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, ~~2019~~2020

☐

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

Commission file number

001-16174

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Exact name of registrant as specified in its charter)


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

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

+972 (3)

914-8171

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing one Ordinary Share	TEVA	New York Stock Exchange

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

☒

☐

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	☐
~~Large accelerated~~
Non-accelerated filer	☒ ☐	~~Accelerated filer~~ Smaller reporting company	☐

Emerging growth company
~~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

September

30, ~~2019,~~2020, the registrant had ~~1,092,089,421~~1,095,971,556 ordinary shares

outstanding.

Table of Contents

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

INDEX

~~INDEX~~


PART I.	~~FINANCIAL INFORMATION~~

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

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

	Consolidated Statements of Income (loss)		6

	Consolidated Statements of Comprehensive Income (loss)		7

	Consolidated ~~Statements~~statements of ~~Changes~~changes in ~~Equity~~equity		8

	Consolidated Statements of Cash Flows		10

	Notes to Consolidated Financial Statements		11
Item 2.
~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations		46 48
Item 3.
~~Item 3.~~	Quantitative and Qualitative Disclosures about Market Risk		78
Item 4.	Controls and Procedures		78

~~Item 4.~~ PART II.	~~Controls and Procedures~~OTHER INFORMATION

Item 1.	Legal Proceedings		78 79

~~PART II.~~ Item 1A.	~~OTHER INFORMATION~~Risk Factors

~~Item 1.~~	~~Legal Proceedings~~		79
Item 2.
~~Item 1A.~~	~~Risk Factors~~		79

~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds		79 80
Item 3.
~~Item 3.~~	Defaults Upon Senior Securities		79 80
Item 4.
~~Item 4.~~	Mine Safety Disclosures		79 80

Item 5.	Other Information		79 80

Item 6.	Exhibits		80
		81
	Signatures	81	82

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

INTRODUCTION AND USE OF CERTAIN TERMS

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

in-process

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

10-Q

contains many of the trademarks and trade names used by Teva in the United States and internationally to distinguish its products and services. Any third-party trademarks mentioned in this report are the property of their respective owners.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form

10-Q,

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

10-Q,

may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:

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

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

~~or AUSTEDO~~

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

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

or AUSTEDO

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

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

our business and operations in general, including: ~~failure~~uncertainty regarding the magnitude, duration, and geographic reach of the

COVID-19

pandemic and its impact on our business, financial condition, operations, cash flows, and liquidity and on the economy in general; our ability to ~~effectively~~successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the

COVID-19

pandemic and associated costs therewith; effectiveness of our restructuring plan announced in December 2017; ~~uncertainties related~~our ability to attract, hire and failure to achieve, the potential benefits and success of our senior management team and organizational structure, including changes to our senior management team; harm to our pipeline of future products due to the ongoing review of our R&D programs;retain highly skilled personnel; our ability to develop and commercialize additional pharmaceutical products; ~~potential additional adverse consequences following our resolution with the U.S. government of our FCPA investigation;~~ compliance with anti-corruption sanctions and ~~other~~ trade control laws; manufacturing or quality control ~~problems, which may damage our reputation for quality production and require costly remediation;~~problems; interruptions in our supply ~~chain;~~chain, including due to potential effects of the

COVID-19

pandemic on our operations and business in geographic locations impacted by the pandemic and on the business operations of our suppliers; disruptions of ~~our or third party~~ information technology ~~systems or~~systems; breaches of our data security; ~~the failure to recruit or retain key personnel;~~ variations in intellectual property ~~laws that may adversely affect our ability to manufacture our products;~~laws; challenges associated with conducting business globally, including adverse effects of the

COVID-19

pandemic, political or economic instability, major hostilities or terrorism; significant sales to a limited number of ~~customers in our U.S. market;~~customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; ~~implementation of a new enterprise resource planning system that, if deficient, could materially and adversely affect our operations and/or the effectiveness of our internal controls; and~~ our prospects and opportunities for growth if we sell assets; and potential difficulties related to the operation of our new global enterprise resource planning (ERP) system;

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

governmental processing time due to modified government operations due to the

COVID-19

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

COVID-19

pandemic; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; 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;

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

and other factors discussed in this Quarterly Report on Form

10-Q

and in our Annual Report on Form

10-K

for the year ended December 31, ~~2018,~~2019, including in the sections captioned “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

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


	September 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,827		$	1,975
Accounts receivables, net of allowance for credit losses of $117 million and $135 million as of September 30, 2020 and December 31, 2019		4,385			5,676
Inventories		4,516			4,422
Prepaid expenses		895			870
Other current assets		423			434
Assets held for sale		113			87
Total current assets		12,160			13,464
Deferred income taxes		509			386
Other non-current assets		822			591
Property, plant and equipment, net		6,152			6,436
Operating lease right-of-use assets		557			514
Identifiable intangible assets, net		9,308			11,232
Goodwill		20,228			24,846

Total assets	$	49,737		$	57,470
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	2,106		$	2,345
Sales reserves and allowances		4,998			6,159
Accounts payables		1,716			1,718
Employee-related obligations		601			693
Accrued expenses		1,735			1,869
Other current liabilities		946			889

Total current liabilities		12,103			13,674
Long-term liabilities:
Deferred income taxes		874			1,096
Other taxes and long-term liabilities		2,181			2,640
Senior notes and loans		23,515			24,562
Operating lease liabilities		472			435

Total long-term liabilities		27,042			28,733

Commitments and contingencies , see note 10
Total liabilities		39,145			42,407

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; September 30, 2020 and December 31, 2019: authorized 2,495 million shares; issued 1,202 million shares and 1,198 million shares, respectively		57			56
Additional paid-in capital		27,403			27,312
Accumulated deficit		(11,096	)		(6,956	)
Accumulated other comprehensive loss		(2,643	)		(2,312	)
Treasury shares as of September 30, 2020 and December 31, 2019 — 106 million ordinary s hares		(4,128	)		(4,128	)

		9,593			13,972

Non-controlling interests		999			1,091

Total equity		10,592			15,063

Total liabilities and equity	$	49,737		$	57,470

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

(Unaudited)

Three months ended
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


	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020			2019
Net revenues	$	3,978		$	4,093		$	12,206		$	12,420
Cost of sales		2,126			2,264			6,528			6,841

Gross profit		1,852			1,830			5,678			5,579
Research and development expenses		258			240			704			778
Selling and marketing expenses		605			595			1,815			1,908
General and administrative expenses		279			285			846			873
Intangible assets impairments		509			177			1,278			1,206
Goodwill impairment		4,628			0			4,628			0
Other assets impairments, restructuring and other items		(98	)		160			404			263
Legal settlements and loss contingencies		21			468			10			1,171
Other income		(8	)		(14	)		(30	)		(29	)

Operating (loss) income		(4,342	)		(81	)		(3,978	)		(591	)
Financial expenses, net		117			211			565			635

Income (loss) before income taxes		(4,459	)		(292	)		(4,543	)		(1,226	)
Income taxes (benefit)		16			11			(147	)		(159	)
Share in (profits) losses of associated companies, net		(136	)		4			(135	)		8

Net income (loss)		(4,340	)		(307	)		(4,261	)		(1,076	)
Net income (loss) attributable to non-controlling interests		10			7			(121	)		33

Net income (loss) attributable to Teva		(4,349	)		(314	)		(4,140	)		(1,108	)

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(3.97	)	$	(0.29	)	$	(3.78	)	$	(1.02	)

Diluted	$	(3.97	)	$	(0.29	)	$	(3.78	)	$	(1.02	)

Weighted average number of shares (in millions):
Basic		1,096			1,092			1,095			1,091

Diluted		1,096			1,092			1,095			1,091

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

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

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

~~(Unaudited)~~

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

Net income (loss)
$

(307)
$

(197)
$

(1,076)
$
771

Other comprehensive income (loss), net of tax:

Currency translation adjustment

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

87

19

124

75

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

(2
)
1

(1
)
—

Unrealized gain (loss) on defined benefit plans

—

1

(1
)
—

Total other comprehensive income (loss)

(53
)
(84
)
117

(502
)

Total comprehensive income (loss)

(360
)
(281
)
(959
)
269

Comprehensive income (loss) attributable to
non-controlling
interests

7

(26
)
56

20

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

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY~~

Teva shareholders’ equity

Ordinary shares

Number of
shares

(in
millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

compre
hensive

(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at 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.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY~~

Teva shareholders’ equity

Ordinary shares

Number of
shares
(in

millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at December

31,

2017

1,124

54

3,631

23,479

(3,803
)

(1,853
)

(4,149
)

17,359

1,386

18,745

Cumulative effect of new accounting standard

(5
)

5
—
Comprehensive income (loss)

736

(487
)
249

20

269

Issuance of Treasury Shares

(1
)

3

2

2

Dividends to preferred shareholders

194

(194
) —
Issuance of shares

1

**
**
Stock-based compensation expense

120

120

120

Transactions with non-controlling

interests

(2
)

(2
)

Balance at September 30, 2018

1,125

$
54

$
3,825

$
23,404

$
(3,072
)

$
(2,335
)

$
(4,146
)

$
17,730

$
1,404

$
19,134

*	~~Mandatory convertible preferred shares.~~

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

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

MCPS

*

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated
other

comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling

interests

Total

equity

(U.S. dollars in millions)

Balance at December 31, 2018

1,196

56

—

27,210

(5,958
)

(2,459
)

(4,142
)

14,707

1,087

15,794

Comprehensive income (loss)

(1,108
)

94

(1,015
)

56

(959
)
Issuance of Shares

2

**

**

Issuance of Treasury Shares

(8
)

14

6

6

Stock-based compensation expense

99

99

99

Transactions with
non-controlling
interests

(8
)

(8
)
Other

(8
)

(8
)

(8
)
Balance at September 30,
2019

1,198

$
56

—

$
27,293

$
(7,066
)

$
(2,365
)

$
(4,128
)

$
13,790

$
1,134

$
14,925

*	~~Mandatory convertible preferred shares.~~

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

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

(Unaudited)


	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income (loss)	$	(4,340	)	$	(307	)	$	(4,261	)	$	(1,076	)
Other comprehensive income (loss), net of tax:
Currency translation adjustment		70			(138	)		(348	)		(5	)
Unrealized gain (loss) from derivative financial instruments		9			87			46			124
Unrealized gain from available-for-sale securities		0			(2	)		0			(1	)
Unrealized loss on defined benefit plans		0			0			0			(1	)
Total other comprehensive income (loss)		79			(53	)		(302	)		117
Total comprehensive income (loss)		(4,261	)		(360	)		(4,563	)		(959	)
Comprehensive income (loss) attributable to non-controlling interests		27			7			(92	)		56
Comprehensive income (loss) attributable to Teva	$	(4,288	)	$	(367	)	$	(4,471	)	$	(1,015	)

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		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, 2020		1,202		57		27,374		(6,747	)		(2,703	)		(4,128	)		13,852			972		14,824
Net Income (loss)								(4,349	)								(4,349	)		10		(4,340	)
Other comprehensive income (loss)											61						61			18		79
Issuance of Shares		*		*													*					*
Stock-based compensation expense						29											29					29

Balance at September 30, 2020		1,202	$	57	$	27,403	$	(11,096	)	$	(2,643	)	$	(4,128	)	$	9,593		$	999	$	10,592

*	Represents an amount less than $0.5 million.


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non-controlling interests		Total equity
	(U.S. dollars in millions)
Balance at June 30, 2019		1,198		56		27,258		(6,752	)		(2,312	)		(4,128	)		14,122			1,128		15,251
Net Income (loss)								(314	)								(314	)		7		(307	)
Other comprehensive income (loss)											(53	)					(53	)				(53	)
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

*	Represents an amount less than $0.5 million.


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non-controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2019		1,198		56		27,312		(6,956	)		(2,312	)		(4,128	)		13,972			1,091			15,063
Net Income (loss)								(4,140	)								(4,140	)		(121	)		(4,261	)
Other comprehensive income (loss)											(331	)					(331	)		29			(302	)
Issuance of Shares		4		*													*						*
Stock-based compensation expense						91											91						91

Balance at September 30, 2020		1,202	$	57	$	27,403	$	(11,096	)	$	(2,643	)	$	(4,128	)	$	9,593		$	999		$	10,592

*	Represents an amount less than $0.5 million.

Amounts may not add up due to rounding.

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

Table of Contents


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non-controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2018		1,196		56		27,210			(5,958	)		(2,459	)		(4,142	)		14,707			1,087			15,794
Net Income (loss)									(1,108	)								(1,108	)		33			(1,076	)
Other comprehensive income (loss)												94						94			23			117
Issuance of shares		2		*														*						*
Issuance of Treasury shares						(8	)								14			6						6
Stock-based compensation expense						99												99						99
Transactions with non-controlling interest																					(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

*	Represents an amount less than $0.5 million.

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)

Nine months ended
September 30,

2019

2018

Operating activities:

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

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

Depreciation and amortization

1,306

1,460

Impairment of long-lived assets

1,302

1,501

Net change in operating assets and liabilities

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

(652
)
(650
)
Stock-based compensation

99

122

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

10

(53
)
Other items

5

(8
)
Goodwill impairment

—

300

Impairment of equity investment

—

103

In process research and development

—

54

Net cash provided by operating activities

210

2,079

Investing activities:

Beneficial interest collected in exchange for securitized trade receivables

1,108

1,372

Purchases of property, plant and equipment

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

169

880

Other investing activities

59

34

Purchases of investments and other assets

(5
)
(56
)

Net cash provided by investing activities

925

1,792

Financing activities:

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

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

96

(262
)
Tax withholding payments made on shares and dividends

(52
)
(22
)
Other financing activities

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

—

4,434

Net cash used in financing activities

(1,685
)
(2,852
)

Translation adjustment on cash and cash equivalents

9

(107
)

Net change in cash and cash equivalents

(541
)
912

Balance of cash and cash equivalents at beginning of period

1,782

963

Balance of cash and cash equivalents at end of period

$
1,241

$
1,875

Non-cash
financing and investing activities:

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


	Nine months ended
	September 30,
	2020			2019
Operating activities:
Net income (loss)	$	(4,261	)	$	(1,076	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		1,162			1,306
Impairment of long-lived assets and assets held for sale		6,314			1,302
Net change in operating assets and liabilities		(1,627	)		(784	)
Deferred income taxes – net and uncertain tax positions		(656	)		(652	)
Stock-based compensation		91			99
Net loss (gain) from investments and from sale of long lived assets		(232	)		10
Research and development in process		40			0
Other items		54			5

Net cash provided by operating activities		885			210

Investing activities:
Beneficial interest collected in exchange for securitized accounts receivables		1,102			1,108
Purchases of property, plant and equipment		(402	)		(406	)
Proceeds from sale of long lived assets		54			167
Other investing activities		(32	)		56

Net cash provided by investing activities		722			925

Financing activities:
Repayment of senior notes and loans and other long-term liabilities		(1,871	)		(1,715	)
Net change in short-term debt		115			96
Tax withholding payments made on shares and dividends		0			(52	)
Other financing activities		(4	)		(14	)

Net cash used in financing activities		(1,760	)		(1,685	)

Translation adjustment on cash and cash equivalents		5			9

Net change in cash and cash equivalents		(148	)		(541	)
Balance of cash and cash equivalents at beginning of period		1,975			1,782

Balance of cash and cash equivalents at end of period	$	1,827		$	1,241

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	1,055		$	1,123

Amounts may not add up due to rounding

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of presentation:

Basis of presentation

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

10-Q

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

10-K

for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission (“SEC”). Amounts as of December 31, ~~2018~~2019 were derived from the audited balance sheet at that date, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included. ~~Certain comparative figures have been reclassified~~

In the process of preparing the consolidated financial statements, management makes estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The inputs into Teva’s judgments and estimates also consider the economic implications of the

COVID-19

pandemic on its critical and significant accounting estimates, most significantly in relation to ~~conform~~sales, reserves and allowances, IPR&D assets, marketed product rights and goodwill, all of which will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the

COVID-19

pandemic and the actions taken to ~~current presentation.~~ contain or treat it, as well as the economic impact on Teva’s employees, third-party manufacturers and suppliers, customers and markets. All estimates made by Teva related to the impact of the

COVID-19

pandemic within its financial statements may change in future periods. Actual results could differ from those estimates.

The results of operations for the

nine

months ended

September

30, ~~2019~~2020 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.

Significant accounting policies

~~Note 2 – Significant accounting policies:~~Change in the annual goodwill assessment date

The Company has historically performed its annual goodwill assessment during the fourth quarter of each year. During the second quarter of 2020, the Company decided to change the date of its annual impairment assessment from October 1 to June 30. The change was made to more closely align the impairment assessment date with the Company’s long-term planning and forecasting process. See note 6.

Recently adopted accounting pronouncements

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

~~2018-07~~2020-04

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

~~non-employee~~

~~share-based payment transactions.~~principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ~~amendments specify~~guidance applies only to contracts, hedging relationships, and other transactions that ~~ASC 718 applies to all share-based payment transactions in which a grantor acquires goods~~reference LIBOR or ~~services~~another reference rate expected to be ~~used or consumed in a grantor’s own operations by issuing share-based payment awards. Teva adopted the provisions~~discontinued because of ~~this update~~reference rate reform. This guidance is effective for all entities as of ~~January 1, 2019 with~~March 12, 2020 through December 31, 2022. There was no ~~material~~ impact to the Company’s consolidated financial statements for the period ended September 30, 2020 as a result of adopting this standard update. The Company will continue to evaluate this guidance to determine the impact it may have in the future on its consolidated financial statements.

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

~~2017-12~~

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

~~non-financial~~

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

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

~~2016-02~~

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

~~right-of-use~~

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

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

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

~~use-of~~

~~hindsight.~~

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

~~non-lease~~

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

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

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

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

the recognition of approximately $553 million ROU assets and $561 million lease liabilities on Teva’s balance sheet for its operating leases of real estate, vehicles and equipment (the difference between the additional lease assets and lease liabilities did not have material impact on the retained earnings), and (ii) the requirement to provide significant new disclosures regarding Teva’s leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a material impact on Teva’s consolidated statements of income and consolidated statements of cash flows. Also, the Company’s accounting for finance leases remained substantially unchanged. See note 20 for further discussion.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

In April 2019, the FASB issued ASU

2019-04

“Codification Improvements to Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).” This ASU provides clarifications ~~for~~of three topics related to financial instruments accounting. ~~The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating~~Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In November 2018, the FASB issued ASU

2018-18

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

unit-of-account

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

In August 2018, the FASB issued ASU

2018-15

“Intangibles—Goodwill and

other—Internal-use

software (Subtopic

350-40):

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

internal-use

software. ~~The~~Teva applied the guidance ~~will be effective for fiscal years beginning~~prospectively to all implementation costs incurred after ~~December 15, 2019, although early adoption is permitted. The Company is currently evaluating~~the date of

adoption. Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES

LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In August 2018, the FASB issued ASU

2018-13

“Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. ~~The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating~~Teva adopted the provisions of this ~~guidance to determine the~~update as of January 1, 2020 with no material impact ~~it may have~~ on its consolidated financial statements.

In June 2016, the FASB issued ASU

2016-13

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

~~Reclassifications of prior periods~~

Recently issued accounting pronouncements, not yet adopted

~~During~~

In August 2020, the ~~fourth quarter~~FASB issued ASU

2020-06

“Debt – Debt with Conversion and Other Options (Subtopic

470-20)

and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In December 2019, the FASB issued ASU

2019-12

“Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes” (the “update”). The amendments in this update simplify the accounting for income taxes by removing the following exceptions in ASC 740: (1) exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a

year-to-date

loss exceeds the anticipated loss for the year.

In addition, the update also simplifies the accounting for income taxes in certain topics as follows: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a

non-income-based

tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity can elect (rather than be required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

Revision of Previously Reported Consolidated Financial Statements

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

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

The Company evaluated the cumulative impact of this item on its previously issued annual financial statements for 2017 and 2018, and the interim financial statements for 2017, 2018 and the first three quarters of 2019, and concluded that, for the reasons mentioned below, the revisions were not material, individually or in the ~~production~~aggregate, to any of ~~products.~~its previously-issued interim or annual financial statements. Teva ~~previously accounted for royalty payments to such third parties as S&M expenses. Royalties paid to a party that is involved in the production process are classified as cost~~has revised its presentation of sales. The Company believes this change in accounting policy is preferable in order to be aligned with industry practice of classifying all royalty payments related to currently marketed products in cost of sales. The Company now reports all royalty payments as cost of sales. The Company has retrospectively adjusted prior periods to reflect this changenet

revenue and ~~the impact of the change for the first~~

~~second~~

~~and thir~~

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

~~$28 million~~

~~nd $~~

~~million~~

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

~~NOTE 3 – Certain transactions:~~

~~Business acquisitions:~~the historical consolidated financial statements to reflect the change in this item, as described in more detail below.

~~Actavis Generics and Anda acquisitions~~

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

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

The final cash consideration for the Actavis Generics acquisition was subject to certain net working capital adjustments. On January 31, 2018, Teva and Allergan entered into a settlement agreement and mutual releases for which Allergan made a

~~one-time~~

payment of $703 million to Teva to settle the working capital adjustments under the Master Purchase Agreement, dated July 26, 2015. As the measurement period has ended, this amount was recorded as a gain under legal settlements and loss contingencies in the first quarter of 2018.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Rimsa~~The impact of this revision is a decrease in net revenues with an offsetting decrease in cost of sales. There is no impact on gross profit, operating income or earnings per share. In addition, there is no impact on Teva’s balance sheet or statement of cash flows for the related periods.

~~On March 3, 2016, Teva completed~~

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

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

~~pre-acquisition~~

~~quality, manufacturing and other practices, at which point Teva began an assessment of the extent~~revision on net revenues and cost of ~~remediation required to return its products to the market. In September 2016, 2 lawsuits were filed: a~~

~~pre-emptive~~

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

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

~~one-time~~

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


		Net revenues							Cost of sales
		As reported		Adjustment			As revised		As reported		Adjustment			As revised
		(U.S. $ in millions)
2019	Q1		4,295		(146	)		4,149		2,440		(146	)		2,293
	Q2		4,337		(159	)		4,177		2,443		(159	)		2,284
	Q3		4,264		(171	)		4,093		2,435		(171	)		2,264

	Total		12,896		(477	)		12,420		7,318		(477	)		6,841

~~Assets and liabilities held for sale:~~

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

September 30,
2019

December 31,
2018

(U.S. $ in millions)

Property, plant and equipment, net

24

92

Goodwill

—

51

Adjustments of assets held for sale to fair value

(6
)
(51
)

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

~~Other significant agreements:~~13

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 2 – Certain transactions:

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

Alvotech Partnership

In August 2020, Teva entered into an exclusive partnership agreement with biopharmaceutical company Alvotech for the commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this partnership contains biosimilar candidates addressing multiple therapeutic areas. Under this agreement, Alvotech will be responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. The agreement includes an upfront payment payable by Teva, which was paid in the third quarter of 2020. Additional development and commercial milestone payments of up to $490 million, as well as royalty payments,

may be

payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of the biosimilars.

Eli Lilly and Alder BioPharmaceuticals

In December 2018, Teva entered into an agreement with Eli Lilly, resolving the European Patent Office opposition they had filed against Teva’s AJOVY

patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

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

non-exclusive

license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the United States and worldwide, excluding Japan and Korea. Teva received a ~~$25~~

$25

million upfront payment that was recognized as revenue during the first quarter of ~~2018.~~2018, and a

$25

million milestone payment in March 2020 that was recognized as revenue in the first quarter of 2020. The agreement stipulates additional development and commercial milestone payments to Teva of up to ~~$175~~

$150

million, as well as future royalties.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~PGT Healthcare Partnership~~

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

~~over-the-counter~~

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

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

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

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

AUSTEDO

On September 19, 2017, Teva entered into a partnership agreement with Nuvelution Pharma, Inc. (“Nuvelution”) for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. ~~Nuvelution will fund and manage~~There are no further plans in this indication following clinical ~~development, driving all operational aspects of the phase 3 program, and Teva will lead the regulatory process and be responsible for commercialization. Upon and subject~~trial results received in February 2020, which failed to ~~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~~meet their ~~contribution to the partnership.~~primary endpoints.

Otsuka

On May 12, 2017, Teva entered into a license and collaboration agreement with Otsuka Pharmaceutical Co. Ltd. (“Otsuka”), providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY in Japan and, if approved, to commercialize the product in Japan. Otsuka paid Teva an upfront payment of $50

million in consideration for the transaction. Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 million. Teva may receive additional milestone payments upon ~~filing with Japanese regulatory authorities, receipt of regulatory approval and~~ achievement of certain revenue targets. Otsuka will also pay Teva royalties on AJOVY sales in Japan.

~~Attenukine~~

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

Celltrion

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

TRUXIMA

and

HERZUMA

, two biosimilar products ~~in development~~ for the U.S. and Canadian markets. Teva paid Celltrion ~~$160~~

$160

million, of which ~~up to $60~~ Teva received an aggregate credit of

$60

million ~~is refundable or creditable under certain circumstances.~~as of September 30, 2020. Teva and Celltrion ~~will~~ share the profit from the commercialization of these products. These two products, TRUXIMA and HERZUMA, were approved by the FDA in November and December 2018, respectively and were launched in the United States in November 2019 and March 2020, respectively.

Regeneron

In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share equally in the global commercial rights to this product, as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of

2016 ~~as part~~and additional payments for achievement of ~~the agreement. Milestone payments~~development milestones in an aggregate amount of ~~$25 million, $35 million and $60~~$120 million were paid ~~in the second quarter~~during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of ~~2017, the first quarter of 2018 and the fourth quarter of 2018, respectively.~~up to $2,230 million, as well as future royalties.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Tel-Aviv

Headquarters Lease Agreement

At the end of the third quarter of 2020, after obtaining the right to use the building, Teva began transitioning its corporate headquarters to a consolidated site in Tel-Aviv, Israel. Teva has an operating lease for the office space in Tel Aviv for an initial term of twelve and a half years, with an option for three extensions. Teva estimates that the reasonably certain holding period of the lease for accounting purposes is twelve and a half years. As of September 30, 2020, Teva booked

$74 million as operating lease

right-of-use

and $66 million as operating lease liability.

Assets and Liabilities Held For Sale:

Certain assets of Teva’s business venture in Japan

Teva operates its business in Japan, which is part of Teva’s International Market segment, through a business venture with The Takeda Pharmaceutical Company Limited (“Takeda”), in which Teva owns a 51% stake and Takeda owns the remaining 49%.

During the second quarter of 2020, Teva and Takeda decided to sell the majority of the business venture’s generic and operational assets. The purchase agreement was signed in July 2020 and Teva expects this transaction to close by early 2021. The closing of the transaction is subject to customary closing conditions.

Teva is accounting for the business venture assets and liabilities to be sold as held for sale and determined that the fair value less cost to sell did not exceed the carrying value, resulting in an impairment charge of $261 million in other assets impairments, restructuring

and

other items recognized in the second quarter of 2020.

Teva determined that the sale of this portion of the Teva-Takeda business venture, whether pending or completed, does not constitute a strategic shift for Teva, and does 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.

Assets held for sale include the Teva-Takeda business venture assets that are held for sale and other manufacturing assets that are expected to be sold within the next year.

The table below summarizes all Teva assets included as held for sale as of September 30, 2020 and December 31, 2019:


	September 30,			December 31,
	2020			2019
	(U.S. $ in millions)
Inventories		160			0
Property, plant and equipment, net and others		239			98
Goodwill		27			0
Adjustments of assets held for sale to fair value		(313	)		(11	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	113		$	87

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 3 – Revenue from contracts with customers:

Disaggregation of revenue

The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues, see note 15.


