4		88		1		45		29		24			(10	)		(111	)

EPS—Basic		(0.27)																										0.95			0.68
EPS—Diluted		(0.27)																										0.95			0.68

The

non-GAAP

diluted weighted average number of shares was 1,022 million for the three months ended September 30, 2018. For the three months ended September 30, 2018, the mandatory convertible preferred shares amounting to 66 million weighted average shares had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation.

Three Months Ended September 30, 2017
U.S.$ and shares in millions (except per share amounts)
Excluded for non GAAP measurement
GAAP Amorti-
zation
of
purchased
intangible
assets Legal
settlements
and loss
contin-
gencies Impair-
ment
of long-
lived
assets Other
R&D
expenses Acquisition,
integration
and related
expenses Restruc-
turing
costs Costs
related to
regulatory
actions
taken in
facilities Equity
compens-
ation Contin-
gent
conside-
ration Other
non
GAAP
items Other
items Non
GAAP

COGS 2,967 310 (1 ) 5 17 2,636
R&D 531 150 6 8 367
S&M 843 47 9 (1 ) 788
G&A 372 12 — 360
Other income (4 ) — (4 )
Legal settlements and loss contingencies (20 ) (20 ) —
Impairments, restructuring and other 550 408 31 72 18 21 —
Financial expenses 259 30 229
Corresponding tax effect (494 ) (629 ) 135
Share in losses of associated companies – net 3 — 3
Net income attributable tonon-controlling interests 15 (11 ) 26

Total reconciled items 357 (20 ) 408 150 31 72 (1 ) 32 18 45 (610 )

EPS—Basic 0.52 0.48 1.00
EPS—Diluted 0.52 0.48 1.00

Table of Contents


	Nine Months Ended September 30, 2019
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP		Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies		Impair- ment of long- lived assets		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compens- ation		Contin- gent consider- ation		Gain on sale of business			Other non GAAP items			Other items			Corres- ponding tax effect			Unusual tax item*		Non GAAP
Cost of sales		7,318		717										28		21							96											6,456
R&D expenses		778														17							(7	)										768
S&M expenses		1,908		105												29																		1,774
G&A expenses		873														37																		836
Other (income) expense		(29)																		(12	)													(17	)
Legal settlements and loss contingencies		1,171				1,171																												—
Other assets impairments, restructuring and other items		263						96		2		140						4					22											—
Intangible assets impairment		1,206						1,206																										—
Financial expenses, net		635																								9								626
Income taxes		(159)																											(662	)		61		442
Share in losses of associated companies – net		8																																8
Net income (loss) attributable to non-controlling interests		33																								(28	)							61

Total reconciled items				823		1,171		1,302		2		140		28		104		4		(12	)		111			(19	)		(662	)		61

EPS—Basic		(1.02)																														2.80		1.78
EPS—Diluted		(1.02)																														2.80		1.78

The

non-GAAP

diluted weighted average number of shares was ~~1,017~~1,093 million for the ~~three~~nine months ended September 30, ~~2017. Thenon-GAAP~~ ~~weighted average number~~2019.

*	Interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.

Table of shares for the three months ended September 30, 2017 does not take into account the potential dilution of the mandatory convertible preferred shares (amounting to 59 million weighted average shares), which have an anti-dilutive effect onContents


	Nine months ended September 30, 2018
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Good will impai rment		Legal settle ments and loss conting encies			Impair- ment of long- lived assets		Other R&D expenses		Acquisition, integration and related expenses		Restruct- uring costs		Costs related to regulatory actions taken in facilities		Equity compen- sation		Contin gent consider- ation		Gain on sale of business			Other non GAAP items			Other items			Corres- ponding tax effect			Non GAAP
Cost of sales		7,970			771															6		22							94									7,077
R&D expenses		918												82								21							2									813
S&M expenses		2,119			138																	35							(4	)								1,950
G&A expenses		954																				44							12									898
Other (income) expense		(334	)																							(114	)											(220	)
Legal settlements and loss contingencies		(1,239	)						(1,239	)																												—
Other assets impairments, restructuring and other items		834										255				9		442						84					44									—
Intangible assets impairment		1,246										1,246																										—
Goodwill impairment		300					300																															—
Financial expenses, net		736																														59						677
Income taxes		(56	)																																(479	)		423
Share in losses of associated companies – net		76																														103						(27	)
Net income (loss) attributable to non-controlling interests		35																														(32	)					67
Total reconciled items																																	��

