TEVA PHARMACEUTICAL INDUSTRIES LIMITED

compliance, regulatory and litigation matters, including: increased legal and regulatory action in connection with public concern over the abuse of opioid medications in the U.S. and our ability to reach a final resolution of the remaining opioid-related litigation; costs and delays resulting from the extensive governmental regulation to which we are subject;

•

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, 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)

March 31,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$
1,804

$
1,975

Accounts receivables, net of allowance for credit losses of $127 million and $135 million as of March 31, 2020 and December 31, 2019

5,189

5,676

Inventories

4,290

4,422

Prepaid expenses

977

870

Other current assets

538

434

Assets held for sale

86

87

Total current assets

12,884

13,464

Deferred income taxes

440

386

Other
non-current
assets

550

591

Property, plant and equipment, net

6,221

6,436

Operating lease
right-of-use
assets

489

514

Identifiable intangible assets, net

10,256

11,232

Goodwill

24,490

24,846

Total assets

$
55,330

$
57,470

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt

$
1,630

$
2,345

Sales reserves and allowances

5,662

6,159

Accounts payables

1,710

1,718

Employee-related obligations

540

693

Accrued expenses

1,718

1,869

Other current liabilities

1,061

889

Total current liabilities

12,322

13,674

Long-term liabilities:

Deferred income taxes

912

1,096

Other taxes and long-term liabilities

2,624

2,640

Senior notes and loans

24,473

24,562

Operating lease liabilities

411

435

Total long-term liabilities

28,420

28,733

Commitments and contingencies
, see note
10

Total liabilities

40,742

42,407

Equity:

Teva shareholders’ equity:

Ordinary shares of NIS 0.10 par value per share; March 31, 2020 and December 31, 2019: authorized 2,495 million shares; issued 1,201 million shares and 1,198 million shares, respectively

56

56

Additional
paid-in
capital

27,342

27,312

Accumulated deficit

(6,887
)
(6,956
)
Accumulated other comprehensive loss

(2,852
)
(2,312
)
Treasury shares as of March 31, 2020 and December 31, 2019 — 106 million ordinary shares

(4,128
)
(4,128
)

13,531

13,972

Non-controlling
interests

1,057

1,091

Total equity

14,588

15,063

Total liabilities and equity

$
55,330

$
57,470


	June 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	2,402		$	1,975
Accounts receivables, net of allowance for credit losses of $129 million and $135 million as of June 30, 2020 and December 31, 2019		4,545			5,676
Inventories		4,361			4,422
Prepaid expenses		956			870
Other current assets		448			434
Assets held for sale		69			87

Total current assets		12,781			13,464
Deferred income taxes		483			386
Other non-current assets		560			591
Property, plant and equipment, net		6,122			6,436
Operating lease right-of-use assets		489			514
Identifiable intangible assets, net		9,940			11,232
Goodwill		24,616			24,846

Total assets	$	54,991		$	57,470

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,649		$	2,345
Sales reserves and allowances		5,201			6,159
Accounts payables		1,606			1,718
Employee-related obligations		544			693
Accrued expenses		1,755			1,869
Other current liabilities		995			889

Total current liabilities		11,751			13,674
Long-term liabilities:
Deferred income taxes		975			1,096
Other taxes and long-term liabilities		2,411			2,640
Senior notes and loans		24,616			24,562
Operating lease liabilities		414			435

Total long-term liabilities		28,417			28,733

Commitments and contingencies , see note 10
Total liabilities		40,167			42,407

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; June 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		27,374			27,312
Accumulated deficit		(6,747	)		(6,956	)
Accumulated other comprehensive loss		(2,703	)		(2,312	)
Treasury shares as of June 30, 2020 and December 31, 2019 — 107 million ordinary shares and 106 million ordinary shares, respectively		(4,128	)		(4,128	)

		13,852			13,972

Non-controlling interests		972			1,091

Total equity		14,824			15,063

Total liabilities and equity	$	54,991		$	57,470

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

(Unaudited)

Three months ended

March 31,

2020

2019

Net revenues

$
4,357

$
4,149

Cost of sales

2,294

2,293

Gross profit

2,063

1,856

Research and development expenses

221

261

Selling and marketing expenses

613

648

General and administrative expenses

304

292

Intangible assets impairments

649

469

Other assets impairments, restructuring and other items

121

1

Legal settlements and loss contingencies

(25
)
57

Other income

(13
)
(6
)

Operating (loss) income

191

134

Financial expenses, net

224

218

Income (loss) before income taxes

(33
)
(84
)
Income taxes (benefit)

(59
)
9

Share in (profits) losses of associated companies, net

1

4

Net income (loss)

25

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

(44
)
8

Net income (loss) attributable to Teva

69

(105
)

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

Earnings (loss) per share attributable to ordinary shareholders:

Basic
$
0.06
$
(0.10
)

Diluted
$
0.06
$
(0.10
)

Weighted average number of shares (in millions):

Basic

1,093

1,090

Diluted

1,096

1,090


	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
Net revenues	$	3,870		$	4,177		$	8,227		$	8,326
Cost of sales		2,107			2,284			4,402			4,577

Gross profit		1,763			1,893			3,826			3,749
Research and development expenses		225			276			446			537
Selling and marketing expenses		597			666			1,210			1,313
General and administrative expenses		264			296			567			589
Intangible assets impairments		120			561			768			1,030
Other assets impairments, restructuring and other items		381			101			502			103
Legal settlements and loss contingencies		13			646			(12	)		703
Other income		(9	)		(9	)		(22	)		(15	)

Operating (loss) income		173			(644	)		364			(510	)
Financial expenses, net		223			206			448			425

Income (loss) before income taxes		(51	)		(850	)		(84	)		(934	)
Income taxes (benefit)		(104	)		(179	)		(163	)		(170	)
Share in (profits) losses of associated companies, net		—			—			—			4

Net income (loss)		53			(671	)		78			(768	)
Net income (loss) attributable to non-controlling interests		(87	)		18			(131	)		26

Net income (loss) attributable to Teva		140			(689	)		209			(794	)
Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	0.13		$	(0.63	)	$	0.19		$	(0.73	)

Diluted	$	0.13		$	(0.63	)	$	0.19		$	(0.73	)

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

Diluted		1,100			1,092			1,098			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

March 31,

2020

2019

Net income (loss)

$
25

$
(97
)
Other comprehensive income (loss), net of tax:

Currency translation adjustment

(560
)
47

Unrealized gain from derivative financial instruments

30

47

Total other comprehensive income (loss)

(530
)
94

Total comprehensive income (loss)

(505
)
(3
)
Comprehensive income (loss) attributable to
non-controlling
interests

(34
)
2

Comprehensive income (loss) attributable to Teva

$
(471
)

$
(5
)


	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
Net income (loss)	$	53		$	(671	)	$	78		$	(768	)
Other comprehensive income (loss), net of tax:
Currency translation adjustment		144			86			(416	)		133
Unrealized gain (loss) from derivative financial instruments		7			(10	)		37			37
Unrealized gain from available-for-sale securities		—			1			—			1
Unrealized loss on defined benefit plans		—			(1	)		—			(1	)

Total other comprehensive income (loss)		151			76			(379	)		170

Total comprehensive income (loss)		204			(595	)		(301	)		(598	)
Comprehensive income (loss) attributable to non-controlling interests		(85	)		47			(119	)		49

Comprehensive income (loss) attributable to Teva	$	289		$	(642	)	$	(182	)	$	(647	)

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

~~(Unaudited)~~

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling
interests

Total
equity

(U.S. dollars in millions)

Balance at December 31, 2019

1,198

56

27,312

(6,956
)
(2,312
)
(4,128
)
13,972

1,091

15,063

Comprehensive income (loss)

69

(540
)
(471
)
(34
)
(505
)
Issuance of Shares

3

*

*

Stock-based compensation expense

30

30

30

Balance at March 31, 2020

1,201
$
56
$
27,342
$
(6,887
) $
(2,852
) $
(4,128
) $
13,531
$
1,057
$
14,588


	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 March 31, 2020		1,201		56		27,342		(6,887	)		(2,852	)		(4,128	)		13,531		1,057			14,588
Net Income (loss)								140									140		(87	)		53
Other comprehensive income (loss)											149						149		2			151
Issuance of Shares		1		*													*					*
Stock-based compensation expense						32											32					32

Balance at June 30, 2020		1,202	$	57	$	27,374	$	(6,747	)	$	(2,703	)	$	(4,128	)	$	13,852	$	972		$	14,824

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

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in
capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-
controlling
interests

Total
equity

(U.S. dollars in millions)

Balance at December 31, 2018

1,196

56

27,210

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

1,087

15,794

Comprehensive income (loss)

(105
)
100

(5
)
2

(3
)
Issuance of shares

2

*

*

Issuance of Treasury Shares

(3
)
5

2

2

Stock-based compensation expense

34

34

34

Other

(6
)
(6
)
(6
)

Balance at March 31, 2019

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

*	Represents an amount less than $ 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 March 31, 2019		1,198		56		27,234			(6,063	)		(2,359	)		(4,137	)		14,732			1,089			15,821
Net Income (loss)									(689	)								(689	)		18			(671	)
Other comprehensive income (loss)												47						47			29			76
Issuance of Shares				*																				*
Issuance of Treasury Shares						(6	)								9			3						3
Stock-based compensation expense						32												32						32
Other						(2	)											(2	)					(2	)
Transactions with non-controlling																					(8	)		(8	)

Balance at June 30, 2019		1,198	$	56	$	27,258		$	(6,752	)	$	(2,312	)	$	(4,128	)	$	14,122		$	1,128		$	15,251

*	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)								209									209			(131	)		78
Other comprehensive income (loss)											(391	)					(391	)		12			(379	)
Issuance of Shares		4		*													*						*
Stock-based compensation expense						62											62						62

Balance at June 30, 2020		1,202	$	57	$	27,374	$	(6,747	)	$	(2,703	)	$	(4,128	)	$	13,852		$	972		$	14,824

*	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 I ncome (loss)									(794	)								(794	)		26			(768	)
Other comprehensive income (loss)												147						147			23			170
Issuance of shares		2		*																				*

Issuance of Treasury Shares						(8	)								14			6						6
Stock-based compensation expense						64												64						64
Transactions with non-controlling interests																					(8	)		(8	)
Other						(8	)											(8	)					(8	)

Balance at June 30, 2019		1,198	$	56	$	27,258		$	(6,752	)	$	(2,312	)	$	(4,128	)	$	14,122		$	1,128		$	15,251

*	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)

Three months ended

March 31,

2020

2019

Operating activities:

Net income (loss)

$
25

$
(97
)
Adjustments to reconcile net income (loss) to net cash provided by operations:

Depreciation and amortization

399

443

Impairment of long-lived assets

724

489

Net change in operating assets and liabilities

(666
)
(805
)
Deferred income taxes – net and uncertain tax positions

(233
)
(33
)
Stock-based compensation

30

34

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

24

(2
)
Other items

2

83

Net cash provided by operating activities

305

112

Investing activities:

Beneficial interest collected in exchange for securitized accounts receivables

368

362

Purchases of property, plant and equipment

(128
)
(125
)
Proceeds from sale of long lived assets

6

11

Other investing activities

6

24

Net cash provided by investing activities

252

272

Financing activities:

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

(700
)
(126
)
Tax withholding payments made on shares and dividends

—

(52
)
Other financing activities

—

(11
)

Net cash used in financing activities

(700
)
(189
)

Translation adjustment on cash and cash equivalents

(28
)
(4
)

Net change in cash and cash equivalents

(171
)
191

Balance of cash and cash equivalents at beginning of period

1,975

1,782

Balance of cash and cash equivalents at end of period

$
1,804

$
1,973

Non-cash
financing and investing activities:

Beneficial interest obtained in exchange for securitized accounts receivables

$
375

$
396


	Six months ended June 30,
	2020			2019
Operating activities:
Net income (loss)	$	78		$	(768	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		781			893
Impairment of long-lived assets and assets held for sale		1,120			1,097
Net change in operating assets and liabilities		(1,002	)		(1,056	)
Deferred income taxes – net and uncertain tax positions		(502	)		(362	)
Stock-based compensation		62			64
Net loss (gain) from sale of investments and long-lived assets		24			6
Other items		17			11

Net cash provided by (used in) operating activities		578			(115	)

Investing activities:
Beneficial interest collected in exchange for securitized accounts receivables		769			746
Purchases of property, plant and equipment		(259	)		(237	)
Proceeds from sale of long lived assets		45			134
Other investing activities		10			58

Net cash provided by investing activities		565			701

Financing activities:
Repayment of senior notes and loans and other long-term liabilities		(700	)		(157	)
Tax withholding payments made on shares and dividends		—			(52	)
Other financing activities		(3	)		(15	)

Net cash used in financing activities		(703	)		(224	)

Translation adjustment on cash and cash equivalents		(13	)		21

Net change in cash and cash equivalents		427			383
Balance of cash and cash equivalents at beginning of period		1,975			1,782

Balance of cash and cash equivalents at end of period	$	2,402		$	2,165

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	728		$	770

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

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

COVID-19

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

COVID-19

and the actions taken to contain or treat it, as well as the economic impact on customers and markets. All estimates made by Teva related to the impact of

COVID-19

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

~~Certain comparative figures have been reclassified to conform to current presentation.~~

The results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 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

~~b. 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 March 2020, the FASB issued ASU

2020-04

“Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. There was no impact to the Company’s consolidated financial statements for the ~~quarter~~

period

ended ~~March 31,~~June 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 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 of three topics related to financial instruments accounting. Teva adopted the provisions of this update as of January 1, 2020 with no material impact 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. Teva adopted the provisions of this update as of January 1, 2020 with no material impact on its consolidated financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~co

ts 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. Teva applied the guidance prospectively to all implementation costs incurred after the date of adoption. Teva adopted the provisions of this update as of January 1, 2020 with no material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-13

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. Teva adopted the provisions of this update as of January 1, 2020 with no material impact 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. Teva adopted the provisions of this update as of January 1, 2020 with no impact on its consolidated financial statements.

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

In December 2019, the FASB issued ASU

2019-12

“Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes” ~~(“the Update”~~(the “update”). The amendments in this ~~Update~~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~~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~~update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

~~c. Revision of Previously Reported Consolidated Financial Statements~~

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 first three quarters of fiscal year 2019, it had an immaterial error in the presentation of 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 pharmacies, hospitals and other organizations in Israel.

Specifically, the Company concluded that 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 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).

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 aggregate, to any of its previously-issued interim or annual financial statements. Teva has revised its presentation of net revenue and cost of sales in the historical consolidated financial statements to reflect the change in this item, as described in more detail below.

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,~~addit

on, there is no impact on Teva’s balance sheet or statement of cash flows for the related periods.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table summarizes the impact of the revision on net revenues and cost of sales in the consolidated ~~statement~~statements of income for the relevant ~~period:~~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


		Net revenues							Cost of sales
		As reported		Adjustment			As revised		As reported		Adjustment			As revised
		(U.S. $ in millions)
201 9	Q1		4,295		(146	)		4,149		2,440		(146	)		2,293
	Q2		4,337		(159	)		4,177		2,443		(159	)		2,284

	Total		8,632		(306	)		8,326		4,883		(306	)		4,577

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 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, with subsequent milestone payments 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 IP and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder will receive a

non-exclusive

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

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

~~$25~~

$25 million milestone payment in March 2020 that was recognized as revenue in the first quarter of 2020. The agreement stipulates additional milestone payments to Teva of up to $150 million, as well as future royalties.

~~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 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. There are no further plans in this indication following clinical trial results received in February 2020, which failed to meet their primary endpoints.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Otsuka

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

On July 29, 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan

Celltrion

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

TRUXIMA® and ~~HERZUMA~~

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

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

Regeneron

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

$1 billion. Teva made an upfront payment of

~~$250~~

$250 million to Regeneron in the third quarter of 2016 as part of the agreement. The agreement stipulates additional development milestone payments to Regeneron, as well as future royalties.

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. Teva expects this transaction to close by early 2021.

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.

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 June 30, 2020 and December 31, 2019:


	June 30,			December 31,
	2020			2019
	(U.S. $ in millions)
Inventories		154			—
Property, plant and equipment, net and others		176			98
Goodwill		11			—
Adjustments of assets held for sale to fair value		(272	)		(11	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	69		$	87

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 3 – Revenue from contracts with customers:

Disaggregation of revenue

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

Three months ended March 31, 2020

North
America

Europe

International
Markets

Other

activities

Total

(U.S. $ in millions)

Sale of goods

1,625

1,370

482

177

3,655

Licensing arrangements

25

12

3

1

41

Distribution

426

2

6

—

434

Other
6
19

74

129

227

$
2,082
$
1,402
$
565
$
307
$
4,357

Three months ended March 31, 2019

North
America

Europe

International
Markets

Other

activities

Total

(U.S. $ in millions)

Sale of g
oods

1,637

1,259

468

187

3,551

Licensing arrangements

31

5
§
1

37

Distribution

379
§
5

—

383

Other

—
§
48

128

176

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


	Three months ended June 30, 2020
	North America			Europe			International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,658			1,000			457		211		3,326
Licensing arrangements		17			3			1		1		22
Distribution		374			—			7		—		381
Other		(2	)		(2	)		23		123		141

	$	2,047		$	1,001		$	488	$	335	$	3,870


	Three months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,686		1,173		526		204		3,588
Licensing arrangements		35		10		2		1		48
Distribution		351		§		4		—		354
Other		—		§		49		137		186

	$	2,071	$	1,183	$	582	$	342	$	4,177

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

§ Represents an amount less than $1 million.