	Three months ended September 30, 2020
	North America			Europe			International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,660			1,116			478		173		3,427
Licensing arrangements		17			7			2		1		27
Distribution		341			§			9		—		350
Other		(1	)		(8	)		41		142		174

	$	2,017		$	1,116		$	529	$	316	$	3,978

§ Represents an amount less than $1 million.


	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		5		—		357
Other		§		2		48		136		186

	$	2,051	$	1,163	$	565	$	314	$	4,093

§ Represents an amount less than $1 million.


	Nine months ended September 30, 2020
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		4,943		3,487		1,417		561		10,408
Licensing arrangements		59		22		6		3		90
Distribution		1,141		3		21		—		1,165
Other		3		9		138		394		543

	$	6,146	$	3,520	$	1,582	$	957	$	12,206

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	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		14		—		1,095
Other		§		2		146		402		549

	$	6,169	$	3,611	$	1,668	$	972	$	12,420

§ Represents an amount less than $1 million.

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

Variable consideration

Variable consideration mainly includes sales reserves and allowances (“SR&A”), comprised of rebates (including Medicaid and other governmental program discounts), chargebacks, returns and other promotional (including shelf stock adjustments) items. Provisions for prompt payment discounts are netted against accounts receivables.

The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions.

SR&A to U.S. customers comprised approximately 80% of the Company’s total SR&A as of September 30, 2020, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the nine months ended September 30, 2020 and 2019 were as follows:


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S. $ in millions)
Balance at December 31, 2019	$	87		$	2,895		$	1,109		$	1,342		$	637		$	176		$	6,159		$	6,246
Provisions related to sales made in current year		285			3,649			566			6,268			299			55			10,837			11,122
Provisions related to sales made in prior period s		—			(192	)		(116	)		(33	)		(11	)		2			(350	)		(350	)
Credits and payments		(298	)		(4,224	)		(650	)		(6,418	)		(289	)		(79	)		(11,660	)		(11,958	)
Translation differences		—			10			4			2			—			(4	)		12			12

Balance at September 30, 2020	$	74			2,138		$	913		$	1,161		$	636		$	150		$	4,998		$	5,072

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S.$ in millions)
Balance at December 31, 2018	$	175		$	3,006		$	1,361		$	1,530		$	638		$	176		$	6,711		$	6,886
Provisions related to sales made in current year		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 September 30, 201 9	$	156			2,692		$	1,233		$	1,425		$	604		$	183		$	6,137		$	6,293

Allowance for credit losses

Accounts receivable are recognized net of allowance for credit losses. Allowances for credit losses were $117 million and $135 million as of September 30, 2020 and December 31, 2019, respectively.

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:

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


	September 30, 2020		December 31, 2019
	(U.S. $ in millions)
Finished products	$	2,384	$	2,504
Raw and packaging materials		1,334		1,183
Products in process		635		583
Materials in transit and payments on account		163		151

Total	$	4,516	$	4,422

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

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

September 30,

December 31,

2019

2018

(U.S. $ in millions)

Machinery and equipment
$
5,678
$
5,691

Buildings

3,037

3,143

Computer equipment and other assets

2,120

2,097

Payments on account

616

514

Land

364

351

11,816

11,796

Less—accumulated depreciation

(5,172
)
(4,928
)

Total
$
6,643
$
6,868

~~NOTE 6~~ – Identifiable intangible assets:

Identifiable intangible assets consisted of the following:

Gross carrying amount
net of

impairment

Accumulated amortization

Net carrying amount

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


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2020		2019		2020		2019		2020		2019
	(U.S. $ in millions)
Product rights	$	19,520	$	19,663	$	11,665	$	10,640	$	7,856	$	9,023
Trade names		609		600		154		126		455		474
In process research and development		998		1,735		—		—		998		1,735

Total	$	21,128	$	21,998	$	11,819	$	10,766	$	9,308	$	11,232

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Product rights and trade names

Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products from various therapeutic categories from various acquisitions with a weighted average life of approximately 12 years.

Amortization of intangible assets ~~amounted to $255~~was $251 million and ~~$297~~$255 million in the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Amortization of intangible assets ~~amounted to $823~~was $758 million and ~~$909~~$823 million in the

nine

months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

IPR&D

Teva’s

IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is comprised mainly of ~~the following acquisitions and related assets:~~ various generic products ~~(Actavis Generics) – $1,626 million; various generic products (Rimsa) – $46 million; and AUSTEDO – $211~~from the Actavis Generics acquisition of $

964

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

~~In the three months ended September 30, 2019, Teva reclassified $15 million of products from IPR&D to product rights following regulatory approval.~~

~~In the first~~

~~nine~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Intangible assets ~~impairment~~impairments

Impairments of long-lived intangible assets for the three months ended September 30, ~~2019~~2020 and ~~2018~~ 2019

were $509 million and $177 million, ~~and $519 million,~~ respectively.

Impairments in the third quarter of 2020 consisted of:

(a)

IPR&D assets

of $360

million,

inly

due to: (i) $262 million related to lenalidomide (generic equivalent of

Revlimid

)

due to modified competition assumptions as a result of settlements between the innovator and other generic filers; and (ii) $96 million related to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and

(b)

Identifiable product rights

of $149

million, due to: (i) $110 million related to a change in the assumptions regarding competition for the

expected relaunch of

metformin tablets; and (ii) $39 million mainly related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States.

Impairments in the third

quarter of 2019 consisted of:

a)(a)

Identifiable product rights of $99 million, mainly due to

~~upply ch~~

~~nges~~

supply challenges in connection with products

primarily marketed in

Hong ~~Kong~~Kong; and

(b)

IPR&D assets of $78 million, mainly

~~related~~

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

Impairments of long-lived intangible assets for the

nine

months ended September 30, 2020 and 2019, were $1,278 million and ~~2018 were~~ $1,206 million, ~~and $1,246 million,~~ respectively.

Impairments in the first nine months of 2020 consisted of:

(a)

IPR&D assets of $708 million,

mainly

due to: (i) $262 million related to lenalidomide (generic equivalent of Revlimid

) due to modified competition assumptions as a result of settlements between the innovator and other generic filers; (ii)

$211 million related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States following clinical trial results

received in February 2020, which failed to meet their primary endpoints; and

(iii) $213

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

(b)

Identifiable product rights of $570 million, mainly due to: (i) $271 million

to updated market assumptions regarding price and volume of products acquired from Actavis

Generics

that are

primarily marketed in the United States;

(ii) $165 million in Japan in connection with ongoing regulatory pricing reductions and generic

competition; and (iii) $110 million related to a change in the assumptions regarding competition for the

expected relaunch of

metformin

tablets

Impairments in the first nine

months of 2019 consisted of:

a)(a)

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.~~States; and

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

b)(b)

IPR&D assets of $539 ~~million, mainly~~

~~related~~

~~to:~~million: (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~~

Revlimid

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

~~concer~~

~~ing~~

assumptions concerning the future market share of

a number of

products within Teva’s Actavis Generics pipeline in Europe.

The fair value measurement of the impaired intangible assets in the first nine months of 2020 is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The discount rate applied ranged from 7.5% to 9%. A probability of success factor of 80% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 76 – Goodwill:

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

North
America

Europe

International
Markets

Other

Total

(U.S. $ in millions)

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

Changes during the period:

Goodwill disposal

(23
)
(5
)
—

—

(28
)
Translation differences

11

(300
)
57

—

(232
)

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


	North America			Europe			International Markets			Other		Total
	(U.S. $ in millions)
Balance as of December 31, 2019 (1)	$	11,091		$	8,536		$	2,532		$	2,687	$	24,846
Changes during the period:
Goodwill reclassified as assets held for sale		—			(8	)		(19	)		—		(27	)
Goodwill impairment		(4,628	)		—			—			—		(4,628	)
Translation differences		(10	)		253			(206	)		—		37

Balance as of S eptember 30, 2020 (1)	$	6,453		$	8,781		$	2,307		$	2,687	$	20,228

(1)	Accumulated goodwill impairment as of September 30, ~~2019~~2020 and ~~January 1,~~December 31, 2019 was approximately $$25.6 ~~21.0~~billion and $21.0 billion ~~billion.~~ , respectively.

Teva operates its business through three reporting segments: North America, Europe and International Markets. ~~Teva began~~Each of these business segments is a reporting ~~its financial results under this structure in the first quarter of 2018. In addition to these three segments, Teva has other sources of revenues, primarily the~~unit. Additional reporting units include Teva’s production and sale of APIs to third parties ~~certain contract manufacturing services~~(“Teva API”) and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. The Teva API and Medis reporting units are included under “Other” in the above table. See note ~~17.~~15 for additional segment information.

Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the ~~WACC,~~weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva ~~could face~~may record an impairment of goodwill allocated to these reporting units in the future.

First Quarter Developments

During the first quarter of ~~2019,~~2020, management assessed developments that occurred during the quarter, including expected effects of the

COVID-19

pandemic on its business, to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount. ~~This includes the International Markets, Medis and Europe reporting units, which had headroom~~

~~of 6%~~

~~or less as of December 31, 2018.~~ As part of this assessment, ~~the Company~~management also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period. In addition, Teva analyzed the aggregate fair value 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 2019 compared to the average share price used to assess the reasonableness of the results of the cash flow projections used for the goodwill impairment analysis in the fourth quarter of 2018, management believed that its fair value assessment was reasonably supported by Teva’s market capitalization.

Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, ~~2019~~2020 and, therefore, no quantitative ~~assessments were performed~~assessment was performed.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~Second Quarter Developments

~~Notes~~Pursuant to ~~Consolidated Financial Statements~~Company policy, the Company has historically performed its annual goodwill assessment during the fourth quarter of each year. During the second quarter of 2020, the Company changed its annual impairment assessment date from October 1 to June 30 to more closely align the impairment assessment date with the Company’s long-term planning and forecasting process.

~~(Unaudited)~~

InDuring the second quarter of 2019, the Company completed its long-range planning (“LRP”) process. The LRP is part of Teva’s internal financial planning and budgeting processes and is discussed and reviewed by Teva’s management and its board of directors. Certain events and changes in circumstances, reflected in the LRP, indicated that it was more likely than not that the carrying value of certain reporting units may exceed their fair value. The following analysis was performed based upon the June 30, 2019 assessment:

~~International Markets~~

~~Management noted a further decrease in the profitability projections in the Japanese market related to new price regulation and further generic competition. Consequently, management~~2020, Teva conducted a quantitative analysis toof all reporting units as part of its ~~International Markets reporting unit, which resulted in no impairment.~~

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

~~The Company used a terminal growth rate~~assistance of ~~2.3% and a discount rate~~an independent valuation expert. No goodwill impairment charge was recorded during the second quarter 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 its International Markets reporting unit.

~~North America~~

2020.

~~Management believes that~~

As part of 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~~aforementioned analysis, ~~to its North America reporting unit, which resulted in no impairment.~~

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

The Company used a terminal growth rate of 2.0% and a discount rate of 10.0%. If Teva holds all other assumptions constant, a reduction in the terminal value growth rate of 0.9% or an increase in discount rate of 0.6% would result in an impairment related to its North America reporting unit.

~~Remaining reporting units~~

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

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

~~Market Capitalization~~

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

~~During~~ Management noted differences between the ~~second quarter of 2019, Teva noted its~~ market capitalization ~~was significantly below~~and management’s ~~assessment~~internal projections as 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 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 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 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~~the second quarter. As of June 30, 2020, those differences were believed to ~~clarify the outlook with regards~~be attributable to the opioid litigation, which may result in a 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 therefore it would be inappropriate to record an impairment charge in the second quarter of 2019 related thereto.

17following:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

•

Management noted a portion of the difference can be attributed to sales projections of AJOVY and AUSTEDO in the International Markets reporting unit. Management continues to believe that the majority of analysts do not focus on these brands in preparing their financial models and, as a result, have not attributed value to the launch potential in this reporting unit

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 available for each period.

~~In October 2019, Teva reached a settlement with two counties in Ohio and confirmed that it had reached an agreement in principle with a group of~~

~~ttorneys~~

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

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

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

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

~~NOTE 8 – Earnings (Loss) per share:~~

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

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

~~non-vested~~

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

~~Additionally,~~

~~in the t~~

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

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

~~shares~~

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

~~up to~~

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

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

~~70.6~~

~~million ADSs in December 2018.~~

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

~~non-vested~~

RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share. Diluted earnings per share for the nine months ended September 30, 2018 take into account the potential dilution that could occur upon the exercise of options and

~~non-vested~~

~~RSUs granted under employee stock compensation plans, using the treasury stock method.~~

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

~~million~~

~~shares~~

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

~~that~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

~~Disaggregation of revenue~~

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

Three months ended September 30, 2019

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

1,674

1,153

511

176

3,514

Licensing arrangements

26

7

1

1

36

Distribution

351

1

176

—

528

Other
§
2

48

136

186

$

2,051
$
1,163
$
736
$
314

4,264

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

Three months ended September 30, 2018

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

1,902

1,210

525

166

3,803

Licensing arrangements

29

1

—

2

32

Distribution

333

1

149

—

483

Other

1

—

52

158

211

$

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

4,529

Nine months ended September 30, 2019

North

America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

4,997

3,586

1,505

566

10,653

Licensing arrangements

92

22

3

4

121

Distribution

1,080

1

491

—

1,572

Other
§
2

145

402

549

$

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

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

Nine months ended September 30, 2018

North America

Europe

International
Markets

Other
activities

Total

(U.S. $ in millions)

Sale of goods

5,983

3,956

1,617

526

12,082

Licensing arrangements

91

19

21

6

137

Distribution

984

7

456

—

1,447

Other

1

—

171

457

629

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

$
14,295

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Variable consideration~~

~~The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions.~~

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

Sales Reserves and Allowances

Reserves
included in
Accounts
Receivable,
net

Rebates

Medicaid and
other
governmental
allowances

Chargebacks

Returns

Other

Total

reserves
included in
SR&A

Total

(U.S.

$ in millions)

Balance at December 31, 2018
$
175
$
3,006
$
1,361
$
1,530
$
638
$
176
$
6,711
$
6,886

Provisions related to sales made in current year period

334

4,004

760

7,196

195

308

12,463

12,797

Provisions related to sales made in prior periods

3

(28
)
(2
)
(1
)
23

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

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

—

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

(19
)
(19
)

Balance at
Septe
mber
30, 2019
$
156

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

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

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

Net Unrealized Gains

(Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale securities

Derivative
financial
instruments

Actuarial
gains

(losses)
and

prior
service
(costs)
c
redits

Total

(U.S. $ in millions)

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

$
(91
) $
(1,848
)

Other comprehensive income (loss) before reclassifications
**

(562
)
—

54

—

(508
)
Amounts reclassified to the statements of income

—

—

21

2

23

Net other comprehensive income (loss) before tax

(562
)
—

75

2

(485
)
Corresponding income tax

—

—

—

(2
)
(2
)

Net other comprehensive income (loss) after tax

(562
)
—

75

—

(487
)

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

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

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Net Unrealized Gains

(Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale securities

Derivative
financial
instruments

Actuarial
gains

(losses)
and

prior
service
(costs)
c
redits

Total

(U.S. $ in millions)

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

Other comprehensive income (loss) before reclassifications
*

(28
)
(1
)
103

**

74

Amounts reclassified to the statements of income

—

—

21

—

21

Net other comprehensive income (loss) before tax

(28
)
(1
)
124

**

95

Corresponding income tax

—

—

—

**

**

Net other comprehensive income (loss) after tax

(28
)
(1
)
124

(1
)
94

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

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

•

~~Represents~~

Management noted an ~~amount less than $0.5 million.~~additional difference can be attributed to sales projections of AUSTEDO in the North America reporting unit, resulting in higher fair value as analyzed by management compared to Teva’s market capitalization. Management continues to believe that it has more accurate information based on its knowledge of the market and its growth and therefore no adjustment was incorporated to the fair value.

•

Management noted that market concerns regarding the uncertainty related to the opioid and price fixing litigation risks are impacting its market capitalization. Management believes that these concerns led to an acute reaction, which resulted in a decline in Teva’s share price. Management believed developments in the opioids case would clarify the outlook with regards to the opioid litigation, when the proposed settlement framework is finalized, which was expected in the near term.

Even if management was to adjust the fair value of the North America reporting unit for any one of the uncertainties noted, the estimated fair value would still exceed its carrying amount. Management also noted that negative results related to all the uncertainties noted may lead to a material goodwill impairment charge.

Third Quarter Developments

During the third quarter of 2020, Teva’s share price experienced further decline. Teva analyzed its aggregated internal valuation of its reporting units compared to its market capitalization as part of its goodwill impairment test. Management believes there are similar reconciling factors to those referenced in the second quarter with additional declines occurring due to increasing uncertainty related to certain litigation actions in the third quarter and the related uncertainties it added to the existing concerns around financial strength.

During the third quarter of 2020, management noted the following factors that led to an assessment of the North America reporting unit for impairment:

•

The Company noted a 25% reduction in its market capitalization from the second quarter of 2020 to the third quarter of 2020.

•

With respect to the opioids litigation, as discussions continue with the group of Attorneys General regarding the nationwide framework and trial dates are postponed largely due to the

COVID-19

pandemic, a resolution of this matter is taking longer than anticipated. Accordingly, the Company is currently unable to predict the timing of any final settlement or whether the settlement will be finalized based upon the current settlement framework.

•

On August 25, 2020, the Company was indicted by the U.S. Department of Justice for alleged violations of the Sherman Act.

•

On August 18, 2020, the Company was sued by the U.S. Department of Justice alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law.

The Company is committed to its projected cash flow targets and management’s views on the litigation exposures have not changed. However, recent developments indicate the timeframe for resolution will take significantly longer than previously expected which introduces greater uncertainty to a favorable resolution. In addition, management believes that analysts are unlikely to modify their projections until the Company can demonstrate progression on the resolution with respect to some or all of the above legal matters. As such, for purposes of testing the goodwill in the North America reporting unit under ASC 350, management has incorporated these factors into its valuation of the North America reporting unit, resulting in an impairment charge of $4,628 million.

Teva does not believe there has been a triggering event related to the other reporting units. The other reporting units all have fair values in excess of 10% over their book values.

~~NOTE 11 –~~

~~Debt obligations:~~

~~a. Short-term debt:~~

Weighted average

interest rate as of

September 30, 2019

Maturity

September 30,
2019

December

31,

2018

(U.S. $ in millions)

Bank and financial institutions

—

—
$
—
$
2

Revolving Credit Facility

LIBOR+1.6
%
—

100

—

Convertible debentures

0.25
%
2026

514

514

Current maturities of long-term liabilities

2,516

1,700

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

��

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 7 – Debt obligations:

a. Short-term debt:


						September 30, 2020		December 31, 2019
	Weighted average interest rate as of September 30, 2020			Maturity		September 30, 2020		December 31, 2019
						(U.S. $ in millions)
Revolving Credit Facility		LIBOR+1.75	%			$	117	$	—
Convertible senior debentures		0.25	%		2026		514		514
Current maturities of long-term liabilities							1,474		1,831

Total short-term debt						$	2,106	$	2,345

Convertible senior debentures

Teva’s 0.25% convertible senior debentures due 2026, with $514 million principal amount outstanding as of

September

30, 2020 and December 31, 2019, include a “net share settlement” feature according to which the principal amount will be paid in cash and in case of conversion, only the residual conversion value above the principal amount will be paid in Teva shares. Due to the “net share settlement” feature, exercisable at any time, these convertible senior debentures are classified in the Balance Sheet under short-term debt. Holders of the convertible debentures will be able to cause Teva to redeem the debentures on February 1, 2021.

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


	Weighted average interest rate as of September 30, 2020			Maturity		September 30, 2020			December 31, 2019
						(U.S. $ in millions)
Senior notes EUR 1,010 million (1)		0.38	%		2020		—			1,131
Senior notes EUR 1,500 million		1.13	%		2024		1,755			1,673
Senior notes EUR 1,300 million		1.25	%		2023		1,522			1,451
Senior notes EUR 1,000 million		6.00	%		2025		1,174			1,120
Senior notes EUR 900 million		4.50	%		2025		1,057			1,008
Senior notes EUR 750 million		1.63	%		2028		874			833
Senior notes EUR 700 million		3.25	%		2022		822			784
Senior notes EUR 700 million		1.88	%		2027		821			782
Senior notes USD 3,500 million		3.15	%		2026		3,495			3,494
Senior notes USD 1,475 million		2.20	%		2021		1,474			1,474
Senior notes USD 3,000 million		2.80	%		2023		2,996			2,995
Senior notes USD 2,000 million		4.10	%		2046		1,986			1,985
Senior notes USD 1,250 million		6.00	%		2024		1,250			1,250
Senior notes USD 1,250 million		6.75	%		2028		1,250			1,250
Senior notes USD 1,000 million		7.13	%		2025		1,000			1,000
Senior notes USD 844 million		2.95	%		2022		855			856
Senior notes USD 789 million		6.15	%		2036		783			782
Senior notes USD 700 million (2)		2.25	%		2020		—			700
Senior notes USD 613 million		3.65	%		2021		616			618
Senior notes USD 588 million		3.65	%		2021		587			587
Senior notes CHF 350 million		0.50	%		2022		381			361
Senior notes CHF 350 million		1.00	%		2025		381			362

Total senior notes							25,078			26,496
Other long-term debt		1.13	%		2026		1			1
Less current maturities							(1,474	)		(1,831	)
Less debt issuance costs							(89	)		(103	)

Total senior notes and loans						$	23,515		$	24,562

(1)	~~During the first six months of 2019,~~ In July 2020, Teva ~~repurchased and canceled approximately $~~repaid at maturity ~~144~~€ 1,010 million ~~principal amount~~ of its $ ~~1,700~~ ~~million~~ ~~1.7~~ %0.375% senior ~~notes due in July 2019.~~ notes.

(2)	In ~~July 2019,~~March 2020, Teva repaid at maturity $ ~~1,556~~ $700 million of its ~~1.7~~ % 2.25% senior notes.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES

LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term debt was issued by several indirect wholly-owned subsidiaries of the Company and is fully and unconditionally guaranteed by the Company as to payment of all principal, interest, discount and additional amounts, if any.

Long-term debt as of September 30, ~~2019~~2020 is effectively denominated ~~(taking into consideration cross currency swap agreements)~~ in the following currencies: 63% in U.S. dollar, ~~68%,~~34% in euro ~~29%~~ and 3% in Swiss ~~franc 3%.~~franc.

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $2.3 billion unsecured syndicated revolving credit facility entered into in April 2019 (“RCF”).

InThe RCF agreement provides for two separate tranches, a $1.15 billion tranche A and a $1.15 billion tranche B. Loans and letters of credit will be available from time to time under each tranche for Teva’s general corporate purposes. Tranche A has a maturity date of April ~~2019, the Company entered into~~8, 2022, with two

one-year

extension options, of which $1.065 billion was extended to April 8, 2023. Tranche B has a ~~$2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion revolving credit facility.~~ maturity date of April 8, 2024.

The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time. The net debt to EBITDA ratio limit is ~~6.25x through December 31, 2019, gradually declines to~~ 5.75x in the third and fourth quarters of 2020 and declines to 5.50x in the first and second quarters of 2021, and continues to gradually decline over the remaining term of the RCF.

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

~~$100~~2020

, €

100 million was

outstanding under the RCF. As of the date of this

~~quarterly~~

~~report~~

Quarterly Report on Form 10-Q

~~0 amounts~~

re €270 million was outstanding under the RCF. Based on current and forecasted results,

the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date these financial statements are issued.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Under specified circumstances, including

non-compliance

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

Teva expects that it will continue to have sufficient cash resources to support its debt service payments and all other financial obligations within one year from the date that these financial statements are issued.

~~NOTE 12 – Fair value measurement:~~

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

~~non-current~~

~~receivables, short-term debt, current and~~

~~non-current~~

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

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

~~non-current~~

receivables and payables approximates their carrying value. The fair value of loans and bank facilities approximates their carrying value, since they bear interest at rates close to the prevailing market rates.

~~Financial instruments measured at fair value~~

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

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

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

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

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

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

September 30, 2019

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
176
$
—
$
—
$
176

Cash, deposits and other

1,065

—

—

1,065

Investment in securities:

Equity securities

45

—

—

45

Other, mainly debt securities

2

—

12

14

Derivatives:

Asset derivatives—options and forward contracts

—

40

—

40

Asset derivatives—cross-currency swaps

105

—

105

Liability derivatives—options and forward contracts

—

(18
)
—

(18
)
Contingent consideration*

—

—

(430
)
(430
)

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

December 31, 2018

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
203
$
—
$
—
$
203

Cash, deposits and other

1,579

—

—

1,579

Investment in securities:

Equity securities

51

—

—

51

Other, mainly debt securities

2

—

10

12

Derivatives:

Asset derivatives—options and forward contracts

—

18

—

18

Asset derivatives—interest rate and cross-currency swaps

—

58

—

58

Liability derivatives—options and forward contracts

—

(26
)
—

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

—

(50
)
—

(50
)
Contingent consideration*

—

—

(507
)
(507
)

Total
$
1,835
$
—
$
(497
) $
1,338

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

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

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

Nine months ended
September 30, 2019

(U.S. $ in millions)

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

3

Adjustments to provisions for contingent consideration:

Actavis Generics transaction

96

Eagle transaction

(100
)
Settlement of contingent consideration:

Eagle transaction

80

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

~~Financial instruments not measured at fair value~~

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

Fair value*

September 30,

December 31,

2019

2018

(U.S. $ in millions)

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

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

2,933

2,140

Total
$
22,030
$
25,700

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

NOTE 138 – Derivative instruments and hedging activities:

a.	a. Foreign exchange risk management:

In the first nine months of ~~2019,~~2020, approximately ~~50%~~48% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks.

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

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

~~The~~In the past, the Company ~~hedges~~hedged against possible fluctuations in foreign ~~subsidiaries~~subsidiaries’ net assets (“net investment hedge”) and ~~entered~~from time to time enters into cross-currency swaps and forward contracts in order to hedge such an exposure.