Total reconciled items					909		300		(1,239	)		1,501		82		9		442		6		122		84		(114	)		148			130			(479	)

EPS—Basic		0.53																																	1.87			2.40
EPS—Diluted		0.53																																	1.86			2.39

The

non-GAAP ~~earnings per share.~~

Nine Months Ended September 30, 2018
U.S.$ and shares in millions (except per share amounts)
Excluded for non GAAP measurement
GAAP Amorti-
zation
of
purchased
intangible
assets Goodwill
impairment Legal
settlements
and loss
contin-
gencies Impair-
ment
of long-
lived
assets Other
R&D
expenses Acquisition,
integration
and related
expenses Restruc-
turing
costs Costs
related to
regulatory
actions
taken in
facilities Equity
compen-
sation Contin-
gent
conside-
ration Gain on
sale of
business Other
non
GAAP
items Other
items Non
GAAP

COGS 7,865 771 6 22 94 6,972
R&D 918 82 21 2 813
S&M 2,224 138 35 (4 ) 2,055
G&A 954 44 12 898
Other income (334 ) (114 ) (220 )
Legal settlements and loss contingencies (1,239 ) (1,239 ) —
Impairments, restructuring and other 2,080 1,501 9 442 84 44 —
Goodwill impairment 300 300 —
Financial expenses 736 59 677
Corresponding tax effect (56 ) (479 ) 423
Share in losses of associated companies – net 76 103 (27 )
Net income attributable tonon-controlling interests 35 (32 ) 67

Total reconciled items 909 300 (1,239 ) 1,501 82 9 442 6 122 84 (114 ) 148 (349 )

EPS—Basic 0.53 1.87 2.40
EPS—Diluted 0.53 1.86 2.39

~~Thenon-GAAP~~

diluted weighted average number of shares was 1,020 million for the nine months ended September 30, 2018. For the nine months ended September 30, 2018, the mandatory convertible preferred shares amounting to 68 million weighted average shares had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation.

Nine Months Ended September 30, 2017
U.S.$ and shares in millions (except per share amounts)
Excluded for non GAAP measurement
GAAP Amorti-
zation
of
purchased
intangible
assets Goodwill
impairment Legal
settlements
and loss
contin-
gencies Impair-
ment
of long-
lived
assets Other
R&D
expenses Inventory
step-up Acquisition,
integration
and related
expenses Restruc-
turing
costs Costs
related to
regulatory
actions
taken in
facilities Equity
compens-
ation Contingent
conside-
ration Other
non
GAAP
items Other
items Non
GAAP
COGS 8,643 944 67 48 18 37 7,529

R&D 1,432 176 17 19 1,220
S&M 2,745 144 30 (2 ) 2,573
G&A 1,101 38 (15 ) 1,078
Other income (100 ) 1 (101 )
Legal settlements and loss contingencies 324 324 —
Impairments, restructuring and other 1,209 564 87 300 179 79 —
Goodwill impairment 6,100 6,100 —
Financial expenses 704 5 699
Corresponding tax effect (462 ) (1,067 ) 605
Share in losses of associated companies – net 10 2 8
Net income attributable tonon-controlling interests 11 (44 ) 55

Total reconciled items 1,088 6,100 324 564 176 67 87 300 48 103 179 119 (1,104 )

EPS - Basic (4.85 ) 7.93 3.08
EPS - Diluted (4.85 ) 7.92 3.07

~~Thenon-GAAP~~ ~~diluted weighted average number~~

Table of ~~shares was 1,016 million~~Contents

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the ~~nine months ended September 30, 2017. Thenon-GAAP~~ ~~weighted average number~~third quarter of ~~shares for the nine months ended September 30, 2017 does not take into account the potential dilution~~2019 were $183 million, or 22%, on

pre-tax

non-GAAP

income of ~~the mandatory convertible preferred shares (amounting to 59 million weighted average shares), which have an anti-dilutive effect onnon-GAAP~~ ~~earnings per share.~~

$843 million.