	Six months ended June 30, 2020
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,283		2,370		939		388		6,981
Licensing arrangements		42		15		4		2		63
Distribution		800		2		13		—		815
Other		4		17		97		252		369

	$	4,129	$	2,404	$	1,053	$	642	$	8,227


	Six months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,324		2,433		994		390		7,141
Licensing arrangements		65		15		2		3		85
Distribution		729		§		10		—		739
Other		—		§		97		264		362

	$	4,118	$	2,448	$	1,103	$	657	$	8,326

§ 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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Variable consideration

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

SR&A to U.S. customers comprised approximately ~~82%~~80% of the Company’s total SR&A as of ~~March 31,~~June 30, 2020,

with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the ~~three~~six months ended ~~March 31,~~June 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 period

102

1,370

233

2,223

139

33

3,998

4,100

Provisions related to sales made in prior periods

—
(106 ) (29 ) (16 ) (1 )
4
(148 ) (148 )
Credits and payments
(106 ) (1,513 ) (248 ) (2,396 ) (112 ) (35 ) (4,304 ) (4,410 )
Translation differences

—
(21 ) (2 ) (6 ) (4 ) (10 ) (43 ) (43 )

Balance at March 31, 2020
$
83

2,625
$
1,063
$
1,147
$
659
$
168
$
5,662
$
5,745

Reserves
included in
Accounts
Receivable, net

Rebates

Medicaid and
other
governmental
allowances

Chargebacks

Returns

Other

Total reserves
included in SR&A

Total

(U.S.$ in millions)

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

Provisions related to sales made in current year period

112

1,350

324

2,320

72

114

4,180

4,292

Provisions related to sales made in prior periods

—

—

1

(5
)
3

(1
)
(2
)
(2
)
Credits and payments

(125
)
(1,613
)
(438
)
(2,413
)
(117
)
(101
)
(4,682
)
(4,807
)
Translation differences

—

(6
)
(1
)
—

—

—

(7
)
(7
)

Balance at March 31, 2019
$
162

2,737
$
1,247
$
1,432
$
596
$
188
$
6,200
$
6,362


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S. $ in millions)
Balance at December 31, 2019	$	87		$	2,895		$	1,109		$	1,342		$	637		$	176		$	6,159		$	6,246
Provisions related to sales made in current year period		193			2,588			434			4,325			216			50			7,613			7,806
Provisions related to sales made in prior periods		—			(191	)		(105	)		(15	)		18			—			(293	)		(293	)
Credits and payments		(206	)		(3,064	)		(505	)		(4,416	)		(211	)		(64	)		(8,260	)		(8,466	)
Translation differences		—			(9	)		—			(2	)		(2	)		(5	)		(18	)		(18	)

Balance at June 3 0 , 2020	$	74			2,219		$	933		$	1,234		$	658		$	157		$	5,201		$	5,275


	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S.$ in millions)
Balance at December 31, 2018	$	175		$	3,006		$	1,361		$	1,530		$	638		$	176		$	6,711		$	6,886
Provisions related to sales made in current year period		229			2,651			548			4,822			148			213			8,382			8,611
Provisions related to sales made in prior periods		—			7			—			(5	)		3			(4	)		1			1
Credits and payments		(242	)		(2,975	)		(739	)		(4,936	)		(196	)		(206	)		(9,052	)		(9,294	)
Translation differences		—			4			—			2			2			4			12			12

Balance at June 3 0 , 2019	$	162			2,693		$	1,170		$	1,413		$	595		$	183		$	6,054		$	6,216

Allowance for credit losses

Accounts receivable are recognized net of allowance for credit losses. Allowances for credit losses were ~~$127~~$129 million and $135 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The decrease is mainly due to currency fluctuations.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:

March 31,

December 31,

2020

2019

(U.S. $ in millions)

Finished products
$
2,193
$
2,504

Raw and packaging materials

1,306

1,183

Products in process

650

583

Materials in transit and payments on account

141

151

Total
$
4,290
$
4,422


	June 30, 2020		December 31, 2019
	(U.S. $ in millions)
Finished products	$	2,281	$	2,504
Raw and packaging materials		1,282		1,183
Products in process		618		583
Materials in transit and payments on account		179		151

Total	$	4,361	$	4,422

NOTE 5 – Identifiable intangible assets:

Identifiable intangible assets consisted of the following:

Gross carrying amount net of
impairment

Accumulated amortization

Net carrying amount

March 31,

December 31,

March 31,

December 31,

March 31,

December 31,

2020

2019

2020

2019

2020

2019

(U.S. $ in millions)

Product rights
$
19,371
$
19,663
$
10,969
$
10,640
$
8,402
$
9,023

Trade names

595

600

135

126

460

474

In process research and development

1,394

1,735

—

—

1,394

1,735

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


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2020		2019		2020		2019		2020		2019
	(U.S. $ in millions)
Product rights	$	19,386	$	19,663	$	11,252	$	10,640	$	8,134	$	9,023
Trade names		599		600		144		126		455		474
In process research and development		1,352		1,735		—		—		1,352		1,735

Total	$	21,336	$	21,998	$	11,396	$	10,766	$	9,940	$	11,232

Product rights and trade names

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

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

was

~~$258~~ $249 million and ~~$283~~

$285 million in the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively.

Amortization of intangible assets

was

$507 million and $568 million in the six months ended June 30, 2020 and 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 various generic products from the Actavis Generics acquisition ~~for~~

$~~1,333~~

1,317 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.

Intangible assets impairments

Impairments of long-lived intangible assets infor the ~~first~~ three months of

ended June 30, 2020 and 2019 ~~were~~

~~$649~~were $120 million and ~~$469~~

$561 million, respectively.

Impairments in the ~~first~~second quarter of 2020 consisted of:

(a)

Identifiable product rights of $103 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics

; and

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

(b)

IPR&D assets of ~~$331~~$17 million, mainly due 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 or discount rate

)

Impairments in the second quarter of 2019 consisted of:

	(a)	Identifiable product right of $365 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the Unites States ; and

(b)

IPR&D assets of $

196

million due to: (i) $

137

million of 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 or discount rate) in the United States and (ii) $

million related to a change in the assumption of the future market share of

certain

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

Impairments of long-lived intangible assets for the six months ended June 30, 2020 and 2019 were $768 million and $1,030 million, respectively.

Impairments in the first six months of 2020 consisted of:

(a)

IPR&D assets of $348 million, primarily due to: (i) $211

million

related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United ~~States;~~ States

following clinical trial results received in February 2020, which failed to meet their primary endpoints;

and (ii) ~~$106~~$117 million

related to generic pipeline products acquired from Actavis Generics ~~due to~~

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 ~~$318~~$420 million,

mainly due to: (i) ~~$165 million in Japan in connection with ongoing regulatory pricing reductions and generic competition; and (ii) $138~~$232 million due to updated market assumptions regarding price and volume of ~~certain~~products acquired from Actavis Generics; and

(

i) $165 million in

Japan in connection with ongoing regulatory pricing reductions and generic competition.

Impairments in the first six months of 2019 consisted of:

(a)

Identifiable product rights of $569 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics

that are

primarily marketed in the United ~~States.~~States

;

and

~~Impairments in the first quarter of 2019 consisted of:~~

~~(a)~~(b)

IPR&D assets of ~~$265~~$461 million, ~~mainly~~ due to: (i) $277 million of 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 or discount rate) in the United States

;

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

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

; and ~~(ii) $140~~

(iii) $59 million related to a change in the assumption of ~~other generic~~the future market share of

certain

products ~~acquired from~~within Teva’s Actavis Generics ~~due to development progress and changes~~related pipeline in ~~other key valuation indications (e.g., market size competition assumptions, legal landscape, launch date or discount rate); and~~Europe.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~(b)~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 6 – Goodwill:

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


	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		—			—			(11	)		—		(11	)
Translation differences		(17	)		(33	)		(169	)		—		(219	)

Balance as of June 30, 2020 (1)	$	11,074		$	8,503		$	2,352		$	2,687	$	24,616

North

America

Europe

International
Markets

Other

Total

(U.S. $ in millions)

Balance as of
December

3
1,
2019
$
11,091
$
8,536
$
2,532
$
2,687
$
24,846

Changes during the period:

Translation differences

(31
)
(143
)
(182
)
—

(357
)

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

(1)	Accumulated goodwill impairment as of June 30, 2020 and December 31, 2019 was approximately $21.0 billion.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Teva operates its business through three

reporting

segments: North America, Europe and International Markets. Each of these business segments is a reporting unit. Additional reporting units include Teva’s production and sale of APIs to third parties (“Teva API”) and an

out-licensing

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

Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the 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 may record an impairment of goodwill allocated to these reporting units in the future.

First Quarter Developments

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

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. As part of this assessment, 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.

~~Teva evaluated qualitative factors, including expected effects of~~

~~COVID-19~~

~~on its business. The impact of the~~

~~COVID-19~~

~~pandemic on Teva’s business has been evaluated and it is not expected to significantly alter the Company’s business model at this time.~~ Based on this assessment, management ~~has~~ concluded that it is

was

not more likely than not that the fair value of any of the reporting units is

was

below its carrying value as of March 31, 2020 and, therefore, no quantitative assessment was performed. If

Second Quarter Developments

Pursuant to 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.

The change was made to more closely align the impairment assessment date with the Company’s long-term planning and forecasting process. The change in annual impairment testing date did not impact the financial statements, nor did it accelerate, avoid or trigger an impairment charge. The Company has determined that this change is preferable.

During the second quarter of 2020, 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. In addition, Teva evaluated qualitative factors, including expected effects of the

COVID-19

pandemic on its business. The impact of the

COVID-19

pandemic on Teva’s projections has been evaluated and it is not expected to significantly alter the Company’s cash flows at this time. However, if circumstances were to change from Teva’s expectations about the duration or impact of the

COVID-19

pandemic, one or more business units could be impacted, which may result in an impairment.

During the second quarter of 2020, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test (pursuant to the change in the annual impairment assessment date as mentioned above) and utilized the assistance of an independent valuation expert. No goodwill impairment charge was recorded during the second quarter of 2020.

Market Capitalization

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

~~At December 31, 2019, Teva’s~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Teva noted its market capitalization ~~was~~has been below management’s assessment of the ~~aggregate~~aggregated fair value of the Company’s reporting units. ~~Management viewed this~~However, as of June 30, 2020, the Company’s market capitalization plus a temporary situation mainly attributed to an acute reaction by the market primarily related to opioid and price fixing litigation risks. Management continues to believe market concerns regarding the uncertainty of these matters are impactingreasonable control premium exceeded its ~~market capitalization. However, developments in the case are expected to clarify the outlook with regards to the opioid litigation, assuming the proposed settlement framework is finalized in 2020.~~book value.

~~During~~

So far, during 2020, the

COVID-19

pandemic has negatively impacted the global economy and created significant volatility, uncertainty and disruption of financial markets. Although Teva experienced ~~additional~~ volatility in its share price resulting from the impact of the

COVID-19

pandemic on equity markets and the global ~~economy. Management believes~~economy, its share price is relatively consistent with the ~~current market reaction is based upon the lack of information regarding the impact the pandemic might have on Teva’s business and the entire economy. The economic uncertainties in the market related~~share price prior to the

COVID-19

pandemic ~~along with~~outbreak. Management continues to believe the ~~uncertainties related to Teva’s litigations, result in a similar gap~~following underlying factors are driving the differences between ~~book value and market value at~~ the date of this filing as compared to the gap that existed at December 31, 2019. Further, as of the date of this filing, the Company’s market capitalization plus a reasonable control premium exceeds its book value. Based on management’s assessment of the developments in the first quarter of 2020 and considering the Company’s current market capitalization as comparable to that of December 31, 2019, management concluded that the estimatedaggregated fair value of its reporting units ~~more likely than~~and its market capitalization:

•

Management believes a portion of the difference is due 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 this market in preparing their financial models and, as a result, have not attributed value to the launch potential in this reporting unit. Accordingly, management’s projections exceed those it believes are being used by analysts, particularly in International Markets. However, even if management were to conform to analyst expectations, the estimated fair value of the International Markets reporting unit would still exceed its carrying amount.

•

Management believes an additional difference is due 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. However, even if management were to conform to analyst expectations, the estimated fair value of the North America reporting unit would still exceed its carrying amount.

•

Management continues to believe 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 and continues to impact the Company’s share price during 2020. Management believes developments in the opioids case are expected to clarify the outlook with regards to the opioid litigation, when the proposed settlement framework is finalized. Based upon Teva’s current estimates of fair value, even if management was to adjust the fair value of the North America reporting unit for this uncertainty, the estimated fair value would still exceed its carrying amount. If the outcome of the litigations were to vary materially from the proposed settlement framework as explained in note 10, this may lead to a goodwill impairment charge.

While none of these factors individually would cause a goodwill impairment charge in the North America reporting unit, if management were to conform to the market’s expectations in the North America reporting unit in connection with both AUSTEDO projections and the volatility and uncertainty of certain litigation risks, the Company would record a goodwill impairment charge of $1.1 billion. Future impairment charges, if any, reflecting conditions at that time may be materially different.

Sensitivity Analysis

North America

The estimated fair value exceeds its carrying ~~amount.~~amount for the North America reporting unit by 20%.

The Company used a terminal growth rate of 1.61% and a discount rate of 10.31%. If Teva holds all other assumptions constant, a reduction in the terminal growth rate of 0.50% to 1.11%, or an increase in discount rate of 0.50% to 10.81%, would result in a reduction of the excess of fair value over carrying amount with respect to Teva’s North America reporting unit to 15% and 13%, respectively.

Remaining reporting units

The percentage difference between estimated fair value and estimated carrying value for the Europe, International Markets, Medis and Teva API reporting units is

34%, 43%, 147% and 30%, respectively.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

COVID-19

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

NOTE 7 – Debt obligations:

Short-term debt:

March 31,
2020

December 31,
2019

Weighted average interest
rate as of March 31, 2020

Maturity

(U.S. $ in millions)

Convertible debentures

0.25
%
2026
$
514
$
514

Current maturities of long-term liabilities

1,116

1,831

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


					June 30, 2020		December 31, 2019
	Weighted average interest rate as of June 30, 2020		Maturity		June 30, 2020		December 31, 2019
					(U.S. $ in millions)
Convertible debentures		0.25%		2026	$	514	$	514
Current maturities of long-term liabilities (1)						1,136		1,831

Total short-term debt					$	1,649	$	2,345

(1)	In July 2020, Teva repaid at maturity EUR 1,010 million of its 0.375% senior notes.

Convertible senior debentures

Teva’s 0.25% convertible senior debentures due 2026, with $514 million principal amount outstanding as of ~~March 31,~~June 30, 2020 and December ~~31,2019,~~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.

1920

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term debt:

Weighted average interest
rate as of March 31, 2020

Maturity

March 31,

2020

December 31,
2019

(U.S. $ in millions)

Senior notes EUR 1,010 million

0.38
%
2020
$
1,116
$
1,131

Senior notes EUR 1,500 million

1.13
%
2024

1,651

1,673

Senior notes EUR 1,300 million

1.25
%
2023

1,432

1,451

Senior notes EUR 1,000 million

6.00
%
2025

1,105

1,120

Senior notes EUR 900 million

4.50
%
2025

994

1,008

Senior notes EUR 750 million

1.63
%
2028

822

833

Senior notes EUR 700 million

3.25
%
2022

773

784

Senior notes EUR
700 million

1.88
%
2027

771

782

Senior notes USD 3,500 million

3.15
%
2026

3,494

3,494

Senior notes USD 1,475 million

2.20
%
2021

1,474

1,474

Senior notes USD 3,000 million

2.80
%
2023

2,995

2,995

Senior notes USD 2,000 million

4.10
%
2046

1,985

1,985

Senior notes USD 1,250 million

6.00
%
2024

1,250

1,250

Senior notes USD 1,250 million

6.75
%
2028

1,250

1,250

Senior notes USD 1,000 million 7.13
%
2025 1,000 1,000
Senior notes USD 844 million

2.95
%
2022

855

856

Senior notes USD 789 million

6.15
%
2036

783

782

Senior notes USD 700 million
(1)

2.25
%
2020

—

700

Senior notes USD 613 million

3.65
%
2021

618

618

Senior notes USD 588 million

3.65
%
2021

587

587

Senior notes CHF 350 million

0.50
%
2022

366

361

Senior notes CHF 350 million

1.00
%
2025

366

362

Total senior notes

25,687

26,496

Other long-term debt

1.14
%
2026

1

1

Less current maturities

(1,116
)
(1,831
)
Less debt issuance costs

(98
)
(103
)

Total senior notes and loans
$
24,473

$
24,562


	Weighted average interest rate as of June 30, 2020			Maturity		June 30, 2020			December 31, 2019
						(U.S. $ in millions)
Senior notes EUR 1,010 million (1)		0.38	%		2020		1,136			1,131
Senior notes EUR 1,500 million		1.13	%		2024		1,680			1,673
Senior notes EUR 1,300 million		1.25	%		2023		1,457			1,451
Senior notes EUR 1,000 million		6.00	%		2025		1,124			1,120
Senior notes EUR 900 million		4.50	%		2025		1,012			1,008
Senior notes EUR 750 million		1.63	%		2028		837			833
Senior notes EUR 700 million		3.25	%		2022		787			784
Senior notes EUR 700 million		1.88	%		2027		786			782
Senior notes USD 3,500 million		3.15	%		2026		3,494			3,494
Senior notes USD 1,475 million		2.20	%		2021		1,474			1,474
Senior notes USD 3,000 million		2.80	%		2023		2,995			2,995
Senior notes USD 2,000 million		4.10	%		2046		1,985			1,985
Senior notes USD 1,250 million		6.00	%		2024		1,250			1,250
Senior notes USD 1,250 million		6.75	%		2028		1,250			1,250
Senior notes USD 1,000 million		7.13	%		2025		1,000			1,000
Senior notes USD 844 million		2.95	%		2022		855			856
Senior notes USD 789 million		6.15	%		2036		783			782
Senior notes USD 700 million (2)		2.25	%		2020		0			700
Senior notes USD 613 million		3.65	%		2021		618			618
Senior notes USD 588 million		3.65	%		2021		587			587
Senior notes CHF 350 million		0.50	%		2022		368			361
Senior notes CHF 350 million		1.00	%		2025		368			362

Total senior notes							25,846			26,496
Other long-term debt		1.13	%		2026		1			1
Less current maturities							(1,136	)		(1,831	)
Less debt issuance costs							(94	)		(103	)

Total senior notes and loans						$	24,616		$	24,562

(1)	~~During the first quarter of~~ In July 2020, Teva repaid at maturity EUR 1,010 million of its 0.375% senior notes. ~~$700~~

(2)	In March 2020, Teva repaid at maturity $700 million of its 2.25% senior notes.

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

Long-term debt as of ~~March 31,~~June 30, 2020 is effectively denominated in the following currencies:

66%

in U.S. dollar,

31%

in euro and

in Swiss 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~~

its $

2.3

billion

unsecured syndicated revolving credit facility entered into in April 2019 (“RCF”).

~~In April 2019, the Company entered into a $2.3~~

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

~~$1.15~~ $1.15 billion

~~ranche~~ tranche A and a $1.15 billion

~~ranche~~ 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 8, 2022, with two

one-year

extension options, of which ~~$1.0~~$1.065 billion

was

extended to April 8, 2023. Tranche B has a maturity date of April 8, 2024.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~March 31,~~June 30, 2020, 0 amounts were outstanding under the RCF.

As of the date of this

quarterly

report

, €200 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 8 – Derivative instruments and hedging activities:

Foreign exchange risk management:

In the first ~~three~~six months of 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, 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 Teva. The currency hedged items are usually denominated in the following main currencies: the Russian ruble, the euro, the Swiss franc, the Japanese yen, the British pound, the Canadian dollar, the Polish zloty, the Indian rupee 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 hedged against possible fluctuations in foreign subsidiaries’ net assets (“net investment hedge”) and from time to time enters into cross-currency swaps and forward contracts in order to hedge such an exposure.

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

b. Interest risk management:

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.