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

5b. Interest risk management:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

b.	~~Interest risk management:~~

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

c.	24 Table of Contents TEVA PHARMACEUTICAL INDUSTRIES LIMITED Notes to Consolidated Financial Statements (Unaudited) c. Derivative instruments notional amounts

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

September 30,

December 31,

2019

2018

(U.S. $ in millions)

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

Cross-currency swap—net investment hedge

1,000

1,000

Interest rate swap
—
fair value hedge

—

500

$
1,588
$
2,088


	September 30,		December 31,
	2020		2019
	(U.S. $ in millions)
Cross-currency swap — net investment hedge	$	—	$	1,000

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,
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
)
—

—


	Fair value
	Designated as hedging instruments					Not designated as hedging instruments
	September 30, 2020		December 31, 2019			September 30, 2020			December 31, 2019
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	0	$	—		$	36		$	32
Liability derivatives:
Other current liabilities:
Cross-currency swaps—net investment hedge		0		(22	)		0			—
Option and forward contracts		0		—			(67	)		(41	)

The table below provides information regarding the location and amount of

pre-tax

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

Financial expenses, net

Other comprehensive income

Three months ended,

Three months ended,

September 30,
2019

September 30,
2018**

September 30,
2019

September 30,
2018**

Reported under

(U.S. $ in millions)

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

Cross-currency swaps
—
cash flow hedge
(1)

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

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


	Financial expenses, net					Other comprehensive income (loss)
	Three months ended,					Three months ended,
	September 30, 2020		September 30, 2019			September 30, 2020		September 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	117	$	211		$	79	$	(53	)
Cross-currency swaps—cash flow hedge (1)		0		(1	)		0		(33	)
Cross-currency swaps—net investment hedge (2)		0		(7	)		0		(39	)
Interest rate swaps—fair value hedge (3)		0		*			0		0

*	Represents an amount less than $0.5 million.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Financial expenses, net

Other comprehensive income

Nine months ended,

Nine months ended,

September

30,
2019

September

30,
2018**

September

30,
2019

September

30,
2018**

Reported under

(U.S. $ in millions)

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

Cross-currency swaps—cash flow hedge
(1)

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

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

$
—

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


	Financial expenses, net						Other comprehensive income (loss)
	Nine months ended,						Nine months ended,
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	565		$	635		$	(302	)	$	117
Cross-currency swaps — cash flow hedge (1)		0			(2	)		0			(49	)
Cross-currency swaps — net investment hedge (2)		(2	)		(22	)		(21	)		(46	)
Interest rate swaps—fair value hedge (3)		0			2			0			0

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

The table below provides information regarding the location and amount of

pre-tax

(gains) losses from derivatives not designated as hedging instruments:

Financial expenses, net

Net revenues

Three months ended,

Three months ended,

September

30,
2019

September

30,
2018

September

30,
2019

September 30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

211

229

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

$
—

Option and forward contracts Economic hedge
(5)

—

—

(4
)
1

Financial expenses, net

Net revenues

Nine months ended,

Nine months ended,

September 30,
2019

September 30,
2018

September 30,
2019

September

30,
2018

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

635

736

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

$
—

Option and forward contracts Economic hedge
(5)

—

—

*

*

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


	Financial expenses, net					Net revenues
	Three months ended,					Three months ended,
	September 30, 2020		September 30, 2019			September 30, 2020			September 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	117	$	211		$	(3,978	)	$	(4,093	)
Option and forward contracts (4)		40		(35	)		—			—
Option and forward contracts economic hedge (5)		—		—			3			(4	)


	Financial expenses, net					Net revenues
	Nine months ended,					Nine months ended,
	September 30, 2020		September 30, 2019			September 30, 2020			September 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	565	$	635		$	(12,206	)	$	(12,420	)
Option and forward contracts (4)		78		(42	)		—			—
Option and forward contracts Economic hedge (5)		—		—			(37	)		—

(1)

With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate. In the fourth quarter of 2019, Teva terminated $588 million in cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. The settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt as additional interest expense.

(2)

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

float-for-float

interest rates paid and received. ~~No amounts were reclassified from accumulated other comprehensive income into income related to~~In the ~~sale~~first quarter of ~~a subsidiary.~~2020, these cross-currency swap agreements expired. The settlement of these transactions resulted in cash proceeds of $3 million.

(3)

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

floating

~~floating~~

~~interest~~

~~rate.~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

interest rate. In the

third quarter of 2

~~019,~~2019, Teva terminated this interest rate swap agreement. The settlement of these transactions resulted in a gain position of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior

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

~~pense~~

expense.

(4)

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

(5)

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

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

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

~~uble (RUB)~~ ruble and some other currencies ~~denominated revenues with respect to~~during the ~~quarter~~period for which such instruments are ~~purchased.~~transacted. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value ~~with changes~~on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. Changes in the fair value of the derivative instruments are recognized ~~under~~in the same line item in the statements of income as the underlying exposure being hedged. In the first nine months of 2020, the positive impact from these derivatives recognized under revenues was $37 million, partially offset by a $3 million negative impact recognized under cost of sales. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash ~~flows~~

.flows.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

e. Amortizations due to terminated derivative instruments:

~~Notes to Consolidated Financial Statements~~

Forward starting interest rate swaps and treasury lock agreements

~~(Unaudited)~~

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

~~Commencing in the third quarter of~~In 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~~to protect the ~~first half of 2016. In July 2016,~~Company from interest rate fluctuations in connection with a future debt issuance the ~~debt issuances, Teva terminated the remaining~~Company was planning. These forward starting interest rate swaps and treasury lock ~~agreements.~~agreements were terminated in July 2016 upon the debt issuance. The termination of these transactions resulted in a loss position of $

~~493~~

$493 million, of which $

~~242~~

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

~~expenses-net~~

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

With respect to ~~the~~these forward starting interest rate swaps and treasury lock agreements, losses of $8 million and $7 million were recognized under financial expenses, net for the three months ended September 30, 2020 and 2019, ~~and 2018,~~respectively, and losses of ~~$22~~$23 million and ~~$21~~$22 million were recognized under financial expenses, net for the nine months ended September 30, 2020 and 2019, ~~and 2018~~

~~, respectively~~

.respectively.

Fair value hedge

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

~~were~~

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

expenses,

net

over the life of the debt as additional interest expense.

In the third quarter of 2019, Teva terminated $500 million interest rate swap agreements designated as a fair value hedge relating to its 2.8% senior notes due 2023 with respect to $3,000 million notional amount. Settlement of these transactions resulted in cash proceeds of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt.

Cash flow hedge

In the fourth quarter of 2019, Teva terminated $588 million cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. Settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt.

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

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

cross-currency swap agreements, gains of $3

$1 million and $2

$3 million were recognized under financial expenses, net for the three months ended September 30, 2020 and 2019, ~~and 2018,~~

respectively,

and gains of $3 million and $6 million

~~and $5 million~~

were recognized under financial expenses, net for the nine months ended September 30, 2020 and 2019, ~~and 2018~~

~~, respectively~~

respectively.

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

Three months ended

Nine months ended

September 30,

September 30,

2019

2018

2019

2018

(U.S. $ in millions)

Impairments of long-lived tangible assets
(1)

$
28

$
2

$
96

$
255

Contingent consideration

51

29

4

84

Restructuring

61

88

140

442

Other

21

20

24

53

Total

$
160

$
139

$
263

$
834

~~(1)~~

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

~~Impairments~~

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

~~million and $~~

~~million, respectively.~~

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

~~million and $~~

~~255~~

~~million, respectively.~~

~~Teva may record additional impairments in the future, to the extent it changes its plans on any given asset and/or the assumptions underlying such plans as a result of its plant rationalization plan.~~

~~Contingent consideration~~

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

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

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

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Restructuring~~

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

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

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

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

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

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

Three months ended

September 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
49
$
62

Other

11

26

Total
$

61

$

88

Nine months ended

September 30,

2019

2018

(U.S. $ in millions)

Restructuring

Employee termination
$
105
$
380

Other

34

62

Total
$
140
$
442

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

Employee
termination costs

Other

Total

(U.S. $ in millions )

Balance as of January 1, 2019
$
(204
) $
(29
) $
(233
)
Provision

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

108

56

164

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

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

~~Significant regulatory events~~

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

Teva is working diligently to remediate the FDA’s concerns in a manner consistent with current good manufacturing practice (CGMP) requirements, and to address those concerns as quickly and as thoroughly as possible. If Teva is unable to remediate the warning letter findings to the FDA’s satisfaction, it may face additional consequences, including delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate approximately $63

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

~~230~~

~~million~~

~~2020~~

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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~As of September 30, 2019, the accumulated impact of this recall on Teva’s financial statements~~

was $55 million, primarily related to inventory reserves and returns. Teva expects to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter, for which litigation costs are currently being incurred. Teva may also incur additional customer penalties, impairments and litigation costs going forward.

NOTE 159 – Legal settlements and loss contingencies:

In the

third

quarter of ~~2019,~~2020, Teva recorded ~~an expense~~

expenses

of ~~$468~~$21 million in legal settlements and loss contingencies, compared to ~~$19~~

expenses of

$468 million in the

third

quarter of ~~2018.~~2019. The expense in the third quarter of 2020 was mainly due to

settling in part antitrust claims challenging a patent settlement agreement

, partially offset by proceeds received following a settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). The expense in the third quarter of 2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the ~~remaining~~ opioid cases.

In the first nine months of ~~2019,~~2020, Teva recorded ~~an expense~~

expenses

of ~~$1,171~~$10 million in legal settlements and loss contingencies, compared to ~~income~~

expenses of ~~$1,239~~

$1,171 million in the first nine months of ~~2018.~~2019. The expense in the first nine months of 2020 was mainly related to an increase of a reserve for certain legal expenses and settlement contributions related to product liability claims in the United States and partially settling antitrust claims challenging a patent settlement agreement, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel and settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics).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.

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

and other taxes and long-term liabilities

was ~~$1,601~~$1,624 million and ~~$562~~$1,580 million, respectively.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1610 – Commitments and contingencies:

General

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

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

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

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

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

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

~~10-K~~

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

Intellectual Property Litigation

From time to time, Teva seeks to develop generic versions of patent-protected pharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.

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

~~Table~~Teva could also be sued for patent infringement outside of ~~Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes~~the context of the Hatch-Waxman Act. For example, Teva could be sued for patent infringement after commencing sales of a product. In addition, for biosimilar products, Teva could be sued according to ~~Consolidated Financial Statements~~the “patent dance” procedures of the Biologics Price Competition and Innovation Act (BPCIA).

~~(Unaudited)~~

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

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

~~tries~~countries where it does business, particularly in Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.

In July 2014, GlaxoSmithKline (“GSK”) sued Teva in Delaware federal court for infringement of a patent expiring in June 2015 directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of GSK’s Coreg

) in September 2007. A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of $235.5 million, not including

pre-

or post-judgment ~~interest.~~interest or a multiplier for willfulness. Following post-trial motions filed by the parties, on March 28, 2018, the district court

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

issued an opinion overturning the jury verdict and instead found no induced infringement by Teva, thereby finding that Teva did not owe any damages; the district court also denied Teva’s motion seeking to overturn the jury verdict with respect to invalidity.

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

damages verdict

this matter in 2017 was reversed in 2018, following the opinion overturning the verdict as the exposure was no longer considered probable. On October 2, 2020, the Court of Appeals for the Federal Circuit overturned the lower court’s ruling and reinstated the jury verdict in a

two-to-one

~~On May~~

~~2018~~

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

~~was~~

~~held on~~

~~September~~

~~2019~~

~~and~~decision. Teva ~~awaits the Court’s decision.~~

intends to file a request for en banc review. If ~~the appeal of the district court’s decision is~~further appeals are decided against Teva, the case would be remanded to the district court for it to consider Teva’s other legal and equitable defenses that have not yet been considered by the district court.

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

~~neric eq~~

~~ivalent~~generic equivalent of Velcade

) product and mannitol ester patents under the Patented Medicines (Notice Of Compliance) Regulations (“~~PM(NOC)~~PM (NOC)”). At the time of Teva’s launch in 2015, annual sales of Velcade were approximately 94 million Canadian dollars. Additionally, Teva commenced an action under Section 8 of ~~PM(NOC)~~PM (NOC) to recover damages for being kept off of the market during the ~~PM(NOC)~~PM (NOC) proceedings. Janssen and Millennium filed a counterclaim for infringement of the same two patents as well as a patent covering a process to prepare bortezomib. The product patent expired in October 2015; the other patents expire in January 2022 and March 2025. In 2017, Teva entered into an agreement with Janssen and Millennium which ~~limits~~limited 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~~have recovered is 200 million Canadian dollars plus post-judgment interest. In June 2018, the court ruled that Janssen and Millennium pay Teva 5 million Canadian dollars in Section 8 damages. Janssen and Millennium filed an appeal,

which was denied by the appellate court on November 4, 2019. On January 3, 2020, Janssen

and

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

appeal

to the Canadian Supreme Court.

f On May 8, 2020, the ~~decision is~~

~~ultimately~~

~~overturned, Teva could owe the capped damages set forth above. In addition to the potential damages that could be awarded, Teva could be ordered to cease sales of its bortezomib product.~~

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

~~Aloxi~~

) and in November 2015, the U.S. District Court for the District of New Jersey ruled against Teva. Teva appealed this decision and, in May 2017, the Federal Circuit Court of Appeals reversed the district court’s ruling and found the asserted patents invalid. In January 2018, full appellate review of that decision was denied. Helsinn filed an appeal with the U.S.Canadian Supreme Court which was granted. On January 22, 2019, the Supreme Court affirmed the appellate court’s decision finding the asserted patent invalid. Helsinn has no further opportunity to appeal this patent decision. Separately, in October 2014, Helsinn filed an additional claim on later-acquired patents. On January 30, 2018, the district court denied Helsinn’s request for a preliminary injunction based on these later acquired patents. Teva launched its generic palonosetron IV solution after obtaining final regulatory approval on March 23, 2018. TevaJanssen and Helsinn agreed on a settlement in principle to settle their dispute regarding palonosetron, pending completion of final documentation. A provision with respect to the settlement in principle was included in the financial statements.

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

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

~~inter partes~~

review, the Patent Trials and Appeals Board (“PTAB”) found the patent to be invalid. In October 2018, the District Court for the District of New Jersey also found the patent to be invalid. Teva launched its generic 250mg product in November 2018. On May 14, 2019, the U.S. Court of Appeals affirmed that Janssen’s patent is invalid. That decision became final on June 20, 2019. Janssen

~~did not~~

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

~~this~~

Millennium’s application. This matter is ~~considered~~now closed.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Product Liability Litigation

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

Teva and its subsidiaries are parties to litigation relating to previously unknown nitrosamine impurities discovered in certain products. The discovery led to a global recall of single and combination valsartan medicines around the world starting in July 2018. The nitrosamine impurities in valsartan are allegedly found in the active pharmaceutical ingredient (API) supplied by multiple API manufacturers. Teva’s products allegedly at issue in the

various nitrosamine-related litigations

pending in the United States include valsartan, losartan, metformin and ranitidine. There are currently two Multi-District Litigations (“MDL”) pending in the United States District Courts. One MDL is pending in the United States District Court for the District of New Jersey for valsartan, losartan and irbesartan. The second MDL is pending in the United States District Court for the Southern District of Florida for ranitidine. The lawsuits against Teva in the MDLs consist of individual personal injury and/or product liability claims and economic damages claims brought by consumers and end payors on behalf of purported classes of other consumers and end payors as well as medical monitoring claims with respect to the New Jersey MDL. In addition to these MDLs, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic

manufacturers

’ metformin products.

Similar

lawsuits

are

pending in Canada and Germany.

Competition Matters

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

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 U.S. Supreme Court held, in Federal Trade Commission (“FTC”) v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws. This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.

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

) were unlawful because they had the effect of excluding generic competition. The ~~case~~cases also ~~alleges~~allege that Cephalon improperly asserted its PROVIGIL patent against the generic pharmaceutical companies. The first lawsuit was filed by a purported class of direct purchasers. Similar complaints were also filed by a purported class of indirect purchasers, certain chain pharmacies and by Apotex, Inc. (collectively, these cases are referred to as the “Philadelphia Modafinil Action”). Separately, Apotex challenged Cephalon’s PROVIGIL patent and, in October 2011, the court found the patent to be invalid and unenforceable based on inequitable conduct. Teva has either settled or reached agreements in principle to settle with all ~~of the~~ plaintiffs in ~~the Philadelphia Modafinil Action. Additionally, Cephalon and Teva reached a settlement with 48 state attorneys general, which was approved~~such cases, except for an action brought by the ~~court on November 7, 2016, and on July 23, 2019, reached a~~State of Louisiana. The settlement with the State of California ~~which is pending~~that was reached in 2019 received final court approval ~~and is fully~~in June 2020. All settlements entered into in connection with the above proceeding are covered by the settlement fund explained below.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In May 2015, Cephalon entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed its claims against Cephalon in the FTC Modafinil Action in exchange for payment of $1.2 billion (less

set-offs

for prior settlements) by Cephalon and Teva into a settlement fund. ~~The settlement fund does not cover any judgments or settlements outside the United States.~~ Under the Modafinil Consent Decree, Teva also agreed to certain injunctive relief with respect to the types of settlement agreements Teva may enter into to resolve patent litigation in the United States for a period of ten years.

The remaining balance of the settlement fund after consideration of the

settlement with the

State of California noted above is approximately $

$19 million. In February 2019, in connection with the settlement of other unrelated FTC antitrust lawsuits, as described below, Teva and the FTC agreed to amend certain ~~non~~

-non-financial

~~financial~~ provisions of the Modafinil Consent Decree and to restart its

ten-year

term.

Additionally, following an investigation initiated by the European Commission in April 2011 regarding a modafinil patent settlement in Europe, the European Commission issued a Statement of Objections and a Supplementary Statement of Objection in July 2017 and June 2020, respectively, against both Cephalon and Teva alleging that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil. No final decision regarding ~~infringement~~liability has yet been taken by the European Commission. The sales of modafinil in the European Economic Area during the last full year of the alleged ~~infringement~~breach amounted to ~~EUR 46.5~~€46.5 million.

InTeva and its affiliates have been

named

as defendants in lawsuits that allege that multiple patent litigation settlement agreements relating to AndroGel® 1% (testosterone gel) violate the antitrust laws. The first of these lawsuits (the “Georgia AndroGel Litigation”) was filed in

January 2009

in California federal court, and later transferred to Georgia federal court, with

the FTC and the State of California ~~filed a complaint for injunctive relief in California federal court alleging that~~

, and later private plaintiffs, challenging

a September 2006 patent ~~lawsuit~~

litigation

settlement between Watson Pharmaceuticals, Inc. (“Watson”), from wh

~~ich~~

which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”) ~~relating to~~

. The second lawsuit (the “Philadelphia

AndroGel

® Litigation”) was

~~1% (testosterone gel) violated the antitrust laws. Additional lawsuits alleging similar claims were later~~ filed by private plaintiffs (including plaintiffs purporting to represent classes of similarly situated claimants as well as retailer plaintiffs filing separately) and the various actions were consolidated in a multidistrict litigation in Georgia federal court. On February 22, 2019,

the FTC

September 2014

in federal court

in Philadelphia, challenging Teva’s December 2011 patent litigation settlement with AbbVie. The FTC

stipulated to ~~the dismissal of its claims against Watson,~~

dismiss Teva from both litigations,

in exchange for Teva’s agreement to amend the Modafinil Consent

Decree, as described above. ~~Teva also settled with most of the retailer plaintiffs in April 2019.~~

nOn July 16, 2018, the direct purchaser plaintiffs’ motion for class certification

in the Georgia AndroGel Litigation

was ~~denied. As a result,~~ denied and

Teva

later settled

with

most of the retailer plaintiffs in the Georgia AndroGel Litigation as well as

the three direct purchasers that had sought class ~~certification are now proceeding as individual plaintiffs, and trial on their claims has been scheduled to begin~~certification. Settlement amounts were paid in ~~February 2020.~~full. In ~~addition, in~~ August 2019, certain other direct-purchaser plaintiffs (who would have been members of the direct purchaser class

in the Georgia AndroGel Litigation

, had it been certified) filed their own claims in

the

federal court in Philadelphia

(where the Philadelphia AndroGel Litigation has been pending),

challenging (in one complaint) both the September 2006 settlement between Watson and Solvay ~~referenced above, as well as Teva’s~~

, and the

December 2011 settlement ~~with AbbVie involving AndroGel~~

between Teva and ~~TriCor~~

AbbVie.

~~, referenced below. The defendants have moved the Philadelphia court to transfer all of these~~Those claims ~~to the same Georgia federal court that has been presiding over the multidistrict litigation, and that motion remains~~remain pending.

Annual sales of AndroGel

1% were approximately

~~$350~~ $350 million at the time of the

earlier Watson/Solvay

settlement and approximately $140 million

at the time Actavis launched its generic version of AndroGel

1% in November 2015. A provision for ~~this case~~

these matters

was included in the financial statements.

In December 2011, three groups of plaintiffs sued Wyeth and Teva for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving extended release venlafaxine (generic Effexor XR

) entered into in November 2005. The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the U.S. District Court for the District of New Jersey. The plaintiffs claim that the

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In October 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases, after which the parties agreed that the court’s reasoning applied equally to the indirect purchaser cases. Plaintiffs appealed and, in August 2017, the Third Circuit reversed the district court’s decision and remanded for further proceedings. In March 2020, the district court temporarily stayed discovery and referred the case to mediation. Annual sales of Effexor XR

were approximately $2.6 billion at the time of settlement and at the time Teva launched its generic version of Effexor XR

in July 2010.

In February 2012, two purported classes of direct-purchaser plaintiffs sued GSK and Teva in New Jersey federal court for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving lamotrigine (generic Lamictal

) entered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the court dismissed the case, but in June 2015, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further proceedings. In December 2018, the district court granted the direct-purchaser plaintiffs’ motion for class ~~certification. On March 18, 2019,~~certification, but on April 22, 2020, the ~~appeals court granted the defendants’ petition~~Third Circuit reversed that ruling and remanded for ~~immediate appellate review and the district court has stayed the litigation pending the outcome of the appeal.~~further class certification proceedings. Annual sales of Lamictal

were approximately $950 million at the time of the settlement and approximately $2.3 billion at the time Teva launched its generic version of Lamictal

in July 2008.

In April 2013, purported classes of direct purchasers of, and end payers for, Niaspan

(extended release niacin) sued Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005, to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual ~~direct purchaser~~direct-purchaser

opt-out

plaintiffs filed complaints with allegations nearly identical to those of the direct ~~purchaser class and, in~~

purchasers’ class. In August 2019, the district court certified

the direct-purchaser class,

~~, although~~ but in June 2020, the court ~~has yet to rule on~~denied the

indirect

~~purchaser’ pending~~ purchasers’ motion

for class certification. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, which has since been amended, ~~in California state court,~~ alleging violations of state law. Defendants moved to strike the District Attorney’s claims for restitution and civil penalties to the extent not limited to alleged activity occurring in Orange County. The Superior Court denied that motion. The Court of ~~Appeal~~Appeals subsequently reversed the decision and ~~review of the Appellate Court decision is now pending before~~in June 2020, the California Supreme ~~Court.~~Court reversed the Court of Appeals’ decision, allowing the District Attorney’s claims to proceed. 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 version of Niaspan

in September 2013.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

(lidocaine transdermal patches) violated the antitrust laws. ~~Additional lawsuits containing similar allegations followed on behalf of other classes of putative direct purchaser and~~

~~end-payer~~

~~plaintiffs, as well as retailers acting in their individual capacities, and those~~The cases were consolidated as a multidistrict litigation in federal court in ~~California. On February 21, 2017, the court granted both the indirect purchaser plaintiffs’~~California and ~~the direct purchaser plaintiffs’ motions for class certification. Teva~~were settled ~~the multidistrict litigation with the various plaintiff groups~~ in ~~the first quarter of 2018 and a provision was included in the financial statements.~~2018. The FTC also filed suit to challenge the Lidoderm

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

California. On September 16, 2019,

end-payers

Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan filed their own lawsuit against Watson, and other defendants, in Michigan state court. ~~That~~Defendants moved to dismiss that lawsuit ~~was subsequently removed to federal court~~on June 5, 2020, and ~~remains pending.~~

~~Since November 2013, numerous lawsuits have been filed~~those motions were granted in ~~various federal courts by purported classes~~part and denied in part on October 16, 2020. On January 24, 2020, the State of ~~end payers for, and direct purchasers of, Aggrenox~~

(dipyridamole/aspirin tablets) against Boehringer Ingelheim (“BI”), the innovator, and several Teva subsidiaries. The lawsuits allege, among other things, that the settlement agreement between BI and Barr entered into in August 2008 violated the antitrust laws. A multidistrict litigation has been established in the U.S. District Court

~~for the District of Connecticut. On April 11, 2017, the Orange County District Attorney~~Mississippi filed a complaint ~~for violations of California’s Unfair Competition Law based~~against Teva and Watson in Mississippi state court, which it subsequently amended on ~~the Aggrenox~~

®June 12, 2020. Teva and Watson have moved to dismiss that amended complaint, and their motion remains pending.

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

~~opt-out~~

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

~~opt-out~~

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

~~Opt-outs~~

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

~~were approximately $~~

~~340~~

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

~~455~~

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

~~in July 2015.~~

Since January 2014, numerous lawsuits have been filed in the U.S. District Court for the Southern District of New York by purported classes of ~~end payers~~

end-payers

for, and ~~direct purchasers~~direct-purchasers of, Actos

and Actoplus Met (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers, including Teva, Actavis and Watson. The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers violated the antitrust laws. The court dismissed the ~~end payer~~

end-payers’

lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time following the Second Circuit’s decision,

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

the direct purchasers’

claims against the generic manufacturers (including Teva, Actavis,

, and

Watson).

At the time of ~~the~~Teva’s settlement, annual sales of Actos

and Actoplus Met were approximately $3.7 billion and approximately $500 million, respectively. At the time Teva launched its authorized generic version of Actos

and Actoplus Met in August 2012, annual sales of Actos

and Actoplus Met were approximately $2.8 billion and approximately $430 million, respectively.

~~In September 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”) as well as Teva in~~

~~federal court in Philadelphia~~

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

~~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 filed a notice of appeal as to, among other things, the district court’s May 2015 dismissal of the FTC’s claim against Teva, but in February 2019, the FTC stipulated to dismiss Teva from its appeal, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above.

n August 2019, two groups of direct-purchaser plaintiffs filed similar claims against AbbVie and Teva, in the same federal court in Philadelphia where the FTC’s claims had been pending. 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.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

(memantine hydrochloride) filed a lawsuit against Forest Laboratories, LLC (“Forest”), the innovator, and several generic manufacturers, including ~~Teva. The lawsuit alleges,~~Teva, alleging, among other things, that the settlement agreements between Forest and the generic manufacturers to resolve patent litigation over Namenda IR

violated the antitrust laws. Teva reached a settlement agreement with these plaintiffs in July 2020, which

is awaiting final court approval.

Annual sales of Namenda IR

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

in July 2015.

On December 16, 2016, the U.K. Competition and Markets Authority (“CMA”) issued a statement of objections (a provisional finding of infringement of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and certain Auden Mckenzie entities alleging competition law breaches in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. On December 18, 2017, the CMA issued a Statement of Draft Penalty Calculation. No final decision regarding infringement of competition law has yet been issued. On March 3, 2017, the CMA issued a second statement of objections in respect of certain additional allegations (relating to the same products and covering part of the same time period as in the first statement of objections) against Actavis UK, Allergan and certain Auden Mckenzie entities. On February 28, 2019, the CMA issued a third statement of objections with allegations of additional infringements relating to the supply of 10mg and 20mg hydrocortisone tablets in the U.K against certain Auden Mckenzie entities and others. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, pursuant to which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 18, 2017 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3. In the event of any such fines or damages, Teva expects to assert claims, including claims for breach of warranty, against the sellers of Auden Mckenzie. The terms of the purchase agreement may preclude a full recovery by Teva. A liability for this matter has been recorded in purchase accounting related to the acquisition of Actavis Generics.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

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

Notes to ~~the ADHD drug Intuniv~~

®Consolidated Financial Statements

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

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

~~Annual sales of Intuniv~~

~~were approximately $335 million at the time of the settlement and approximately $327 million at the time Actavis launched its generic version of Intuniv~~

~~in 2014.~~

(Unaudited)

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

i, which was later amended to include Teva as a defendant,

~~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,~~

On August 14, 2020,

Cipla Limited ~~amended~~

agreed to dismiss

its ~~complaint to name~~

claims against

Teva ~~as an additional defendant,~~

, with prejudice

, and ~~putative~~

those claims have since been dismissed. Putative

classes of direct-purchaser and

end-payer

plaintiffs have also filed antitrust lawsuits ~~in (since~~(which have since been consolidated in federal court in Delaware) against Amgen and Teva related to the January 2, 2019 settlement. ~~Both Cipla Limited~~

On July 22, 2020, a magistrate judge recommended that plaintiffs’ claims be dismissed. Plaintiffs have objected to the magistrate judge’s recommendation of dismissal, and those objections remain pending before 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.~~district court.