Non-GAAP ~~Tax Rate~~

~~Non-GAAP~~

income taxes ~~for~~in the third quarter of 2018 were $85 million, or 10%, on~~pre-taxnon-GAAP~~

pre-tax

non-GAAP

income of ~~$0.9 billion.Non-GAAP~~ ~~income taxes in the third quarter of 2017 were $135 million, or 11%, onpre-taxnon-GAAP~~ ~~income of $1.2 billion.~~$868 million. Our

non-GAAP

tax rate for the third quarter of ~~2018~~2019 was mainly affected by ~~the mix of products sold in different geographies.~~

legal settlements with low corresponding tax effect, interest expense disallowance and other changes to tax positions and deductions.

Non-GAAP

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

pre-tax

non-GAAP

income of $2,454 million.

Non-GAAP

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

pre-tax

non-GAAP

income of ~~$3.1 billion.Non-GAAP~~ ~~income taxes in the comparable period of 2017 were $605 million, or 15% onpre-tax~~ ~~income of $4.0 billion.~~

$3,100 million.

We expect our annual

non-GAAP

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

non-GAAP

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

non-GAAP

tax rate for 2018 ~~to be~~was 14%~~, which is lower than our previous projection. This is due to changes in the geographical mix of income we expect to earn this year. Ournon-GAAP~~ ~~tax rate for 2017 was 15%~~.

Off-Balance

Sheet Arrangements

Except for securitization transactions, which are disclosed in note ~~16d~~16(d) to our consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, ~~2017,~~2018, we do not have any material

off-balance

sheet arrangements.

Critical Accounting Policies

~~The preparation~~

For a summary of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. We base our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.

~~As applicable~~significant 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

10-K

for the year ended December 31, ~~2017 for a summary of our significant accounting policies.~~

2018.

Recently Issued Accounting Pronouncements

See note 2 to our consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in our assessment of ~~material contractual obligations and commitments~~market risk as set forth in Item 7A to our Annual Report on Form10-K for the year ended December 31, 2017, other than as set forth below. These changes are the result of the significant debt movements during the first quarter of 2018, as described under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Balance and Movements” above.

Our outstanding debt obligations, the corresponding interest rates, currency and repayment schedules as of September 30, 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.$ in millions)
Fixed Rate:

USD
   18,132 1.70 % 6.75 % —      1,700    700    3,619    861    11,252
Euro
   9,274 0.38 % 4.50 % —      —      1,924    587    813    5,950
CHF
   1,172 0.5 % 1.50 % 458             357    357
USD convertible debentures*
   514 0.25 % 0.25 % 514    —      —      —      —      —
Floating Rate:

USD
   500 2.80 % 2.80 % —      —      —      —      —      500
Others
   7 1.00 % 13.00 % 1    —      —      —      —      6












Total:
   29,599 973    1,700    2,624    4,206    2,031    18,065












Less debt issuance costs
   (110 )
Total:
   29,489

*	~~Classified under short-term debt.~~

2018.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and procedures” (as defined in Rules

13a-15(e)

and

15d-15(e)

under the Securities Exchange Act of ~~1934)~~1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

~~Consistent with our conclusion in our Form10-Q~~ ~~for the quarter ended June 30, 2018, after~~

After evaluating the effectiveness of our disclosure controls and procedures as of September 30, ~~2018,~~2019, our Chief Executive Officer and Chief Financial Officer concluded that, ~~due to the existence of a material weakness in internal control over financial reporting described below,~~ as of such date, Teva’s disclosure controls and procedures were ~~not effective. As described below,~~effective at the ~~material weakness relates to our control designed to validate~~reasonable assurance level.