Derivative instruments notional ~~amounts:~~

amounts

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

March 31,

December 31,

2020

2019

(U.S. $ in millions)

Cross-currency swap—net investment hedge
$
—
$
1,000


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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

March 31,
2020

December 31,
2019

March 31,
2020

December 31,
2019

Reported under (U.S. $ in millions)
Asset derivatives:

Other current assets:

Option and forward contracts
$
—
$
—
$
104
$
32

Liability derivatives:

Other current liabilities:

Cross-currency swaps—net investment hedge

—

(22
)
—
—
Option and forward contracts

—

—

(94
)
(41
)


	Fair value
	Designated as hedging instruments					Not designated as hedging instruments
	June 30, 2020		December 31, 2019			June 30, 2020			December 31, 2019
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—	$	—		$	40		$	32
Liability derivatives:
Other current liabilities:
Cross-currency swaps - net investment hedge		—		(22	)		—			—
Option and forward contracts		—		—			(52	)		(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 (loss)
Three months ended, Three months ended,

March 31,
2020
March 31,
2019
March 31,
2020
March 31,
2019
Reported under (U.S. $ in millions)
Line items in which effects of hedges are recorded
$
224
$
218
$
(530
) $
94

Cross-currency swaps—cash flow hedge (1)
— (1 ) — (20 )
Cross-currency swaps—net investment hedge (2)

(2
)
(7
)
(21
)
$
(20
)
Interest rate swaps—fair value hedge (3)

—

1

—

—


	Financial expenses, net					Other comprehensive income (loss)
	Three months ended,					Three months ended,
	June 30, 2020		June 30, 2019			June 30, 2020		June 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	223	$	206		$	151	$	76
Cross-currency swaps - cash flow hedge (1)		—		(1	)		—		4
Cross-currency swaps - net investment hedge (2)		—		(7	)		—		14
Interest rate swaps - fair value hedge (3)		—		1			—		—


	Financial expenses, net						Other comprehensive income (loss)
	Six months ended,						Six months ended,
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	448		$	425		$	(379	)	$	170
Cross-currency swaps - cash flow hedge (1)		—			(1	)		—			(15	)
Cross-currency swaps - net investment hedge (2)		(2	)		(15	)		(21	)		(6 )
Interest rate swaps - fair value hedge (3)		—			1			—			—

Table of Contents

TEVA

PHARMACEUTICAL

INDUSTRIES

LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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,
	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	223	$	206	$	(3,870	)	$	(4,177	)
Option and forward contracts (4)		13		34		—			—
Option and forward contracts economic hedge (5)		—		—		20			4


	Financial expenses, net					Net revenues
	Six months ended,					Six months ended,
	June 30, 2020		June 30, 2019			June 30, 2020			June 30, 2019
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	448	$	425		$	(8,227	)	$	(8,326	)
Option and forward contracts (4)		37		(7	)		—			—
Option and forward contracts Economic hedge (5)		—		—			(40	)		4

Financial expenses, net

Net revenues

Three months ended,

Three months ended,

March 31,
2020

March 31,
2019

March 31,
2020

March 31,
2019

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
$
224
$
218
$
(4,357
) $
(4,149
)
Option and forward contracts (4)

24

(42
)
—

—

Option and forward contracts economic hedge (5)

—
—
(60
)
—

(1)

With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate. In the fourth quarter of 2019, Teva terminated $588 million

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~~expenses

net

over the life of the debt as additional interest expense.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

(2)

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

float-for-float

interest rates paid and received. In the first quarter of 2020, these cross-currency swap agreements

~~expired~~

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

(3)

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

~~expenses-net~~expenses

net

over the life of the debt as additional interest expense.

(4)

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

expenses

net.

(5)

Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, the British pound, the Russian ruble and some other currencies during the ~~quarter~~

period

for which such instruments are transacted. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as

economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. In the first ~~quarter~~six months of 2020, the positive impact from these derivatives recognized under revenues was ~~$60~~$40 million, partially offset by a $5$4 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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Matured~~

Amortizations due to terminated derivative instruments:

Forward starting interest rate swaps and treasury lock agreements

In 2015, Teva entered into forward starting interest rate swaps and treasury lock ~~agreements:~~

~~Certain~~agreements to protect the Company from interest rate fluctuations in connection with a future debt issuance the Company was planning. These forward starting interest rate swaps and treasury lock agreements were terminated in July 2016 ~~in connection with Teva’s~~upon the debt ~~issuances.~~issuance. The termination of these transactions resulted in a loss position

of ~~$493~~$

493

million,

which was recorded in other comprehensive income (loss) and is amortized under financial

~~expenses-net~~

expenses, net over the life of the debt.

With respect to 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 ~~March 31,~~

June

, 2020 and 2019, respectively

and losses of $16 million and $15 million were recognized under financial expenses, net for the six months ended June 30, 2020 and 2019, respectively.

Fair value hedge

In the third quarter of 2016, Teva terminated interest rate swap agreements designated as

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 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~~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~~expenses

net

over the life of the debt.

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

With respect to the interest rate

swap and cross-currency

swap agreements, gains of $1 million and $2 million were recognized under financial expenses, net for the three months ended ~~March 31,~~June 30, 2020 and 2019, respecti

ely

and gains of $2 million and $3 million were recognized under financial expenses, net for the six months ended June 30, 2020 and 2019, respectively.

NOTE 9 – Legal settlements and loss contingencies:

In the second quarter of 2020, Teva recorded an expense

of $

million

in legal settlements and loss contingencies, compared to

646

million in the second quarter of 2019. The expense in the second quarter of 2020 was mainly due to the increase of a reserve for certain legal expenses and settlement contributions related to products liability claims in the United States, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel. The expense in the second quarter of 2019 was mainly related to

the $

million

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

In the first ~~quarter~~six months of 2020, Teva recorded an income of ~~$25~~$12 million in legal settlements and loss contingencies, compared to an expense of ~~$57~~$703 million

in the first ~~quarter~~six months of 2019. The income in the first ~~quarter~~six months of 2020 was mainly due to proceeds received following a settlement of anthe FCPA derivative proceedings in Israel and settlement of a

action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). , partially offset by the increase of a reserve for

certain

legal expenses and settlement contributions related to products liability claims in the United States. The expense in the first six months of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases.

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~~TEVA~~

~~PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

As of ~~March 31,~~June 30, 2020 and December 31, 2019, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses was ~~$1,539~~$1,588 million and $1,580 million, respectively.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 10 – 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.

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.

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.

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

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

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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

pre-

or post-judgment interest

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

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

) product and mannitol ester patents under the Patented Medicines (Notice Of Compliance) Regulations (“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) to recover damages for being kept off of the market during the PM

(NOC) proceedings. Janssen and Millennium filed a counterclaim for infringement of the same two patents as well as a patent covering a process to prepare bortezomib. The product patent expired in October 2015; the other patents expire in January 2022 and March 2025. In 2017, Teva entered into an agreement with Janssen and Millennium which ~~limits~~limit

the damages payable by either party depending on the outcome of the infringement/impeachment action. As a result, the most Janssen and Millennium could

have

recover

is 200 million

Canadian dollars plus post-judgment interest. In June 2018, the court ruled that Janssen and Millennium pay Teva 5 million Canadian dollars in Section 8 damages. Janssen and Millennium filed an appeal, which was denied by the appellate court on November 4, 2019. On January 3, 2020, Janssen and Millennium applied for leave to appeal to the Canadian Supreme Court. If

On May 8, 2020, the ~~decision~~Canadian Supreme Court denied Janssen and Millennium’s application. This matter 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.~~ now closed.

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

ctive pharmaceutical ingredient (API) supplied by multiple API manufacturers. Teva’s products allegedly at issue in the litigation 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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In June 2013, the U.S. Supreme Court held, in Federal Trade Commission (“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.

Beginning 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 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 cases also allege that Cephalon improperly asserted its PROVIGIL patent against the generic pharmaceutical companies. 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 plaintiffs in such cases, except for an action brought by the State of Louisiana. The settlement with the State of California that was reached in 2019 ~~is still pending~~received final court ~~approval.~~approval in June 2020. All settlements entered into in connection with the above proceeding are covered by the settlement fund explained below.

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-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 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 breach

amounted to

€

~~46.5~~ €46.5 million.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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

and TriCor

, referenced below. Annual sales of AndroGel

1% were approximately $350 million at the time of the settlement and approximately $140 million at the time Actavis launched its generic version of AndroGel

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

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

) entered into in November 2005. The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the U.S. District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In October 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases, after which the parties agreed that the court’s reasoning applied equally to the

indirect purchaser cases. Plaintiffs appealed and, in August 2017, the Third Circuit reversed the district court’s decision and remanded for further proceedings. In March 2020, the district court temporarily stayed discovery and referred the case to mediation. Annual sales of

Effexor

were approximately ~~$2.6~~$

2.6

billion at the time of settlement and at the time

Teva

launched its generic version of

Effexor

in July 2010.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

) entered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the court dismissed the case, but in June 2015, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further proceedings. In December 2018, the district court granted the direct-purchaser plaintiffs’ motion for class certification, but on April 22, 2020, the Third Circuit reversed that ruling and remanded for 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

opt-out

plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ ~~class and, in~~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 purchasers’ ~~pending~~ motion for class certification. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, which has since been amended, alleging violations of state law. Defendants moved to strike the ~~District~~Distri

t 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 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~~

$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.

Beginning in 2013, several putative class actions were ~~filed~~fi

ed 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. The cases were consolidated as a multidistrict litigation in federal court in California and were settled in 2018. The FTC also filed suit to challenge the Lidoderm

settlement, although in February 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. In July 2019, Teva also settled a complaint brought by the State of 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 and~~court. Defendants moved to dismiss that lawsuit ~~remains~~on June 5, 2020, and those motions remain pending. On January 24, 2020, the State of Mississippi

filed

a ~~lawsuit~~

complaint

against

Teva and Watson in Mississippi state court

which ~~the defendants have moved~~it

subsequently amended on June 12,

2020.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~dismiss, which motion remains pending.~~Consolidated Financial Statements

(Unaudited)

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

end-payers

for, and direct-purchasers of, Actos

and 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-payers’

lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the ~~Second~~Sec

nd 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~~

3.7

billion and approximately ~~$500~~$

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 ~~$2.8~~$

2.8

billion and approximately ~~$430~~$

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 by entering into a December 2011 settlement agreement to resolve the patent litigation on AndroGel

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

. 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, secured a $448 million judgement against AbbVie. The FTC then filed a notice of appeal, including as to the claims against Teva that had been dismissed by the district court, but in February 2019, the FTC stipulated to dismiss Teva from its appeal, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. In August 2019, two groups of direct-purchaser plaintiffs filed similar claims against AbbVie and Teva, in the same federal court in

Philadelphia where the FTC’s claims had been pending. In December 2019, Teva reached a settlement agreement with one group of plaintiffs. The second group’s claims challenge both Teva’s December 2011 settlement with AbbVie and the September 2006 AndroGel

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

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. In November 2019, two additional plaintiffs filed a similar lawsuit – purportedly as~~Teva, alleging

~~opt-outs~~,

~~from the end payers’ class – against the same defendants. These lawsuits allege,~~ 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 principle, in July 2020, which has yet to be finalized. 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.~~2015

~~Table of Contents~~.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In January 2019, generic manufacturer Cipla Limited filed a lawsuit against Amgen in Delaware federal court, alleging, among other things, that a January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar

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

end-payer

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

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

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

On December 16, 2016, the U.K. Competition and Markets Authority (“CMA”) issued a statement of objections (a provisional finding of breach of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and certain Auden Mckenzie entities alleging competition law breaches in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. On December 18, 2017, the CMA issued a Statement of Draft Penalty Calculation. On March 3, 2017 and February 28, 2019, the CMA issued second and third statements of objections in respect of certain additional allegations relating to the same products and covering part of the same time periods as in the first statement of objections. On February 12, 2020, the CMA issued a ~~supplementary statement~~Supplementary Statement of ~~objections~~Objections effectively combining the three previously issued statements referenced above. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 16, 2016 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. A liability for this matter has been recorded in the financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in ~~government~~go

ernment investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States.

In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. A resolution with the DOJ may include

material

fines and additional compliance conditions. While efforts to reach a resolution are continuing, failure to reach a resolution with the DOJ will likely lead to criminal charges and could have a material adverse impact on the Company’s business.

In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged

in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. ~~Teva is cooperating with these subpoena requests.~~An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.

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. Subsequently, 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 attorneys general filed yet another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional ~~products, 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”). with the exception of the recently filed June 10, 2020 complaint, which transfer is currently pending. 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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 in either action and the July 18, 2019 case has been placed in deferred status. On November 13, 2019, several counties in New York commenced a civil action against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaint has been transferred to the Pennsylvania MDL. On March 1, 2020, Harris County in Texas filed a complaint against several generic manufacturers including Teva and Actavis in the District Court for the Southern District of Texas. This complaint largely mirrors certain allegations in the complaints in the Pennsylvania ~~MDL. This case~~MDL and has ~~not~~ 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 share of generic drug products to the detriment of a class of private payors. The action is in its early stages.

On March 21, 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Teva ~~is cooperating in responding~~has cooperated with the investigation and responded to the subpoena. An adverse resolution of this investigation may involve damages and civil penalties.

In December 2016, Teva resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”) with the SEC and the DOJ. The settlement included a fine, disgorgement and prejudgment interest, a three-year deferred prosecution agreement (“DPA”) for Teva and the retention of an independent compliance monitor for a period of three years. In February 2020 the term of the monitorship provided for by the DPA and Teva’s consent judgement with the SEC expired and on March 4, 2020, following Teva’s certification to the SEC and the DOJ confirming that Teva had complied with its disclosure obligations under the 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 ~~2,900~~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 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. 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 930 personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death ~~claims.~~claims in over 600 complaints. Furthermore, approximately ~~600~~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. In many of these cases, plaintiffs are seeking joint and several damages among all defendants. ~~An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and~~

~~non-monetary~~

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

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

COVID-19.

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

COVID-19

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Also on October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement ~~framework.~~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 ~~agreement,~~framework, Teva would provide buprenorphine naloxone (sublingual tablets) with an estimated value of up to

approximately ~~$23~~$

billion at wholesale acquisition cost over

ten year

period. In addition, Teva would also provide cash payments of up to ~~$250~~$

250

million over a

ten year

period.

The Company cannot predict if the ~~nationwide settlement~~ framework will be ~~finalized~~

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. Those lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut (the “Ontario Teachers Securities Litigation”). On December 13, 2019, the lead plaintiff in that action filed an amended complaint, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and May 10, 2019. The 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. The amended complaint seeks unspecified damages, legal fees, interest, and costs. In July 2017, August 2017, and June 2019, other putative securities class actions were filed in other federal courts based on similar allegations, and those cases have been transferred to the U.S. District Court for the District of Connecticut. Between August 2017 and ~~January~~June 2020, ~~eighteen~~nineteen complaints were filed against Teva and certain of its current and former officers 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 country, who have indicated that they intend to

“opt-out”

of the plaintiffs’ class if one is certified in the Ontario Teachers Securities Litigation. On March 10, 2020, the Court consolidated the Ontario Teachers Securities Litigation 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.

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 several U.S. and EU settlement agreements, opioids and the U.S. price-fixing investigations. Motions to approve securities class actions against Teva and certain of its current and former directors and officers were filed in Israel based on allegations of improper disclosure of the above-mentioned pricing investigation, as well as lack of disclosure of negative developments in the generic sector, including price erosion with respect to Teva’s products. Various motions were filed in Israel to approve a derivative action, discovery and a class action related to claims regarding Teva’s above-mentioned FCPA resolution with the SEC and DOJ. The parties have reached ~~an agreement in principle to settle these proceedings and the~~a settlement which was approved by the Tel Aviv District Court on April 6, 2020.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Environmental Matters

Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, ~~provincial~~pr

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

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

clean-up

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

clean-up

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

clean-up

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 ~~first~~second quarter of 2020, Teva recognized a tax benefit of ~~$59~~$104 million, on

pre-tax

loss of ~~$33~~$51 million. In the ~~first~~second quarter of 2019, Teva recognized a tax ~~expense~~benefit of $9$179 million, on

pre-tax

loss of ~~$84~~$850 million. Teva’s tax rate for the ~~first~~second quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate

on its ongoing business ~~operations.~~operations

and other changes to tax positions and deductions.

In the first six months of 2020, Teva recognized a tax benefit of $163 million, on

pre-tax

loss of $84 million. In the first six months of 2019, Teva recognized a tax benefit of $170 million, on

pre-tax

loss of $934

million. Teva’s tax rate for the first six months of 2020 was mainly affected by impairments reflected in the quarter in jurisdictions in which tax rates are higher than Teva’s average tax rate on its ongoing business operations 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 ~~nonrecurring~~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

~~July 2020~~

. September 2020. A final and binding decision against Teva in this case may lead to an impairment ~~in the amount~~ of $136 million.

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~Teva will protest the 2013-2016 decrees before the Central District Court in Israel. The Company believes it has adequately provided

~~Notes to Consolidated Financial Statements~~

for these items, however, an adverse result could be material.

~~(Unaudited)~~

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

Three months ended

March 31,

2020

2019

(U.S. $ in millions)

Impairments of long-lived tangible assets (1)
$
75
$
20

Contingent consideration

6

(71
)
Restructuring

39

32

Other

—

20

Total
$
121
$
1


	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
	(U.S. $ in millions)						(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	277		$	48		$	352		$	68
Contingent consideration		76			24			83			(47	)
Restructuring		33			47			73			79
Other		(6	)		(18	)		(5	)		3

Total	$	381		$	101		$	502		$	103

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

~~Impairme~~

~~nts~~

Impairments

Impairments of tangible assets for the ~~first~~ three months ofended June 30, 2020

and 2019

were $

277

million and $

million, respectively. The impairment for the three months ended June 30, 2020 was mainly related to an agreement to sell certain assets from Teva’s business venture in Japan. See note 2.

~~$75 million and $20 million, respectively.~~

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Impairments of tangible assets for the six months ended June 30, 2020 and 2019

were $352 million and $68

million, respectively. The ~~impairments in~~impairment for the ~~first three~~six months ofended June 30, 2020

~~are~~ was mainly related to an agreement to sell certain assets from Teva’s business venture in Japan and plant rationalization. See note 2.

Teva may record additional ~~impairments~~impair

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

Contingent consideration

In the three months ended ~~March 31,~~June 30, 2020, Teva recorded an expense of $76 million for contingent consideration, compared to an expense of $24 million

in the three months ended June 30, 2019. The expense in the second quarter of 2020 was mainly related to a change in the estimated future royalty payments to Eagle Pharmaceuticals, Inc. (“Eagle”) in connection with expected future bendamustine sales and the expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid

) which was part of the Actavis acquisition.

In the six months ended June 30, 2020, Teva recorded an expense of $83 million for contingent consideration, compared to an income of

~~$71~~

$47 million

in the ~~three~~six months ended ~~March 31,~~June 30, 2019.

The ~~income~~expense in the first ~~quarter~~six months of ~~2019~~2020 was mainly related to a ~~decrease~~change in the estimated future royalty payments to Eagle in connection with expected future bendamustine sales and the expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid

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

Restructuring

In the three months ended ~~March 31,~~June 30, 2020, Teva

recorded $

$33 million of restructuring expenses, compared

to $

$47 million

in the three months ended ~~March 31,~~June 30, 2019.