Annual sales of Sensipar

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

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

On December 16, 2016, the U.K. Competition and Markets Authority (“CMA”) issued a statement of objections (a provisional finding of breach of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and certain Auden Mckenzie entities alleging competition law breaches in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. On March 3, 2017 and February 28, 2019, the CMA issued second and third statements of objections in respect of certain additional allegations relating to the same products and covering part of the same time periods as in the first statement of objections. On February 12, 2020, the CMA issued a Supplementary Statement of Objections effectively combining the three previously issued statements referenced

above and a Statement of Draft

Penalty

Calculation

was issued on October

, 2020

. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 16, 2016 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. A liability for this matter has been recorded in the financial statements.

In October 2019, the European Commission commenced an inspection of Teva and subsequently requested information for purposes of investigating whether Teva may have abused a dominant position in the Multiple Sclerosis field, dating back to at least 2014. No formal proceedings have been initiated. Annual sales of

COPAXONE

in the European Economic Area for the past year were approximately $431 million.

On September 1, 2020 and October 20, 2020, two separate plaintiffs purporting to represent a putative class of direct purchasers of Bystolic

(nebivolol hydrochloride) filed separate complaints in the U.S. District Court for the Southern District of New York against several generic manufacturers, including Teva, Actavis, and Watson, alleging, among other things, that the settlement agreements these generic manufacturers entered into with Forest Laboratories, Inc., the innovator, to resolve patent litigation over Bystolic

violated the antitrust laws. Several other putative classes of both direct purchaser and end payer plaintiffs have also filed related complaints, although to date, none of these other complaints name Teva, Watson, or Actavis as defendants. The cases remain in their preliminary stages, pending decisions regarding potential transfer, consolidation, appointment of lead counsel for the putative class, and the filing of a single consolidated complaint on behalf of all plaintiffs. Annual sales of Bystolic

in the United States were approximately $700 million at the time of Watson’s 2013 settlement with Forest.

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 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, the majority of which was paid 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 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 2018 and has since been satisfied in full. Certain Actavis subsidiaries were dismissed by the trial court in an action brought by the State of Utah. That dismissal was affirmed by the Utah Court of Appeals on February 28, 2019. The State’s time to seek further appellate review has expired and the matter is now concluded. A provision for these cases 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. 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 civil qui tam complaint concerning this matter were unsealed by the court after the government declined to intervene. In February 2016, the court 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. Teva’s motion for summary judgment on all claims was denied on February 27, 2019. Teva has reached an agreement in principle to resolve relators’ claims, for which an estimated provision was included in the financial statements for the second quarter of 2019 with the remainder of such provisions recorded in the third quarter of 2019. Pending the parties’ efforts to finalize the settlement agreement and related matters and obtain necessary approvals, the court adjourned the previously scheduled trial date of August 19, 2019 until January 6, 2020.

~~In January 2014, a~~

~~qui tam~~

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

~~qui tam~~

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

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

In ~~May 2017, a~~

~~qui tam~~

~~action was filed against a number of~~2015 and 2016, Actavis and Teva ~~subsidiaries. The~~

~~qui tam~~

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

~~in-kind~~

remuneration to physicians through reimbursement support and nursing services in order to increase the number of COPAXONE prescriptions. An amended complaint was filed on October 15, 2018. Teva and the DOJ moved to dismiss the case. These motions are pending.

~~Since May 2014,~~

~~more than~~

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

~~, tribes~~

and private plaintiffs (including various putative class actions of individuals) in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”) and many of the cases filed in state court have been removed to federal court and consolidated into the MDL Opioid Proceeding.

Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas 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~~

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

~~350~~

complaints have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify multiple billions of dollars in the aggregate as alleged damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and

~~non-monetary~~

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

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

~~$85 million.~~

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

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

~~buprenorphine naloxone (sublingual tablets),~~

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

$25 million at wholesale acquisition cost and distributed over three years to help in the care and treatment of people suffering from addiction, and a cash payment in the amount of $20 million, to be paid in 4 payments over three years.

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

~~thereof. Under this agreement, Teva would~~

~~provide~~

~~buprenorphine naloxone (sublingual tablets) with an estimated value of up to approximately $23 billion at wholesale acquisition cost over~~

~~ten year~~

~~period~~

~~. In addition, Teva would also provide cash 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 range was considered to be more likely than any other outcome; accordingly, Teva accrued to the new low end of the range, resulting in an increase in our 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~~USA each respectively received subpoenas from the ~~New York State~~U.S. Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. The Company is cooperating with NYDFS’s inquiry and producing documents in response to the various subpoenas and requests for information.

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

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

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

~~On June 21, 2016, Teva USA received a subpoena from the DOJ~~Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. ~~Actavis~~

On August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three count indictment charging Teva USA with criminal felony Sherman Act violations. See No. 20-cr-200 (E.D. Pa.). The indictment alleges Teva USA participated in a conspiracy with certain other generic drug manufacturers to maintain and fix prices, allocate customers, and other alleged antitrust offenses concerning the sale of generic drugs, including Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream E-Cream, Gel, and Ointment), Warfarin, Etodolac (IR), Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. A tentative trial date is yet to be scheduled. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business, including monetary penalties and debarment from federally funded health care programs.

In May 2018, Teva received a ~~similar subpoena in June 2015. Teva and Actavis are cooperating with~~civil investigative demand from the DOJ ~~subpoena requests. On July 12,~~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. An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.

Table of Contents

TEVA

PHARMACEUTICAL

INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In 2015 and 2016, Actavis and Teva USA each respectively 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.~~

OnSubsequently, on December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law alleging price fixing of generic products in the United States. That complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these ~~same~~ attorneys general filed yet another antitrust complaint against Actavis, ~~and~~ Teva ~~plus~~and other companies and individuals, alleging price-fixing and market allocation ~~as concerns~~with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional ~~products, many~~products. On June 10, 2020, most, but not all, of ~~which were not previously at issue~~the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the ~~Pennsylvania MDL.~~District of Connecticut naming, among other defendants, Actavis, but not Teva USA in a similar complaint relating to dermatological generics products. In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general May 10, 2019 complaint, referenced above, along with three complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints.

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

opt-out

plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On April 6, 2017, these cases were transferred to the Pennsylvania MDL. Additional cases were transferred to that court and the plaintiffs filed consolidated amended complaints on August 15, 2017. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, and on February 15, 2019, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims.

On July 18, 2019, and again on May 6, 2020, certain individual plaintiffs commenced a civil action in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaint has been ~~filed.~~filed in either action and the July 18, 2019 case has been placed in deferred status. On November 13, 2019,

and again on August 24, 2020, certain

counties in New York

commenced civil actions

~~In May 2018,~~ against many of the defendants in the Pennsylvania MDL, including Teva ~~received a civil investigative demand from~~and Actavis, and the ~~DOJ Civil Division, pursuant~~

complaints have

been transferred to the ~~federal False Claims Act, seeking documents and information produced since January~~Pennsylvania MDL. On March 1, ~~2009 relevant to the Civil Division’s investigation concerning allegations that~~2020, Harris County in Texas filed a complaint against several generic ~~pharmaceutical~~ manufacturers including Teva and Actavis in the District Court for the Southern District of Texas. This complaint largely mirrors certain allegations in the complaints in the Pennsylvania MDL and has been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market ~~allocation and price-fixing agreements, paid illegal remuneration, and caused false claims~~share of generic drug products to ~~be submitted~~the detriment of a class of private payors. The action is in ~~violation of the False Claims Act. Teva is cooperating with this subpoena.~~its early stages.

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.

Subsequently, in August 2020, the U.S. Attorney’s office in Boston, Massachusetts brought a civil action in the U.S. District Court for the District of Massachusetts alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law. It is alleged that Teva caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients. An adverse judgment may involve damages, civil penalties and injunctive remedies. On October 19, 2020, Teva filed a motion to dismiss the complaint which is ~~cooperating in responding to the subpoena.~~pending.

In December 2016, Teva resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”) with the SEC and the DOJ. The settlement included a fine, disgorgement and prejudgment ~~interest;~~interest, a three-year deferred prosecution agreement (“DPA”) for Teva and the retention of an independent compliance monitor for a period of three years. ~~If, during~~In February 2020 the term of the ~~DPA (approximately three years unless extended), the DOJ determines that Teva has committed a felony under federal law,~~monitorship provided ~~deliberately false or misleading information or otherwise breached~~for by the DPA ~~Teva could be subject to prosecution~~ and ~~additional fines or penalties, including the deferred charges. Following the above resolution~~Teva’s consent judgement with the SEC expired 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~~March 4, 2020, following Teva’s certification to the ~~Israeli Securities Law~~SEC and the DOJ confirming that Teva had complied with its disclosure obligations under the ~~Government~~DPA, the DOJ filed a motion to dismiss the information filed against Teva at the time the DPA was entered into. On July 21, 2020, the information was dismissed.

Opioids Litigation

Since May 2014, more than 3,000 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of ~~Israel that ended the investigation~~cities, counties, states, other governmental agencies, tribes and private plaintiffs (including various putative class actions of individuals) in both state and federal courts. Most of the ~~Israeli government~~federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”) and many of the cases filed in state court have been removed to federal court and consolidated into the ~~conduct that was subject to the FCPA investigation, and provided a payment of approximately $22 million.~~

MDL

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Opioid Proceeding. Two cases that were in the MDL Opioid Proceeding were recently transferred back to federal district court for additional discovery,

pre-trial

proceedings and trial. Those cases are: City of Chicago v. Purdue Pharma L.P. et al., No.

14-cv-04361

(N.D. Ill.) and City and County of San Francisco v. Purdue Pharma L.P. et al., No.

18-cv-07591-CRB

(N.D. Cal.). Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas, Utah and West Virginia, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Complaints asserting claims under similar provisions of different state law, generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ

and FENTORA

. The complaints also assert claims related to Teva’s generic opioid products. In addition, over

950

personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death claims in over 600 complaints

, nearly all of which are consolidated in the MDL Opioid Proceeding

. Furthermore, approximately 700 complaints have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify multiple billions of dollars in the aggregate as alleged damages.

The individual personal injury plaintiffs further seek non-economic damages.

In many of these cases, plaintiffs are seeking joint and several damages among all defendants.

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

the

COVID-19

pandemic and rescheduled to begin in the first quarter of 2021

. It is difficult to predict when or if trials will occur in 2020 given the current impact of

the

COVID-19

pandemic

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

In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for $85 million. The settlement did not include any admission of violation of law for any of the claims or allegations made. As the Company demonstrated a willingness to settle part of the litigation, for accounting purposes, management considered a portion of opioid-related cases as probable and, as such, recorded an estimated provision in the second quarter of 2019. Given the relatively early stage of the cases, management viewed no amount within the range to be the most likely outcome. Therefore, management recorded a provision for the reasonably estimable minimum amount in the assessed range for such opioid-related cases in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”

, with a value of $25 million at wholesale acquisition cost and distributed over three years to help in the care and treatment of people suffering from addiction, and a cash payment in the amount of $20 million, to be paid in 4

payments over three years.

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”). The framework is designed to provide a mechanism by which the Company attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this framework, Teva would provide buprenorphine naloxone (sublingual tablets) with an estimated value of 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.

As of October 2020, the Company continues to negotiate the terms and conditions of the framework.

The Company cannot predict if the framework will be finalized

with its current terms and obligations. The

Company considered a range of potential settlement outcomes. The current provision is a reasonable estimate of the ultimate costs if the nationwide settlement framework is finalized in its current form. However, if not finalized in its current form for the entirety of the cases, a reasonable upper end of a range of loss cannot be determined. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and

non-monetary

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

Separately, on April 27, 2018, Teva received subpoena requests from the United States Attorney’s office in the Western District of Virginia and the Civil Division seeking documents relating to the manufacture, marketing and sale of branded opioids. In August 2019, Teva received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York for documents related to the Company’s anti-diversion policies and procedures and distribution of its opioid medications, in what the Company understands to be part of a broader investigation into manufacturers’ and distributors’ monitoring programs and reporting under the Controlled Substances Act. In September 2019, Teva received subpoenas from the New York State Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. The Company is cooperating with NYDFS’s inquiry and

producing

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Notes to Consolidated Financial Statements

(Unaudited)

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

and

administrative actions

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

In addition, several jurisdictions in Canada have initiated litigation regarding opioids alleging similar claims as those in the United States. The cases in Canada

may

be consolidated and are in their early stages.

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. ~~After those two~~Those lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut ~~the court appointed the Ontario Teachers’ Pension Plan Board as lead plaintiff~~ (the “Ontario Teachers Securities Litigation”). ~~The~~On December 13, 2019, the lead plaintiff ~~then~~in that action filed ~~a consolidated~~an amended ~~complaint. On April 3, 2018, the court dismissed the case without prejudice. The lead plaintiff filed a second amended~~ complaint, ~~on June 22, 2018,~~ purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and ~~August 3, 2017.~~May 10, 2019. The ~~second~~amended complaint asserts that Teva and certain of its current and former officers and

directors violated federal securities and common laws in connection with Teva’s alleged failure to disclose pricing strategies for various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering ~~materials issued during the class period.~~materials. The ~~second~~amended complaint seeks unspecified damages, legal fees, interest, and costs. ~~Teva~~In July 2017, August 2017, and ~~the current and former officer and director defendants filed motions to dismiss the second complaint on September 14, 2018.~~

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

~~On July 17, 2017, a lawsuit was~~other putative securities class actions were filed in the U.S. District Court for the Southern District of Ohio derivatively on behalf of the Teva Employee Stock Purchase Plan, and alternatively as a putative class action lawsuit on behalf of individuals who purchased Teva stock through that plan. That lawsuit seeks unspecified damages, legal fees, interest and costs. The complaint alleges that Teva failed to maintain adequate financial controlsother federal courts based on ~~the facts underpinning Teva’s FCPA DPA~~similar allegations, and ~~also based on allegations substantially similar to~~ those ~~in the Ontario Teachers Securities Litigation. On November 29, 2017, the court granted Teva’s motion to transfer the litigation~~cases have been transferred to the U.S. District Court for the District of ~~Connecticut where the Ontario Teachers Securities Litigation is pending. On February 12, 2018, the district court stayed the case pending resolution of the motions to dismiss~~Connecticut. Between August 2017 and June 2020, nineteen complaints were filed ~~in the Ontario Teachers Securities Litigation described above.~~

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

~~On August 3, 2017, a lawsuit was filed in the U.S. District Court for the District of Connecticut by OZ ELS Master Fund, Ltd. and related entities. The complaint asserts that~~against Teva and certain of its current and former officers ~~violated~~and directors seeking unspecified compensatory damages, legal fees, costs and expenses. The similar claims in these complaints have been brought on behalf of plaintiffs, in various forums across the ~~federal securities laws in connection with Teva’s alleged failure~~country, who have indicated that they intend 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

“opt-out”

of the ~~motions to dismiss filed~~plaintiffs’ class if one is certified in the Ontario Teachers Securities Litigation. On March 10, 2020, the Court consolidated the Ontario Teachers Securities Litigation ~~described above.~~with all of the above-referenced putative class actions for all purposes and the

“opt-out”

cases for pretrial purposes. The case is now in discovery.

~~Following~~

Pursuant to that consolidation order, plaintiffs in several of the ~~September 25, 2019 decision~~

“opt-out”

cases filed amended complaints on ~~the motions~~May 28, 2020. On July 8, 2020, Teva and other defendants moved to dismiss certain of the claims brought by certain of the

“opt-out”

plaintiffs. Those motions are pending. The Ontario Teachers Securities Litigation plaintiffs filed a Motion for Class Certification and Appointment of Class Representatives and Class Counsel on June 19, 2020, which the defendants opposed. That motion is pending. Motions to approve securities class actions were also filed in the Tel Aviv District Court in Israel with similar allegations to those made in the Ontario Teachers Securities ~~Litigation, Teva is awaiting the court’s a pre-trial schedule for this case.~~Litigation.

On ~~August 21 and 30, 2017, Elliot Grodko and Barry Baker filed~~September 23, 2020, a putative securities class ~~actions~~action was filed in the U.S. District Court for the Eastern District of Pennsylvania against Teva and certain of its former officers alleging, among other things, violations of Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule

10b-5.

The complaint, purportedly filed on behalf of ~~purchasers of Teva’s~~persons who purchased or otherwise acquired Teva securities between ~~November 15, 2016~~October 29, 2015 and August ~~2, 2017 seeking~~18, 2020, alleges that Teva and certain of its former officers violated federal securities laws by allegedly making false and misleading statements regarding the commercial performance of COPAXONE, namely, by failing to disclose that Teva had caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients, which allegedly impacted COPAXONE’s commercial success and the sustainability of its revenues and resulted in the above referenced August 2020 False Claims Act complaint filed by the DOJ. The securities class action complaint seeks unspecified damages, legal fees, interest, and costs. The ~~complaints allege that Teva and certain of~~case is in 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’spreliminary stages. A motion to ~~transfer the consolidated~~approve a securities class 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~~was also filed in the ~~Ontario Teachers Securities Litigation, Teva is awaiting the court’s pre-trial schedule for this case.~~

~~Between August 2018 and Ju~~

~~2019,~~

~~sixteen~~

~~complaints were filed against Teva and current and former officer and director defendants seeking unspecified compensatory and rescissory damages, legal fees, costs and expenses. The~~Central District Court in Israel, with similar allegations ~~in these complaints are substantially similar~~ to ~~the allegations~~those made 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~~above complaint filed their complaints in the Court of Common Pleas of Montgomery County, Pennsylvania, the U.S. District Court for the Eastern District of Pennsylvania and the U.S. District Court for the District of Connecticut. Teva and the current and former officer and director defendants filed motions or stipulations to transfer the cases filed in Pennsylvania to the U.S. District Court for the District of Connecticut, where the Ontario Teachers Securities Litigation is pending.

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

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

~~the District of~~

~~Connecticut.~~

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

Pennsylvania.

~~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~~Israeli Courts alleging negligence and recklessness with respect to the acquisition of the Rimsa business, ~~and~~ the acquisition of Actavis ~~Generics.~~Generics and the patent settlement relating to Lidoderm

. Motions for document disclosure prior to initiating derivative actions were filed with respect to ~~executive compensation,~~ several ~~patent~~U.S. and EU settlement agreements,

opioids, ~~and~~

the U.S. price-fixing ~~investigations. Motions~~ investigations

and

allegations

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~~

DOJ’s complaint regarding Copaxone patient assistance program

in the ~~generic sector,~~

U.S. In October 2020, Teva filed a notice with the Tel Aviv District Court to settle the derivative proceeding with regard to the acquisition of Actavis Generics and two related actions,

including ~~price erosion~~

the

derivative proceedings related to allegations in connection with ~~respect to Teva’s products. Other~~the Lidoderm® patent settlement agreement.

Various motions were filed in Israel to approve a derivative action, discovery and a class action related to claims regarding Teva’s above-mentioned FCPA resolution with the SEC and DOJ. The parties have reached a settlement which was

approved

by the Tel Aviv District Court on April 6, 2020.

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~~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

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Notes to Consolidated Financial Statements

(Unaudited)

proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.

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

clean-up

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

clean-up

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

clean-up

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

Other Matters

On February 1, 2018, former shareholders of Ception Therapeutics, Inc., a company that was acquired by and merged into Cephalon in 2010, prior to Cephalon’s acquisition by Teva, filed breach of contract and other related claims against the Company, Teva USA and Cephalon in the Delaware Court of Chancery. Among other things, the plaintiffs allege that Cephalon breached the terms of the 2010 Ception-Cephalon merger agreement by failing to exercise commercially reasonable efforts to develop and commercialize CINQAIR

(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). Defendants moved to dismiss the complaint and on December 28, 2018, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract. Trial in this matter is currently scheduled for October 2021.

NOTE 11 – Income taxes:

In the third quarter of 2020, Teva recognized a tax

expense

of $16 million, on

pre-tax

loss of $4,459 million. In the third quarter of 2019, Teva recognized a tax

expense

of $11 million, on

pre-tax

loss of $292 million. Teva’s tax rate for the third quarter of 2020 was mainly affected by

the goodwill impairment charge that does not have a corresponding tax effect and

other changes to tax positions and deductions.

In the first

nine

months of 2020, Teva recognized a tax benefit of $147 million, on

pre-tax

loss of $4,543 million. In the first

nine

months of 2019, Teva recognized a tax benefit of $159 million, on

pre-tax

loss of $1,226 million. Teva’s tax rate for the first

nine

months of 2020 was mainly affected by

the goodwill impairment charge that does not have a corresponding

tax

effect

and other changes to tax positions and deductions.

The statutory Israeli corporate tax rate is 23% in 2020. Teva’s tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or discrete 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

2020. A final and binding decision against Teva in this case may lead to an

asset write off o

f $140 million.

The Israeli tax authorities issued tax assessment decrees for 2013-2016, challenging the Company’s positions on several issues.

In September 2020, Teva commenced proceedings protesting

the

2013-2016 decrees

the Central District Court in Israel. The Company believes it has adequately provided for these items, however, an adverse result could be material.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1712 – Other assets impairments, restructuring and other items:


	Three months ended					Nine months ended
	September 30,					September 30,
	2020			2019		2020			2019
	(U.S. $ in millions)					(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	56		$	28	$	408		$	96
Contingent consideration		(179	)		51		(96	)		4
Restructuring		9			61		82			140
Other		15			21		10			24

Total	$	(98	)	$	160	$	404		$	263

(1)	Including impairments related to exit and disposal activities

Impairments

Impairments of tangible assets for the three months

ended September

30, 2020 and

2019 were $56 million and $28 million, respectively. The impairment for the three months ended September 30, 2020 was mainly related to the intention to sell certain assets

Teva’s

International

Markets

and Europe segments

Impairments of tangible assets for the nine months ended September 30, 2020 and 2019 were $408 million and $96 million, respectively. The impairment for the nine months ended September 30, 2020 was mainly related to the intention to sell certain assets from Teva’s business venture in Japan and plant rationalization. See note 2.

Teva may record additional impairments in the future, to the extent it changes its plans on any given asset and/or the assumptions underlying such plans, as a result of its plant rationalization plan.

Contingent consideration

In the three months ended September 30, 2020, Teva recorded an

income

of $179 million for contingent consideration, compared to an expense of $51 million in the three months ended September 30, 2019.

The income in the third quarter of 2020 was mainly related to a change in the future

royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid

), which was part of the Actavis Generics acquisition.

In the nine months ended September 30, 2020, Teva recorded an income of $96 million for contingent consideration, compared to an expense of $4

million in the nine months ended September 30, 2019. The income in the first nine months of 2020 was mainly related to a change in the future

royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid

), which was part of the Actavis Generics acquisition, partially offset by the change in the estimated future royalty payments to Eagle in connection with expected future bendamustine sales.

Restructuring

In the three months ended September 30, 2020, Teva recorded $9 million of restructuring expenses, compared to $61 million in the three months ended September 30, 2019.

In the nine months ended September 30, 2020, Teva recorded $82 million of restructuring expenses, compared to $140 million in the

nine

months ended September 30, 2019.

The expenses for the three and nine months ended September 30, 2020 were primarily related to residual expenses of the restructuring plan announced in 2017 and other network consolidation

activities

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,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	3	$	49

Other		7		11

Total	$	9	$	61

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LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	39	$	105

Other		43		34

Total	$	82	$	140

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


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2020	$	(208	)	$	(7	)	$	(215	)
Provision		(39	)		(43	)		(82	)
Utilization and other*		145			43			188

Balance as of September 30, 2020	$	(102	)	$	(7	)	$	(109	)

*	Includes adjustments for foreign currency translation.

Significant regulatory and other events

In July 2018, the FDA completed an inspection of Teva’s manufacturing plant in Davie, Florida in the United States, and issued a Form

FDA-483

to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, Teva received a warning letter from the FDA that contained four additional enumerated concerns related to production, quality control, and investigations at this site. Teva has been working diligently to address the FDA’s concerns in a manner consistent with current good manufacturing practice (cGMP) requirements, and to address those concerns as quickly and as thoroughly as possible. An FDA follow up inspection occurred in January 2020, resulting in some follow up findings, and Teva received a letter from the FDA dated April 24, 2020 notifying that the site continues to be classified as OAI. If Teva is unable to remediate the findings to the FDA’s satisfaction, it may face additional consequences. These would potentially include delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments,

inventory write-offs,

customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate approximately $150 million in revenues from this site in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility, however delays in FDA approvals of future products from the site may occur.

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls. In December 2019, Teva reached a settlement with Huahai resolving its claims related to certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses Teva may incur as a result of third party personal injury or product liability claims relating to the sartan API at issue. In addition, multiple lawsuits have been filed in connection with this matter, which may lead to additional customer penalties, impairments and litigation costs.

In the second quarter of 2020, Teva’s operations in its manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. During the third quarter of 2020, Teva completed the first step of remediation of this issue and restarted supply from its Goa facilities. The impact to Teva’s financial results for the nine months ended September 30, 2020 was immaterial, however, if the full remediation takes longer than expected there may be further loss of sales, customer penalties or impairments to related assets.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 13 – Earnings (Loss) per share:

In computing diluted loss per share for the three months ended September 30, 2020 and September 30, 2019, no account was taken of the potential dilution that could occur upon the exercise of 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.

In computing diluted loss per share for the nine months ended September 30, 2020 and September 30, 2019, no account was taken of the potential dilution that could occur upon the exercise of options and

non-vested

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

Basic and diluted loss per share was $3.97 for the three months ended September 30, 2020, compared to basic and diluted loss per share of $0.29 for the three months ended September 30, 2019.

Basic and diluted loss per share was $3.78 for the nine months ended September 30, 2020, compared to basic and diluted loss per share of $1.02 for the nine months ended September 30, 2019.

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Notes to Consolidated Financial Statements

(Unaudited)

NOTE 14 – Accumulated other comprehensive income (loss):

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


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

Other comprehensive income (loss) before reclassifications		(377	)		—		20			—			(357	)
Amounts reclassified to the statements of income		—			—		26			—			26

Net other comprehensive income (loss) before tax		(377	)		—		46			—			(331	)

Net other comprehensive income (loss) after tax*		(377	)		—		46			—			(331	)

Balance as of September 30, 2020	$	(2,171	)	$	—	$	(374	)	$	(98	)	$	(2,643	)

*	Amounts do not include a $29 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 as of December 31, 2018	$	(1,878	)	$	1		$	(504	)	$	(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

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

Balance as of September 30, 2019	$	(1,906	)	$	—		$	(380	)	$	(79	)	$	(2,365	)

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

**	Represents an amount less than $0.5 million.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 15 – Segments:

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

~~(a)~~

Teva

operates its business and reports its financial results in three segments:

(a)

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

(b)

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

(c)

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

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

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

out-licensing

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

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Teva’s CEO may review its strategy and organizational structure

from time to ~~time~~

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

3 and note 6.