Changes in Internal Control over Financial Reporting

In the ~~allocation~~third quarter of ~~businesses between~~2019 Teva completed the ~~International Markets and Rimsa reporting units with respect to our interim goodwill impairment testing not operating effectively.~~

~~Notwithstanding the material weakness, Teva’s Chief Executive Officer and Chief Financial Officer have concluded that the interim financial statements included~~implementation of a company-wide enterprise resource planning (ERP) system in the ~~Form10-Q~~ ~~for the quarter ended September 30, 2018 presented fairly, in all material respects, Teva’s~~U.S. to upgrade certain operational and financial ~~position, results of operations and cash flows for the periods presented in conformity~~processes. In connection with ~~U.S. GAAP.~~

~~Material Weakness~~

~~A material weakness is a deficiency, or a combination of deficiencies,~~this ERP implementation, there have been changes in internal control over financial reporting ~~such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.~~

Our internal controls did not operate effectively with respect to our interim goodwill impairment testing. Specifically, our control designed to validate the allocation of businesses between the International Markets and Rimsa reporting units did not operate effectively. This control deficiency did not result in a material misstatement of our annual or interim consolidated financial statements, account balances or disclosures. However, this control deficiency could have resulted in a misstatement of the goodwill balances and disclosures which would have resulted in a material misstatement of the consolidated financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.

~~Remediation Plans~~

As disclosed in note 7 to our consolidated financial statements, for the purpose of future goodwill impairment testing, management combined the Rimsa/Mexico reporting unit within the International Markets reporting unit commencing July 1, 2018, and the control design will no longer incorporate the allocation process discussed above.

~~Management reassessed the precision of controls and the timing of internal processes relating to the performance of goodwill impairment. During~~during the quarter ended September 30, 2018, we implemented controls according to this remediation plan. These controls will be tested when we perform our annual goodwill impairment testing for the year ending December 31, 2018, or earlier should an interim impairment assessment become necessary.

~~Changes in Internal Control over Financial Reporting~~

~~During the period covered by this Quarterly Report, the change described in “Remediation Plans” above was considered a change in Teva’s internal control over financial reporting~~2019 that have materially affected, or isare reasonably likely to materially affect, ~~Teva’s~~the Company’s internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings. For a discussion of these matters, see “Commitments and Contingencies” included in note 16 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form

10-Q.

ITEM 1A.

RISK FACTORS

~~There~~

Except as set forth below, there are no material changes to the risk factors previously disclosed in our Annual Report on Form10-K for the year ended December 31, ~~2017.~~

2018.

Public concern over the abuse of opioid medications in the United States, including increased legal and regulatory action, could negatively affect our business.

Certain governmental and regulatory agencies are focused on the abuse of opioid medications in the United States. Federal, state and local governmental and regulatory agencies are conducting investigations of us, other pharmaceutical manufacturers and other supply chain participants with regard to the manufacture, sale, marketing and distribution of opioid medications. A number of state attorneys general, including a coordinated multistate effort, are investigating our sales and marketing of opioids and we have received subpoena requests from the U.S. Department of Justice seeking documents relating to the manufacture, marketing and sale of opioid medications. In addition, we are currently litigating civil claims brought by various states and political subdivisions as well as private claimants, against various manufacturers, distributors and retail pharmacies throughout the United States in connection with our manufacture, sale and distribution of opioids. On October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement framework. The framework is designed to provide a mechanism by which Teva attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this agreement, Teva would provide buprenorphine naloxone (sublingual tablets), in quantities with an estimated value up to approximately $23 billion at wholesale acquisition cost over a ten year period. In addition, Teva would also provide cash payments of up to $250 million over a ten year period. This global settlement framework is predicated on settlement with all U.S. states and related subdivisions. Teva cannot predict if the nationwide settlement framework will be finalized. Responding to governmental investigations and managing legal proceedings is costly and involves a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve substantial monetary penalties and could have a material and adverse effect on our reputation, business, results of operations and cash flows. See “Government Investigations and Litigation Relating to Pricing and Marketing” in note 16 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended September 30, ~~2018.~~

2019.