In the six months ended June 30, 2020, Teva recorded $73 million of restructuring expenses, compared to $79 million in the six months ended June 30, 2019.

The expenses infor the ~~first quarter of~~three and six months ended June 30, 2020 were primarily related to residual expenses of the restructuring plan announced in ~~2017.~~2017 and other network consolidation impacts.

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

Three months ended

March 31,

2020

2019

(U.S. $ in millions)

Restructuring

Employee termination
$
33
$
20

Other

6

12

Total
$
39
$
32


	Three months ended June 30,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	3	$	36
Other		30		11

Total	$	33	$	47


	Six months ended June 30,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	36	$	56
Other		36		23

Total	$	73	$	79

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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		(36	)		(36	)		(73	)
Utilization and other*		114			36			150

Balance as of June 30, 2020	$	(130	)	$	(7	)	$	(137	)

Employee termination
costs

Other

Total

(U.S. $ in millions )

Balance as of January 1, 2020
$
(208
) $
(7
) $
(215
)
Provision

(33
)
(6
)
(39
)
Utilization and other*

69

6

75

Balance as of March 3
1
, 2020
$
(172
) $
(7
) $
(179
)

*	Includes adjustments for foreign currency translation.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Significant regulatory

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~~

.OAI. If Teva is unable to remediate the findings to the FDA’s satisfaction, it may face additional consequences. These would potentially include delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate

approximately

~~$230~~

$161 million in revenues

from this site in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility, however delays in FDA approvals of future products from the site may occur.

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied ~~to Teva~~ by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory ~~agency requests around the world~~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. ~~The aggregate direct impact of the sartan recalls on Teva’s 2018 and 2019 financial statements was~~

~~$54 million,~~

~~primarily related to inventory write-downs and returns. As a result of this loss, Teva initiated negotiations with Huahai and in~~In December 2019, Teva reached a settlement with Huahai resolving its claims related to certain sartan API supplied by ~~Huahai to Teva.~~Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of ~~the~~its direct losses ~~suffered by Teva~~ and provide ~~Teva~~ 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.~~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. Teva expects ~~additional expenses and~~remediation of this issue to be completed in the third quarter of 2020. The impact to Teva’s financial results in the second quarter of 2020 was immaterial, however, if the remediation takes longer than expected there may be further loss of ~~revenues and profits in connection with this matter going forward.~~sales, customer penalties or impairments to related assets.

NOTE 13 – 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 earnings per ~~share~~sh

re for the three ~~months~~mon

hs ended ~~March 31,~~June 30, 2020, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and

non-vested

In computing diluted loss per share for the three months ended ~~March 31,~~June 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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In computing diluted earnings per share for the six months ended June 30, 2020, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and

non-vested

RSUs granted under employee stock compensation plans, using the treasury stock method. No account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on earnings per share. In computing the diluted loss per share for the six months ended June 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 earnings per share were ~~$0.06 in~~

0.13

for the ~~first quarter~~three months ended June

2020

, compared to basic and diluted loss per share of $

0.63

for the three months ended June

2019

Basic and diluted earnings per share were

0.19

for the six months ended June 30, 2020, compared to basic and diluted loss per share of ~~$0.10 in~~$

0.73

for the ~~first quarter of~~six months ended June 30, 2019.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 14 – Accumulated other comprehensive ~~loss:~~income (loss):

The components of, and changes within, accumulated other comprehensive ~~losses~~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		(428	)		—		19			—			(409	)
Amounts reclassified to the statements of income		—			—		18			—			18

Net other comprehensive income (loss) before tax		(428	)		—		37			—			(391	)

Net other comprehensive income (loss) after tax*		(428	)		—		37			—			(391	)

Balance as of June 30, 2020	$	(2,222	)	$	—	$	(383	)	$	(98	)	$	(2,703	)

Net Unrealized Gains (Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale
securities

Derivative
financial
instruments

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

Total

(U.S. $ in millions)

Balance as of December 31, 2019
$
(1,794
) $
—
$
(420
) $
(98
) $
(2,312
)

Other comprehensive income (loss) before reclassifications

(570
)
—

22

—

(548
)
Amounts reclassified to the statements of income

—

—

8

—

8

Net other comprehensive income (loss) before tax

(570
)
—

30

—

(540
)

Net other comprehensive income (loss) after tax*

(570
)
—

30

—

(540
)

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

*	Amounts do not include a ~~$10~~$12 million ~~loss from foreign currency translation adjustments attributable to~~ ~~non-controlling~~ ~~interests.~~

Net Unrealized Gains (Losses)

Benefit Plans

Foreign
currency
translation
adjustments

Available-for-
sale
securities

Derivative
financial
instruments

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

Total

(U.S. $ in millions)

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

Other comprehensive income (loss) before reclassifications

53

40

—

93

Amounts reclassified to the statements of income

—

—

7

—


7

Net other comprehensive income (loss) before tax

53

—

47

—


100

Net other comprehensive income (loss) after tax*

53

—

47

100

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

gain

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


	Net Unrealized Gains (Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for-sale securities		Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)
Balance as of December 31, 2018	$	(1,878	)	$	1	$	(504	)	$	(78	)	$	(2,459	)

Other comprehensive income (loss) before reclassifications		110			1		22			*	*		133
Amounts reclassified to the statements of income		—			—		15			—			15

Net other comprehensive income (loss) before tax		110			1		37			*	*		148

Net other comprehensive income (loss) after tax*		110			1		37			(1	)		147

Balance as of June 30, 2019	$	(1,768	)	$	2	$	(467	)	$	(79	)	$	(2,312	)

*	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 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.

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.

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. 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

3 and note

a.	Segment information:

Three months ended March 31,

2020

North

America

Europe

International Markets

(U.S. $ in millions)

Revenues
$
2,082
$
1,402
$
565

Gross profit

1,062

823

305

R&D expenses

146

55

15

S&M expenses

251

202

106

G&A expenses

118

66

34

Other income

(2
)
(1
)
(6
)

Segment profit
$
550
$
502
$
156

Three months ended March 31,

2019

North

America

Europe

International Markets
*

(U.S. $ in millions)

Revenues
$
2,047
$

1,264
$ 521
Gross profit

1,039

730

269

R&D expenses

165

66

22

S&M expenses

268

215

115

G&A expenses

112

48

36

Other (income) expense

(4
)
(1
)
—

Segment profit
$
498
$
403
$
97


	Three months ended June 30,
	2020
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,047		$	1,001		$	488
Gross profit		1,090			548			247
R&D expenses		154			65			19
S&M expenses		254			188			105
G&A expenses		110			52			29
Other (income) expenses		(2	)		(1	)		(2	)

Segment profit	$	573		$	244		$	97


	Three months ended June 30,
	2019
	North America		Europe		International Market s*
	(U.S. $ in millions)
Revenues	$	2,071	$	1,183	$	582
Gross profit		1,067		674		312
R&D expenses		175		70		24
S&M expenses		269		216		119
G&A expenses		117		70		34
Other (income) expenses		2		1		(1	)

Segment profit	$	504	$	316	$	136

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Six months ended June 30,
	2020
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	4,129		$	2,404		$	1,053
Gross profit		2,152			1,371			552
R&D expenses		300			120			34
S&M expenses		505			390			211
G&A expenses		228			118			63
Other (income) expenses		(4	)		(2	)		(8	)

Segment profit	$	1,123		$	746		$	253


	Six months ended June 30,
	2019
	North America			Europe			International Markets*
	(U.S. $ in millions)
Revenues	$	4,118		$	2,448		$	1,103
Gross profit		2,107			1,404			582
R&D expenses		340			136			46
S&M expenses		537			431			234
G&A expenses		230			119			70
Other (income) expenses		(2	)		(1	)		(1	)

Segment profit	$	1,001		$	719		$	233

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table presents a reconciliation of ~~our~~Teva’s segment profits to ~~our~~its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three and six months ended ~~March 31,~~June 30, 2020 and 2019:

Three months

ended
March 31,

2020

2019

(U.S. $ in millions)

North America profit
$
550
$
498

Europe profit

502

403

International Markets profit

156

97

Total reportable segments profit

1,208

998

Profit of other activities

36

21

Total segments profit

1,244

1,019

Amounts not allocated to segments:

Amortization

258

283

Other assets impairments, restructuring and other items

121

1

Intangible asset impairments

649

469

Legal settlements and loss contingencies

(25
)
57

Other unallocated amounts

49

75

Consolidated operating income (loss)

191

134

Financial expenses, net

224

218

Consolidated income (loss) before income taxes
$
(33
) $
(84
)

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

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

North America

Three months ended
March 31,

2020

2019

(U.S. $ in millions)

Generic products
$
952
$
966

AJOVY

29

20

AUSTEDO

122

74

BENDEKA/TREANDA

105

122

COPAXONE

198

208

ProAir*

59

59

QVAR

45

64

Anda

426

379

Other

146

155

Total
$
2,082
$ 2,047


	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	573		$	504		$	1,123		$	1,001
Europe profit		244			316			746			719
International Markets profit		97			136			253			233

Total reportable segments profit		914			956			2,121			1,954
Profit of other activities		66			55			102			76

Total segments profit		979			1,011			2,223			2,029
Amounts not allocated to segments:
Amortization		249			285			507			568
Other assets impairments, restructuring and other items		381			101			502			103
Intangible asset impairments		120			561			768			1,030
Legal settlements and loss contingencies		13			646			(12	)		703
Other unallocated amounts		44			62			93			136

Consolidated operating income (loss)		173			(644	)		364			(510	)

Financial expenses, net		223			206			448			425

Consolidated income (loss) before income taxes	$	(51	)	$	(850	)	$	(84	)	$	(934	)

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

640

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

b. Segment revenues by major products and activities:

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

and six

months ended June 30, 2020 and 2019:


North America	Three months ended June 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	923	$	946
AJOVY		34		23
AUSTEDO		161		96
BENDEKA/TREANDA		103		125
COPAXONE		238		274
ProAir*		66		65
QVAR		51		60
Anda		374		351
Other		96		131

Total	$	2,047	$	2,071

Europe

Three months

ended
March 31,

2020

2019

(U.S. $ in millions)

Generic products
$ 1,032 $ 919
COPAXONE

109

114

Respiratory products

106

91

AJOVY

4

—

Other

151

140

Total
$
1,402
$
1,264

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


North America	Six months ended June 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,875	$	1,913
AJOVY		63		43
AUSTEDO		283		171
BENDEKA/TREANDA		208		247
COPAXONE		435		482
ProAir*		125		123
QVAR		97		124
Anda		800		729
Other		242		286

Total	$	4,129	$	4,118

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

International markets *	Three months ended March 31,

Europe					Three months ended June 30,
	2020		2019		2020		2019
	(U.S. $ in millions)				(U.S. $ in millions)
Generic products	$	449	$	441	$	737	$	844
COPAXONE		12		13		84		107
Respiratory products						80		89
AJOVY						5		1
Other		104		67		95		142

Total	$	565	$	521	$	1,001	$	1,183

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES

LIMITED

Notes to Consolidated Financial Statements

(Unaudited)



Europe	Six months ended June 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,769	$	1,763
COPAXONE		193		221
Respiratory products		186		181
AJOVY		9		1
Other		246		282

Total	$	2,404	$	2,448


International Markets	Three months ended June 30,
	2020		2019*
	(U.S. $ in millions)
Generic products	$	426	$	489
COPAXONE		12		13
Other		50		80

Total	$	488	$	582

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


International Markets	Six months ended June 30,
	2020		2019*
	(U.S. $ in millions)
Generic products	$	875	$	930
COPAXONE		23		27
Other		154		147

Total	$	1,053	$	1,103

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 16 – Fair value measurement:

Financial items carried at fair value as of ~~March 31,~~June 30, 2020 and December 31, 2019 are classified in the tables below in one of the three categories of fair value levels:

March 31, 2020

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
260
$
—
$
—
$
260

Cash, deposits and other

1,544

—

—

1,544

Investment in securities:

Equity securities

31

—

—

31

Other, mainly debt securities

2

—

12

14

Derivatives:

Asset derivatives—options and forward contracts

—

104

—

104

Liability derivatives—options and forward contracts

—

(94
)
—

(94
)
Contingent consideration*

—

—

(435
)
(435
)

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

December 31, 2019

Level 1

Level 2

Level 3

Total

(U.S. $ in millions)

Cash and cash equivalents:

Money markets
$
577
$
—
$
—
$
577

Cash, deposits and other

1,398

—

—

1,398

Investment in securities:

Equity securities

42

—

—

42

Other, mainly debt securities

2

—

12

14

Derivatives:

Asset derivatives—options and forward contracts

—

32

—

32

Liability derivatives—options and forward contracts

—

(41
)
—

(41
)
Liability derivatives—interest rate and cross-currency swaps

—

(22
)
—

(22
)
Contingent consideration*

—

—

(460
)
(460
)

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


	June 30, 2020
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	607	$	—		$	—		$	607
Cash, deposits and other		1,795		—			—			1,795
Investment in securities:
Equity securities		15		—			—			15
Other, mainly debt securities		1		—			13			14
Derivatives:
Asset derivatives—options and forward contracts		—		40			—			40
Liability derivatives—options and forward contracts		—		(52	)		—			(52	)
Contingent consideration*		—		—			(484	)		(484	)

Total	$	2,418	$	(12	)	$	(471	)	$	1,935


	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

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

~~Teva~~Tev

determined the fair value of the ~~liability~~

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 80% to 100% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from 8%7.5% to 9

%8.5%. The weighted average discount rate, calculated based on the relative fair value of ~~our~~

Teva’s

contingent consideration ~~obligations,~~

liabilities

, was ~~8.6%~~8.1%.

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.~~liabilities.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~


	Six months ended June 30, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(448	)
Revaluation of debt securitie s		1
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(15	)
Eagle transaction		(67	)
Settlement of contingent consideration:
Eagle transactio n		58

Fair value at the end of the perio d	$	(471	)

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Three months ended
March 31, 2020

(U.S. $ in millions)

Fair value at the beginning of the period
$
(448
)
Adjustments to provisions for contingent consideration:

Actavis Generics transaction

(5
)
Eagle transaction

(1
)
Settlement of contingent consideration:

Eagle transaction

31

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

Financial instruments not measured at fair value

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

Fair value*

March 31,

December 31,

2020

2019

(U.S. $ in millions)

Senior notes included under senior notes and loans
$
21,960
$
22,686

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

1,583

2,318

Total
$
23,543
$
25,004


	Fair value*
	June 30,		December 31,
	2020		2019
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	23,131	$	22,686
Senior notes and convertible senior debentures included under short-term debt		1,595		2,318

Total	$	24,726	$	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 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 API 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.

The

COVID-19

Pandemic

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 currently have inventory and redundancy plans in place to address potential shortfalls, if any. We are closely monitoring the evolving situation in our key manufacturing locations and commercial markets, and are accordingly adapting our business continuity plans. All our facilities that research, manufacture, order, pack, distribute and provide critical customer and patient services are currently functioning to meet demand for essential medicines for patients throughout the world.

Teva has worked since the early days of the

COVID-19

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

R&D and New Launches

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

COVID-19

pandemic; however, ~~if the pandemic continues for an extended period of time,~~ we ~~may experience~~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.

Table of Contents

Workforce Policy and Measures

Our employees across all aspects of our business are safeguarding the continuity of our activities and we are committed to supporting their efforts ~~and~~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 ensure our sites remain open, allowing us to maintain our business, R&D and manufacturing operations. We have reduced the number of people in our facilities to only those who are essential and may not work remotely. By doing our part to reduce physical proximity to one another, we hope to better protect our overall workforce, and ultimately, the communities in which we live.

~~Table of Contents~~

As we work through this health crisis, we ~~are starting~~continue to ~~plan~~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

COVID-19

pandemic and there are many unknowns facing our industry and society at large. ~~At this stage of the pandemic, we~~We are still not experiencing material delays in development, production and distribution of medicines or disruptions in our supply chains; however, longer term ~~affects~~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. ~~We are experiencing~~In the first quarter of 2020, we experienced increasing demand for certain medicines, as would be expected during a global crisis of this ~~nature, and cannot assess whether such increased~~nature. We saw a compensating effect with lower demand isfor certain medicines during the ~~result~~second quarter of ~~stocking by wholesalers or patients.~~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 ~~a compensating effect~~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 evolving global pandemic.

Highlights

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

Revenues in the ~~first~~second quarter of 2020 were ~~$4,357~~$3,870 million, ~~an increase~~a decrease of ~~5%,~~7% in ~~both~~ U.S. dollar ~~and~~or 5% in local currency terms, compared to the ~~first~~second quarter of 2019, mainly due to ~~higher revenues from generics and OTC sales in Europe, higher revenues from AUSTEDO~~

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

and ~~BENDEKA~~

/BENDEKA/TREANDA

in ~~North America.~~

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

~~and generic products. Profit increased by 10%, mainly due to the changes in revenues described above.~~

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

COVID-19

pandemic had on purchasing patterns, ~~as well as continuing growth in generics and new generic product launches,~~ partially offset by higher revenues from AUSTEDO, Anda and AJOVY in the U.S.

Our North America segment generated revenues of $2,047 million and profit of $573 million in the second quarter of 2020. Revenues decreased by 1% compared to the second quarter of 2019, mainly due to a decrease in revenues of COPAXONE, generic products and BENDEKA/TREANDA, partially offset by higher revenues from AUSTEDO, Anda and AJOVY. Profit increased by 14%, mainly due to the favorable mix of products, including AUSTEDO and AJOVY, and lower expenses.

Our Europe segment generated revenues of $1,001 million and profit of $244 million in the second quarter of 2020. Revenues decreased by 15%, or 13% in local currency terms, compared to the second quarter of 2019. This decrease was mainly due to reduced demand for certain products resulting from the impact the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and a correlating decrease in demand in the second quarter and also led to a decline in doctor visits by patients resulting in fewer prescriptions during the second quarter of 2020. The decrease is also attributed to price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate ~~products.~~products, partially offset by new generic product launches. Profit ~~increased~~decreased by ~~25%~~23%, mainly due to ~~higher~~lower revenues, ~~and~~partially offset by lower expenses.

Our International Markets segment generated revenues of ~~$565~~$488 million and profit of ~~$156~~$97 million in the ~~first~~second quarter of 2020. Revenues ~~increased~~decreased by ~~8% in U.S. dollars~~16%, or 5%9% in local currency terms, compared to the ~~first~~second quarter of ~~2019. The increase in revenues was~~2019, mainly due to ~~higher~~lower sales in ~~Latin America, Asia-Pacific, Ukraine~~Japan. Revenues in the second quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and ~~Russia,~~a correlating decrease in demand in the second quarter. The revenues in the second quarter of 2020 included $16 million from a negative hedging impact. Profit decreased by 29%, mainly due to lower revenues and a negative hedging impact, partially offset by lower sales in Japan. The revenues in the first quarter of 2020 included $35 million from a positive hedging impact. Profit increased by 61%, mainly due to higher sales and the positive impact from hedging activity.expenses.