~~a. Segment information:~~

a.	Segment information:

Three months ended September 30,
2019

North America

Europe

International

Markets

(U.S. $ in millions)

Revenues
$
2,051
$
1,163
$
736

Gross profit

1,048

662

295

R&D expenses

156

63

21

S&M expenses

219

206

114

G&A expenses

112

56

32

Other income

(5
)
(4
)
(1
)

Segment profit
$
565
$
341
$
130


	Three months ended September 30,
	2020
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,017		$	1,116		$	529
Gross profit		1,056			637			275
R&D expenses		155			60			17
S&M expenses		250			200			101
G&A expenses		97			66			33
Other income		(5	)		(1	)		(1	)

Segment profit	$	560		$	312		$	125

Three months ended September 30
, 2018

North America

Europe

International

Markets

(U.S. $ in millions)

Revenues
$
2,265
$
1,212
$
726

Gross profit

1,196

676

301

R&D expenses

158

62

21

S&M expenses

265

242

120

G&A expenses

128

74

37

Other (income) expense

(4
)
1

—

Segment profit
$
649
$
297
$
123

Nine months ended September 30, 2019

North America

Europe

International Markets

(U.S. $ in millions)

Revenues

$
6,169

$
3,611

$
2,145

Gross profit

3,155

2,066

877

R&D expenses

497

199

66

S&M expenses

756

637

348

G&A expenses

342

175

102

Other income

(6
)

(5
)

(2
)

Segment profit

$
1,566

$
1,060

$
363

Nine months ended September 30, 2018

North America

Europe

International Markets

(U.S. $ in millions)

Revenues

$
7,059

$
3,982

$
2,265

Gross profit

3,778

2,195

942

R&D expenses

528

208

70

S&M expenses

813

725

384

G&A expenses

357

243

115

Other income

(206
)

(1
)

(11
)

Segment profit

$
2,286

$
1,020

$
384


	Three months ended September 30,
	2019
	North America			Europe			International Markets*
	(U.S. $ in millions)
Revenues	$	2,051		$	1,163		$	565
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) expense		(5	)		(4	)		(1	)

Segment profit	$	565		$	341		$	130

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Nine months ended September 30,
	2020
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	6,146		$	3,520		$	1,582
Gross profit		3,208			2,009			828
R&D expenses		455			180			51
S&M expenses		755			590			312
G&A expenses		325			184			96
Other income		(9	)		(3	)		(10	)

Segment profit	$	1,682		$	1,058		$	378

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


	Nine months ended September 30,
	2019
	North America			Europe			International Markets*
	(U.S. $ in millions)
Revenues	$	6,169		$	3,611		$	1,668
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

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents a reconciliation of Teva’s segment profits to its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three and nine months ended September 30, 2020 and 2019:


	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020			2019
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	560		$	565		$	1,682		$	1,566
Europe profit		312			341			1,058			1,060
International Markets profit		125			130			378			363

Total reportable segments profit		997			1,036			3,118			2,989
Profit of other activities		28			16			130			92

Total segments profit		1,025			1,051			3,248			3,081
Amounts not allocated to segments:
Amortization		251			255			758			823
Other assets impairments, restructuring and other items		(98	)		160			404			263
Intangible asset impairments		509			177			1,278			1,206
Goodwill impairment		4,628			—			4,628			—
Legal settlements and loss contingencies		21			468			10			1,171
Other unallocated amounts		55			73			148			209

Consolidated operating income (loss)		(4,342	)		(81	)		(3,978	)		(591	)

Financial expenses, net		117			211			565			635

Consolidated income (loss) before income taxe s	$	(4,459	)	$	(292	)	$	(4,543	)	$	(1,226	)

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three ~~months~~ and ~~the~~ nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

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

North America	Three months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	928	$	914
AJOVY		35		25
AUSTEDO		168		105
BENDEKA ® /TREANDA ®		105		124
COPAXONE		236		271
ProAir ® *		50		71
QVAR ®		42		60
Anda		341		351
Other		113		131
Total	$	2,017	$	2,051

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

Nine months ended
September 30,

2019

2018

(U.S. $ in millions)

North America

Generic products
$
2,826
$

2,957

COPAXONE

753

1,403

BENDEKA/TREANDA

353

502

ProAir*

194

352

QVAR

183

173

AJOVY

68

—

AUSTEDO

276

136

Anda

1,080

984

Other

436

554

Total

$

6,169

$
7,059

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 launch of generic competition, even in the form of

~~non-equivalent~~

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

~~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,

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 in 2018.~~

~~(2)~~

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

~~NOTE 19 – Income taxes:~~

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

~~expense~~

~~million~~

~~pre-tax~~

~~loss~~

~~292~~

~~million~~

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

~~million~~

~~, or 12%, on~~

~~pre-tax~~

~~loss of~~

~~213~~

~~million~~

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

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

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

~~In the first~~

~~nine~~

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

~~159~~

~~million~~

~~, or 13%, on~~

~~pre-tax~~

~~loss of~~

~~1,226~~

~~million~~

~~. In the first~~

~~nine~~

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

~~million~~

~~pre-tax~~

~~income of~~

~~791~~

~~million~~

~~. Teva’s tax rate for the first~~

~~nine~~

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

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

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

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

~~in 2019.~~

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

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

~~NOTE 20 – Leases:~~

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

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

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

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

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

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

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

~~non-lease~~

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

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

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

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

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

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

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

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

Three months
ended

September 30,

Nine months
ended

September 30,

2019

(U.S. $ in millions)

Operating lease cost:

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

Variable lease payments not included in the lease liability

—

4

Short-term lease cost

1

4

Total operating lease cost
$
46
$
131

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

Nine months ended

September 30,
2019

(U.S. $ in millions)

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

Operating cash flows from operating leases
$
130

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

Operating leases
$
70

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

North America	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	2,804	$	2,826
AJOVY		98		68
AUSTEDO		451		276
BENDEKA/TREANDA		313		371
COPAXONE		671		753
ProAir*		175		194
QVAR		139		183
Anda		1,141		1,080
Other		354		417
Total	$	6,146	$	6,169

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

Europe	Three months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	824	$	836
COPAXONE		101		106
Respiratory products		77		87
AJOVY		8		1
Other		106		134
Total	$	1,116	$	1,163


Europe	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	2,593	$	2,599
COPAXONE		294		327
Respiratory products		263		267
AJOVY		17		1
Other		352		416

Total	$	3,520	$	3,611

International Markets	Three months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	429	$	474
COPAXONE		14		20
Other		86		71
Total	$	529	$	565

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

International Markets	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,304	$	1,404
COPAXONE		38		46
Other		241		218
Total	$	1,582	$	1,668

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

NOTE 16 – Fair value measurement:

~~Supplemental balance sheet information related to operating leases was~~Financial items carried at fair value 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, 2020 and December 31, 2019 ~~Teva has additional operating leases for office space which have yet to commence, with undiscounted future payments~~are classified in the tables below in one of ~~$92 million. These operating leases will commence during fiscal year~~

~~2020~~

~~with lease terms~~the three categories of ~~9 to 12 years.~~fair value levels:


	September 30, 2020
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	191	$	—		$	—		$	191
Cash, deposits and other		1,636		—			—			1,636
Investment in securities:
Equity securities*		20		—			297			317
Other, mainly debt securities		1		—			9			10
Derivatives:
Asset derivatives—options and forward contracts		—		36			—			36
Liability derivatives—options and forward contracts		—		(67	)		—			(67	)
Contingent consideration**		—		—			(279	)		(279	)

Total	$	1,848	$	(31	)	$	27		$	1,844


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

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

During the third quarter of 2020, Teva recorded a gain of $134 million under share in profits of associated companies, net, reflecting the difference between the book value of Teva’s investment in American Well Corporation (“American Well”) and its fair value as of the date it completed its initial public offering in September 2020. The investment was reclassified from “investment in associated companies” to “investment in marketable securities,” since Teva no longer has significant influence in American Well. On

September

30, 2020, Teva recorded an additional gain of $118 million under financial expenses, net, reflecting the revaluation gain of this security as of September 30, 2020.

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

~~On October 10, 2019, Teva entered into an agreement to sell and lease back the land and building~~

Table of ~~its distribution center in Israel. Net proceeds from the asset sale amounted to $~~Contents

~~128~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

~~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~~

Notes to ~~prepaid payments.~~Consolidated Financial Statements

(Unaudited)

45Teva determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This

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

% to

100

% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from

7.5

% to

8.5

%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was

7.9

%. 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 liabilities.

The fair value measurement of the investment in equity securities is based on a discount rate for fair value measurement, related to restriction of sale of shares, and thus represents a Level 3 measurement within the fair value hierarchy. The discount rate applied for the fair value measurement at September 30, 2020 was 6%.

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


	Nine months ended September 30, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(448	)
Transfer into Level 3- equity securities		179
Revaluation of equity securities		118
Revaluation of debt securities		(3	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		161
Eagle transaction		(65	)
Settlement of contingent consideration:
Eagle transaction		85

Fair value at the end of the period	$	27

Financial instruments not measured at fair value

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


	Fair value*
	September 30,		December 31,
	2020		2019
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	22,194	$	22,686
Senior notes and convertible senior debentures included under short-term debt		1,968		2,318

Total	$	24,162	$	25,004

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

Table of Contents

ITEM 2.

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

Business Overview

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

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

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

Our Business Segments

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

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

out-licensing

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

The

COVID-19

Pandemic

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

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

Business Continuity

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

Teva has worked since the early days of the

COVID-19

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

R&D and New Launches

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

COVID-19

pandemic; however, we have experienced immaterial delays in clinical trials due to cessation or slow-downs of recruitment for patient studies and suspended regulatory inspections, delays in regulatory approvals of new products due to reduced capacity or

re-prioritization

of regulatory agencies and delays in

pre-commercial

launch activities. We may experience further delays if the pandemic continues for an extended period of time. All of our new product launches have been risk-assessed based on upcoming manufacturing and regulatory inspections.

Workforce Policy and Measures

Our employees across all aspects of our business are safeguarding the continuity of our activities and we are committed to supporting their efforts while caring for their personal health and safety. We are enacting appropriate measures to ensure the safe supply and transport of our medicines and APIs, and have established measures intended to ~~significantly reduce~~ensure our ~~cost base, unify~~sites remain open, allowing us to maintain our business, R&D and ~~simplify~~manufacturing operations. We have reduced the number of people in our ~~organization and improve business performance, profitability, cash flow generation and productivity. This plan is intended~~facilities to enable social distancing. By doing our part to reduce physical proximity to one another, we hope to better protect our ~~total cost base by $3 billion~~overall workforce, and ultimately, the communities in which we live.

Table of Contents

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

Trends

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

COVID-19

pandemic and there are many unknowns facing our industry and society at large. We are still not experiencing material delays in development, production and distribution of ~~2019.~~

medicines or disruptions in our supply chains; however, longer term effects cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. In the first quarter of 2020, we experienced increasing demand for certain medicines, as would be expected during a global crisis of this nature. We saw a compensating effect with lower demand for certain medicines during the second quarter of 2020 and continuing lower demand in certain regions and for certain medicines in the third quarter of 2020. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will continue to see variable demand during the remainder of the year, but we do not currently anticipate a material negative impact on our 2020 financial results due to the ongoing global pandemic.

Highlights

Significant highlights in the third quarter of ~~2019~~2020 included:

Revenues in the third quarter of ~~2019~~2020 were ~~$4,264~~$3,978 million, a decrease of 6%3% in both U.S. dollar and local currency terms, compared to the third quarter of 2019, mainly due to lower revenues from generics, OTC and COPAXONE in all regions and lower revenues from QVAR and BENDEKA/TREANDA in our North America segment, as well as reduced demand for certain products resulting from the impact of the

COVID-19

pandemic, partially offset by higher revenues from AUSTEDO and AJOVY.

Our North America segment generated revenues of $2,017 million and profit of $560 million in the third quarter of 2020. Revenues decreased by 2% compared to the third quarter of 2019, mainly due to a decrease in revenues of COPAXONE and BENDEKA/TREANDA, partially offset by higher revenues from AUSTEDO, generic products and AJOVY. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the

COVID-19

pandemic, but has also experienced increase in demand for certain products related to the treatment of

COVID-19

and its symptoms. In addition, the ability to promote our new specialty products, primarily AJOVY and AUSTEDO, has been impacted by less physician visits by patients and less physician interactions by our sales personnel. Profit was flat compared to the third quarter of 2019, mainly due to lower revenues, offset by a change in mix of products.

Our Europe segment generated revenues of $1,116 million and profit of $312 million in the third quarter of 2020. Revenues decreased by 4%, or 5%7% in local currency terms, compared to the third quarter of ~~2018,~~2019. This decrease was mainly due to ~~generic competition~~reduced demand for certain products resulting from the

COVID-19

pandemic. The

COVID-19

pandemic has led to ~~COPAXONE~~

, a decline in ~~revenues from BENDEKA~~

~~/ TREANDA~~

doctor and ~~certain other specialty products~~hospital visits by patients resulting 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 $2,051 million and profit of $565 million in~~fewer prescriptions during the third quarter of ~~2019. Revenues decreased by 9% compared~~2020. This decrease is also attributed to ~~the third quarter~~price declines for oncology products as a result of ~~2018, mainly due to a decline in revenues from COPAXONE~~generic competition and certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR. Profit decreased by 13%, mainly due to the changes in revenues described above, partially offset by 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~~decreased by ~~15%~~8%, 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.~~lower revenues.

Our International Markets segment generated revenues of ~~$736~~$529 million and profit of ~~$130~~$125 million in the third quarter of ~~2019.~~2020. Revenues ~~increased~~decreased by 6%, or 1% in ~~both U.S. dollars and~~ local currency terms, compared to the third quarter of ~~2018. The increase in revenues was~~2019, mainly due to lower sales in Japan resulting from regulatory price reductions and generic competition to

off-patented

products, as well as loss of revenues from the sale of certain assets in the Israeli market, partially offset by higher ~~distribution activities~~revenues in ~~Israel,~~other markets. Revenues in the third quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact of the

COVID-19

pandemic. The

COVID-19

pandemic has led to a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020. Profit decreased by 4%, mainly due to lower sales in Japan, partially offset by lower ~~sales~~S&M expenses.

Impairments of identifiable intangible assets were $509 million in ~~Japan and Russia. Profit increased by 6%, mainly due~~the third quarter of 2020, compared to ~~cost reductions and efficiency measures as part of the restructuring plan.~~

~~Intangible asset impairments were~~ $177 million in the third quarter of ~~2019, compared~~2019. Impairment expenses in the third quarter of 2020 comprised of $360 million of IPR&D assets and $149 million of identifiable product rights.

We recorded a goodwill impairment charge of $4,628 million related to ~~$519~~our North America reporting unit in the third quarter of 2020. See note 6 to our consolidated financial statements.

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We recorded other asset impairments, restructuring and other items income of $98 million in the third quarter of ~~2018.~~2020, compared to expenses of $160 million in the third quarter of 2019. See note 12 to our consolidated financial statements.

Legal settlements and loss contingencies were $21 million in the third quarter of 2020, compared to $468 million in the third quarter of 2019.

Operating loss was $4,342 million in the third quarter of 2020, compared to operating loss of $81 million in the third quarter of 2019. The decrease in the third quarter of 2020 was mainly due to the goodwill impairment charge and higher intangible asset impairment charges in the third quarter of 2020, partially offset by lower legal settlements and loss contingencies in the third quarter of 2020.

Financial expenses were $117 million in the third quarter of 2020, compared to $211 million in the third quarter of 2019. Financial expenses in the third quarter of 2020 were mainly comprised of interest expenses of $241 million, partially offset by gains on revaluations of marketable securities of $124 million (see note 16 to our consolidated financial statements). Financial expenses in the third quarter of 2019 were ~~related to identifiable product rights~~mainly comprised of ~~$99 million and IPR&D assets~~interest expenses of ~~$78~~$219 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~~In the third quarter of ~~2019, compared to income~~2020, we recognized a tax expense of $16 million, ~~in the third quarter~~on

pre-tax

loss 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.

$4,459 million. In the third quarter of 2019, we ~~recorded an~~recognized a tax expense of ~~$468~~$11 million, ~~in legal settlements and~~ on

pre-tax

loss ~~contingencies, compared to $19 million in~~of $292 million. Our tax rate for the third quarter of ~~2018. The expense in~~2020 was mainly affected by the goodwill impairment charge that does not have a corresponding tax effect and other changes to tax positions and deductions.

Exchange rate movements during the third quarter of ~~2019 was mainly related~~2020, including hedging effects, positively impacted revenues by $14 million and negatively impacted operating loss by $18 million, compared to ~~an increase in the estimated settlement provision recorded in connection with the remaining opioid cases.~~

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

2019.

~~Table of Contents~~

As of September 30, ~~2019,~~2020, our debt was ~~$26,942~~$25,621 million, compared to ~~$28,726~~$26,266 million as of June 30, ~~2019. The~~2020. This decrease was mainly due to the repayment at maturity of our ~~$1,556~~€1,010 million ~~1.7%~~0.375% senior notes ~~as well as decreased~~in July 2020, partially offset by exchange rate fluctuations. As of September 30, 2020, €100 million were outstanding under the RCF. As of the date of this Quarterly Report on Form

10-Q,

€270 million were outstanding under the RCF.

Cash flow generated from operating activities during the third quarter of ~~2019~~2020 was ~~$325~~$307 million, compared to ~~$421~~$325 million in the third quarter of ~~2018.~~2019. The decrease ~~in cash flow~~ in the third quarter of ~~2019~~2020 was mainly due to ~~lower revenues and~~an increase in inventory during the third quarter of 2020, compared to a ~~reduction~~decrease in ~~sales reserves associated with~~inventory in the ~~revenue decline.~~third quarter of 2019.

~~Cash~~During the third quarter of 2020, we generated free cash flow of $506 million, which we define as comprising $307 million in cash flow generated from operating activities, $333 million in ~~the third quarter of 2019, net of cash received for capital investments and~~ beneficial interest collected in exchange for securitized ~~trade~~accounts receivables ~~was~~and $9 million in proceeds from sale of property, plant and equipment, partially offset by $143 million in cash used for capital investment. During the third quarter of 2019, we generated free cash flow of $551 million, ~~compared to $704~~comprising $325 million in cash flow used in operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables and $33 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $169 million in cash used for capital investment. The decrease in the third quarter of ~~2018.~~2020 resulted mainly from lower cash flow generated from operating activities.

Alvotech Partnership

In August 2020, we entered into an exclusive partnership agreement with biopharmaceutical company Alvotech for the commercialization in the U.S. of five biosimilar product candidates. The ~~decrease~~initial pipeline for this partnership contains biosimilar candidates addressing multiple therapeutic areas. Under this agreement, Alvotech will be responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in ~~cash flow~~the United States. The agreement includes an upfront payment payable by Teva, which was paid in the third quarter of ~~2019 was mainly due~~2020. Additional development and commercial milestone payments of up to ~~the reasons mentioned above,~~$490 million, as well as ~~higher capital investments during~~royalty payments, may be payable by Teva over the ~~third quarter~~next few years. Teva and Alvotech will share profit from the commercialization of ~~2019 compared to~~ the ~~third quarter of 2018.~~biosimilars.

~~Transactions~~50

~~On October 10, 2019, we entered into an agreement to sell and lease back the land and building~~

Table of ~~our distribution center in Israel. Net proceeds from the asset sale amounted to $128 million. See also note 20 to our consolidated financial statements.~~

Contents

~~Changes in Senior Management~~

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

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

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

Results of Operations

Comparison of Three Months Ended September 30, ~~2019~~2020 to Three Months Ended September 30, ~~2018~~2019

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

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, ~~2019~~2020 and ~~2018:~~2019:

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
%


	Three months ended September 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,017		100	%	$	2,051		100	%
Gross profit		1,056		52.4	%		1,048		51.1	%
R&D expenses		155		7.7	%		156		7.6	%
S&M expenses		250		12.4	%		219		10.7	%
G&A expenses		97		4.8	%		112		5.5	%
Other (income) expense		(5	)		§		(5	)		§

Segment profit*	$	560		27.7	%	$	565		27.5	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the third quarter of ~~2019~~2020 were ~~$2,051~~$2,017 million, a decrease of ~~$214~~$34 million, or 9%2%, compared to the third quarter of ~~2018,~~2019, mainly due to a ~~decline~~decrease in revenues of COPAXONE and ~~certain other specialty products,~~BENDEKA/TREANDA, partially offset by higher revenues from AUSTEDO, generic products and AJOVY. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the

COVID-19

pandemic, but has also experienced increase in demand for certain products related to the treatment of

COVID-19

and its symptoms. In addition, the ability to promote our new specialty products, primarily AJOVY and ~~QVAR.~~

AUSTEDO, has been impacted by less physician visits by patients and less physician interactions by our sales personnel.

Revenues by Major Products and Activities

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

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
%)


	Three months ended September 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	928	$	914		2	%
AJOVY		35		25		42	%
AUSTEDO		168		105		60	%
BENDEKA/TREANDA		105		124		(15	%)
COPAXONE		236		271		(13	%)
ProAir*		50		71		(30	%)
QVAR		42		60		(29	%)
Anda		341		351		(3	%)
Other		113		131		(14	%)

Total	$	2,017	$	2,051		(2	%)

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

Table of Contents

Generic products

revenues in our North America segment (including biosimilars) in the third quarter of ~~2019~~2020 were ~~$914~~$928 million, ~~flat~~an increase of 2% compared to the third quarter of ~~2018,~~2019, mainly due to ~~new~~higher revenues from TRUXIMA and from our ProAir authorized generic, ~~product launches,~~partially offset by ~~market dynamics, including product mix and price erosion in our U.S. generics business.~~lower volume of other generic products.

Among the most significant generic products we sold in North America in the third quarter of ~~2019~~2020 were TRUXIMA (the biosimilar to Rituxan

), epinephrine ~~injection~~injectable solution (the generic equivalent of EpiPen

and EpiPen Jr.

), albuterol sulfate inhalation aerosol (ProAir

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

On September 30, 2020, we launched emtricitabine and tenofovir disoproxil fumarate tablets, 200mg/300mg (the generic equivalent of Truvada

), ~~amphetamine salt~~and efavirenz, emtricitabine and tenofovir disoproxil fumarate tablets (the generic equivalent ~~of Adderall IR~~for Atripla

) for the prevention and ~~icatibant acetate injection (the generic equivalent~~treatment of ~~Firazyr~~

).HIV, respectively. We did not recognize revenues for these products in the third quarter of 2020.

In the third quarter of ~~2019,~~2020, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~391~~365 million total prescriptions (based on trailing twelve months), representing ~~10.6%~~10% of total U.S. generic prescriptions according to IQVIA data.

~~Table of Contents~~

~~COPAXONE~~AJOVY

revenues in our North America segment in the third quarter of ~~2019 decreased by 41% to $271~~2020 were $35 million, an increase of $10 million, or 42% compared to the third quarter of ~~2018,~~2019, mainly due to ~~generic competition~~growth in volume in the ~~United States.~~

~~COPAXONE revenues~~third quarter of 2020. AJOVY was approved by the FDA and launched in the United States ~~were $257~~in September 2018, for the preventive treatment of migraine in adults. On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S., which became commercially available in April 2020. In addition, AJOVY was approved in Canada on April 14, 2020.

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

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

We 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 also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the Patent Trial and Appeal Board issued decisions on the first six IPRs, finding the six patents invalid as being obvious. On April 21, 2020, we filed notices of appeal in connection with these decisions. On March 31, 2020 the Patent Trial and Appeal Board issued a decision upholding the three method of treatment patents and on June 1, 2020, Lilly filed notices of appeal in connection with the decisions on these three patents. The litigation stay ended following the issuance of the most recent IPR decisions, and the parties are proceeding with the litigation. In addition, we have entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO

revenues in our North America segment in the third quarter of 2020 increased by 60%, to $168 million, compared to $105 million in the third quarter of 2019.

~~Revenues of COPAXONE~~ This increase was mainly due to growth in ~~our North America segment were 68% of global COPAXONE revenues~~volume in the third quarter of ~~2019, compared to 77% in~~2020.

In April 2017, AUSTEDO was approved by the ~~third quarter of 2018.~~

~~COPAXONE global sales accounted for approximately 9% of our global revenues in the third quarter of 2019~~FDA 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~~launched in the United ~~States. Hybrid versions~~States for the treatment of ~~COPAXONE 20 mg/mL and 40 mg/mL were also~~chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia. In May 2020, AUSTEDO was approved in China for the ~~European Union.~~treatment of chorea associated with Huntington disease and for the treatment of tardive dyskinesia.

~~COPAXONE 40 mg/mL~~AUSTEDO is protected in the United States by ~~one European patent~~five Orange Book patents expiring between 2031 and 2033 and in Europe by two patents expiring in 2030. This patent is being challenged in various jurisdictions. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.2029.

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

~~, Gilenya~~

~~and Aubagio~~

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

BENDEKA

and

TREANDA

combined revenues in our North America segment in the third quarter of ~~2019~~2020 decreased by ~~23%~~15% to ~~$124~~$105 million, compared to the third quarter of ~~2018,~~2019, mainly due to the ~~June 2018 launch~~emergence of alternative novel therapies and continued competition from Belrapzo

ready-to-dilute

bendamustine ~~hydrochloride) by~~hydrochloride product from Eagle Pharmaceuticals, Inc. (“Eagle”)).

In July 2018, Eagle prevailed in its suit ~~in the U.S. district court~~ against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. ~~The FDA has appealed the district court’s~~On March 13, 2020, this decision ~~but barring a reversal by~~was upheld in the appellate ~~court,~~court. On May 27, 2020, the FDA filed a petition for rehearing

en banc,

however the petition was not granted. As things currently stand, 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

Table of Contents

the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In ~~addition,~~consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses. In September 2019, a patent infringement action against four of the five ANDA filers for generic versions of BENDEKA was tried in the United States District Court for the District of Delaware. ~~We await~~On April 27, 2020, the District Court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe at least one of these patents. As a ~~decision from~~result, the ~~court, which could come as early as~~ANDA filers should be enjoined until the ~~first half of 2020. The asserted~~ patents expire in 2031.

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

30-month

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

We have U.S. Orange Book patents for TREANDA expiring between 2026 and 2031. One 505(b)(2) NDA was filed for a liquid version of bendamustine and 22 ANDAs with paragraph IV certifications were filed for generic versions of the lyophilized form of TREANDA. Between 2015 and 2020, we reached final settlements with all 23 filers, providing for the launch of generic versions of TREANDA prior to patent expiration.

COPAXONE

revenues in our North America segment in the third quarter of 2020 decreased by 13% to $236 million, compared to the third quarter of 2019, mainly due to generic competition in the United States.

The market for MS treatments continues to develop, particularly with the approvals of generic versions of COPAXONE, 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, such as Ocrevus

ProAir

revenues in our North America segment in the third quarter of ~~2019 decreased by 34% to $71~~2020 were $50 million, a decrease of 30% compared to the third quarter of ~~2018, mainly due to lower volumes and lower net pricing.~~2019. In January 2019, we launched our own ProAir authorized generic in the United States, following the launch of a generic version of Ventolin

HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in “generic products” above. ProAir is the ~~second-largest~~fifth-largest short-acting beta-agonist in the market, with an exit market share of ~~25.3% (46.5% including our ProAir HFA authorized generic)~~10.7% in terms of total number of prescriptions for albuterol inhalers during the third quarter of ~~2019,~~2020, compared to ~~45.2%~~23.8% in the third quarter of ~~2018. In June 2014, we settled a patent challenge to~~2019. The exit market share including our ProAir HFA ~~with Perrigo Pharmaceuticals (“Perrigo”)~~authorized generic is 36.3%, ~~under which Perrigo is now permitted~~making our overall albuterol product the second largest in the market, compared to ~~launch its generic product. In November 2017, we settled another patent challenge to~~44.7% in the third quarter of 2019. Generic versions of ProAir HFA ~~with~~from Perrigo Company plc and Lupin Pharmaceuticals, Inc. ~~(“Lupin”), et al. permitting Lupin~~are currently available in the market.