Repurchase of Shares

In December 2011, our Board of Directors authorized us to repurchase up to an aggregate amount of $3.0 billion of our ordinary shares or ADSs, of which $1.3 billion remained available for purchase, when in October 2014, the Board of Directors authorized us to increase our share repurchase program by $1.7 billion to $3.0 billion, of which $2.1 billion remained available as of September 30, ~~2018.~~2019. We did not repurchase any of our shares during the three months ended September 30, ~~2018~~2019 and currently cannot do so due to our accumulated deficit. The repurchase program has no time limit. Repurchases may be commenced or suspended at any time, subject to applicable law.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

Table of Contents

ITEM 6.

EXHIBITS



~~10.1~~		Long-Term Assignment Letter for Michael McClellan dated August 9, 2018 *

~~31.1~~

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

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

32
	32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

~~101.INS~~		~~XBRL Taxonomy Instance Document~~

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

	101.SCH		Inline XBRL Taxonomy Extension Schema Document

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

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

~~101.LAB~~		~~XBRL Taxonomy Label Linkbase Document~~

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

	101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

*	Filed herewith.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	TEVA PHARMACEUTICAL INDUSTRIES LIMITED

~~Date: November 1, 2018~~	~~By:~~
Date: November 7, 2019	By:	/s/ Michael McClellan
	Name:	Michael McClellan
	Title:	Executive Vice President, Chief Financial Officer (Duly Authorized Officer)


~~PART I.~~
PART I.	FINANCIAL INFORMATION

~~Item 1.~~
Item 1.	Financial Statements (unaudited)		5

	Consolidated Balance Sheets		4 5


	Consolidated Statements of Income (loss)		5 6


	Consolidated Statements of Comprehensive Income (loss)		6 7

	Consolidated Statements of Changes in Equity		8

	Consolidated Statements of Cash Flows		7 10


	Notes to Consolidated Financial Statements		8 11

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		44 46

~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		77 78

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

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

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

Item ~~1A.~~ 4.	~~Risk Factors~~Controls and Procedures		79 78

~~Item 2.~~
PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		79

Item 1A.	Risk Factors		79

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

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

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

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

~~Item 6.~~	~~Exhibits~~		79

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

Item 4.	Mine Safety Disclosures		79

Item 5.	Other Information		79

Item 6.	Exhibits		80

	Signatures	81


	Nine months ended September 30,
	2018			2017
Operating activities:
Net income (loss)	$	771		$	(4,719	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Net change in operating assets and liabilities		(1,521	)		(1,717	)
Depreciation and amortization		1,460			1,584
Impairment of long-lived assets		1,501			564
Deferred income taxes, net and uncertain tax positions		(650	)		(733	)
Goodwill impairment		300			6,100
Stock-based compensation		122			106
Impairment of equity investment		103			—
Research and development in process		54			175
Net gain from sale of long-lived assets and investments		(53	)		(48	)
Other items		(8	)		9
Venezuela impairment of net monetary assets		—			45

Net cash provided by operating activities		2,079			1,366

Investing activities:
Beneficial interest collected in exchange for securitized trade receivables		1,372			962
Proceeds from sales of business, investments and long-lived assets		880			1,607
Purchases of property, plant and equipment		(438	)		(607	)
Purchases of investments and other assets		(56	)		(194	)
Other investing activities		34			(277	)
Acquisitions of subsidiaries, net of cash acquired		—			43

Net cash provided by investing activities		1,792			1,534

Financing activities:
Repayment of senior notes and loans and other long-term liabilities		(6,989	)		(1,005	)
Proceeds from senior notes and loans, net of issuance costs		4,434			507
Net change in short-term debt		(262	)		(1,630	)
Other financing activities		(13	)		(69	)
Dividends paid on ordinary shares		(12	)		(814	)
Dividends paid on preferred shares		(10	)		(195	)
Dividends paid tonon-controlling interests		—			(38	)