~~Impairment~~

Impairments of identifiable intangible assets were ~~$649~~$120 million in the ~~first~~second quarter of 2020, compared to ~~$469~~$561 million in the ~~first~~second quarter of 2019. Impairment expenses in the ~~first~~second quarter of 2020 ~~related to IPR&D assets were $331~~comprised of $103 million ~~and~~of identifiable product rights ~~were $318 million.~~and $17 million of IPR&D assets.

~~No goodwill impairments were recorded in the first quarters~~

Table of ~~both 2020 and 2019.~~Contents

~~We recorded expenses of $121 million for other~~Other asset impairments, restructuring and other items were $381 million in the ~~first~~second quarter of 2020, compared to expenses of $1$101 million in the ~~first~~second quarter of 2019. The increase is primarily related to an agreement to sell certain assets from Teva’s business venture in Japan.

~~In the first quarter of 2020, we recorded an income of $25 million in legal~~

Legal settlements and loss contingencies ~~compared to an expense of $57~~expenses were $13 million in the ~~first~~second quarter of 2020, compared to $646 million in the second quarter of 2019. The ~~income~~expense in the ~~first~~second quarter of 2020 was mainly due to the increase of a reserve for certain legal expenses and settlement contributions related to products liability claims in the United States, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel. The expense in the second quarter of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an ~~action brought against the sellers of Auden McKenzie (an acquisition~~estimated provision made ~~by Actavis Generics).~~for certain other opioid cases.

Operating income was ~~$191~~$173 million in the ~~first~~second quarter of 2020, compared to ~~$134~~operating loss of $644 million in the ~~first~~second quarter of 2019. The increase in the ~~first~~second quarter of 2020 was mainly due to higher ~~profit in our Europe, International Markets and North America segments and income from~~ legal settlements ~~(compared to an expense~~and loss contingencies charges in the ~~first~~second quarter of ~~2019),~~2019 and lower intangible asset impairments charges in the second quarter of 2020, partially offset by ~~higher intangible asset impairments and~~ higher other assets impairments, restructuring and other items in the ~~first~~second quarter of 2020.

~~Table of Contents~~

Financial expenses were ~~$224~~$223 million in the ~~first~~second quarter of 2020, compared to ~~$218~~$206 million in the ~~first~~second quarter of 2019. Financial expenses in the ~~first~~second quarter of 2020 and 2019 were mainly comprised of interest expenses of $241 ~~million. Financial expenses in the first quarter of 2019 were mainly comprised of interest expenses of $227 million.~~million and $226 million, respectively.

In the ~~first~~second quarter of 2020, we recognized a tax benefit of ~~$59~~$104 million, on

pre-tax

loss of ~~$33~~$51 million. In the ~~first~~second quarter of 2019, we recognized a tax ~~expense~~benefit of $9$179 million, on

pre-tax

loss of ~~$84~~$850 million. Our tax rate for the ~~first~~second quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate

its ongoing business operations and other changes to tax positions and deductions.

Exchange rate movements ~~between~~during the ~~first~~second quarter of 2020, ~~and the first quarter of 2019,~~ net of hedging, negatively impacted ~~overall~~ revenues by $3$79 million and ~~positively impacted~~ operating income by ~~$27 million.~~$35 million, compared to the second quarter of 2019.

As of ~~March 31,~~June 30, 2020, our debt was ~~$26,103~~$26,266 million, compared to ~~$26,908~~$26,103 million as of ~~December~~March 31, ~~2019.~~2020. This ~~decrease~~increase was mainly due to ~~repayment~~exchange rate fluctuations. In July 2020, we repaid at maturity debt of ~~our $700 million 2.25% senior notes, as well as exchange rate fluctuations.~~€1,010 million.

Cash flow generated from operating activities during the ~~first~~second quarter of 2020 was ~~$305~~$273 million, compared to ~~$112~~cash flow used in operating activities of $227 million in the ~~first~~second quarter of 2019. ~~This~~The increase in ~~cash flow in~~ the ~~first~~second quarter of 2020 was mainly due to ~~higher operating profit~~favorable collection of payments from customers in ~~each~~the second quarter of ~~our three segments, as well as lower performance incentive payments to employees paid~~2020 resulting from increased sales in the first ~~quarter of 2020, compared to the amounts paid in the first quarter of 2019.~~quarter.

During the ~~first~~second quarter of 2020, we generated free cash flow of ~~$551~~$582 million, which we define as comprising ~~$305~~$273 million in cash flow generated from operating activities, ~~$368~~$401 million in beneficial interest collected in exchange for securitized accounts receivables and $6$39 million in proceeds from sale of property, plant and equipment, partially offset by $131 million in cash used for capital investment. During the second quarter of 2019, we generated free cash flow of $168 million, comprising $227 million in cash flow used in operating activities, $384 million in beneficial interest collected in exchange for securitized accounts receivables and $20 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by ~~$128~~$112 million in cash used for capital investment. ~~This~~The increase ~~compared to~~in the ~~first~~second quarter of ~~2019,~~2020 resulted mainly from higher cash flow generated from operating ~~activities, including significant consumption of inventories.~~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 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, with subsequent milestone payments over the next few years. Teva and Alvotech will share profit from the commercialization of the biosimilars.

Table of Contents

Results of Operations

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

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

Percentage of Net Revenues
Three Months Ended
March 31,

Percentage
Change

2020

2019

2020 - 2019

%

%

%

Net revenues

100

100

5

Gross profit

47

45

11

Research and development expenses

5

6

(15
)
Selling and marketing expenses

14

16

(5
)
General and administrative expenses

7

7.0

4

Intangible assets impairments

15

11

38

Other assets impairments, restructuring and other items

3

§

NA

Legal settlements and loss contingencies

(1
)
1

NA

Other income (loss)

§

§

115

Operating income

4

3

43

Financial expenses, net

5

5

3

Income (loss) before income taxes

(1
)
(2
)
(61
)
Income taxes (benefit)

(1
)
§

—

Share in losses (profits) of associated companies, net

§

§

NA

Net income attributable to
non-controlling
interests

(1
)
§

NA

Net income (loss) attributable to Teva

2

(3
)
—

Net income (loss) attributable to ordinary shareholders

2

(3
)
—

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

~~Table of Contents~~

Segment Information

North America Segment

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

Three months ended March 31,

2020

2019

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

Revenues
$
2,082

100
% $
2,047

100.0
%
Gross profit

1,062

51.0
%
1,039

50.8
%
R&D expenses

146

7.0
%
165

8.1
%
S&M expenses

251

12.1
%
268

13.1
%
G&A expenses

118

5.6
%
112

5.5
%
Other (income) expense

(2
)
§

(4
)
§

Segment profit*
$
550

26.4
% $
498

24.3
%


	Three months ended June 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,047		100	%	$	2,071	100.0	%
Gross profit		1,090		53.3	%		1,067	51.5	%
R&D expenses		154		7.5	%		175	8.5	%
S&M expenses		254		12.4	%		269	13.0	%
G&A expenses		110		5.4	%		117	5.6	%
Other (income) expense		(2	)		§		2		§

Segment profit*	$	573		28.0	%	$	504	24.3	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the ~~first~~second quarter of 2020 were ~~$2,082~~$2,047 million, ~~an increase~~a decrease of ~~$36~~$24 million, or 2%1%, compared to the ~~first~~second quarter of 2019, mainly due to ~~an increase~~a decrease in revenues of ~~AUSTEDO~~COPAXONE, generics products and ~~Anda as well as a milestone payment related to our anti-CGRP intellectual property (see note 2 to our consolidated financial statements),~~BENDEKA/TREANDA, partially offset by ~~lower~~higher revenues from ~~QVAR, BENDEKA/TREANDA, COPAXONE~~AUSTEDO, Anda and ~~generic products.~~AJOVY.

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 ~~March 31,~~June 30, 2020 and 2019:

Three months ended
March 31,

Percentage
Change

2020

2019

2019-2020

(U.S. $ in millions)

Generic products
$
952
$
966

(1
%)
AJOVY

29

20

44
%
AUSTEDO

122

74

64
%
BENDEKA/TREANDA

105

122

(14
%)
COPAXONE

198

208

(5
%)
ProAir*

59

59

1
%
QVAR

45

64

(29
%)
Anda

426

379

13
%
Other

146

155

(6
%)

Total
$
2,082
$
2,047

2
%


	Three months ended June 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	923	$	946		(2	%)
AJOVY		34		23		50	%
AUSTEDO		161		96		67	%
BENDEKA/TREANDA		103		125		(18	%)
COPAXONE		238		274		(13	%)
ProAir*		66		65		2	%
QVAR		51		60		(15	%)
Anda		374		351		7	%
Other		96		131		(27	%)

Total	$	2,047	$	2,071		(1	%)

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

Generic products

revenues in our North America segment (including biosimilars) in the ~~first~~second quarter of 2020 were ~~$952~~$923 million, a decrease of 1%2% compared to the ~~first~~second quarter of 2019. This decrease was mainly due to ~~price erosion in our product portfolio~~lower volume and lower royalty income, offset by an increase in revenues from ~~launches of new products, including~~ TRUXIMA and from our ProAir

authorized generic due to higher demand related to the

COVID-19

pandemic.

Table of Contents

Among the most significant generic products we sold in North America in the ~~first~~second quarter of 2020 were TRUXIMA (the biosimilar to Rituxan

), albuterol sulfate inhalation aerosol (ProAir HFA authorized generic of our specialty product), epinephrine injectable solution (the generic equivalent of EpiPen

and EpiPen Jr.

), ~~TRUXIMA~~budesonide suspension for inhalation (the ~~biosimilar to Rituxan~~generics equivalent of Pulmicort

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

) and lidocaine transdermal patch (the generic equivalent of Lidoderm Patch

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

~~We launched HERZUMA for Injection (the biosomilar to Herceptin~~

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

In the ~~first~~second quarter of 2020, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~389~~376 million total prescriptions (based on trailing twelve months), representing ~~10.4%~~10.2% of total U.S. generic prescriptions according to IQVIA data.

AJOVY

revenues in our North America segment in the ~~first~~second quarter of 2020 were ~~$29~~$34 million, an increase of $9$11 million, or ~~44%~~50% compared to the ~~first~~second quarter of 2019, mainly due to growth in volume in the ~~first~~second quarter of ~~2020.~~2020 and the introduction of the auto-injector device. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults. On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S., which became commercially available in April 2020. In addition, AJOVY was approved in Canada on April 14, 2020.

On May 12, 2017, we entered into a license and collaboration agreement with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY in Japan and, once approved, to commercialize the product in Japan. Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects. On July 29, 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan.

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

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

We have filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly ~~has~~ also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the Patent Trial and Appeal Board issued decisions on the first six IPRs, finding the six patents invalid as being obvious. On April 21, 2020, we filed notices of appeal in connection with these decisions. On March 31, 2020 the Patent Trial and Appeal Board issued a decision upholding the 3three method of treatment patents. 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 ~~first~~second quarter of 2020 increased by ~~64%~~67%, to ~~$122~~$161 million, compared to ~~$74~~$96 million in the ~~first~~second quarter of 2019. This increase was mainly due to growth in volume in the ~~first~~second quarter of 2020.

In April 2017, AUSTEDO was approved by the FDA and launched 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.

~~We do not have further plans for the development of~~ In May 2020, AUSTEDO was approved in China for the treatment of ~~Tourette syndrome in pediatric patients in~~chorea associated with Huntington disease and for the United States, which was being developed under a partnership agreement with Nuvelution Pharma, Inc. (“Nuvelution”), following clinical trial results received in February 2020, which failed to meet their primary endpoints.treatment of tardive dyskinesia.

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

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BENDEKA

and

TREANDA

combined revenues in our North America segment in the ~~first~~second quarter of 2020 decreased by ~~14%~~18% to ~~$105~~$103 million, compared to the ~~first~~second quarter of 2019, mainly due to the emergence of alternative novel therapies and continued competition from Belrapzo

ready-to-dilute

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

~~Table of Contents~~

In July 2018, Eagle prevailed in its suit against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. On March 13, 2020, this decision was upheld in the appellate court. On May 27, 2020, the FDA filed a petition for rehearing

en banc

. It is unclear at this time whether the court will grant the petition. As ~~a result,~~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. ItHowever, it is ~~unclear~~unknown whether ~~the FDA or the intervening generic defendants~~this will be changed by further ~~appeal this ruling.~~appellate proceedings. In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses. In September 2019, a patent infringement action against four of the five ANDA filers for generic versions of BENDEKA was tried in the United States District Court for the District of Delaware. On April 27, 2020, the District Court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe these patents. As a result, the ANDA filers should be enjoined until these patents expire in 2031.

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

30-month

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

We have U.S. Orange Book patents for TREANDA expiring between 2026 and 2031. One 505(b)(2) NDA was filed for a liquid version of bendamustine and 2122 ANDAs with paragraph IV certifications were filed for generic versions of the lyophilized form of TREANDA. We have reached final settlements with all 2223 filers, providing for the launch of generic versions of TREANDA prior to patent expiration.

COPAXONE

revenues in our North America segment in the ~~first~~second quarter of 2020 decreased by 5%13% to ~~$198~~$238 million, compared to the ~~first~~second 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, ~~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, such as Ocrevus

ProAir

revenues in our North America segment in the ~~first~~second quarter of 2020 were ~~$59~~$66 million, flat compared to the ~~first~~second quarter of 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 fourth-largest short-acting beta-agonist in the market, with an exit market share of ~~15.5% (37.5% including our ProAir HFA authorized generic, making our overall albuterol product the largest in the market)~~11.0% in terms of total number of prescriptions for albuterol inhalers during the ~~first~~second quarter of 2020, compared to ~~27.6%~~23.9% in the ~~first~~second quarter of 2019. The exit market share including our ProAir HFA authorized generic is 33.4%, making our overall albuterol product the second largest in the market, compared to 44.4% in the second quarter of 2019. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo Company plc (“Perrigo”), under which Perrigo is now permitted to launch its generic product. In February 2020, Perrigo obtained FDA approval of its generic product and announced initial release of limited supplies. In November 2017, we settled another patent challenge to ProAir HFA with Lupin Pharmaceuticals, Inc. (“Lupin”), et al. permitting Lupin to launch its generic product on September 23, 2019, or earlier under certain circumstances.

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.

QVAR

revenues in our North America segment in the ~~first~~second quarter of 2020 decreased by ~~29%~~15% to ~~$45~~$51 million, compared to the ~~first~~second quarter of 2019, mainly due to increased price competition and lower volumes. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of ~~20.8%~~19.8% in terms of total number of prescriptions during the ~~first~~second quarter of 2020, compared to ~~21.7%~~20.2% in the ~~first~~second quarter of 2019.

Table of Contents

Anda

revenues in our North America segment in the ~~first~~second quarter of 2020 increased by ~~13%~~7% to ~~$426~~$374 million, compared to ~~$379~~$351 million in the ~~first~~second quarter of 2019, mainly due to higher volume increases primarily related to the

COVID-19

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

~~Table of Contents~~

Product Launches and Pipeline

In the ~~first~~second quarter of 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))
*

Doxepin tablets, 3 mg & 6 mg

Silenor
®
January
$
50

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

Herceptin
®**
March
$
3,042


Product Name	Brand Name	Launch Date	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Deferasirox Tablets, 180mg	Jadenu ®	April	$	53
Romidepsin Injection, 27.5 mg/5.5 mL (5 mg/mL)	**	April		—
Vigabatrin for Oral Solution, USP, 500mg	Sabril ®	May	$	254
Everolimus Tablets, 2.5mg, 5mg & 7.5mg	Afinitor ®	June	$	401

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

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

Our generic products pipeline in the United States includes, as of ~~March 31,~~June 30, 2020, ~~242~~237 product applications awaiting FDA approval, including 7980 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended March 31, 2020 exceeding $119 billion, according to IQVIA. Approximately 70% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 90 of these products, or ~~112~~113 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $77 billion in U.S. brand sales for the twelve months ended March 31, 2020, according to IQVIA.

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

so-called

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

In the ~~first~~second quarter of 2020, we ~~did not receive any~~received tentative approvals for generic ~~equivalents.~~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 Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Eliglustat Capsules, 84mg	Cerdelga ®	$	111
Icosapent Capsules, 500mg & 1000mg	Vascepa ®	$	972
Macitentan Tablets, 10mg	Opsumit ®	$	590
Pemetrexed Disodium Injection, 100mg vial	Alimta ®	$	255

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

Table of Contents

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

Product

Potential

Indication(s)

Route of

Administration

Development Phase

(date entered phase 3)

Comments

CNS, Neurology and

Neuropsychiatry

AUSTEDO (deutetrabenazine)

~~AUSTEDO (deutetrabenazine)~~

~~Tourette syndrome~~

~~Oral~~

~~No further plans in this indication.~~

Dyskinesia in cerebral palsy

Oral

3 (September 2019)

TV-46000

(risperidone LAI)

Schizophrenia

Subcutaneous

3 (April 2018)

~~Table of Contents~~

~~Product~~

~~Potential~~

~~Indication(s)~~

Route of
Administration

Development Phase
(date entered phase 3)

~~Comments~~

Migraine and Pain

fremanezumab (anti CGRP)

Post traumatic

headache

Subcutaneous

fibromyalgia

Subcutaneous

fasinumab

Osteoarthritis pain

Subcutaneous

3 (March 2016)

~~fasinumab~~

~~Osteoarthritis pain~~

~~Subcutaneous~~

~~3 (March 2016)~~

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

. See below table regarding phase 3 clinical trial results.

Respiratory

AirDuo

~~ProAir~~®

Digihaler

~~e-RespiClick~~

™

~~Bronchospasm~~Treatment of asthma in patients

aged 12 years and ~~exercise induced bronchitis~~older

Oral inhalation

Approved by FDA

~~(December 2018)~~

(July 2019)

~~AirDuo~~ArmonAir

~~Digihaler~~DigiHaler

Treatment of asthma in patients aged 12 years and older

Oral inhalation

Approved by FDA ~~(July 2019)~~

(February 2020)

~~ArmonAir~~

~~DigiHaler~~

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

~~Oral inhalation~~

~~Approved by FDA (February 2020)~~

GoResp

DigiHaler

/ DuoResp

DigiHaler

Treatment of asthma in patients aged 12 years and older and COPD

Oral inhalation

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.

North America Gross Profit

Gross profit from our North America segment in the ~~first~~second quarter of 2020 was ~~$1,062~~$1,090 million, an increase of 2%, compared to ~~$1,039~~$1,067 million in the ~~first~~second quarter of 2019.

Gross profit margin for our North America segment in the second quarter of 2020 increased to 53.3%, compared to 51.5% in the second quarter of 2019. This increase was mainly due to the change in mix of ~~revenues, as discussed above.~~

~~Gross profit margin for our North America segment in the first quarter of 2020 increased to 51.0%, compared to 50.8% in the first quarter of 2019.~~products.