In July 2020, we announced the launch of

ProAir

Digihaler

(albuterol sulfate 117 mcg) inhalation powder, which is the first and only digital rescue inhaler with

built-in

sensors which connects to a companion mobile application and provides inhaler use information to people with asthma and COPD. ProAir Digihaler was approved by the FDA on December 21, 2018 for the treatment or prevention of bronchospasm in patients aged four years and older with reversible obstructive airway disease and for prevention of exercise-induced bronchospasm (EIB) in patients aged four years and older.

In September 2020, we announced the launch ~~its generic product on September 23, 2019, or earlier under certain circumstances. To date, no generic competition has been launched.~~of

AirDuo

Digihaler

(fluticasone propionate and salmeterol) inhalation powder and the launch of

ArmonAir

Digihaler

(fluticasone propionate) inhalation powder, two digital maintenance inhalers for adolescent and adult patients with asthma. AirDuo Digihaler is a prescription medicine used to control symptoms of asthma and to prevent symptoms such as wheezing in people 12 years of age and older. ArmonAir Digihaler is a prescription medicine for the long-term treatment of asthma in patients 12 years and older. AirDuo Digihaler and ArmonAir Digihaler are not used to relieve sudden breathing problems from asthma and will not replace the need for a rescue inhaler.

QVAR

revenues in our North America segment in the third quarter of ~~2019 increased~~2020 decreased by ~~68%~~29% to ~~$60~~$42 million, compared to the third quarter of ~~2018, which was a transition period~~2019, mainly due to ~~the launch of QVAR~~

~~RediHaler~~

™

.increased price competition and lower volumes. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of ~~19.9%~~19.3% in terms of total number of prescriptions during the third quarter of ~~2019,~~2020, compared to ~~21.7%~~19.9% in the third quarter of ~~2018.~~

~~AJOVY~~

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

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 in the third quarter of 2018.~~

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

2019.

Anda

revenues in our North America segment in the third quarter of ~~2019 increased~~2020 decreased by 5%3% to ~~$351~~$341 million, compared to ~~$333~~$351 million in the third quarter of ~~2018,~~2019, mainly due to ~~higher volumes.~~slightly lower demand. Anda, our distribution business in the United States, distributes generic, specialty and OTC pharmaceutical products from various third party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the secondary distribution market by maintaining high inventory levels for a broad offering of products, competitive pricing and offering next day delivery throughout the United States.

Table of Contents

Product Launches and Pipeline

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

Product Name

Brand Name

Launch
Date

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

Oseltamivir phosphate for oral suspension, 6 mg / mL

Tamiflu
®
July
$
281

Icatibant injection, 30 mg / 3 mL

Firazyr
®
July
$
304

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

Lyrica
®
July
$
5,456

Ramelteon tablets, 8 mg

Rozerem
®
July
$
91

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

Ziac
®
August
$
42

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

Doryx
®
August
$
20

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

Myfortic
®
DR

August
$
180

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

EpiPen
®
and EpiPen Jr
®
August
$
201

Minocycline hydrochloride extended-release tablets, USP, 55 mg

Solodyn
®
ER

August
$
44

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

***

August

—

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

Kenalog
®
-40

August
$
135

Acyclovir cream, 5% ****

Zovirax
®
August
$
97

Fosaprepitant for injection, 150 mg/Vial

***

September

—

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

Remodulin
®
September
$
3


Product Name	Brand Name	Launch Date	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Imiquimod Cream 3.75%	Zyclara ®	July	$	24
Sildenafil for Oral Suspension	Revatio ®	August	$	121
PEG-3350, Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium Ascorbate, and Ascorbic Acid for Oral Solution	MoviPrep ®	August	$	10
Tobramycin Inhalation Solution, USP	Bethkis ®	September	$	42
Dimethyl Fumarate Delayed-Release Capsules	Tecfidera ®	September	$	3,788
Emtricitabine and Tenofovir Disoproxil Fumarate Tablets, 200mg/300mg	Truvada ®	September	$	2,872
Efavirenz, Emtricitabine and Tenofovir Disoproxil Fumarate Tablets	Atripla ®	September	$	578

*	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, ~~2019, 244~~2020, 228 product applications awaiting FDA approval, including 8180 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended June 30, ~~2019~~2020 exceeding ~~$112~~$115 billion, according to IQVIA. Approximately ~~70%~~69% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 9884 of these products, or ~~119~~107 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$73~~$76 billion in U.S. brand sales for the twelve months ended June 30, ~~2019,~~2020, according to IQVIA.

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

so-called

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

In the third quarter of ~~2019,~~2020, 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))*

Ivermectin lotion, 0.5%

Sklice
® $
81

Sildenafil, 10mg/mL

Revatio
® $
189


Generic Name	Brand Name	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Apixaban Tablets, 2.5 mg and 5 mg	Eliquis ®	$	11,445
Pirfenidone Tabs	Esbriet ®	$	540

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

Table of Contents

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

Product

Potential

Indication(s)

Route of

Administration

Development Phase

(date entered phase 3)

Comments

CNS, Neurology and

Neuropsychiatry

AUSTEDO (deutetrabenazine)

~~Tourette syndrome~~

~~Oral~~

~~3 (December 2017)~~

Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and be responsible for commercialization.

Dyskinesia in cerebral palsy

Oral

3 (September 2019)

TV-46000

(risperidone LAI)

Schizophrenia

~~LAI~~

Subcutaneous

3 (April 2018)

Migraine and Pain

fremanezumab (anti CGRP)

Post traumatic

headache

Subcutaneous

The clinical trial did not meet its primary endpoint for efficacy and the development for this indication has been discontinued.

fibromyalgia

Subcutaneous

~~fibromyalgia~~

~~Subcutaneous~~

fasinumab

Osteoarthritis pain

Subcutaneous

3 (March 2016)

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

~~In August 2018, Regeneron and Teva announced positive topline~~ See below table regarding 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.

clinical trial results.

~~Chronic lower~~

~~back pain~~

~~Subcutaneous~~

~~3 (December 2017)~~

Respiratory

GoResp

DigiHaler

~~CINQAIR/CINQAERO~~®

/ DuoResp

DigiHaler

~~Severe asthma with~~

~~eosinophilia~~

~~Subcutaneous~~

~~3 (August 2015)~~

~~Discontinued.~~

~~ProAir~~

~~e-RespiClick~~

™

~~Bronchospasm and exercise induced bronchitis~~

~~Oral inhalation~~

~~Approved by FDA~~

~~(December 2018)~~

~~AirDuo~~

~~Digihaler~~

Treatment of asthma in patients aged 12 years and older

and COPD

Oral inhalation

~~Approved by FDA (July 2019)~~

~~Oncology~~

~~TRUXIMA~~

~~(formerly~~

~~CT-P10)~~

~~(biosimilar to~~

~~Rituxan~~

~~US)~~

~~Approved by FDA (November 2018)~~

~~Approved in Canada (April 2019)~~

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

~~HERZUMA~~

~~(formerly~~

~~CT-P06)~~

~~(biosimilar to~~

~~Herceptin~~

~~US)~~

~~Approved by~~

~~FDA (December 2018)~~

~~Approved in Canada (September 2019)~~

Under regulatory review

Fasinumab

. Results for two phase 3 clinical trials, FACT OA1 and FACT OA2, were released on August 5, 2020, indicating that the

co-primary

endpoints for fasinumab were achieved. Fasinumab 1 mg monthly demonstrated significant improvements in pain and physical function over placebo at week 16 and week 24, respectively. Fasinumab 1 mg monthly also showed nominally significant benefits in physical function in two trials and pain in one trial, when compared to the maximum

FDA-approved

prescription doses of

non-steroidal

anti-inflammatory drugs for osteoarthritis. The FACT OA1 trial included an additional treatment arm, fasinumab 1 mg every two months, which showed numerical benefit over placebo, but did not reach statistical significance. In initial safety analyses from the phase 3 trials, there was an increase in arthropathies reported with fasinumab. In a

sub-group

of patients from one phase 3 long-term safety trial, there was an increase in joint replacement with fasinumab 1 mg monthly treatment during the

off-drug

follow-up

period, although this increase was not seen in the other trials to date. Additional longer-term safety data from the ongoing trials are being collected, and are expected to be reported early next year.

~~Table~~Active treatment of ~~Contents~~patients with fasinumab, which only involved dosing in an optional second-year extension phase of one trial, has been discontinued following a recommendation from the fasinumab program’s Independent Data Monitoring Committee that the program should be terminated, based on available evidence obtained to date. The core efficacy data has already been obtained to support potential fasinumab regulatory filings. Long-term safety data continues to be gathered, and is expected to be reported in 2021, along with a decision on the program.

North America Gross Profit

Gross profit from our North America segment in the third quarter of ~~2019~~2020 was ~~$1,048~~$1,056 million, ~~a decrease~~an increase of ~~12%~~1%, compared to ~~$1,196~~$1,048 million in the third quarter of ~~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 AJOVY.~~2019.

Gross profit margin for our North America segment in the third quarter of ~~2019 decreased~~2020 increased to ~~51.1%~~52.4%, compared to ~~52.8%~~51.1% in the third quarter of ~~2018. The decrease~~2019. This increase was mainly due to ~~lower revenues from COPAXONE and certain other specialty products, partially offset by improved gross profit margin~~the change in mix of ~~generic~~ products.

North America R&D Expenses

R&D expenses relating to our North America segment in the third quarter of ~~2019~~2020 were ~~$156~~$155 million, a decrease of 1%, compared to ~~$158~~$156 million in the third quarter of ~~2018.~~2019.

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

Table of Contents

North America S&M Expenses

S&M expenses relating to our North America segment in the third quarter of ~~2019~~2020 were ~~$219~~$250 million, ~~a decrease~~an increase of ~~17%~~14%, compared to ~~$265~~$219 million in the third quarter of ~~2018. The decrease was~~2019. This increase is mainly due to ~~cost reductions and efficiency measures as part of the restructuring plan, partially offset by increased~~higher S&M expenses related to ~~AJOVY.~~AJOVY, AUSTEDO and biosimilars.

North America G&A Expenses

G&A expenses relating to our North America segment in the third quarter of ~~2019~~2020 were ~~$112~~$97 million, a decrease of ~~12%~~14%, compared to ~~$128~~$112 million in the third quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan, partially offset by legal expenses.~~

~~North America Other Income (Expense)~~

~~Other income from our North America segment in the third quarter of 2019 was $5 million, compared to other income of $4 million in the third quarter of 2018.~~2019.

North America Profit

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

Profit from our North America segment in the third quarter of ~~2019~~2020 was ~~$565~~$560 million, ~~a decrease of 13%,~~flat compared to ~~$649~~$565 million in the third quarter of ~~2018. The decrease was~~2019, mainly due to lower revenues, ~~from COPAXONE, as well as a decline in sales of certain other specialty products, partially~~ offset by ~~increases~~a change in ~~sales~~mix of ~~AUSTEDO, QVAR and AJOVY, as well as cost reductions and efficiency measures as part of the restructuring plan.~~products.

~~Table of Contents~~

Europe Segment

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

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
%


	Three months ended September 30,
	2020				2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,116		100%	$	1,163		100%
Gross profit		637		57.1%		662		56.9%
R&D expenses		60		5.4%		63		5.4%
S&M expenses		200		17.9%		206		17.7%
G&A expenses		66		5.9%		56		4.9%
Other (income) expense		(1	)	§		(4	)	§

Segment profit*	$	312		28.0%	$	341		29.3%

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

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the third quarter of ~~2019~~2020 were ~~$1,163~~$1,116 million, a decrease of 4% or ~~$49~~$47 million, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues ~~were flat,~~decreased by 7%, mainly due to ~~strong new~~reduced demand for certain products resulting from the

COVID-19

pandemic. The

COVID-19

pandemic has led to a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020. This decrease is also attributed to price declines for oncology products as a result of generic ~~product launches~~competition and ~~higher sales of OTC products, mostly offset by~~ a decline in COPAXONE revenues due to competing glatiramer acetate 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, ~~2019~~2020 and ~~2018:~~2019:

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
%)


	Three months ended September 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	824	$	836		(1	%)
COPAXONE		101		106		(5	%)
Respiratory products		77		87		(12	%)
AJOVY		8		1		NA
Other		106		134		(21	%)

Total	$	1,116	$	1,163		(4	%)

Table of Contents

Generic products

revenues in our Europe segment in the third quarter of ~~2019,~~2020, including OTC products, decreased by 1% to ~~$836~~$824 million, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues ~~increased~~decreased by 4%6% compared to the third quarter of ~~2018,~~2019, mainly due to ~~strong new generic product launches~~reduced demand for certain products resulting from the

COVID-19

pandemic. The

COVID-19

pandemic has led to a decline in doctor and ~~higher sales~~hospital visits by patients resulting in fewer prescriptions during the third quarter of ~~OTC products.~~2020.

COPAXONE

revenues in our Europe segment in the third quarter of ~~2019~~2020 decreased by ~~14%~~5% to ~~$106~~$101 million, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues decreased by ~~10%~~9%, ~~mainly~~ due to price reductions and a decline in volume ~~decline~~ resulting from competing glatiramer acetate products.

~~Revenues~~COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various European jurisdictions. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by the Opposition Division of ~~COPAXONE~~the European Patent Office in ~~our Europe segment were 27%~~April 2019, but was found invalid following a hearing at the Board of ~~global COPAXONE revenues~~Appeal in ~~the third quarter of 2019, compared to 21% in the third quarter of 2018.~~

~~For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.~~September 2020.

Respiratory products

revenues in our Europe segment in the third quarter of ~~2019~~2020 decreased by 7%12% to ~~$87~~$77 million, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues decreased by 2%15%, mainly due to ~~lower sales~~reduced demand resulting from the impact the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the ~~United Kingdom.~~first quarter and a correlating decrease in the following quarters.

AJOVY

revenues in our Europe segment in the third quarter of 2020 were $8 million, compared to $1 million in the third quarter of 2019.

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

~~Table of Contents~~

Product Launches and Pipeline

As of September 30, ~~2019,~~2020, our generic products pipeline in Europe included ~~509~~318 generic approvals relating to 6658 compounds in ~~135~~127 formulations, ~~and~~no EMA approvals received. In addition, approximately ~~1,140~~1,046 marketing authorization applications pending approval in 37 European countries, relating to ~~135~~127 compounds in ~~276 formulations in 30 countries.~~248 formulations. No applications are pending with the EMA.

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

Europe Gross Profit

Gross profit from our Europe segment in the third quarter of ~~2019~~2020 was ~~$662~~$637 million, a decrease of 2%4% compared to ~~$676~~$662 million in the third quarter of ~~2018. The~~2019. This decrease was mainly due to ~~a decline in COPAXONE~~lower revenues, ~~and the impact of currency fluctuations, partially offset by new generic product launches.~~as discussed above.

Gross profit margin for our Europe segment in the third quarter of ~~2019~~2020 increased to ~~56.9%~~57.1%, compared to ~~55.8%~~56.9% in the third quarter of ~~2018. The increase was mainly due to lower cost of goods sold related to network optimization.~~2019.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the third quarter of ~~2019~~2020 were ~~$63~~$60 million, ~~an increase~~a decrease of 2%5% compared to ~~$62~~$63 million in the third quarter of ~~2018.~~2019.

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

Europe S&M Expenses

S&M expenses relating to our Europe segment in the third quarter of ~~2019~~2020 were ~~$206~~$200 million, a decrease of ~~15%~~3% compared to ~~$242~~$206 million in the third quarter of ~~2018. The~~2019. This decrease was mainly due to ~~cost reductions~~lower marketing and ~~efficiency measures as part of~~travel costs attributed to restrictions related to the ~~restructuring plan.~~

COVID-19

pandemic.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the third quarter of ~~2019~~2020 were ~~$56~~$66 million, ~~a decrease~~an increase of ~~24%~~17% compared to ~~$74~~$56 million in the third quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.~~2019.

Europe Profit

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

Profit from our Europe segment in the third quarter of ~~2019~~2020 was ~~$341~~$312 million, ~~an increase~~a decrease of ~~15%~~8%, compared to ~~$297~~$341 million in the third quarter of ~~2018. The increase~~2019. This decrease was mainly due to ~~strong new generic product launches and cost reductions and efficiency measures~~lower revenues, as ~~part~~discussed above.

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

International Markets Segment

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

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
%


	Three months ended September 30,
	2020					2019**
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	529		100	%	$	565		100	%
Gross profit		275		52.0	%		295		52.2	%
R&D expenses		17		3.2	%		21		3.7	%
S&M expenses		101		19.1	%		114		20.1	%
G&A expenses		33		6.3	%		32		5.6	%
Other (income) expense		(1	)	§			(1	)	§

Segment profit*	$	125		23.6	%	$	130		23.0	%

§	Represents an amount less than 0.5%.

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

§**	~~Represents an amount less than 0.5%.~~ The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

International Markets Revenues

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

On July 30, 2020, we entered into an agreement to sell the majority of ~~Independent States (CIS), Latin American~~the generic and ~~Asia Pacific markets.~~operational assets of our business venture in Japan. We expect this transaction to close by early 2021. The closing of the transaction is subject to customary closing conditions.

~~Table of Contents~~

Revenues from our International Markets segment in the third quarter of ~~2019~~2020 were ~~$736~~$529 million, ~~an increase~~a decrease of ~~$10~~$35 million, or 1%6%, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues ~~increased~~decreased by 1% compared to the third quarter of ~~2018,~~2019, mainly due to ~~higher distribution activities in Israel, partially offset by~~ lower sales in Japan resulting from regulatory price reductions and ~~Russia.~~generic competition to

off-patented

products, as well as loss of revenues from the sale of certain assets in the Israeli market, partially offset by higher revenues in other markets. Revenues in the third quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact of the

COVID-19

pandemic. The

COVID-19

pandemic has led to a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020.

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

Table of Contents

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the three months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

Three months ended
September 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
474
$
498

(5
%)
COPAXONE

20

14

39
%
Distribution

176

149

18
%
Other

66

65

3
%

Total
$
736
$
726

1
%


	Three months ended September 30,				Percentage Change
	2020		2019*		2019-2020
	(U.S. $ in millions)
Generic products	$	429	$	474		(10	%)
COPAXONE		14		20		(27	%)
Other		86		71		21	%

Total	$	529	$	565		(6	%)

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

Generic products

revenues in our International Markets segment in the third quarter of ~~2019,~~2020, which include OTC products, decreased by 5%10% to ~~$474~~$429 million, compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues decreased by 5%4%, mainly due to lower sales in Japan resulting from regulatory price reductions and generic competition to

off-patented

products. Revenues in the third quarter of 2020 were also impacted by reduced demand for certain products ~~as well as lower sales~~resulting from the impact the

COVID-19

pandemic. The

COVID-19

pandemic has led to a decline in ~~Russia.~~doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020.

COPAXONE

revenues in our International Markets segment in the third quarter of ~~2019 increased~~2020 decreased by ~~39%~~27% to ~~$20~~$14 million, compared to ~~$14~~$20 million in the third quarter of ~~2018.~~2019. In local currency terms, revenues ~~increased~~decreased by ~~46%~~14%.

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

AJOVY

~~Distribution~~

~~revenues~~. 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 ~~our International Markets segment~~Japan and, once approved, to commercialize the product in ~~the third quarter~~Japan. On July 29, 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan. As a result, Otsuka paid Teva a milestone payment of ~~2019 increased by 18% to $176 million, compared to $149~~$15 million in the third quarter of ~~2018. In local currency terms, revenues increased by 15%, mainly due to agreements with new distribution partners.~~2020, which was recorded as revenue under “Other” in the table above.

International Markets Gross Profit

Gross profit from our International Markets segment in the third quarter of ~~2019~~2020 was ~~$295~~$275 million, a decrease of 2%7% compared to ~~$301~~$295 million in the third quarter of ~~2018.~~2019.

Gross profit margin for our International Markets segment in the third quarter of ~~2019~~2020 decreased to ~~40.1%~~52.0%, compared to ~~41.4%~~52.2% in the third quarter of ~~2018. The~~2019. This decrease was mainly due to ~~changes in product~~a different portfolio mix.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the third quarter of ~~2019~~2020 were $17 million, a decrease of 18% compared to $21 million ~~flat compared to~~in the third quarter of ~~2018.~~2019.

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

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the third quarter of ~~2019~~2020 were ~~$114~~$101 million, a decrease of 5%11% compared to ~~$120~~$114 million in the third quarter of ~~2018. The~~2019. This decrease was mainly due to ~~cost reductions~~lower marketing and ~~efficiency measures as part of~~travel costs attributed to restrictions related to the ~~restructuring plan.~~

COVID-19

pandemic.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the third quarter of ~~2019~~2020 were ~~$32~~$33 million, ~~a decrease~~an increase of ~~15%~~6% compared to ~~$37~~$32 million in the third quarter of ~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.~~2019.

International Markets Profit

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

Table of Contents

Profit from our International Markets segment in the third quarter of ~~2019~~2020 was ~~$130~~$125 million, ~~an increase~~a decrease of 6%4%, compared to ~~$123~~$130 million in the third quarter of ~~2018. The increase~~2019. This decrease was mainly due to ~~cost reductions and efficiency measures~~lower sales in Japan, partially offset by lower S&M expenses, as ~~part of the restructuring plan.~~discussed above.

~~Table of Contents~~

Other Activities

We have other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.

Our revenues from other activities in the third quarter of ~~2019~~2020 were ~~$314~~$316 million, ~~a decrease~~an increase of 4%1% compared to the third quarter of ~~2018.~~2019. In local currency terms, revenues decreased by ~~2%.~~1% compared to the third quarter of 2019.

API sales to third parties in the third quarter of ~~2019~~2020 were ~~$176~~$175 million, ~~an increase of 3%,~~flat in both U.S. dollar and local currency terms compared to the third quarter of ~~2018.~~2019.

Teva Consolidated Results

The

data presented with respect to revenues, gross profit, R&D expenses, S&M expenses, G&A expenses and operating income (loss) for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

Revenues

Revenues in the third quarter of ~~2019~~2020 were ~~$4,264~~$3,978 million, a decrease of ~~6%, or 5%~~3% in both U.S. dollar and in local currency terms, compared to the third quarter of ~~2018,~~2019. This decrease was mainly due to ~~generic competition to COPAXONE, a decline in~~lower revenues from generics, OTC and COPAXONE in all regions and lower revenues from QVAR and BENDEKA/TREANDA ~~and certain other specialty products~~ in ~~the United States,~~our North America segment, as well as ~~a decline in revenues in Russia and Japan,~~reduced demand for certain products resulting from the impact of the

COVID-19

pandemic, partially offset by higher revenues from AUSTEDO ~~AJOVY~~ and ~~QVAR in the United States.~~AJOVY. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the third quarter of ~~2019 negatively~~2020, including hedging effects, positively impacted revenues by ~~$55~~$14 million, compared to the third quarter of ~~2018.~~2019. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the third quarter of ~~2019~~2020 was ~~$1,830~~$1,852 million, ~~a decrease~~an increase of 7%1% compared to the third quarter of ~~2018. The decrease~~2019. This increase was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit ~~as a percentage of revenues~~margin was ~~42.9%~~46.6% in the third quarter of ~~2019,~~2020, compared to ~~43.7%~~44.7% in the third quarter of ~~2018.~~2019.

The ~~decrease~~increase in gross profit ~~as a percentage of revenues~~margin was mainly due to ~~lower~~higher profitability in North America resulting ~~mainly~~ from ~~a decline~~the change in ~~COPAXONE revenues due to generic competition,~~mix of products as well as operational cost efficiencies and network optimization, partially offset by lower ~~amortization expenses~~sales of COPAXONE and ~~higher profitability~~other specialty products in ~~Europe, resulting mainly from lower cost of goods sold related to network optimization.~~all segments.

Research and Development (R&D) Expenses

~~Net~~ R&D expenses in the third quarter of ~~2019~~2020 were ~~$240~~$258 million, ~~a decrease~~an increase of ~~23%~~7% compared to the third quarter of ~~2018.~~2019.

Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.

Our R&D activities for specialty products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) life cycle management and post-approval studies for marketed products; and (v) indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects, such as the costs of internal administration, infrastructure and personnel.

In the third quarter of ~~2019,~~2020, our R&D expenses ~~were~~related primarily ~~related~~ to ~~generic products in our North America segment, as well as~~ specialty product candidates in the pain, ~~migraine, headache~~respiratory and ~~respiratory~~neuropsychiatry therapeutic areas, with additional activities in selected other ~~areas.~~areas and generic products including biosimilars.

Our ~~lower~~higher R&D expenses in the third quarter of ~~2019,~~2020, compared to the third quarter of ~~2018, primarily resulted from cost~~2019, were mainly due to an upfront payment made in the third quarter of ~~labor reductions, pipeline optimization and project terminations, partially offset by increased investment in early stage projects.~~2020.

R&D expenses as a percentage of revenues were ~~5.6%~~6.5% in the third quarter of ~~2019,~~2020, compared to ~~6.9%~~5.9% in the third quarter of ~~2018.~~2019.

Table of Contents

Selling and Marketing (S&M) Expenses

S&M expenses in the third quarter of ~~2019~~2020 were ~~$595~~$605 million, ~~a decrease~~an increase of ~~15%~~2% compared to the third quarter of ~~2018.~~2019. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were ~~13.9%~~15.2% in the third quarter of ~~2019,~~2020, compared to ~~15.4%~~14.5% in the third quarter of ~~2018.~~2019.

General and Administrative (G&A) Expenses

G&A expenses in the third quarter of ~~2019~~2020 were ~~$285~~$279 million, a decrease of 8%2% compared to the third quarter of 2018. Our G&A expenses were primarily the result of the factors discussed above under “—North America Segment— G&A Expenses,” “—Europe Segment— G&A Expenses” and “—International Markets Segment— G&A Expenses.”2019.

G&A expenses as a percentage of revenues were ~~6.7%~~7.0% in the third quarter of ~~2019,~~2020, flat compared to ~~6.8% in~~ the third quarter of ~~2018.~~2019.

Intangible Asset Impairments

We recorded expenses of ~~$177~~$509 million for identifiable intangible asset impairments in the third quarter of ~~2019,~~2020, compared to expenses of ~~$519~~$177 million in the third quarter of ~~2018.~~2019. See note 65 to our consolidated financial statements.

Goodwill Impairment

NoWe recorded a goodwill ~~impairments were recorded~~impairment charge of $4,628 million related to our North America reporting unit in the third quarter of ~~2019 and 2018.~~2020. See note 6 to our consolidated financial statements.

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

We recorded ~~expenses~~income of ~~$160~~$98 million for other ~~assets~~asset impairments, restructuring and other items in the third quarter of ~~2019,~~2020, compared to expenses of ~~$139~~$160 million in the third quarter of ~~2018.~~2019. See note 1412 to our consolidated financial statements.