Net cash used in financing activities		(2,852	)		(3,244	)

Translation adjustment on cash and cash equivalents		(107	)		36

Net change in cash and cash equivalents		912			(308	)
Balance of cash and cash equivalents at beginning of period		963			988

Balance of cash and cash equivalents at end of period	$	1,875		$	680

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized trade receivables	$	1,345		$	911


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other compre hensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at June 30, 2018		1,124		54		3,760		23,426			(2,864)			(2,289)			(4,149	)		17,938			1,430			19,368
Comprehensive loss											(208	)		(46	)					(255	)		(26	)		(281	)
Issuance of Shares		1		**																						**
Issuance of Treasury Shares								(1	)								3			2						2
Stock-based compensation expense								44												44						44
Dividends to preferred shareholders						65		(65	)																	—

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests		Total equity
	(U.S. dollars in millions)
Balance at June 30, 2019		1,198		56		—		27,258		(6,752	)		(2,312	)		(4,128	)		14,122			1,128		15,251
Comprehensive income (loss)										(314	)		(53	)					(367	)		7		(360	)
Issuance of Shares		**		**																				**
Stock-based compensation expense								35											35					35

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity		Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2017		1,124		54		3,631		23,479			(3,803	)		(1,853	)		(4,149	)		17,359		1,386			18,745
Cumulative effect of new accounting standard											(5	)		5											—
Comprehensive income (loss)											736			(487	)					249		20			269
Issuance of Treasury Shares								(1	)								3			2					2
Dividends to preferred shareholders						194		(194	)																—
Issuance of shares		1		**																					**
Stock-based compensation expense								120												120					120
Transactions with non-controlling interests																						(2	)		(2	)

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2018		1,196		56		—		27,210			(5,958	)		(2,459	)		(4,142	)		14,707			1,087			15,794
Comprehensive income (loss)											(1,108	)		94						(1,015	)		56			(959	)
Issuance of Shares		2		**																						**
Issuance of Treasury Shares								(8	)								14			6						6
Stock-based compensation expense								99												99						99
Transactions with non-controlling interests																							(8	)		(8	)
Other								(8	)											(8	)					(8	)
Balance at September 30, 2019		1,198	$	56		—	$	27,293		$	(7,066	)	$	(2,365	)	$	(4,128	)	$	13,790		$	1,134		$	14,925


	September 30, 2018		December 31, 2017
	(U.S. $ in millions)
Inventories		—		39
Property, plant and equipment, net (*)		41		16
Identifiable intangible assets, net		—		236
Goodwill (*)		40		275

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	81	$	566

Other taxes and long-term liabilities		—		38

Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets	$	—	$	38


	September 30, 2018		December 31, 2017
	(U.S. $ in millions)
Finished products	$	2,679	$	2,689
Raw and packaging materials		1,395		1,454
Products in process		609		597
Materials in transit and payments on account		183		184

	$	4,866	$	4,924


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017		2018		2017
	(U.S. $ in millions)
Product rights	$	21,094	$	21,011	$	9,132	$	8,276	$	11,962	$	12,735
Trade names		610		617		82		55		528		562
Research and development in process		2,855		4,343		—		—		2,855		4,343

Total	$	24,559	$	25,971	$	9,214	$	8,331	$	15,345	$	17,640


	Generics			Specialty			Other			Total			North America			Europe			International Market			Other			Total
	(U.S. $ in millions)												(U.S. $ in millions)
Balance as of December 31, 2017⁽¹⁾	$	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

Balance as of January 1, 2018		—			—			—			—			11,144			9,001			5,404			2,865			28,414
Goodwill impairment⁽³⁾		—			—			—			—			—			—			(300	)		—			(300	)
Goodwill disposal⁽²⁾		—			—			—			—			—			(65	)		(14	)		—			(79	)
Goodwill reclassified as assets to held for sale		—			—			—			—			—			—			—			(40	)		(40	)
Translation differences		—			—			—			—			(21	)		(338	)		(50	)		(1	)		(410	)