North America R&D Expenses

R&D expenses relating to our North America segment in the ~~first~~second quarter of 2020 were ~~$146~~$154 million, a decrease of 12%, compared to ~~$165~~$175 million in the ~~first~~second quarter of 2019.

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

North America S&M Expenses

S&M expenses relating to our North America segment in the ~~first~~second quarter of 2020 were ~~$251~~$254 million, a decrease of 6%, compared to ~~$268~~$269 million in the ~~first~~second quarter of 2019. This decrease was mainly due to cost reductions and efficiency ~~measures.~~measures as well as lower marketing and travel costs attributed to restrictions related to the

COVID-19

pandemic.

Table of Contents

North America G&A Expenses

G&A expenses relating to our North America segment in the ~~first~~second quarter of 2020 were ~~$118~~$110 million, ~~an increase~~a decrease of 5%6%, compared to ~~$112~~$117 million in the ~~first quarter of 2019.~~

~~North America Other Income (Expense)~~

~~Other income from our North America segment in the first quarter of 2020 was $2 million, compared to other income of $4 million in the first~~second quarter of 2019.

North America Profit

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

~~Table of Contents~~

Profit from our North America segment in the ~~first~~second quarter of 2020 was ~~$550~~$573 million, an increase of ~~10%~~14%, compared to ~~$498~~$504 million in the ~~first~~second quarter of 2019. This increase was due to ~~higher revenues~~the favorable mix of products, including AUSTEDO and AJOVY, and lower expenses, as discussed above.

Europe Segment

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

Three months ended March 31,

2020

2019

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

Revenues
$
1,402

100
% $
1,264

100
%
Gross profit

823

58.7
%
730

57.8
%
R&D expenses

55

3.9
%
66

5.2
%
S&M expenses

202

14.4
%
215

17.0
%
G&A expenses

66

4.7
%
48

3.8
%
Other (income) expense

(1
)
§

(1
)
§

Segment profit*
$
502

35.8
% $
403

31.9
%


	Three months ended June 30,
	2020				2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,001		100%	$	1,183	100%
Gross profit		548		54.7%		674	56.9%
R&D expenses		65		6.5%		70	5.9%
S&M expenses		188		18.8%		216	18.3%
G&A expenses		52		5.2%		70	5.9%
Other (income) expense		(1	)	§		1	§

Segment profit*	$	244		24.3%	$	316	26.7%

*	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~~second quarter of 2020 were ~~$1,402~~$1,001 million, ~~an increase~~a decrease of ~~11%~~15% or ~~$138~~$182 million, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues ~~increased~~decreased by 13%, mainly due to ~~higher~~reduced demand for certain products resulting from the impact of the

COVID-19

pandemic had on purchasing ~~patterns as well as continuing growth~~patterns. The

COVID-19

pandemic led to increased demand in ~~generics~~the first quarter and ~~new generic product launches, partially offset~~a correlating decrease in demand in the second quarter, and also led to a decline in doctor visits by patients resulting in fewer prescriptions during the second quarter of 2020. The decrease is also attributed to price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate ~~products.~~products, partially offset by new generic product launches.

Revenues by Major Products and Activities

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

Three months ended
March 31,

Percentage
Change

2020

2019

2019-2020

(U.S. $ in millions)

Generic products
$
1,032
$
919

12
%
COPAXONE

109

114

(4
%)
Respiratory products

106

91

16
%
AJOVY

4

—

NA

Other

151

140

7
%

Total
$
1,402
$
1,264

11
%


	Three months ended June 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	737	$	844		(13	%)
COPAXONE		84		107		(21	%)
Respiratory products		80		89		(11	%)
AJOVY		5		1		477	%
Other		95		142		(33	%)

Total	$	1,001	$	1,183		(15	%)

Table of Contents

Generic products

revenues in our Europe segment in the ~~first~~second quarter of 2020, including OTC products, ~~increased~~decreased by ~~12%~~13% to ~~$1,032~~$737 million, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues ~~increased~~decreased by ~~16%~~10% compared to the ~~first~~second quarter of 2019, mainly due to ~~higher~~reduced demand for certain products resulting from the impact of the

COVID-19

pandemic had on purchasing ~~patterns as well as continuing growth~~patterns. The

COVID-19

pandemic led to increased demand in ~~generics~~the first quarter and a correlating decrease in demand in the second quarter, and also led to a decline in doctor visits by patients resulting in fewer prescriptions during the second quarter of 2020, partially offset by new generic product launches. ~~We estimate that the impact of the~~

~~COVID-19~~

~~pandemic on advanced purchasing patterns was approximately $100 million.~~

COPAXONE

revenues in our Europe segment in the ~~first~~second quarter of 2020 decreased by 4%21% to ~~$109~~$84 million, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues decreased by 1%19%, mainly due to price reductions and a decline in volume resulting from competing glatiramer acetate products ~~partially offset~~and by ~~higher~~reduced demand ~~due to~~resulting from the impact of the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and a correlating decrease in demand in the second quarter.

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 the European Patent Office in April 2019. A hearing for an appeal in this case has been ~~set for June~~postponed until September 2020.

~~Table of Contents~~

Respiratory products

revenues in our Europe segment in the ~~first~~second quarter of 2020 ~~increased~~decreased by ~~16%~~11% to ~~$106~~$80 million, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues ~~increased~~decreased by ~~20%~~8%, mainly due to ~~higher~~reduced demand ~~attributed to~~resulting from the impact of the

COVID-19

~~pandemic.~~pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and a correlating decrease in demand in the second quarter.

AJOVY

revenues in our Europe segment in the ~~first~~second quarter of 2020 were ~~$4 million.~~$5 million, compared to $1 million in the second quarter of 2019.

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

Product Launches and Pipeline

As of ~~March 31,~~June 30, 2020, our generic products pipeline in Europe included 88177 generic approvals relating to 2743 compounds in 4980 formulations, no EMA approvals received. In addition, approximately ~~1,115~~1,121 marketing authorization applications pending approval in 37 European countries, relating to ~~119~~126 compounds in ~~236~~245 formulations. No applications are pending with the EMA.

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

Europe Gross Profit

Gross profit from our Europe segment in the ~~first~~second quarter of 2020 was ~~$823~~$548 million, ~~an increase~~a decrease of ~~13%~~19% compared to ~~$730~~$674 million in the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~higher~~lower revenues, partially offset by new generic product launches, as discussed above.

Gross profit margin for our Europe segment in the ~~first~~second quarter of 2020 ~~increased~~decreased to ~~58.7%~~54.7%, compared to ~~57.8%~~56.9% in the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~a favorable mix of generic products and lower inventory write-offs.~~price decreases in certain specialty products.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the ~~first~~second quarter of 2020 were ~~$55~~$65 million, a decrease of ~~17%~~7% compared to ~~$66~~$70 million in the ~~first~~second quarter of 2019.

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

Table of Contents

Europe S&M Expenses

S&M expenses relating to our Europe segment in the ~~first~~second quarter of 2020 were ~~$202~~$188 million, a decrease of 6%13% compared to ~~$215~~$216 million in the ~~first~~second quarter of 2019. This decrease was mainly due to lower marketing and travel costs attributed to ~~travel~~ restrictions related to the

COVID-19

pandemic.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the ~~first~~second quarter of 2020 were ~~$66~~$52 million, ~~an increase~~a decrease of ~~37%~~26% compared to ~~$48~~$70 million in the ~~first~~second quarter of 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 ~~first~~second quarter of 2020 was ~~$502~~$244 million, ~~an increase~~a decrease of ~~25%~~23%, compared to ~~$403~~$316 million in the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~higher~~lower revenues, ~~and~~partially offset by lower expenses, as discussed above.

~~Table of Contents~~

International Markets Segment

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

Three months ended March 31,

2020

2019

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

Revenues
$
565

100
% $
521

100
%
Gross profit

305

54.0
%
269

51.7
%
R&D expenses

15

2.7
%
22

4.2
%
S&M expenses

106

18.8
%
115

22.0
%
G&A expenses

34

6.0
%
36

6.8
%
Other (income) expense

(6
)
(1.1
%)
—

§

Segment profit*
$
156

27.6
% $
97

18.6
%


	Three months ended June 30,
	2020					2019**
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	488		100	%	$	582		100	%
Gross profit		247		50.8	%		312		53.7	%
R&D expenses		19		3.9	%		24		4.0	%
S&M expenses		105		21.4	%		119		20.5	%
G&A expenses		29		6.0	%		34		5.9	%
Other (income) expense		(2	)	§			(1	)	§

Segment profit*	$	97		19.9	%	$	136		23.4	%

§	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 Japan, Russia and Israel. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics oriented markets, such as Russia and certain Latin America markets and hybrid markets, such as Japan.

On July 30, 2020, we entered into an agreement to sell the majority of the generic and operational assets of our business venture in Japan. We expect this transaction to close by early 2021.

Revenues from our International Markets segment in the ~~first~~second quarter of 2020 were ~~$565~~$488 million, ~~an increase~~a decrease of ~~$44~~$94 million, or 8%16%, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues ~~increased~~decreased by 5%9% compared to the ~~first~~second quarter of 2019, mainly due to ~~higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by~~ lower sales in ~~Japan.~~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. Revenues in the second quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and a correlating decrease in demand in the second quarter. The revenues in the ~~first~~second quarter of 2020 included ~~$35~~$16 million from a ~~positive~~negative hedging impact, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

Table of Contents

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.

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 ~~March 31,~~June 30, 2020 and 2019:

Three months ended
March 31,

Percentage
Change

2020

2019

2019-2020

(U.S. $ in millions)

Generic products
$
449
$
441

2
%
COPAXONE

12

13

(11
%)
Other

104

67

57
%

Total
$
565
$
521

8
%


	Three months ended June 30,				Percentage Change
	2020		2019*		2019-2020
	(U.S. $ in millions)
Generic products	$	426	$	489		(13	%)
COPAXONE		12		13		(13	%)
Other		50		80		(38	%)

Total	$	488	$	582		(16	%)

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

~~Table of Contents~~

Generic products

revenues in our International Markets segment in the ~~first~~second quarter of 2020, which include OTC products, ~~increased~~decreased by 2%13% to ~~$449~~$426 million, compared to the ~~first~~second quarter of 2019. In local currency terms, revenues ~~increased~~decreased by 6%7%, mainly due to ~~higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by~~ lower sales in Japan resulting from regulatory price reductions and generic competition to

off-patented

products. Revenues in the second quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact the

COVID-19

pandemic had on purchasing patterns. The

COVID-19

pandemic led to increased demand in the first quarter and a correlating decrease in demand in the second quarter.

COPAXONE

revenues in our International Markets segment in the ~~first~~second quarter of 2020 decreased by ~~11%~~13% to $12 million, compared to $13 million in the ~~first~~second quarter of 2019. In local currency terms, revenues decreased by 1%2%.

International Markets Gross Profit

Gross profit from our International Markets segment in the ~~first~~second quarter of 2020 was ~~$305~~$247 million, ~~an increase~~a decrease of ~~13%~~21% compared to ~~$269~~$312 million in the ~~first~~second quarter of 2019.

Gross profit margin for our International Markets segment in the ~~first~~second quarter of 2020 ~~increased~~decreased to ~~54.0%~~50.8%, compared to ~~51.7%~~53.7% in the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~higher~~lower sales ~~and the positive impact from the hedging activity~~as discussed above.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the ~~first~~second quarter of 2020 were ~~$15~~$19 million, a decrease of ~~31%~~19% compared to ~~$22~~$24 million in the ~~first~~second quarter of 2019.

For a description of our R&D expenses in the ~~first~~second quarter of 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 ~~first~~second quarter of 2020 were ~~$106~~$105 million, a decrease of 8%12% compared to ~~$115~~$119 million in the ~~first~~second quarter of 2019. This decrease was mainly due to ~~a decline in distribution fees paid in Japan.~~lower marketing and travel costs attributed to restrictions related to the

COVID-19

pandemic.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the ~~first~~second quarter of 2020 were ~~$34~~$29 million, a decrease of 5%16% compared to ~~$36~~$34 million in the ~~first~~second quarter of 2019.

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International Markets Profit

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

Profit from our International Markets segment in the ~~first~~second quarter of 2020 was ~~$156~~$97 million, ~~an increase~~a decrease of ~~61%~~29%, compared to ~~$97~~$136 million in the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~higher sales~~lower revenues and ~~the positive~~a negative hedging impact, ~~from the hedging activity~~partially offset by lower expenses, as discussed above.

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 ~~first~~second quarter of 2020 were ~~$307~~$335 million, a decrease of 3%2% compared to the ~~first~~second quarter of 2019. In local currency terms, revenues decreased by 2%1%.

API sales to third parties in the ~~first~~second quarter of 2020 were ~~$177~~$211 million, ~~a decrease~~an increase of ~~5%,~~4% in both U.S. dollar and local currency terms, compared to the ~~first~~second quarter of 2019. ~~This decrease was mainly due to timing of certain orders and divestment of certain activities.~~

Teva Consolidated Results

The

data presented with respect to revenues, gross profit, R&D expenses, S&M expenses, G&A expenses and operating income (loss) for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.

Revenues

Revenues in the ~~first~~second quarter of 2020 were ~~$4,357~~$3,870 million, ~~an increase~~a decrease of 7% or 5% in ~~both U.S. dollar and~~ local currency terms, compared to the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly due to ~~higher revenues from generics and OTC sales in Europe, higher revenues from AUSTEDO and Anda in North America and higher revenues from our International Markets segment, partially offset by~~ lower revenues from generics, OTC and COPAXONE in ~~the U.S.~~all regions and lower revenues from QVAR and BENDEKA/TREANDA in our North ~~America.~~America segment, as well as reduced demand for certain products resulting from the impact the

COVID-19

pandemic had on purchasing patterns, partially offset by higher revenues from AUSTEDO, Anda and AJOVY. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the ~~first~~second quarter of 2020, net of hedging, negatively impacted revenues by $3$79 million, compared to the ~~first~~second quarter of 2019. See note 8d to our consolidated financial statements.

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Gross Profit

Gross profit in the ~~first~~second quarter of 2020 was ~~$2,063~~$1,763 million, ~~an increase~~a decrease of ~~11%~~7% compared to the ~~first~~second quarter of 2019. This ~~increase~~decrease was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit ~~as a percentage of revenues~~margin was ~~47.3%~~45.5% in the ~~first~~second quarter of 2020, compared to ~~44.7%~~45.3% in the ~~first~~second quarter of 2019.

The increase in gross profit ~~as a percentage of revenues~~margin was mainly due to higher profitability in ~~each of our three segments, primarily higher revenues~~North America resulting from ~~AUSTEDO, a favorable~~the change in mix of ~~generic~~ products, ~~in North America, a favorable mix of generic products in Europe and International Markets and a positive impact from our hedging activity,~~ partially offset by ~~higher revenues~~lower profitability in Europe resulting from ~~Anda, which has~~price decreases in our specialty products, as well as lower ~~profitability.~~profitability in International Markets primarily resulting from lower sales in Japan and the impact the COVID-19 pandemic had on purchasing patterns, as well as lower sales of COPAXONE and other specialty products.

Research and Development (R&D) Expenses

~~Net~~ R&D expenses in the ~~first~~second quarter of 2020 were ~~$221~~$225 million, a decrease of ~~15%~~19% compared to the ~~first~~second quarter of 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.

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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 ~~first~~second quarter of 2020, our R&D expenses related primarily to specialty product candidates in the pain, migraine ~~headache~~ and respiratory therapeutic areas, with additional activities in selected other areas and generic ~~products.~~

products including biosimilars. Our lower R&D expenses in the ~~first~~second quarter of 2020, compared to the ~~first~~second quarter of 2019, resulted primarily from the life cycle and stage of various ~~projects.~~projects, as well as an impact related to the

COVID-19

pandemic.

R&D expenses as a percentage of revenues were ~~5.1%~~5.8% in the ~~first~~second quarter of 2020, compared to ~~6.3%~~6.6% in the ~~first~~second quarter of 2019.

Selling and Marketing (S&M) Expenses

S&M expenses in the ~~first~~second quarter of 2020 were ~~$613~~$597 million, a decrease of 5%10% compared to the ~~first~~second quarter of 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 ~~14.1%~~15.4% in the ~~first~~second quarter of 2020, compared to ~~15.6%~~15.9% in the ~~first~~second quarter of 2019.

General and Administrative (G&A) Expenses

G&A expenses in the ~~first~~second quarter of 2020 were ~~$304~~$264 million, ~~an increase~~a decrease of 4%11% compared to the ~~first~~second quarter of 2019.

G&A expenses as a percentage of revenues were ~~7.0%~~6.8% in the ~~first~~second quarter of 2020, ~~flat~~ compared to 7.1% in the ~~first~~second quarter of 2019.

Intangible Asset Impairments

We recorded expenses of ~~$649~~$120 million for identifiable intangible asset impairments in the ~~first~~second quarter of 2020, compared to expenses of ~~$469~~$561 million in the ~~first~~second quarter of 2019. See note 5 to our consolidated financial statements.

~~Goodwill Impairment~~

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

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Other Asset Impairments, Restructuring and Other Items

We recorded expenses of ~~$121~~$381 million for other asset impairments, restructuring and other items in the ~~first~~second quarter of 2020, compared to expenses of $1$101 million in the ~~first~~second quarter of 2019. See note 12 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 contained four additional enumerated concerns related to production, quality control and investigations at this site. We have been working diligently to address the FDA’s concerns in a manner consistent with current good manufacturing practice (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 findings to the FDA’s satisfaction, we 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. We expect to generate approximately ~~$230~~$161 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.

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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 Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, we have been actively engaged with global regulatory ~~agency requests around the world~~authorities in reviewing our sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, we have initiated additional voluntary recalls. The aggregate direct impact of the sartan recalls on our 2018 and 2019 financial statements was $54 million, primarily related to inventory write-downs and returns. As a result of this loss, we initiated negotiations with Huahai and inIn December 2019, we reached a settlement with Huahai resolving our claims related to certain sartan API supplied by ~~Huahai to Teva.~~Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of ~~the~~its direct losses ~~suffered by Teva~~ and provide ~~Teva~~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 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, our operations in our manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. We expect ~~additional expenses and~~remediation of this issue to be completed in the third quarter of 2020. The impact to our financial results in the second quarter of 2020 was immaterial, however, if the remediation takes longer than expected there may be further loss of ~~revenues and profits in connection with this matter going forward.~~sales, customer penalties or impairments to related assets.

Restructuring

In the ~~first~~second quarter of 2020, we recorded ~~$39~~$33 million of restructuring expenses, compared to ~~$32~~$47 million in the ~~first~~second quarter of 2019. The expenses in the ~~first~~second quarter of 2020 were primarily related to residual expenses of the restructuring plan announced in ~~2017.~~2017 and other network consolidation impacts.