Significant regulatory and other events

In July 2018, the FDA completed an inspection of our manufacturing plant in Davie, Florida in the United States, and issued a Form

FDA-483

to the site. In October 2018, the FDA notified us that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, we received a warning letter from the FDA that ~~contains~~contained four additional enumerated concerns related to production, quality control and investigations at this site. We ~~are~~have been working diligently to ~~remediate~~address the FDA’s concerns in a manner consistent with current good manufacturing practice ~~(CGMP)~~(cGMP) requirements as quickly and as thoroughly as possible. An FDA follow up inspection occurred in January 2020, resulting in some follow up findings and we received a letter from the FDA dated April 24, 2020 notifying us that the site continues to be classified as OAI. If we are unable to remediate the ~~warning letter~~ findings to the FDA’s satisfaction, we may face additional ~~consequences, including~~consequences. These would potentially include delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory ~~write offs,~~write-offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. We expect to generate approximately ~~$63~~$150 million in revenues from this site ~~in the remainder of 2019 and approximately $230 million~~ in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the ~~facility.~~facility, however, delays in FDA approvals of future products from the site may occur.

In July 2018, we announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied ~~to us~~ by Zhejiang Huahai ~~Pharmaceutical.~~Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, we have been actively engaged with global regulatory ~~agencies around the world~~authorities in reviewing our ~~valsartan~~sartan and other ~~sartan~~ products ~~for~~to determine whether NDMA ~~and~~and/or other related nitrosamine impurities ~~and, where~~are present in specific products. Where necessary, we have initiated additional voluntary recalls. ~~As of September 30,~~In December 2019, ~~the accumulated impact of this recall on~~we reached a settlement with Huahai resolving our ~~financial statements was $55 million, primarily~~claims related to ~~inventory reserves~~certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and ~~returns. We expect~~provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses we may incur as a result of third party personal injury or product liability claims relating to ~~continue to experience loss of revenues and profits in connection with this matter.~~the sartan API at issue. In addition, multiple lawsuits have been filed in connection with this ~~matter. We~~matter, which may ~~also incur~~lead to additional customer penalties, impairments and litigation ~~costs going forward.~~costs.

In the second quarter of 2020, our operations in our manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. During the third quarter of 2020, we have completed the first step of remediation of this issue and have restarted supply from our Goa facilities. The impact to our financial results for the nine months ended September 30, 2020 was immaterial, however, if the full remediation takes longer than expected there may be further loss of sales, customer penalties or impairments to related assets.

Restructuring

In the third quarter of ~~2019,~~2020, we recorded ~~$61~~$9 million of restructuring expenses, compared to ~~$88~~$61 million in the third quarter of ~~2018.~~2019. The expenses in the third quarter of ~~2019~~2020 were primarily related to ~~headcount reductions across all functions as part~~residual expenses of the restructuring plan announced in ~~2017.~~2017 and other network consolidation impacts.

~~The~~

~~two-year~~

~~restructuring plan announced in 2017 is intended to reduce our total cost base by $3 billion by the end of 2019.~~

Table of Contents

~~Since the announcement, we reduced our global headcount by 11,554 full-time-equivalent employees.~~

Legal Settlements and Loss Contingencies

In the third quarter of ~~2019,~~2020, we recorded ~~an expense~~expenses of ~~$468~~$21 million in legal settlements and loss contingencies, compared to ~~$19~~expenses of $468 million in the third quarter of ~~2018.~~2019. The expense in the third quarter of 2020 was mainly due to settling in part antitrust claims challenging a patent settlement agreement, partially offset by proceeds received following a settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). 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 ~~2019~~2020 was ~~$14~~$8 million, compared to ~~$35~~$14 million in the third quarter of ~~2018.~~2019.

Other income as a percentage of revenues was 0.2% in the third quarter of 2020 compared to 0.3% in the third quarter of 2019.

Operating Income (Loss)

Operating loss was $4,342 million in the third quarter of 2020, compared to operating loss of $81 million in the third quarter of ~~2019, compared to operating income of $16 million in the third quarter of 2018.~~2019.

Operating ~~income (loss)~~loss as a percentage of revenues was ~~1.9%~~109.1% in the third quarter of ~~2019,~~2020, compared to ~~0.4%~~operating loss as a percentage of revenues of 2.0% in the third quarter of ~~2018. The~~2019. This decrease was mainly due to the goodwill impairment charge and higher ~~provisions~~intangible asset impairment charges in ~~connection with~~the third quarter of 2020, partially offset by lower legal settlements and loss contingencies ~~partially offset by lower intangible asset impairments, lower R&D expenses and higher profit~~ in ~~our Europe segment.~~the third quarter of 2020.

Financial Expenses, Net

Financial expenses were $117 million in the third quarter of 2020, compared to $211 million in the third quarter of ~~2019, compared to $229 million~~2019. Financial expenses in the third quarter of ~~2018.~~2020 were mainly comprised of interest expenses of $241 million, partially offset by gains on revaluations of marketable securities of $124 million (see note 16 to our consolidated financial statements). Financial expenses in the third quarter of 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.

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~~2020 and ~~2018:~~2019:

Three months ended
September 30,

2019

2018

(U.S. $ in millions)

North America profit
$
565
$
649

Europe profit

341

297

International Markets profit

130

123

Total segments profit

1,036

1,069

Profit of other activities

16

35

1,051

1,104

Amounts not allocated to segments:

Amortization

255

297

Other assets impairments, restructuring and other items

160

139

Goodwill impairment

—

—

Intangible asset impairments

177

519

Gain on divestitures, net of divestitures related costs

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

(7
)
60

Costs related to regulatory actions taken in facilities

11

1

Legal settlements and loss contingencies

468

19

Other unallocated amounts

72

84

Consolidated operating income (loss)

(81
)
16

Financial expenses, net

211

229

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


	Three months ended September 30,
	2020			2019
	(U.S. $ in millions)
North America profit	$	560		$	565
Europe profit		312			341
International Markets profit		125			130

Total reportable segments profit		997			1,036
Profit of other activities		28			16

Total segments profit		1,025			1,051
Amounts not allocated to segments:
Amortization		251			255
Other assets impairments, restructuring and other items		(98	)		160
Intangible asset impairments		509			177
Goodwill impairment		4,628			—
Legal settlements and loss contingencies		21			468
Other unallocated amounts		55			73

Consolidated operating income (loss)		(4,342	)		(81	)

Financial expenses, net		117			211

Consolidated income (loss) before income taxes	$	(4,459	)	$	(292	)

Table of Contents

Tax Rate

In the third quarter of 2020, we recognized a tax expense of $16 million, on

pre-tax

loss of $4,459 million. In the third quarter of 2019, we recognized a tax expense of $11 million, on

pre-tax

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

~~pre-tax~~

~~loss of $213 million.~~ Our tax rate for the third quarter of ~~2019~~2020 was mainly affected by ~~impairments, amortization, legal settlements with low~~the goodwill impairment charge that does not have a corresponding tax effect and ~~interest disallowance as a result of the U.S. Tax Cuts~~other changes to tax positions and ~~Jobs Act.~~deductions.

The statutory Israeli corporate tax rate is 23% in ~~2019.~~2020. Our tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or ~~nonrecurring~~discrete items.

Share inIn (Profits) Losses ~~(Income)~~ of Associated Companies, Net

Share in ~~losses~~profits of associated companies, net in the third quarter of ~~2019~~2020 was $4$136 million, compared to ~~$10~~share in losses of $4 million in the third quarter of ~~2018.~~2019. Our share in profits of associated companies, net in the third quarter of 2020 was mainly due to a gain of $134 million reflecting the difference between the book value of our investment in American Well Corporation and its fair value as of the date it completed its initial public offering in September 2020 (see note 16 to our consolidated financial statements).

Net Income (Loss) Attributable to Teva

Net loss ~~attributable~~was $4,349 million in the third quarter of 2020, compared to ~~Teva was~~net loss of $314 million in the third quarter of ~~2019, compared~~2019. This decrease was mainly due to ~~net loss of $208 million~~the goodwill impairment charge and higher intangible asset impairment charges in the third quarter of ~~2018.~~

~~Net~~2020, partially offset by lower legal settlements and loss ~~attributable to ordinary shareholders was $314 million~~contingencies in the third quarter of ~~2019, compared to net loss of $273 million in the third quarter of 2018.~~2020.

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, 2020 and 2019 ~~and 2018 were 1,092~~was 1,096 million and ~~1,018~~1,092 million shares, respectively.

In computing diluted loss per share for the three months ended September 30, ~~2019~~2020 and ~~2018,~~September 30, 2019, no account was taken of the potential dilution bythat could occur upon the ~~assumed~~ exercise of ~~employee stock~~ options and

non-vested

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

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 66 million shares (including shares issued due to unpaid dividends up to that date) for the three months ended September 30, 2018, since they had an anti-dilutive effect on loss per share.

Diluted loss per share was ~~$0.29~~$3.97 in the third quarter of ~~2019,~~2020, compared to diluted loss per share of ~~$0.27~~$0.29 in the third quarter of ~~2018.~~2019.

Share Count for Market Capitalization

We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and performance share units ~~(“PSUs”)~~ and the conversion of our convertible senior debentures, in each case, at period end.

As of September 30, ~~2019~~2020 and ~~2018,~~2019, the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,107~~1,118 million and ~~1,111~~1,107 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the third quarter of ~~2019,~~2020, approximately ~~50%~~47% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, new Israeli shekel, Canadian dollar and Russian ruble) impact our results.

During the third quarter of ~~2019,~~2020, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on a quarterly average compared to quarterly average basis): Argentinian peso by ~~37%~~32%, ~~British pound~~Brazilian real by 5%26%, Turkish lira by 21%, Russian ruble by 12% and ~~euro~~Mexican peso by 4%12%. The following main currencies relevant to our operations increased in value against the U.S. dollar: ~~Japanese yen~~Swedish krona by 4%8%, Swiss franc by 7%, British pound by 5% and ~~new Israeli shekel~~the euro by 3%5%.

As a result, exchange rate movements during the third quarter of ~~2019 negatively~~2020, including hedging effects, positively impacted overall revenues by ~~$55~~$14 million and negatively impacted our operating ~~income~~loss by ~~$19~~$18 million, in comparison with the third quarter of ~~2018.~~2019. In the third quarter of 2020, the negative hedging impact recognized under revenues was $8 million, partially offset by a negative impact of $2 million recognized under cost of sales, in comparison with the third quarter of 2019. Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

Table of Contents

Comparison of Nine Months Ended September 30, ~~2019~~2020 to Nine Months Ended September 30, ~~2018~~2019

~~The~~Unless specified otherwise, the factors used to explain quarterly changes on a year-over-year basis are also ~~generally~~ relevant ~~to a~~for the comparison of the results for the nine months ended September 30, ~~2019~~2020 and ~~2018. Additional~~2019. Where there are different factors affecting the nine months comparison, ~~are~~we have described them 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~~2020 and ~~2018:~~2019:

Nine months ended September 30,

2019

2018

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

Revenues
$
6,169

100%
$
7,059

100.0
%
Gross profit

3,155

51.1
%
3,778

53.5
%
R&D expenses

497

8.0
%
528

7.5
%
S&M expenses

756

12.3
%
813

11.5
%
G&A expenses

342

5.5
%
357

5.1
%
Other (income) expense

(6
)
§

(206
)
(2.9
%)

Segment profit*
$
1,566

25.4
% $
2,286

32.4
%


	Nine months ended September 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	6,146		100	%	$	6,169		100.0	%
Gross profit		3,208		52.2	%		3,155		51.1	%
R&D expenses		455		7.4	%		497		8.0	%
S&M expenses		755		12.3	%		756		12.3	%
G&A expenses		325		5.3	%		342		5.5	%
Other (income) expense		(9	)	§			(6	)	§

Segment profit*	$	1,682		27.4	%	$	1,566		25.4	%

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

§	Represents an amount less than 0.5%.

~~Table of Contents~~

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first nine months of ~~2019~~2020 were ~~$6,169~~$6,146 million, ~~a decrease of $890 million, or 13%,~~flat compared to the first nine months of ~~2018.~~2019, mainly due to higher revenues from AUSTEDO, Anda and AJOVY, offset by lower revenues from COPAXONE and BENDEKA/TREANDA.

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~~2020 and ~~2018:~~2019:

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
2,826
$
2,957

(4
%)
COPAXONE

753

1,403

(46
%)
BENDEKA/TREANDA

353

502

(30
%)
ProAir*

194

352

(45
%)
QVAR

183

173

6
%
AJOVY

68

—

N/A

AUSTEDO

276

136

103
%
Anda

1,080

984

10
%
Other

436

554

(21
%)

Total
$
6,169
$
7,059


	Nine months ended September 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	2,804	$	2,826		(1	%)
AJOVY		98		68		45	%
AUSTEDO		451		276		64	%
BENDEKA/TREANDA		313		371		(16	%)
COPAXONE		671		753		(11	%)
ProAir*		175		194		(10	%)
QVAR		139		183		(24	%)
Anda		1,141		1,080		6	%
Other		354		417		(15	%)

Total	$	6,146	$	6,169		§

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

~~Table of Contents~~

§	Represents an amount less than 0.5%.

North America Gross Profit

Gross profit from our North America segment in the first nine months of ~~2019~~2020 was ~~$3,155~~$3,208 million, ~~a decrease~~an increase of ~~17%~~2%, compared to ~~$3,778~~$3,155 million in the first nine months of ~~2018.~~2019.

Table of Contents

Gross profit margin for our North America segment in the first nine months of ~~2019 decreased~~2020 increased to 52.2% compared to 51.1% ~~from 53.5%~~ in the first nine months of ~~2018.~~2019.

North America R&D Expenses

R&D expenses relating to our North America segment in the first nine months of ~~2019~~2020 were ~~$497~~$455 million, a decrease of 6%8%, compared to ~~$528~~$497 million in the first nine months of ~~2018.~~2019.

North America S&M Expenses

S&M expenses relating to our North America segment in the first nine months of ~~2019~~2020 were ~~$756~~$755 million, ~~a decrease of 7%,~~flat compared to ~~$813~~$756 million in the first nine months of ~~2018.~~2019.

North America G&A Expenses

G&A expenses relating to our North America segment in the first nine months of ~~2019~~2020 were ~~$342~~$325 million, a decrease of 4%5%, compared to ~~$357~~$342 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.~~2019.

North America Profit

Profit from our North America segment in the first nine months of ~~2019~~2020 was ~~$1,566~~$1,682 million, ~~a decrease~~an increase of ~~31%~~7%, compared to ~~$2,286~~$1,566 million in the first nine months of ~~2018.~~2019, mainly due to lower expenses and a change in mix of products, partially offset by lower revenues.

~~Table of Contents~~

Europe Segment

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

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
%


	Nine months ended September 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	3,520		100	%	$	3,611		100	%
Gross profit		2,009		57.1	%		2,066		57.2	%
R&D expenses		180		5.1	%		199		5.5	%
S&M expenses		590		16.8	%		637		17.6	%
G&A expenses		184		5.2	%		175		4.8	%
Other (income) expense		(3	)	§			(5	)	§

Segment profit*	$	1,058		30.1	%	$	1,060		29.4	%

*	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~~2020 were ~~$3,611~~$3,520 million, a decrease of 9%3% or ~~$371~~$91 million, compared to the first nine months of ~~2018.~~2019. In local currency terms, revenues decreased by 4%2%, compared to the first nine months of ~~2018,~~2019, mainly due to a ~~decline~~decrease in revenues from COPAXONE ~~revenues~~and oncology products due to ~~competing glatiramer acetate~~price erosion. Revenues from generic products ~~and~~were flat, due to higher demand for certain products resulting from the ~~termination~~

COVID-19

pandemic in the first quarter of ~~the PGT joint venture, partially offset by~~2020, new generic product ~~launches.~~launches in the first and second quarters of 2020 and reduced demand for certain products resulting from the

COVID-19

pandemic in the second and third quarters of 2020.

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~~2020 and ~~2018:~~2019:

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
2,599
$
2,749

(5
%)
COPAXONE

327

417

(22
%)
Respiratory products

267

312

(14
%)
Other

417

504

(17
%)

Total
$
3,611
$
3,982

(9
%)


	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	2,593	$	2,599
COPAXONE		294		327
Respiratory products		263		267
AJOVY		17		1
Other		352		416

Total	$	3,520	$	3,611

Table of Contents

Europe Gross Profit

Gross profit from our Europe segment in the first nine months of ~~2019~~2020 was ~~$2,066~~$2,009 million, a decrease of 6%3% compared to ~~$2,195~~$2,066 million in the first nine months of ~~2018.~~2019.

Gross profit margin for our Europe segment in the first nine months of ~~2019 increased~~2020 decreased to 57.1% compared to 57.2% ~~from 55.1%~~ in the first nine months of ~~2018.~~2019.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first nine months of ~~2019~~2020 were ~~$199~~$180 million, a decrease of ~~4%,~~10% compared to ~~$208~~$199 million in the first nine months of ~~2018.~~2019.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first nine months of ~~2019~~2020 were ~~$637~~$590 million, a decrease of ~~12%,~~7% compared to ~~$725~~$637 million in the first nine months of ~~2018.~~2019.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first nine months of ~~2019~~2020 were ~~$175~~$184 million, ~~a decrease~~an increase of ~~28%,~~5% compared to ~~$243~~$175 million in the first nine months of ~~2018.~~2019.

Europe Profit

Profit from our Europe segment in the first nine months of ~~2019~~2020 was ~~$1,060~~$1,058 million, ~~an increase of 4%,~~flat compared to ~~$1,020 million in~~ the first nine months of ~~2018.~~2019, mainly due to lower revenues, offset by lower expenses, as discussed above.

International Markets Segment

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

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
%


	Nine months ended September 30,
	2020					2019**
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,582		100	%	$	1,668		100	%
Gross profit		828		52.3	%		877		52.6	%
R&D expenses		51		3.3	%		66		4.0	%
S&M expenses		312		19.7	%		348		20.9	%
G&A expenses		96		6.1	%		102		6.1	%
Other (income) expense		(10	)	(0.6	%)		(2	)	§

Segment profit*	$	378		23.9	%	$	363		21.7	%

§	Represents an amount less than 0.5%.

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

§**	~~Represents an amount less than 0.5%.~~ The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements.

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~~2020 were ~~$2,145~~$1,582 million, a decrease of ~~$120~~$86 million, or 5%, compared to the first nine months of ~~2018.~~2019. In local currency terms, revenues decreased by 1%2% compared to the first nine months of ~~2018.~~2019, mainly due to lower sales in Japan and loss of revenues from the sale of certain assets in the Israeli market, partially offset by increased revenues in other markets. Revenues in the first nine months of 2020 were also impacted by higher demand for certain products resulting from the

COVID-19

pandemic in the first quarter of 2020 and reduced demand for certain products resulting from the impact of the

COVID-19

pandemic in the second and third quarters of 2020. The revenues in the first nine months of 2020 included $25 million from a positive hedging impact, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

Table of Contents

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

Nine months ended
September 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,404
$
1,523

(8
%)
COPAXONE

46

52

(12
%)
Distribution

491

456

8
%
Other

204

233

(13
%)

Total
$
2,145
$
2,265

(5
%)


	Nine months ended September 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,304	$	1,404
COPAXONE		38		46
Other		241		218

Total	$	1,582	$	1,668

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

International Markets Gross Profit

Gross profit from our International Markets segment in the first nine months of ~~2019~~2020 was ~~$877~~$828 million, a decrease of ~~7%,~~6% compared to ~~$942~~$877 million in the first nine months of ~~2018.~~2019.

Gross profit margin for our International Markets segment in the first nine months of ~~2019~~2020 decreased to ~~40.9%~~52.3%, ~~from 41.6%~~compared to 52.6% in the first nine months of ~~2018. The decrease was mainly due to lower sales in Japan.~~2019.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the first nine months of ~~2019~~2020 were ~~$66~~$51 million, a decrease of ~~5%,~~23% compared to ~~$70~~$66 million in the first nine months of ~~2018.~~2019.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the first nine months of ~~2019~~2020 were ~~$348~~$312 million, a decrease of ~~9%,~~10% compared to ~~$384~~$348 million in the first nine months of ~~2018.~~2019.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the first nine months of ~~2019~~2020 were ~~$102~~$96 million, a decrease of ~~12%,~~5% compared to ~~$115~~$102 million in the first nine months of ~~2018.~~2019.

International Markets Profit

Profit from our International Markets segment in the first nine months of ~~2019~~2020 was ~~$363~~$378 million, ~~a decrease~~an increase of 6%4%, compared to ~~$384~~$363 million in the first nine months of ~~2018.~~2019. This increase was mainly due to lower expenses and a positive hedging impact, partially offset by lower revenues, as discussed above.

~~Table of Contents~~

Other Activities

Our revenues from other activities in the first nine months of ~~2019~~2020 decreased by 2% to ~~$972~~$957 million, compared to the first nine months of ~~2018.~~2019. In local currency terms, revenues ~~were flat.~~decreased by 1%.

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~~2020 were $564 million, flat compared to the first nine months of ~~2018.~~2019 in both U.S dollar and local currency terms.

Teva Consolidated Results

Revenues

Revenues in the first nine months of ~~2019~~2020 were ~~$12,896~~$12,206 million, a decrease of ~~10%~~2%, or 7%1% in local currency terms, compared to the first nine months of ~~2018.~~2019.

Exchange rate movements during the first nine months of ~~2019,~~2020, including hedging effects, negatively impacted revenues by $68 million, compared to the first nine months of ~~2018, negatively impacted revenues by $357 million.~~2019. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the first nine months of ~~2019~~2020 was ~~$5,579~~$5,678 million, ~~a decrease~~an increase of ~~$746 million~~2% compared to the first nine months of ~~2018.~~2019.

Gross profit ~~as a percentage of revenues~~margin was ~~43.3%~~46.5% in the first nine months of ~~2019,~~2020, compared to ~~44.2%~~44.9% in the first nine months of ~~2018.~~2019.

Table of Contents

Research and Development (R&D) Expenses

~~Net~~ R&D expenses in the first nine months of ~~2019~~2020 were ~~$778~~$704 million, a decrease of ~~15%~~9% compared to the first nine months of ~~2018.~~2019, mainly due to the life cycle and stage of various projects, partially offset by an upfront payment made in the third quarter of 2020.

R&D expenses as a percentage of revenues were ~~6.0%~~5.8% in the first nine months of ~~2019,~~2020, compared to ~~6.4%~~6.3% in the first nine months of ~~2018.~~2019.

~~Table of Contents~~

Selling and Marketing (S&M) Expenses

S&M expenses in the first nine months of ~~2019~~2020 were ~~$1,908~~$1,815 million, a decrease of ~~10%~~5% compared to the first nine months of ~~2018.~~2019. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were ~~14.8%~~14.9% in the first nine months of ~~2019, flat~~2020, compared to 15.4% in the first nine months of ~~2018.~~2019.

General and Administrative (G&A) Expenses

G&A expenses in the first nine months of ~~2019~~2020 were ~~$873~~$846 million, a decrease of 8%3% compared to the first nine months of ~~2018.~~2019.

G&A expenses as a percentage of revenues were ~~6.8%~~6.9% in the first nine months of ~~2019,~~2020, compared to ~~6.7%~~7.0% in the first nine months of ~~2018.~~2019.

Intangible Asset Impairments

We recorded expenses of ~~$1,206~~$1,278 million for identifiable intangible asset impairments, in the first nine months of ~~2019,~~2020, compared to expenses of ~~$1,246~~$1,206 million in the first nine months of ~~2018.~~2019. See note 65 to our consolidated financial statements.

Goodwill Impairment

~~In the first nine months of 2019, no goodwill impairments were~~We recorded ~~compared to~~ a ~~$300 million~~ goodwill impairment charge ~~recorded~~of $4,628 million related to our North America reporting unit in the first nine months of ~~2018.~~2020. See note 76 to our consolidated financial statements.

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of ~~$263~~$404 million for other asset impairments, restructuring and other items in the first nine months of ~~2019,~~2020, compared to expenses of ~~$834~~$263 million in the first nine months of ~~2018.~~2019. See note 1412 to our consolidated financial statements.

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Legal Settlements and Loss Contingencies

In the first nine months of ~~2019,~~2020, we recorded ~~an expense~~expenses of ~~$1,171~~$10 million in legal settlements and loss contingencies, compared to ~~an income~~expenses of ~~$1,239~~$1,171 million in the first nine months of ~~2018.~~2019. The expense in the first nine months of 2020 was mainly related to an increase of a reserve for certain legal expenses and settlement contributions related to product liability claims in the United States and settling in part antitrust claims challenging a patent settlement agreement, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel and settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). 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~~2020 was ~~$29~~$30 million, compared to ~~$334~~$29 million in the first nine months of ~~2018.~~2019.

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.~~both 2020 and 2019.

Operating Income (Loss)

Operating loss was $3,978 million in the first nine months of 2020, compared to operating loss of $591 million in the first nine months of ~~2019, compared to an operating income~~2019.

Operating loss as a percentage of ~~$1,527 million~~revenues was 32.6% in the first nine months of ~~2018.~~2020, compared to operating loss as a percentage of revenues of 4.8% in the first nine months of 2019.

Financial Expenses, Net

Financial expenses were $565 million in the first nine months of 2020, compared to $635 million in the first nine months of ~~2019, compared to $736 million~~2019. Financial expenses in the first nine months of ~~2018.~~

2020 were mainly comprised of interest expenses of $722 million, partially offset by gains on revaluations of marketable securities of $118 million (see note 16 to our consolidated financial statements) as well as a gain of $27 million resulting from our hedging and derivatives activities. Financial expenses in the first nine months of 2019 were mainly comprised of interest expenses of $672 million, partially offset by interest income of $36 ~~million~~million.

Table 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.Contents

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~~2020 and ~~2018:~~2019:

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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	Nine months ended September 30,
	2020			2019
	(U.S. $ in millions)
North America profit	$	1,682		$	1,566
Europe profit		1,058			1,060
International Markets profit		378			363

Total reportable segments profit		3,118			2,989
Profit (loss) of other activities		130			92

Total segments profit		3,248			3,081
Amounts not allocated to segments:
Amortization		758			823
Other asset impairments, restructuring and other items		404			263
Intangible asset impairments		1,278			1,206
Goodwill impairment		4,628			—
Legal settlements and loss contingencies		10			1,171
Other unallocated amounts		148			209

Consolidated operating income (loss)		(3,978	)		(591	)

Financial expenses, net		565			635

Consolidated income (loss) before income taxes	$	(4,543	)	$	(1,226	)

Tax Rate

In the first nine months of 2020, we recognized a tax benefit of $147 million, on

pre-tax

loss of $4,543 million. 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~~2020 was mainly affected by ~~impairments, amortization, legal settlements with low~~the goodwill impairment charge that does not have a corresponding tax effect and ~~interest disallowance as a result of the U.S. Tax Cuts~~other changes to tax positions and ~~Jobs Act.~~deductions.

Share in (Profits) Losses ~~(Income)~~ of Associated Companies, Net

Share in ~~losses~~profits of associated companies, net in the first nine months of ~~2019~~2020 was $8$135 million, compared to share in losses of ~~$76~~associated companies, net of $8 million in the first nine months of ~~2018.~~2019. Our share in profits of associated companies, net in the first nine months of 2020 was mainly due to a gain of $134 million reflecting the difference between the book value of our investment in American Well Corporation and its fair value as of the date it completed its initial public offering in September 2020 (see note 16 to our consolidated financial statements).

Net Income (Loss) Attributable to Teva

Net loss ~~attributable~~was $4,140 million in the first nine months of 2020, compared to ~~Teva was~~net loss of $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.~~2019.

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, 2020 and 2019 ~~and 2018 were 1,091~~was 1,095 million and ~~1,020~~1,091 million shares, respectively.

In computing diluted loss per share for the nine months ended September 30, 2020 and September 30, 2019, no account was taken of the potential dilution bythat could occur upon 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 $3.78 in the first nine months of 2020, compared to diluted loss per share of $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.~~2019.