Balance as of September 30, 2018⁽¹⁾	$	—		$	—		$	—		$	—		$	11,123		$	8,598		$	5,040		$	2,824		$	27,585


	Net Unrealized Gains/(Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains/(losses) and prior service (costs)/credits			Total
	(U.S.$ in millions)
Balance as of December 31, 2017 *	$	(1,316	)	$	1	$	(442	)	$	(91	)	$	(1,848	)
Other comprehensive income (loss) before reclassifications		(562	)		—		54			—			(508	)
Amounts reclassified to the statements of income		—					21			2			23

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

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

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


	Nine months ended September 30, 2018
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(717	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(21	)
Labrys transaction		(17	)
Eagle transaction		(46	)
Settlement of contingent consideration:
Eagle transaction		102

Fair value at the end of the period	$	(699	)


	Estimated fair value*
	September 30,		December 31,
	2018		2017
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	24,775	$	23,459
Senior notes and convertible senior debentures included under short-term debt		2,614		2,713

Total	$	27,389	$	26,172



~~Product~~	~~Potential Indication(s)~~	~~Route of~~ ~~Administration~~	~~Development Phase~~ ~~(date entered phase 3)~~		~~Comments~~
Migraine and Pain
~~AJOVY (fremanezumab)~~ fremanezumab (anti CGRP)	~~Chronic and episodic migraine~~ Post traumatic headache	Subcutaneous	~~Approved by FDA~~ ~~and launched~~ ~~(September 2018);~~ ~~Response package~~ ~~submitted for~~ ~~Marketing~~ ~~Authorization~~ ~~Application~~ ~~(“MAA”) to the~~ ~~European~~ ~~Medicines Agency~~ ~~(“EMA”)~~ ~~(September 2018)~~	2		~~On September 14, 2018, the FDA approved AJOVY (fremanezumab-vfrm) injection for the preventive treatment of migraine in adults. We launched the product immediately upon approval.~~ We filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly’s planned marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Eli Lilly has also submitted inter partes review petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against them in the litigation.
	~~Episodic~~ ~~cluster headache~~	~~Subcutaneous~~	~~3 (November 2016)~~
	~~Post traumatic headache~~ fibromyalgia	Subcutaneous		2
~~Fasinumab~~ fasinumab	Osteoarthritis pain	Subcutaneous		3 (March 2016)			Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W). Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.
	Chronic lower back pain	Subcutaneous	2	3 (December 2017)


	Percentage of Net Revenues Nine months ended September 30,						Percentage Change 2018-2017
	2018			2017			Percentage Change 2018-2017
	%			%			%
Net revenues		100.0			100.0			(16	)
Gross profit		45.0			49.1			(23	)
Research and development expenses		6.4			8.4			(36	)
Selling and marketing expenses		15.6			16.2			(19	)
General and administrative expenses		6.7			6.5			(13	)
Other asset impairments, restructuring and other items		14.6			7.1			72
Goodwill impairment		2.1			36			(95	)
Legal settlements and loss contingencies		(8.7	)		1.9			—
Other income		(2.3	)		(0.6	)		234
Operating income (loss)		10.7			(26.2	)		—
Financial expenses, net		5.1			4.1			5
Income (loss) before income taxes		5.5			(30.3	)		—
Tax benefit		(0.4	)		(2.7	)		(88	)
Share in losses of associated companies, net		0.5			0.1			660
Net income (loss) attributable tonon-controlling interests		(0.2	)		0.1			—
Net income (loss) attributable to Teva		5.1			(27.8	)		—
Dividends on preferred shares		1.4			1.1			—
Net income (loss) attributable to ordinary shareholders		3.8			(29.0	)		—