Legal Settlements and Loss Contingencies

In the ~~first~~second quarter of 2020, we recorded an ~~income~~expense of ~~$25~~$13 million in legal settlements and loss contingencies, compared to ~~an expense of $57~~$646 million in the ~~first~~second quarter of 2019. The ~~income~~expense in the ~~first~~second quarter of 2020 was mainly due to the increase of a reserve for certain legal expenses and settlement contributions related to products liability claims in the United States, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel. The expense in the second quarter of 2019, was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an ~~action brought against the sellers of Auden McKenzie (an acquisition~~estimated provision made ~~by Actavis Generics).~~for certain other opioid cases.

Other Income

Other income in the ~~first~~second quarter of 2020 was ~~$13~~$9 million, flat compared to ~~$6 million~~the second quarter of 2019.

Other income as a percentage of revenues was 0.2% in the ~~first quarter~~second quarters of both 2020 and 2019.

Operating Income (Loss)

Operating income was ~~$191~~$173 million in the ~~first~~second quarter of 2020, compared to operating ~~income~~loss of ~~$134~~$644 million in the ~~first~~second quarter of 2019.

Operating income as a percentage of revenues was ~~4.4%~~4.5% in the ~~first~~second quarter of 2020, compared to ~~3.2%~~operating loss as a percentage of revenues of 15.4% in the ~~first~~second quarter of 2019. This increase was mainly due to higher ~~profit in our Europe, International Markets and North America segments and income from~~ legal settlements ~~(compared to an expense~~and loss contingencies charges in the ~~first~~second quarter of ~~2019),~~2019 and lower intangible asset impairments charges in the second quarter of 2020, as well as the changes discussed above, partially offset by ~~higher intangible asset impairments and~~ higher other assets impairments, restructuring and other items in the ~~first~~second quarter of 2020.

Financial Expenses, Net

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The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended ~~March 31,~~June 30, 2020 and 2019:

Three months ended
March 31,

2020

2019

(U.S. $ in millions)

North America profit
$
550
$
498

Europe profit

502

403

International Markets profit

156

97

Total reportable segments profit

1,208

998

Profit of other activities

36

21

Total segments profit

1,244

1,019

Amounts not allocated to segments:

Amortization

258

283

Other assets impairments, restructuring and other items

121

1

Intangible asset impairments

649

469

Legal settlements and loss contingencies

(25
)
57

Other unallocated amounts

49

75

Consolidated operating income (loss)

191

134

Financial expenses, net

224

218

Consolidated income (loss) before income taxes
$
(33
) $
(84
)


	Three months ended
	June 30,
	2020			2019
	(U.S. $ in millions)
North America profit	$	573		$	504
Europe profit		244			316
International Markets profit		97			136

Total reportable segments profit		914			956
Profit of other activities		66			55

Total segments profit		979			1,011
Amounts not allocated to segments:
Amortization		249			285
Other assets impairments, restructuring and other items		381			101
Intangible asset impairments		120			561
Legal settlements and loss contingencies		13			646
Other unallocated amounts		44			62

Consolidated operating income (loss)		173			(644	)

Financial expenses, net		223			206

Consolidated income (loss) before income taxes	$	(51	)	$	(850	)

Tax Rate

In the ~~first~~second quarter of 2020, we recognized a tax benefit of ~~$59~~$104 million, on

pre-tax

loss of ~~$33~~$51 million. In the ~~first~~second quarter of 2019, we recognized a tax ~~expense~~benefit of $9$179 million, on

pre-tax

loss of ~~$84~~$850 million. Our tax rate for the ~~first~~second quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate on its ongoing business ~~operations.~~operations and other changes to tax positions and deductions.

The statutory Israeli corporate tax rate is 23% in 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 In Losses (Income) of Associated Companies, Net~~

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

Net Income (Loss) Attributable to Teva

Net income attributable to Teva ~~and net income attributable to ordinary shareholders were $69~~was $140 million in the ~~first~~second quarter of 2020, compared to net loss of ~~$105~~$689 million in the ~~first~~second quarter of 2019.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended ~~March 31,~~June 30, 2020 and 2019 were ~~1,096~~1,100 million and ~~1,090~~1,092 million shares, respectively.

In computing diluted earnings per share for the three months ended ~~March 31,~~June 30, 2020, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and

non-vested

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

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Diluted earnings per share were ~~$0.06~~$0.13 in the ~~first~~second quarter of 2020, compared to diluted loss per share of ~~$0.10~~$0.63 in the ~~first~~second quarter of 2019.

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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 ~~March 31,~~June 30, 2020 and 2019, the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,118~~1,119 million and 1,107 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the ~~first~~second quarter of 2020, approximately ~~50%~~46% 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 ~~first~~second quarter of 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%~~35%, ~~euro~~Russian ruble by 11%, Canadian dollar by 4%, British pound by 3% and ~~British pound~~euro by 2%. The following main currencies relevant to our operations increased in value against the U.S. dollar: new Israeli shekel by 4%2% and Japanese yen by 1%2%.

As a result, exchange rate movements during the ~~first~~second quarter of 2020, net of hedging, negatively impacted overall revenues by $3$79 million and ~~positively~~negatively impacted our operating income by ~~$27~~$35 million, in comparison with the ~~first~~second quarter of 2019. In the ~~first~~second quarter of 2020, the ~~positive~~negative hedging impact recognized under revenues was ~~$60~~$15 million, partially offset by a ~~$5 million~~ negative impact of $1 million recognized under cost of ~~sales.~~sales, in comparison with the second 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.

Comparison of Six Months Ended June 30, 2020 to Six Months Ended June 30, 2019

Unless specified otherwise, the factors used to explain quarterly changes on a year-over-year basis are also relevant for the comparison of the results for the six months ended June 30, 2020 and 2019. Where there are different factors affecting the six months comparison, we have described them below.

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	4,129		100	%	$	4,118		100.0	%
Gross profit		2,152		52.1	%		2,107		51.2	%
R&D expenses		300		7.3	%		340		8.3	%
S&M expenses		505		12.2	%		537		13.0	%
G&A expenses		228		5.5	%		230		5.6	%
Other (income) expense		(4	)	§			(2	)	§

Segment profit*	$	1,123		27.2	%	$	1,001		24.3	%

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

§	Represents an amount less than 0.5%.

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North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first six months of 2020 were $4,129 million, an increase of $11 million, flat compared to the first six months of 2019, mainly due to higher revenues from AUSTEDO, Anda and AJOVY, partially offset by a decrease in revenues of COPAXONE, generics products 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 six months ended June 30, 2020 and 2019:


	Six months ended June 30,				Percentage Change
	2020		2019		2019-2020
	(U.S. $ in millions)
Generic products	$	1,875	$	1,913		(2	%)
AJOVY		63		43		47	%
AUSTEDO		283		171		66	%
BENDEKA/TREANDA		208		247		(16	%)
COPAXONE		435		482		(10	%)
ProAir*		125		123		2	%
QVAR		97		124		(22	%)
Anda		800		729		10	%
Other		242		286		(16	%)

Total	$	4,129	$	4,118		§

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

§	Represents an amount less than 0.5%.

North America Gross Profit

Gross profit from our North America segment in the first six months of 2020 was $2,152 million, an increase of 2%, compared to $2,107 million in the first six months of 2019.

Gross profit margin for our North America segment in the first six months of 2020 increased to 52.1% compared to 51.2% in the first six months of 2019.

North America R&D Expenses

R&D expenses relating to our North America segment in the first six months of 2020 were $300 million, a decrease of 12%, compared to $340 million in the first six months of 2019.

North America S&M Expenses

S&M expenses relating to our North America segment in the first six months of 2020 were $505 million, a decrease of 6% compared to $537 million in the first six months of 2019.

North America G&A Expenses

G&A expenses relating to our North America segment in the first six months of 2020 were $228 million, flat compared to the first six months of 2019.

North America Profit

Profit from our North America segment in the first six months of 2020 was $1,123 million, an increase of 12%, compared to $1,001 million in the first six months of 2019.

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Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020					2019
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,404		100	%	$	2,448		100	%
Gross profit		1,371		57.1	%		1,404		57.4	%
R&D expenses		120		5.0	%		136		5.5	%
S&M expenses		390		16.2	%		431		17.6	%
G&A expenses		118		4.9	%		119		4.9	%
Other (income) expense		(2	)	§			(1	)	§

Segment profit*	$	746		31.0	%	$	719		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 six months of 2020 were $2,404 million, a decrease of 2% or $44 million, compared to the first six months of 2019. In local currency terms, revenues were flat compared to the first six months of 2019, mainly due to an increase in new generic product launches, offset by a decrease in revenues from COPAXONE and oncology products due to price erosion.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020		2019
	(U.S. $ in millions)
Generic products	$	1,769	$	1,763
COPAXONE		193		221
Respiratory products		186		181
AJOVY		9		1
Other		246		282

Total	$	2,404	$	2,448

Europe Gross Profit

Gross profit from our Europe segment in the first six months of 2020 was $1,371 million, a decrease of 2% compared to $1,404 million in the first six months of 2019.

Gross profit margin for our Europe segment in the first six months of 2020 decreased to 57.1% compared to 57.4% in the first six months of 2019.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first six months of 2020 were $120 million, a decrease of 12% compared to $136 million in the first six months of 2019.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first six months of 2020 were $390 million, a decrease of 9% compared to $431 million in the first six months of 2019.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first six months of 2020 were $118 million, flat compared to the first six months of 2019.

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Europe Profit

Profit from our Europe segment in the first six months of 2020 was $746 million, an increase of 4% compared to $719 million in the first six months of 2019. This increase was mainly due to lower expenses, partially offset by lower revenues, as discussed above.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020					2019**
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,053		100	%	$	1,103		100	%
Gross profit		552		52.5	%		582		52.7	%
R&D expenses		34		3.3	%		46		4.1	%
S&M expenses		211		20.0	%		234		21.2	%
G&A expenses		63		6.0	%		70		6.4	%
Other (income) expense		(8	)	(0.8	%)		(1	)	§

Segment profit*	$	253		24.0	%	$	233		21.1	%

§	Represents an amount less than 0.5%.

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

**	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 six months of 2020 were $1,053 million, a decrease of $50 million, or 5%, compared to the first six months of 2019. In local currency terms, revenues decreased by 2% compared to the first six months of 2019, mainly due to lower sales in Japan and loss of revenues from the sale of certain assets in the Israeli market. The revenues in the first six months of 2020 included $20 million from a positive hedging impact, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020		2019*
	(U.S. $ in millions)
Generic products	$	875	$	930
COPAXONE		23		27
Other		154		147

Total	$	1,053	$	1,103

*	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 six months of 2020 was $552 million, a decrease of 5% compared to $582 million in the first six months of 2019.

Gross profit margin for our International Markets segment in the first six months of 2020 decreased to 52.5%, compared to 52.7% in the first six months of 2019. The decrease was mainly due to lower sales in Japan.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the first six months of 2020 were $34 million, a decrease of 25% compared to $46 million in the first six months of 2019.

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International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the first six months of 2020 were $211 million, a decrease of 10% compared to $234 million in the first six months of 2019.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the first six months of 2020 were $63 million, a decrease of 10% compared to $70 million in the first six months of 2019.

International Markets Profit

Profit from our International Markets segment in the first six months of 2020 was $253 million, an increase of 8%, compared to $233 million in the first six months of 2019. This increase was mainly due to lower expenses and a positive hedging impact, partially offset by lower revenues, as discussed above.

Other Activities

Our revenues from other activities in the first six months of 2020 decreased by 3% to $642 million, compared to the first six months of 2019. In local currency terms, revenues decreased by 1%.

API sales to third parties in the first six months of 2020 were $388 million, a decrease of 1%, compared to the first six months of 2019. In local currency terms, revenues were flat compared to the first six months of 2019.

Teva Consolidated Results

Revenues

Revenues in the first six months of 2020 were $8,227 million, a decrease of 1%, or flat in local currency terms, compared to the first six months of 2019.

Exchange rate movements during the first six months of 2020, net of hedging, negatively impacted revenues by $82 million, compared to the first six months of 2019. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the first six months of 2020 was $3,826 million, an increase of 2% compared to the first six months of 2019.

Gross profit margin was 46.5% in the first six months of 2020, compared to 45.0% in the first six months of 2019. This increase was mainly due to the change in mix of products in our North America segment.

Research and Development (R&D) Expenses

R&D expenses in the first six months of 2020 were $446 million, a decrease of 17% compared to the first six months of 2019.

R&D expenses as a percentage of revenues were 5.4% in the first six months of 2020, compared to 6.5% in the first six months of 2019.

Selling and Marketing (S&M) Expenses

S&M expenses in the first six months of 2020 were $1,210 million, a decrease of 8% compared to the first six months of 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 14.7% in the first six months of 2020, compared to 15.8% in the first six months of 2019.

General and Administrative (G&A) Expenses

G&A expenses in the first six months of 2020 were $567 million, a decrease of 4% compared to the first six months of 2019.

G&A expenses as a percentage of revenues were 6.9% in the first six months of 2020, compared to 7.1% in the first six months of 2019.

Intangible Asset Impairments

We recorded expenses of $768 million for identifiable intangible asset impairments, in the first six months of 2020, compared to expenses of $1,030 million in the first six months of 2019. See note 5 to our consolidated financial statements.

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Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $502 million for other asset impairments, restructuring and other items in the first six months of 2020, compared to expenses of $103 million in the first six months of 2019. See note 12 to our consolidated financial statements.

Legal Settlements and Loss Contingencies

In the first six months of 2020, we recorded an income of $12 million in legal settlements and loss contingencies, compared to an expense of $703 million in the first six months of 2019. The income in the first six months of 2020 was mainly due to 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), partially offset by the increase of a reserve for certain legal expenses and settlement contributions related to products liability claims in the United States. The expense in the first six months of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases.

Other Income

Other income in the first six months of 2020 was $22 million, compared to $15 million in the first six months of 2019.

Other income as a percentage of revenues was 0.3% in the first six months of 2020, compared to 0.2% in the first six months of 2019.

Operating Income (Loss)

Operating income was $364 million in the first six months of 2020, compared to an operating loss of $510 million in the first six months of 2019.

Financial Expenses, Net

Financial expenses were $448 million in the first six months of 2020, compared to $425 million in the first six months of 2019. Financial expenses in the first six months of 2020 were mainly comprised of interest expenses of $482 million, partially offset by a gain of $29 million resulting from our hedging and derivatives activities. Financial expenses in the first six months of 2019 were mainly comprised of interest expenses of $454 million, partially offset by interest income of $27 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 six months ended June 30, 2020 and 2019:


	Six months ended June 30,
	2020			2019
	(U.S.$ in millions)
North America profit	$	1,123		$	1,001
Europe profit		746			719
International Markets profit		253			233

Total reportable segments profit		2,121			1,954
Profit (loss) of other activities		102			76

Total segments profit		2,223			2,029
Amounts not allocated to segments:
Amortization		507			568
Other asset impairments, restructuring and other items		502			103
Intangible asset impairments		768			1,030
Legal settlements and loss contingencies		(12	)		703
Other unallocated amounts		93			136

Consolidated operating income (loss)		364			(510	)

Financial expenses, net		448			425

Consolidated income (loss) before income taxes	$	(84	)	$	(934	)

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Tax Rate

In the first six months of 2020, we recognized a tax benefit of $163 million, on

pre-tax

loss of $84 million. In the first six months of 2019, we recognized a tax benefit of $170 million, on

pre-tax

loss of $934 million. Our tax rate for the first six months of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate on its ongoing business operations and other changes to tax positions and deductions.

Share in Losses (Income) of Associated Companies, Net

We did not have any share in losses of associated companies, net in the first six months of 2020, compared to share in losses of $4 million in the first six months of 2019.

Net Income (Loss) Attributable to Teva

Net income attributable to Teva was $209 million in the first six months of 2020, compared to net loss of $794 million in the first six months of 2019.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the six months ended June 30, 2020 and 2019 were 1,098 million and 1,091 million shares, respectively.

non-vested

In computing the diluted loss per share for the six months ended June 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.

Diluted earnings per share was $0.19 in the first six months of 2020, compared to diluted loss per share of $0.73 in the first six months of 2019.

Impact of Currency Fluctuations on Results of Operations

In the first six months of 2020, approximately 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 six months of 2020, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinian peso by 36%, Russian ruble by 6%, Polish zloty by 5%, British pound by 3% and euro by 2% (all compared on a

six-month

average basis).

As a result, exchange rate movements during the first six months of 2020 negatively impacted overall revenues by $82 million and our operating income by $9 million, in comparison to the first six months of 2019. In the first six months of 2020, the positive hedging impact recognized under revenues was $45 million, partially offset by a negative impact of $4 million recognized under cost of sales, in comparison to the first six 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 $54,991 million as of June 30, 2020, compared to $55,330 million as of March 31, ~~2020, compared to $57,470 million as of December 31, 2019.~~2020.

Our working capital balance, which includes accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was $209 million as of June 30, 2020, compared to $302 million as of March 31, 2020, ~~compared~~mainly due to ~~$74 million as~~favorable collection of ~~December 31, 2019.~~

~~Employee-related obligations, as of March 31, 2020, were $540 million, compared to $693 million as of December 31, 2019. The decrease~~payments from customers in the ~~first~~second quarter of 2020, ~~was mainly due to performance incentive payments to employees for 2019.~~which reduced the balance of our accounts receivables net of SR&A.

Cash investment in property, plant and equipment in the ~~first~~second quarter of 2020 was ~~approximately $128~~$131 million, compared to ~~$119~~$128 million ~~in the fourth quarter of 2019. Depreciation~~ in the first quarter of 2020. Depreciation in the second quarter of 2020 was ~~$141~~$134 million, compared to ~~$153~~$141 million in the ~~fourth~~first quarter of ~~2019.~~2020.

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Cash and cash equivalents and short-term and long-term investments as of ~~March 31,~~June 30, 2020 were ~~$1,850~~$2,431 million, compared to ~~$2,033~~$1,850 million as of ~~December~~March 31, ~~2019.~~

2020. The ~~decrease~~increase in the ~~first~~second quarter of 2020 was mainly due to ~~repayment at maturity of our $700 million 2.25% senior note in March 2020, partially offset by~~ cash generated during the quarter.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

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

The 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 8, 2022, with two

one-year

extension options, of which ~~$1.0~~$1.065 billion were extended to April 8, 2023. Tranche B has a maturity date of April 8, 2024.

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The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~March 31,~~June 30, 2020 no amounts were outstanding under the RCF. As of the date of this quarterly report, €200 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 ~~March 31,~~June 30, 2020, our debt was ~~$26,103~~$26,266 million, compared to ~~$26,908~~$26,103 million as of ~~December~~March 31, ~~2019.~~2020. This ~~decrease~~increase was mainly due to ~~repayment at maturity of our $700 million 2.25% senior notes, as well as~~ exchange rate fluctuations.

In March 2020, we repaid at maturity our $700 million 2.25% senior notes.

In July 2020, we repaid at maturity our EUR 1,010 million 0.375% senior notes.