Impact of Currency Fluctuations on Results of Operations

In the first nine months of ~~2019,~~2020, approximately ~~50%~~48% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Israeli shekel, Canadian dollar and Russian ruble) impact our results. During the first nine

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months of ~~2019,~~2020, the following main currencies relevant to our operations decreased in value against the U.S. dollar: ~~Argentinean~~Argentinian peso by ~~44%~~34%, ~~Polish zloty~~Brazilian real by 7%23%, Turkish lira by 16%, Chilean peso by 15%, Mexican peso by 12% and Russian ruble by ~~6%, euro by 6% and British pound by 6%~~8% (all compared on a nine-month average basis). The following main currencies relevant to our operations increased in value against the U.S. dollar: Swiss franc by 5%, new Israeli shekel by 3% and Japanese yen by 1%.

As a result, exchange rate movements during the first nine months of ~~2019~~2020 negatively impacted overall revenues by ~~$357~~$68 million and our operating ~~income~~loss by ~~$110~~$28 million, in comparison to the first nine months of ~~2018.~~2019. In the first nine months of 2020, the positive hedging impact recognized under revenues was $36 million, partially offset by a positive impact of $3 million recognized under cost of sales, in comparison to the first nine months of 2019. Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.

Liquidity and Capital Resources

Total balance sheet assets were ~~$57,246~~$49,737 million as of September 30, ~~2019,~~2020, compared to ~~$59,424~~$54,991 million as of June 30, ~~2019.~~2020.

Our working capital balance, which includes ~~trade~~accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, ~~trade~~accounts payables, employee-related obligations, accrued expenses and other current liabilities, was ~~$306~~$223 million as of September 30, ~~2019,~~2020, compared to ~~negative $65~~$209 million as of June 30, ~~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.2020.

~~Investment~~Cash investment in property, plant and equipment in the third quarter of ~~2019~~2020 was ~~approximately $169~~$143 million, compared to ~~$112~~$131 million in the second quarter of ~~2019.~~2020. Depreciation in the third quarter of ~~2019~~2020 was ~~$151~~$130 million, compared to ~~$153~~$134 million in the second quarter of ~~2019.~~2020.

Cash and cash equivalents and short-term and long-term investments as of September 30, ~~2019~~2020 were ~~$1,301~~$2,155 million, compared to ~~$2,232~~$2,431 million as of June 30, ~~2019.~~2020. The decrease in the third quarter of ~~2019~~2020 was mainly due to repayment at maturity of our ~~$1,556~~€1,010 million ~~1.7%~~0.375% senior ~~note in July 2019, partially offset by cash generated during the quarter.~~notes.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion unsecured syndicated revolving credit facility entered into in April 2019 (“RCF”).

one-year

extension options, of which $1.065 billion were extended to April 8, 2023. Tranche B has a ~~$2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion revolving credit facility.~~ maturity date of April 8, 2024.

The RCF can be used for general corporate purposes, including repaying existing debt. As of September 30, ~~2019, $100~~2020, €100 million ~~were~~was outstanding under the RCF. As of the date of this ~~quarterly report~~Quarterly Report on Form

10-Q, ~~no amounts are~~

€270 million was outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date 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,~~2020, our debt was ~~$26,942~~$25,621 million, compared to ~~$28,726~~$26,266 million as of June 30, ~~2019. The~~2020. This decrease was mainly due to the repayment at maturity of our ~~$1,556~~€1,010 million ~~1.7%~~0.375% senior notes ~~as well as~~in July 2020, partially offset by exchange rate fluctuations.

~~During the first quarter of 2019, we repurchased and canceled approximately $126 million principal amount of our $1,700 million 1.7% senior notes due July 2019.~~

~~During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our $1,574 million 1.7% senior notes due July 2019.~~

In ~~July 2019,~~March 2020, we repaid at maturity our ~~$1,556~~$700 million ~~1.7%~~2.25% senior notes.

In July 2020, we repaid at maturity our €1,010 million 0.375% senior notes.

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During the third quarter of ~~2019,~~2020, we borrowed ~~$500~~€200 million under ~~the~~our RCF and repaid ~~$400~~€100 million of such borrowings. As of September 30, ~~2019, $100~~2020, €100 million ~~was~~were outstanding under the RCF. As of the date of this Quarterly Report on Form

10-Q,

~~no amounts~~€270 million were outstanding under the RCF.

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

The portion of total debt classified as short-term as of September 30, ~~2019~~2020 was ~~12%~~8%, compared to ~~10%~~6% as of June 30, ~~2019.~~2020.

Our financial leverage was ~~64%~~71% as of September 30, ~~2019, a slight decrease~~2020, compared to ~~65%~~64% as of June 30, ~~2019.~~2020.

Our average debt maturity was approximately ~~6.4~~6.0 years as of September 30, ~~2019,~~2020, compared to ~~6.3~~6.1 years as of June 30, ~~2019.~~2020.

Total Equity

Total equity was ~~$14,925~~$10,592 million as of September 30, ~~2019,~~2020, compared to ~~$15,251~~$14,824 million as of June 30, ~~2019. The~~2020. This decrease was mainly due to ~~$307 million of~~ net loss ~~and~~of $4,340 million, primarily due to the ~~negative impact of $138 million from exchange rate fluctuations, partially offset by $87 million of unrealized gain from derivative financial instruments~~goodwill impairment charge recorded in the third quarter of ~~2019.~~2020.

Exchange rate fluctuations affected our balance sheet, as approximately ~~36%~~54% of our net assets in the third quarter of ~~2019~~2020 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to June 30, ~~2019,~~2020, changes in currency rates had a ~~negative~~positive impact of ~~$138~~$70 million on our equity as of September 30, ~~2019,~~2020, mainly due to the changes in value against the U.S. dollar of: the Russian ruble by 13%, the British pound by 4%, the Croatian kuna by 2%, the Mexican peso by 3%, the Canadian dollar by 2%, the Polish zloty by 7%3%, the Chilean peso by ~~7%,~~4% and the euro by 4%~~, the Bulgarian lev by 4% and the British pound by 3%~~. All comparisons are on a

quarter-end

basis.

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Cash Flow

We seek to continually improve the efficiency of our working capital management. From time to time, as part of our cash management activities, we may make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers or deceleration of payments to vendors, having the effect of increasing or decreasing cash from operations in an individual period. Such decisions had no material impact on our nine month operating cash flow measurement, but may impact

quarter-to-quarter

results.

Cash flow generated from operating activities during the third quarter of ~~2019~~2020 was ~~$325~~$307 million, compared to ~~$421~~$325 million in the third quarter of ~~2018.~~2019. The decrease in the third quarter of ~~2019~~2020 was mainly due to ~~lower revenues and~~an increase in inventory during the third quarter of 2020, compared to a ~~reduction~~decrease in ~~sales reserves associated with~~inventory in the ~~revenue decline.~~third quarter of 2019.

~~Cash~~During the third quarter of 2020, we generated free cash flow of $506 million, which we define as comprising $307 million in cash flow generated from operating activities, $333 million in ~~the third quarter of 2019, net of cash received for capital investments and~~ beneficial interest collected in exchange for securitized ~~trade~~accounts receivables ~~was~~and $9 million in proceeds from sale of property, plant and equipment, partially offset by $143 million in cash used for capital investment. During the third quarter of 2019, we generated free cash flow of $551 million, ~~compared to $704~~comprising $325 million in cash flow used in operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables and $33 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $169 million in cash used for capital investment. The decrease in the third quarter of ~~2018. The decrease in~~2020 resulted mainly from lower cash flow ~~was mainly due to the reasons mentioned above, as well as higher capital investments during the third quarter of 2019 compared to the third quarter of 2018.~~generated from operating activities.

Dividends

We have not paid dividends on our ordinary shares or ADSs 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 August 2020, we entered into an exclusive partnership agreement with biopharmaceutical company Alvotech for the commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this partnership contains biosimilar candidates addressing multiple therapeutic areas. Under this agreement, Alvotech will be responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. The agreement includes an upfront payment payable by Teva, which was paid in the third quarter of 2020. Additional development and commercial milestone payments of up to $490 million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of the biosimilars.

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~~Additional payments for achievement of ~~$25 million, $35 million and $60~~development milestones in an aggregate amount of $120 million were paid ~~in the second quarter~~during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of ~~2017, the first quarter~~up to $2,230 million, as well as future royalties. For information regarding recent fasinumab phase 3 clinical trial results, see “—North America Segment —Product Launches and Pipeline” above.

Table of ~~2018 and the fourth quarter of 2018, respectively.~~Contents

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~~we received an aggregate credit of $60 million ~~is refundable or creditable under certain circumstances.~~as of September 30, 2020. 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~~respectively, and were launched in the United ~~States. Nuvelution will fund~~States in November 2019 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~~March 2020, respectively.

~~return.~~

We are committed to pay royalties to owners of

know-how,

partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

~~2019~~2020 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form

10-K

for the year ended December 31, ~~2018, other than as set forth below.~~

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

2019.

Supplemental

Non-GAAP

Income Data

We utilize certain

non-GAAP

financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize the

non-GAAP

measures:

our management and Board of Directors use the

non-GAAP

measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management;

our annual budgets are prepared on a

non-GAAP

basis; and

senior management’s annual compensation is derived, in part, using these

non-GAAP

measures. While qualitative factors and judgment also affect annual bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, which is based on the

non-GAAP

presentation set forth below.

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Non-GAAP

financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such

non-GAAP

data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP,

non-GAAP

measures may not be comparable with the calculation of similar measures for other companies. These

non-GAAP

financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using

non-GAAP

financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

Investors should consider

non-GAAP

financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In arriving at our

non-GAAP

presentation, we exclude items that either have a

non-recurring

impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

amortization of purchased intangible assets;

legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and scope;

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventory

step-up

and

in-process

R&D acquired in development arrangements;

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expenses related to our equity compensation;

significant

one-time

financing costs and devaluation losses;

~~deconsolidation charges;~~

unusual tax items;

other awards or settlement amounts, either paid or received;

other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, such as inventory write-offs or related consulting costs, or other unusual events; and

corresponding tax effects of the foregoing items.

The following tables present supplemental

non-GAAP

data, in U.S. dollar, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts:

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The following table presents the GAAP measures, related

non-GAAP

adjustments and the corresponding

non-GAAP

amounts for the applicable periods:

Three Months Ended September 30, 2019

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

Excluded for
non-GAAP
measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Legal
settlements
and
loss
contingencies

Impair-
ment
of long-
lived
assets

Restruc-
turing
costs

Costs
related
to
regulatory
actions
taken in
facilities

Equity
compens-
ation

Contin-
gent
conside-
ration

Gain on
sale of
business

Other
non
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non
GAAP

Cost of sales

2,435

220

11

7

35

2,162

R&D expenses

240

5

(7
)
242

S&M expenses

595

35

9

551

G&A expenses

285

14

1

270

Other (income) expense

(14
)
(3
)
(11
)

Legal settlements and loss contingencies

468

468

—

Other assets impairments,
restructuring and other items

160

28

61

51

21

—

Intangible assets impairment

177

177

0

Financial expenses, net

211

3

208

Income taxes

11

(172
)
183

Share in losses of associated companies – net

4

4

Net income (loss) attributable to
non-controlling
interests

7

(12)

19

Total reconciled items

255

468

204

61

11

35

51

(3
)
51

(9
)
(172
)

EPS—Basic

(0.29
)
0.87

0.58

EPS—Diluted

(0.29
)
0.87

0.58


	Three Months Ended September 30, 2020
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																												Non-GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Goodwill impairment		Impairment of long lived assets		Other R&D expenses		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non-GAAP items			Other items			Corresponding tax effect
Cost of sales		2,126			221												6		7					(2	)								1,894
R&D expenses		258											21						5														233
S&M expenses		605			31														8														566
G&A expenses		279																	10														269
Other (income) expense		(8	)																														(8	)
Legal settlements and loss contingencies		21					21																										—
Other assets impairments, restructuring and other items		(98	)								56				9						(179	)		15									—
Intangible assets impairments		509									509																						—
Goodwill impairment		4,628							4,628																								—
Financial expenses, net		117																									(124	)					241
Income taxes		16																												(117	)		133
Share in losses of associated companies – net		(136	)																								(134	)					(1	)
Net income (loss) attributable to non-controlling interests		10																									(6	)					15

Total reconciled items					251		21		4,628		565		21		9		6		30		(179	)		14			(264	)		(117	)

EPS - Basic		(3.97	)																											4.55			0.58
EPS - Diluted		(3.97	)																											4.55			0.58

The

non-GAAP

diluted weighted average number of shares was 1,100 million for the three months ended September 30, 2020.

Table of Contents


	Three Months Ended September 30, 2019
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																										Non-GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Gain on sale of business			Other non- GAAP items			Other items			Corresponding tax effect
Cost of sales*		2,264			220								11		7							35									1,990
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 impairments		177							177																						—
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.

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

Table of Contents

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


	Nine Months Ended September 30, 2020
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																										Non-GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Goodwill impairment		Impairment of long- lived assets		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non GAAP items			Other items			Corresponding tax effect
Cost of sales		6,528			663										17		19					30									5,799
R&D expenses		704															14					3									687
S&M expenses		1,815			95												25														1,695
G&A expenses		846															31					12									803
Other (income) expense		(30	)																			(3	)								(27	)
Legal settlements and loss contingencies		10					10																								—
Other assets impairments, restructuring and other items		404									408		82						(96	)		10									—
Intangible assets impairment		1,278									1,278																				—
Goodwill impairment		4,628							4,628																						—
Financial expenses, net		565																							(118	)					683
Income taxes		(147	)																									(583	)		436
Share in losses of associated companies – net		(135	)																						(134	)					(1	)
Net income (loss) attributable to non-controlling interests		(121	)																						(174	)					53

Total reconciled items					758		10		4,628		1,686		82		17		90		(96	)		52			(427	)		(583	)

EPS - Basic		(3.78	)																									5.68			1.90
EPS - Diluted		(3.78	)																									5.67			1.89

The

non-GAAP

diluted weighted average number of shares was ~~1,022~~1,099 million for the ~~three~~nine months ended September 30, ~~2018.~~

2020.

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


	Nine months ended September 30, 2019
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																														Non- GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long- lived assets		Acquisition, integration and related expenses		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Gain on sale of business			Other non GAAP items			Other items			Corresponding tax effect			Unusual tax item*
Cost of sales**		6,841			717										28		21							96											5,978
R&D expenses		778															17							(7	)										768
S&M expenses		1,908			105												29																		1,774
G&A expenses		873															37																		836
Other (income) expense		(29	)																		(12	)													(17	)
Legal settlements and loss contingencies		1,171					1,171																												—
Other assets impairments, restructuring and other items		263							96		2		140						4					22											—
Intangible assets impairment		1,206							1,206																										—
Financial expenses, net		635																									9								626
Income taxes		(159	)																											(662	)		61		442
Share in losses of associated companies – net		8																																	8
Net income (loss) attributable to non-controlling interests		33																									(28	)							61

Total reconciled items					823		1,171		1,302		2		140		28		104		4		(12	)		111			(19	)		(662	)		61

EPS - Basic		(1.02	)																														2.80		1.78
EPS - Diluted		(1.02	)																														2.80		1.78

The

non-GAAP

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

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

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

Table of Contents

Nine months ended September 30, 2018

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

Excluded for
non-GAAP
measurement

GAAP

Amorti-
zation
of
purchased
intangible
assets

Good
will
impai
rment

Legal
settle
ments
and
loss
conting
encies

Impair-
ment of
long-
lived
assets

Other
R&D
expenses

Acquisition,
integration
and related
expenses

Restruct-
uring
costs

Costs
related to
regulatory
actions
taken in
facilities

Equity
compen-
sation

Contin
gent
consider-
ation

Gain on
sale of
business

Other
non
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non
GAAP

Cost of sales

7,970

771

6

22

94

7,077

R&D expenses

918

82

21

2

813

S&M expenses

2,119

138

35

(4
)
1,950

G&A expenses

954

44

12

898

Other (income) expense

(334
)
(114
)
(220
)

Legal settlements and loss contingencies

(1,239
)
(1,239
)
—

Other assets impairments, restructuring and other items

834

255

9

442

84

44

—

Intangible assets impairment

1,246

1,246

—

Goodwill impairment

300

300

—

Financial expenses, net

736

59

677

Income taxes

(56
)
(479
)
423

Share in losses of associated companies – net

76

103

(27
)

Net income (loss) attributable to
non-controlling
interests

35

(32
)
67

Total reconciled items
��

Total reconciled items

909

300

(1,239
)
1,501

82

9

442

6

122

84

(114
)
148

130

(479
)

EPS—Basic

0.53

1.87

2.40

EPS—Diluted

0.53

1.86

2.39

~~The~~

~~non-GAAP~~

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

~~Table of Contents~~

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the third quarter of 2020 were $133 million or 17%, on

pre-tax

non-GAAP

income of $784 million.

Non-GAAP

income taxes for the third quarter of 2019 were $183 million, or 22%, on

pre-tax

non-GAAP

income of $843 million.

~~Non-GAAP~~

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

~~pre-tax~~

~~non-GAAP~~

~~income of $868 million.~~ Our

non-GAAP

tax rate for the third quarter of ~~2019~~2020 was mainly affected by ~~legal settlements with low corresponding tax effect, interest expense disallowance~~the mix of products we sold and other changes to tax positions and deductions.

Non-GAAP

income taxes for the first nine months of 2020 were $436 million, or 17%, on

pre-tax

non-GAAP

income of $2,565 million.

Non-GAAP

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

pre-tax

non-GAAP

income of $2,454 million.

~~Non-GAAP~~

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

~~pre-tax~~

~~non-GAAP~~

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

We expect our annual

non-GAAP

tax rate for ~~2019~~2020 to be ~~18%~~

17%-18%, ~~which is higher~~

slightly lower than ~~our previous projections and~~ our

non-GAAP

tax rate for ~~2018.~~2019, which was 18%. This is due to ~~legal settlements with low corresponding tax effect,~~lower amounts of interest expense disallowance and other changes to tax positions and deductions. ~~Our~~

~~non-GAAP~~

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

Off-Balance

Sheet Arrangements

Except for securitization transactions, which are disclosed in note ~~16(d)~~10(f) to our consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, ~~2018,~~2019, we do not have any material

off-balance

sheet arrangements.

Critical Accounting Policies

For a summary of our significant accounting policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form

10-K

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

Recently Issued Accounting Pronouncements

See note 21 to our consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in our assessment of market risk as set forth in Item 7A to our Annual Report on Form

10-K

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

2019.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and procedures” (as defined in

Rules

13a-15(e) and 15d-15(e) under

~~and~~

~~15d-15(e)~~

~~under~~ the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

After evaluating the effectiveness of our disclosure controls and procedures as of September 30, ~~2019,~~2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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

Table of Contents

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings. For a discussion of these matters, see “Commitments and Contingencies” included in note 1610 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form

10-Q.

ITEM 1A.

RISK FACTORS

Except as set forth below, there are no material changes to the risk factors previously disclosed in our Annual Report on Form

10-K

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

2019.

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

COVID-19

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

Certain governmental and regulatory agencies are focused on the abuse of opioid medications in the United States. Federal, state and local governmental and regulatory agencies are conducting investigations of us, other pharmaceutical manufacturers and other supply chain participants with regard to the manufacture, sale, marketing and distribution of opioid medications. A number of state attorneys general, including a coordinated multistate effort, are investigating our sales and marketing of opioids and we have received subpoena requests from the U.S. Department of Justice seeking documents relating to the manufacture, marketing and sale of opioid medications. In addition, we are currently litigating civil claims brought by various states and political subdivisions as well as private claimants, against various manufacturers, distributors and retail pharmacies throughout the United States in connection with our manufacture, sale and distribution of opioids. On October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement framework. The framework is designed to provide a mechanism by which Teva attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this agreement, Teva would provide buprenorphine naloxone (sublingual tablets), in quantities with an estimated value up to approximately $23 billion at wholesale acquisition cost over a ten year period. In addition, Teva would also provide cash payments of up to $250 million over a ten year period. This global settlement framework is predicated on settlement with all U.S. states and related subdivisions. Teva cannot predict if the nationwide settlement framework will be finalized. Responding to governmental investigations and managing legal proceedings is costly and involves a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve substantial monetary penalties and could have a material and adverse effect on our reputation, business, results of operations and ~~cash flows. See “Government Investigations~~financial condition.

The novel coronavirus outbreak, or

COVID-19,

has affected segments of the global economy and ~~Litigation Relating~~may materially affect our operations, including potentially interrupting our manufacturing, supply chain, clinical trial and

pre-commercial

launch activities.

COVID-19

originated in Wuhan, China, in December 2019 and was declared a pandemic by the World Health Organization in March 2020. The virus has since spread globally to ~~Pricing~~multiple countries and ~~Marketing” in note 16~~regions, including to the ~~consolidated~~United States, certain European countries, Israel, India and Latin America, where we currently manufacture most of our products and conduct our clinical trials. The closure of our facilities in these or other areas in which we operate, or other restrictions inhibiting our employees’ ability to access our facilities, could disrupt our business operations. The

COVID-19

pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial ~~statements included~~markets. Protracted disruption of supply chains, including protectionist measures taken in ~~Part I, Item 1~~response to the

COVID-19

pandemic, could have a material impact on our operations.

At present, we are not experiencing significant impacts or delays from the

COVID-19

pandemic on our business operations. We have experienced immaterial delays in clinical trials due to cessation or slow-downs of ~~this Quarterly~~recruitment for patient studies and suspended regulatory inspections, delays in regulatory approvals of new products due to reduced capacity or

re-prioritization

of regulatory agencies and delays in

pre-commercial

launch activities. In addition, we experienced reduced demand for certain products in the second and third quarters of 2020, resulting from the impact of the

COVID-19

pandemic. As we expect to be able to continue our operations and to satisfy the demand for our products, while protecting the health and safety of our employees and customers, the uncertainty surrounding the severity and continued spread of the coronavirus, including the severity of a “second wave” or other additional periods of increases or spikes in the number of

COVID-19

cases in areas in which we operate, may result in a period of business disruption. The

COVID-19

pandemic may impact our operations, including potential delays in supply and manufacturing or material interruptions to supply chains, clinical trials and

pre-commercial

launch activities and regulatory reviews and approvals. The

COVID-19

pandemic may also affect our employees as well as employees and operations at third-party manufacturers or suppliers that may result in delays or disruptions in manufacturing and supply. Any

COVID-19

related disruption could have a material adverse impact on our business and our results of operation and financial condition. Changes in patient behavior resulting in less visits to physicians and medical facilities, or increased layoffs in the U.S. employment market, which may affect healthcare benefits coverage, may cause a decline or slower growth in the number of patients diagnosed with diseases for which we produce treatments, and as a result, our revenues could be adversely affected. In addition, a recession or market correction resulting from the spread of

COVID-19

could materially affect our business and the value of our shares.

Additionally, if the

COVID-19

pandemic has a significant impact on our business and financial results for an extended period of time, our credit losses, liquidity and cash resources could be negatively impacted. We may be required to draw down funds from our RCF or pursue additional sources of financing to fund our operations. Capital and credit markets have been disrupted by the crisis and foreign exchanges have experienced increased volatility. As a result, access to additional financing may be challenging and is largely dependent upon evolving market conditions and other factors.

We have taken precautionary measures, and may take additional measures, intended to minimize the risk of the

COVID-19

pandemic to our employees and operations. The extent of the impact of the

COVID-19

pandemic on our operational and financial performance, including our ability to execute our business strategies in the expected time frame or at all, will depend on future developments, such as the duration and spread of the

COVID-19

pandemic and related restrictions and implications, all of which are uncertain and cannot be predicted.

Further, the

COVID-19

pandemic, and the volatile global economic conditions stemming from the pandemic, could precipitate or amplify the other risk factors that we identify in the “Risk Factors” section of our Annual Report on Form ~~10-Q.~~

10-K

for the year ended December 31, 2019, which could materially adversely affect our business, operations and financial condition and results.

Table of Contents

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended September 30, ~~2019.~~2020.

Repurchase of Shares

In December 2011, our Board of Directors authorized us to repurchase up to an aggregate amount of $3.0 billion of our ordinary shares or ADSs, of which $1.3 billion remained available for purchase, when in October 2014, the Board of Directors authorized us to increase our share repurchase program by $1.7 billion to $3.0 billion, of which $2.1 billion remained available as of September 30, 2019. We did not repurchase any of our shares during the three months ended September 30, ~~2019~~2020 and currently cannot ~~do so~~conduct share repurchases or pay dividends due to our accumulated deficit. ~~The repurchase program has no time limit. Repurchases may be commenced or suspended at any time, subject to applicable law.~~

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		Teva Pharmaceutical Industries Limited 2020 Long-Term Equity-Based Incentive Plan(1)

10.2		Form Award Agreement under Teva’s 2020 Long-Term Equity-Based Incentive Plan *

10.3		Teva Pharmaceutical Industries Limited Israeli Subplan of Teva’s 2020 Long-Term Equity-Based Incentive Plan *

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

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

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

*	Filed herewith.

(1)	Incorporated by reference to Appendix A to our Definitive Proxy Statement filed on April 22, 2020.

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 5, 2020
~~Date: November 7, 2019~~	By:	/s/ ~~Michael McClellan~~Eli Kalif
		Name:	~~Michael McClellan~~ Eli Kalif
		Title:	Executive Vice President, Chief Financial Officer (Duly Authorized Officer)

8182


	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


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

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

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

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

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

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

Dividends on preferred shares		—			65			—			195

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

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

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

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

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other compre hensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at June 30, 2018		1,124		54		3,760		23,426			(2,864)			(2,289)			(4,149	)		17,938			1,430			19,368
Comprehensive loss											(208	)		(46	)					(255	)		(26	)		(281	)
Issuance of Shares		1		**																						**
Issuance of Treasury Shares								(1	)								3			2						2
Stock-based compensation expense								44												44						44
Dividends to preferred shareholders						65		(65	)																	—

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests		Total equity
	(U.S. dollars in millions)
Balance at June 30, 2019		1,198		56		—		27,258		(6,752	)		(2,312	)		(4,128	)		14,122			1,128		15,251
Comprehensive income (loss)										(314	)		(53	)					(367	)		7		(360	)
Issuance of Shares		**		**																				**
Stock-based compensation expense								35											35					35

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		MCPS *		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity		Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2017		1,124		54		3,631		23,479			(3,803	)		(1,853	)		(4,149	)		17,359		1,386			18,745
Cumulative effect of new accounting standard											(5	)		5											—
Comprehensive income (loss)											736			(487	)					249		20			269
Issuance of Treasury Shares								(1	)								3			2					2
Dividends to preferred shareholders						194		(194	)																—
Issuance of shares		1		**																					**
Stock-based compensation expense								120												120					120
Transactions with non-controlling interests																						(2	)		(2	)

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


	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


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

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


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

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

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

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


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

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

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

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

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


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

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


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

Total	$	1,835	$	—		$	(497	)	$	1,338


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

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


	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	)		—			—


	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)	$	*		$	*		$	—		$	—


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

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


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

Segment profit	$	565		$	341		$	130


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

Segment profit	$	649		$	297	$	123


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


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

Total operating lease cost	$	46	$	131


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

Total operating lease liabilities	$	510



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


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

Total operating lease payments	$	641
Less: imputed interest		131

Present value of lease liabilities	$	510


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

Total lease payments	$	905


	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


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


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


	Nine months ended September 30,				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