	Three Months Ended September 30, 2018
	U.S.$ and shares in millions (except per share amounts)
				Excluded for non GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies		Impair- ment of long- lived assets		Other R&D expenses		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compen- sation		Contin- gent conside- ration		Gain on sale of business			Other non GAAP items		Other items			Non GAAP
COGS		2,508			246												1		7							30					2,224
R&D		311									60								7							1					243
S&M		743			51														14												678
G&A		309																	17							8					284
Other income		(35	)																				(31	)							(4	)
Legal settlements and loss contingencies		19					19																								—
Impairments, restructuring and other		658							521				4		88						29					16					—
Financial expenses		229																										(7	)		236
Corresponding tax effect		(26	)																									(111	)		85
Share in losses of associated companies – net		10																										9			1
Net income attributable tonon-controlling interests		11																										(12	)		23

Total reconciled items					297		19		521		60		4		88		1		45		29		(31	)		55		(121	)

EPS—Basic		(0.27	)																									0.95			0.68
EPS—Diluted		(0.27	)																									0.95			0.68


	Three Months Ended September 30, 2017
	U.S.$ and shares in millions (except per share amounts)
				Excluded for non GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies			Impair- ment of long- lived assets		Other R&D expenses		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities			Equity compens- ation		Contin- gent conside- ration		Other non GAAP items			Other items			Non GAAP
COGS		2,967			310													(1	)		5				17						2,636
R&D		531										150									6				8						367
S&M		843			47																9				(1	)					788
G&A		372																			12				—						360
Other income		(4	)																						—						(4	)
Legal settlements and loss contingencies		(20	)				(20	)																							—
Impairments, restructuring and other		550								408				31		72							18		21						—
Financial expenses		259																										30			229
Corresponding tax effect		(494	)																									(629	)		135
Share in losses of associated companies – net		3																										—			3
Net income attributable tonon-controlling interests		15																										(11	)		26

Total reconciled items					357		(20	)		408		150		31		72		(1	)		32		18		45			(610	)

EPS—Basic		0.52																										0.48			1.00
EPS—Diluted		0.52																										0.48			1.00


	Nine Months Ended September 30, 2017
	U.S.$ and shares in millions (except per share amounts)
				Excluded for non GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Goodwill impairment		Legal settlements and loss contin- gencies		Impair- ment of long- lived assets		Other R&D expenses		Inventory step-up		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compens- ation		Contingent conside- ration		Other non GAAP items			Other items			Non GAAP
COGS		8,643			944										67						48		18				37						7,529
R&D		1,432											176										17				19						1,220
S&M		2,745			144																		30				(2	)					2,573
G&A		1,101																					38				(15	)					1,078
Other income		(100	)																								1						(101	)
Legal settlements and loss contingencies		324							324																								—
Impairments, restructuring and other		1,209									564						87		300						179		79						—
Goodwill impairment		6,100					6,100																										—
Financial expenses		704																												5			699
Corresponding tax effect		(462	)																											(1,067	)		605
Share in losses of associated companies – net		10																												2			8
Net income attributable tonon-controlling interests		11																												(44	)		55

Total reconciled items					1,088		6,100		324		564		176		67		87		300		48		103		179		119			(1,104	)

EPS - Basic		(4.85	)																											7.93			3.08
EPS - Diluted		(4.85	)																											7.92			3.07


Currency	Total Amount			Interest Rate Ranges					2018		2019		2020		2021		2022		2023 & thereafter
	(U.S.$ in millions)
Fixed Rate:
USD		18,132			1.70	%	6.75	%		—		1,700		700		3,619		861		11,252
Euro		9,274			0.38	%	4.50	%		—		—		1,924		587		813		5,950
CHF		1,172			0.5	%	1.50	%		458								357		357
USD convertible debentures*		514			0.25	%	0.25	%		514		—		—		—		—		—
Floating Rate:
USD		500			2.80	%	2.80	%		—		—		—		—		—		500
Others		7			1.00	%	13.00	%		1		—		—		—		—		6

Total:		29,599								973		1,700		2,624		4,206		2,031		18,065

Less debt issuance costs		(110	)
Total:		29,489