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

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

Our financial leverage was 64% as of ~~March 31,~~June 30, 2020, similar to ~~the financial leverage as of December~~March 31, ~~2019.~~2020.

Our average debt maturity was approximately 6.1 years as of June 30, 2020, compared to 6.6 years as of March 31, ~~2020, compared to 6.4 years as of December 31, 2019.~~2020.

Total Equity

Total equity was $14,824 million as of June 30, 2020, compared to $14,588 million as of March 31, ~~2020, compared to $15,063 million as of December 31, 2019.~~2020. This ~~decrease~~increase was mainly due to ~~a negative~~net income of $53 million and $144 million positive impact ~~of $560 million~~ from exchange rate fluctuations.

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Exchange rate fluctuations affected our balance sheet, as approximately ~~36%~~37% of our net assets in the ~~first~~second quarter of 2020 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to ~~December~~March 31, ~~2019,~~2020, changes in currency rates had a ~~negative~~positive impact of ~~$560~~$144 million on our equity as of ~~March 31,~~June 30, 2020, mainly due to the changes in value against the U.S. dollar of: the Russian ruble by 12%, the Mexican peso by ~~26%, the Russian ruble by 28%~~3%, the Canadian dollar by 8%4%, the Polish zloty by 8%4%, the British pound by ~~6%, Indian rupee by 6%~~1%, the Chilean peso by 4%, the Croatian kuna by 4%2% and the euro by 2%. All comparisons are on a

quarter-end

basis.

Cash Flow

Cash flow generated from operating activities during the ~~first~~second quarter of 2020 was ~~$305~~$273 million, compared to ~~$112~~cash flow used in operating activities of $227 million in the ~~first~~second quarter of 2019. The increase in the ~~first~~second quarter of 2020 was mainly due to ~~higher operating profit~~favorable collection of payments from customers in ~~each~~the second quarter of ~~our three segments, as well as lower performance incentive payments to employees paid~~2020, resulting from increased sales in the first ~~quarter of 2020 compared to the amounts paid in the first quarter of 2019.~~quarter.

During the ~~first~~second quarter of 2020, we generated free cash flow of ~~$551~~$582 million, which we define as comprising ~~$305~~$273 million in cash flow generated from operating activities, ~~$368~~$401 million in beneficial interest collected in exchange for securitized accounts receivables and $6$39 million in proceeds from sale of property, plant and equipment, partially offset by $131 million in cash used for capital investment. During the second quarter of 2019, we generated free cash flow of $168 million, comprising $227 million in cash flow used in operating activities, $384 million in beneficial interest collected in exchange for securitized accounts receivables and $20 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by ~~$128 million in cash used for capital investment. During the first quarter of 2019, we generated free cash flow of $360 million, comprising~~ $112 million in cash flow generated from operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables and $11 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $125 million in cash used for capital investment. The increase in the ~~first~~second quarter of 2020 resulted mainly from higher cash flow generated from operating ~~activities, including significant consumption of inventories.~~activities.

Dividends

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

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Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities.

In 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, with subsequent milestone payments 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. The agreement stipulates additional development milestone payments to Regeneron, as well as future royalties.

For information regarding recent fasinumab phase 3 clinical trial results, see “—North America Segment —Product Launches and Pipeline” above.

In October 2016, we entered into an exclusive partnership with Celltrion to commercialize two of Celltrion’s biosimilar products in development for the U.S. and Canadian markets. We paid Celltrion $160 million, of which up to $60 million is refundable or creditable. 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, and were launched in the United States in November 2019 and March 2020, respectively.

In September 2017, we entered into a partnership agreement with Nuvelution for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. There are no further plans in this indication following clinical trial results received in February 2020, which failed to meet their primary endpoints.

We are committed to pay royalties to owners of

know-how,

partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

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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, 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.

Non-GAAP

financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such

non-GAAP

data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP,

non-GAAP

measures may not be comparable with the calculation of similar measures for other companies. These

non-GAAP

financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using

non-GAAP

financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

Investors should consider

non-GAAP

financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In arriving at our

non-GAAP

presentation, we exclude items that either have a

non-recurring

impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

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amortization of purchased intangible assets;

legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and scope;

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventory

step-up

and

in-process

R&D acquired in development arrangements;

expenses related to our equity compensation;

significant

one-time

financing costs and devaluation losses;

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 March 31, 2020

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

Excluded for
non-GAAP
measurement

GAAP

Amortization of
purchased
intangible
assets

Legal
settlements and
loss
contingencies

Impairment
of long lived
assets

Other
R&D
expenses

Restructuring
costs

Costs related
to regulatory
actions taken
in facilities

Equity
compensation

Contingent
consideration

Other
non-
GAAP items

Other
items

Non-GAAP

Cost of sales

2,294

223

4

6

15

2,046

R&D expenses

221

(4
)
5

—

221

S&M expenses

613

35

9

—

570

G&A expenses

304

10

4

290

Other (income) expense

(13
)
0

(13
)
Legal settlements and loss contingencies

(25
)
(25
)
—

Other assets impairments, restructuring and other items

121

75

39

6

1

—

Intangible assets impairments

649

649

—

Financial expenses, net

224

11

213

Income taxes

(59
)
(234
)
175

Share in losses of associated companies – net

1

—

1

Net income (loss) attributable to
non-controlling
interests

(44
)
(63
)
20

Total reconciled items

258

(25
)
724

(4
)
39

4

30

6

20

(286
)

EPS - Basic

0.06

0.70

0.76

EPS - Diluted

0.06

0.70

0.76


	Three Months Ended June 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		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
Cost of sales		2,107			219											6		6				16						1,859
R&D expenses		225									(13	)						5										233
S&M expenses		597			30													8										559
G&A expenses		264																11				8						245
Other (income) expense		(9	)																			(4	)					(6	)
Legal settlements and loss contingencies		13					13																					—
Other assets impairments, restructuring and other items		381							277					33						76		(6	)					—
Intangible assets impairments		120							120																			—
Financial expenses, net		223																							(5	)		229
Income taxes		(104	)																						(231	)		128
Net income (loss) attributable to non-controlling interests		(87	)																						(105	)		19

Total reconciled items					249		13		396		(13	)		33		6		30		76		15			(342	)		—

EPS - Basic		0.13																							0.42			0.55
EPS - Diluted		0.13																							0.42			0.55

The

non-GAAP

diluted weighted average number of shares was ~~1,096~~1,100 million for the three months ended ~~March 31,~~June 30, 2020.

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	Three Months Ended March 31, 2019																																	Three Months Ended June 30, 2019
	U.S. $ and shares in millions (except per share amounts)																																	U.S. $ and shares in millions (except per share amounts)
	Excluded for non-GAAP measurement																																	GAAP			Excluded for non-GAAP measurement																										Non-GAAP
	GAAP			Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Acquisition, integration and related expenses		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non- GAAP items		Other items			Corresponding tax effect			Unusual tax item*		Non- GAAP						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**		2,293			248										4		7					35										1,999
Cost of sales*																																			2,284			249								12		7							26									1,989
R&D expenses		261															6					—										255			276													6																271
S&M expenses		648			35												10															602			666			35										10																621
G&A expenses		292															12					—										280			296													12							(2	)								286
Other (income) expense		(6	)																													(6	)		(9	)																(9	)											—
Legal settlements and loss contingencies		57					57																									—			646					646																								—
Other assets impairments, restructuring and other items		1							20		2		32						(71	)		19										—			101							48		47						24					(18	)								—
Intangible assets impairments		469							469																							—			561							561																						—
Financial expenses, net		218																						(2	)							220			206																							8						198
Income taxes		9																									(177	)		61		125			(179	)																									(312	)		134
Share in losses of associated companies – net		4																						—								4
Net income (loss) attributable to non-controlling interests		8																						(8	)							16			18																							(8	)					26

Total reconciled items					283		57		489		2		32		4		34		(71	)		54		(10	)		(177	)		61								285		646		609		47		12		35		24		(9	)		6			—			(312	)

EPS - Basic		(0.10	)																											0.70		0.60			(0.63	)																									1.23			0.60
EPS - Diluted		(0.10	)																											0.70		0.60			(0.63	)																									1.23			0.60

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

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

Table of Contents


	Six Months Ended June 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			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		4,402			443									11		12				32									3,905
R&D expenses		446														9				(17	)								454
S&M expenses		1,210			64											17													1,129
G&A expenses		567														21				12									535
Other (income) expense		(22	)																	(3	)								(19	)
Legal settlements and loss contingencies		(12	)				(12	)																					—
Other assets impairments, restructuring and other items		502								352		73						83		(5	)								—
Intangible assets impairment		768								768																			—
Financial expenses, net		448																					6						442
Income taxes		(163	)																							(465	)		303
Net income (loss) attributable to non-controlling interests		(131	)																				(169	)					38

Total reconciled items					507		(12	)		1,121		73		11		60		83		18			(163	)		(465	)

EPS - Basic		0.19																								1.12			1.32
EPS - Diluted		0.19																								1.12			1.31

The

non-GAAP

diluted weighted average number of shares was ~~1,093~~1,098 million for the ~~three~~six months ended ~~March 31, 2019.~~

June 30, 2020.

Table of Contents


	Six months ended June 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**		4,577			497										16		14								61											3,988
R&D expenses		537															11																			525
S&M expenses		1,313			71												20																			1,223
G&A expenses		589															24								(1	)										566
Other (income) expense		(15	)																			(9	)													(6	)
Legal settlements and loss contingencies		703					703																													—
Other assets impairments, restructuring and other items		103							68		2		79						(47	)					1											—
Intangible assets impairment		1,030							1,030																											—
Financial expenses, net		425																										6								419
Corresponding tax effect		(170	)																												(490	)		61		259
Share in losses of associated companies – net		4																																		4
Net income (loss) attributable to non-controlling interests		26																										(16	)							42

Total reconciled items					568		703		1,098		2		79		16		69		(47	)		(9	)		60			(10	)		(490	)		61

EPS - Basic		(0.73	)																															1.93		1.20
EPS - Diluted		(0.73	)																															1.93		1.20

*	Interest disallowance as a result of the U.S Tax Cuts and Jobs Act.

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

Table of Contents

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the ~~first~~second quarter of 2020 were ~~$175~~$128 million or 17%, on

pre-tax

non-GAAP

income of ~~$1,030~~$751 million.

Non-GAAP

income taxes in the ~~first~~second quarter of 2019 were ~~$125~~$134 million, or 16%, on

pre-tax

non-GAAP

income of ~~$799~~$812 million. Our

non-GAAP

tax rate for the ~~first~~second quarter of 2020 was mainly affected by the mix of products we sold and ~~lower interest expense disallowance compared~~other changes to tax positions and deductions.

Non-GAAP

income taxes for the first ~~quarter~~six months of ~~2019.~~2020 were $303 million, or 17%, on

pre-tax

non-GAAP

income of $1,781 million.

Non-GAAP

income taxes in the first six months of 2019 were $259 million, or 16%, on

pre-tax

non-GAAP

income of $1,611 million.

We expect our annual

non-GAAP

tax rate for 2020 to be

17%-18%,

slightly lower than our

non-GAAP

tax rate for 2019, which was 18%. This is due to lower amounts of interest expense disallowance and other changes to tax positions and deductions.

Off-Balance

Sheet Arrangements

Except for securitization transactions, which are disclosed in note 10(f) to our consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, 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, 2019.

Recently Issued Accounting Pronouncements

See note 1 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, 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 ~~March 31,~~June 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~March 31,~~June 30, 2020, there were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.

6175

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 10 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, 2019.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as the

COVID-19

pandemic, could adversely affect our business, results of operations and financial condition.

The novel coronavirus outbreak, or

COVID-19,

has affected segments of the global economy and may materially affect our operations, including potentially interrupting our manufacturing, supply chain, clinical trial and

pre-commercial

launch activities.

COVID-19

originated in Wuhan, China, in December 2019 and was declared a pandemic by the World Health Organization in March 2020. The virus has since spread globally to multiple countries and regions, including to the United States, certain European countries, Israel, India and ~~Israel,~~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 markets. Protracted disruption of supply chains, including protectionist measures taken in response to the

COVID-19

pandemic, could have a material impact on our operations.

At present, we are not experiencing significant ~~impact~~impacts or delays from

COVID-19

on our business operations. ~~However, as~~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. In addition, we experienced reduced demand for certain products in the second quarter of 2020, resulting from the impact of the

COVID-19

pandemic on purchasing patterns. As we expect to be able to continue our operations and to satisfy the ~~higher~~ demand for our products, while protecting the health and safety of our employees and customers, the uncertainty surrounding the severity and continued spread of the coronavirus may result in a period of business disruption.

COVID-19

may impact our operations, including potential delays in supply and manufacturing or material interruptions to supply chains, clinical trials and

pre-commercial

launch activities and regulatory reviews and approvals.

COVID-19

may also affect our employees and employees and operations at third-party manufacturers or suppliers that may result in delays or disruptions in manufacturing and supply. Any

COVID-19

related disruption could have a material adverse impact on our business and our results of operation and financial condition. Changes in patient behavior resulting in less visits to physicians and medical facilities, or increased layoffs in the U.S. employment market, which may affect healthcare benefits coverage, may cause a decline or slower growth in the number of patients diagnosed with diseases for which we produce treatments, and as a result our revenues could be adversely affected. In addition, a recession or market correction resulting from the spread of

COVID-19

could materially affect our business and the value of our shares.

Additionally, if the

COVID-19

pandemic has a significant impact on our business and financial results for an extended period of time, our credit losses, liquidity and cash resources could be negatively impacted. We may be required to draw down funds from our RCF or pursue additional sources of financing to fund our operations. Capital and credit markets have been disrupted by the crisis and foreign exchanges have experienced increased volatility. As a result, access to additional financing may be challenging and is largely dependent upon evolving market conditions and other factors.

We have taken precautionary measures, and may take additional measures, intended to minimize the risk of

COVID-19

to our employees and operations. The extent of the impact of

COVID-19

on our operational and financial performance, including our ability to execute our business strategies in the expected time frame or at all, will depend on future developments, such as the duration and spread of the

COVID-19

pandemic and related restrictions and implications, all of which are uncertain and cannot be predicted.

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-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 ~~March 31,~~June 30, 2020.

Repurchase of Shares

We did not repurchase any of our shares during the three months ended ~~March 31,~~June 30, 2020 and currently cannot conduct share repurchases or pay dividends due to our accumulated deficit.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

62Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

Table of Contents

ITEM 3.6.

~~DEFAULTS UPON SENIOR SECURITIES~~

EXHIBITS

~~Not applicable.~~

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5.~~

~~OTHER INFORMATION~~

~~None.~~

~~Table of Contents~~

~~ITEM 6.~~

~~EXHIBITS~~

3.1		Articles of Association (1)

10.1		Amendment No. 1 dated as of June 9, 2020, to the Employment Agreement between Teva Pharmaceutical Industries Limited and Kåre Schultz (2)

18		Kesselman & Kesselman Preferability Letter *

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
	~~101.INS~~		XBRL Taxonomy Instance Document

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

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

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

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

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

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

*	~~Filed herewith.~~

*	Filed herewith.

(1)	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 9, 2020.

(2)	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 9, 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: ~~May 7,~~August 5, 2020	By:	/s/ Eli Kalif
	Name:	Eli Kalif
	Title:	Executive Vice President, Chief Financial Officer (Duly Authorized Officer)


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

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


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


PART I.		Financial Statements (unaudited)


Item 1.		Financial Statements (unaudited)

		Consolidated Balance Sheets	5	4

		Consolidated Statements of Income (loss)	6	5

		Consolidated Statements of Comprehensive Income (loss)	7	6

		Consolidated statements of changes in equity	8	7

		Consolidated Statements of Cash Flows	9

		Notes to Consolidated Financial Statements	10

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
	45
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	61
	75
Item 4.		Controls and Procedures	61	75

PART II.		OTHER INFORMATION


Item 1.		Legal Proceedings	62
	76
Item 1A.		Risk Factors	62
	76
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	62
	77
Item 3.		Defaults Upon Senior Securities	63
	77
Item 4.		Mine Safety Disclosures	63
	77
Item 5.		Other Information	63
	77
Item 6.		Exhibits	64	78

		Signatures	65	79


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

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

Total assets	$	55,330		$	57,470

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

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

Total long-term liabilities		28,420			28,733

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

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

		13,531			13,972

Non-controlling interests		1,057			1,091

Total equity		14,588			15,063

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


	Three months ended March 31, 2020
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,625		1,370		482		177		3,655
Licensing arrangements		25		12		3		1		41
Distribution		426		2		6		—		434
Other		6		19		74		129		227

	$	2,082	$	1,402	$	565	$	307	$	4,357


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

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


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

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


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

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


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

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


	Weighted average interest rate as of March 31, 2020			Maturity		March 31, 2020			December 31, 2019
						(U.S. $ in millions)
Senior notes EUR 1,010 million		0.38	%		2020	$	1,116		$	1,131
Senior notes EUR 1,500 million		1.13	%		2024		1,651			1,673
Senior notes EUR 1,300 million		1.25	%		2023		1,432			1,451
Senior notes EUR 1,000 million		6.00	%		2025		1,105			1,120
Senior notes EUR 900 million		4.50	%		2025		994			1,008
Senior notes EUR 750 million		1.63	%		2028		822			833
Senior notes EUR 700 million		3.25	%		2022		773			784
Senior notes EUR 700 million		1.88	%		2027		771			782
Senior notes USD 3,500 million		3.15	%		2026		3,494			3,494
Senior notes USD 1,475 million		2.20	%		2021		1,474			1,474
Senior notes USD 3,000 million		2.80	%		2023		2,995			2,995
Senior notes USD 2,000 million		4.10	%		2046		1,985			1,985
Senior notes USD 1,250 million		6.00	%		2024		1,250			1,250
Senior notes USD 1,250 million		6.75	%		2028		1,250			1,250
Senior notes USD 1,000 million		7.13	%		2025		1,000			1,000
Senior notes USD 844 million		2.95	%		2022		855			856
Senior notes USD 789 million		6.15	%		2036		783			782
Senior notes USD 700 million (1)		2.25	%		2020		—			700
Senior notes USD 613 million		3.65	%		2021		618			618
Senior notes USD 588 million		3.65	%		2021		587			587
Senior notes CHF 350 million		0.50	%		2022		366			361
Senior notes CHF 350 million		1.00	%		2025		366			362

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

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


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


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

	Three months ended March 31,
	2020		2019
	(U.S. $ in millions)
Restructuring
Employee termination	$	33	$	20
Other		6		12

Total	$	39	$	32


	Three months ended March 31,
	2020
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,082		$	1,402		$	565
Gross profit		1,062			823			305
R&D expenses		146			55			15
S&M expenses		251			202			106
G&A expenses		118			66			34
Other income		(2	)		(1	)		(6	)

Segment profit	$	550		$	502		$	156


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

Segment profit	$	498		$	403		$	97


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

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

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


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

Total	$	2,082	$	2,047


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

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


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

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


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

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

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