TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

(Unaudited)


	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2020			2019			2020			2019			2021			2020
Net revenues	$	3,978		$	4,093		$	12,206		$	12,420		$	3,982		$	4,357
Cost of sales		2,126			2,264			6,528			6,841			2,104			2,294

Gross profit		1,852			1,830			5,678			5,579			1,878			2,063
Research and development expenses		258			240			704			778			254			221
Selling and marketing expenses		605			595			1,815			1,908			585			613
General and administrative expenses		279			285			846			873			290			304
Intangible assets impairments		509			177			1,278			1,206			79			649
Goodwill impairment		4,628			0			4,628			0
Other assets impairments, restructuring and other items		(98	)		160			404			263			137			121
Legal settlements and loss contingencies		21			468			10			1,171			104			(25	)
Other income		(8	)		(14	)		(30	)		(29	)		(5	)		(13	)

Operating (loss) income		(4,342	)		(81	)		(3,978	)		(591	)		434			191
Financial expenses, net		117			211			565			635			290			224

Income (loss) before income taxes		(4,459	)		(292	)		(4,543	)		(1,226	)		144			(33	)
Income taxes (benefit)		16			11			(147	)		(159	)		62			(59	)
Share in (profits) losses of associated companies, net		(136	)		4			(135	)		8			(3	)		1

Net income (loss)		(4,340	)		(307	)		(4,261	)		(1,076	)		84			25
Net income (loss) attributable to non-controlling interests		10			7			(121	)		33			7			(44	)

Net income (loss) attributable to Teva		(4,349	)		(314	)		(4,140	)		(1,108	)		77			69

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(3.97	)	$	(0.29	)	$	(3.78	)	$	(1.02	)	$	0.07		$	0.06

Diluted	$	(3.97	)	$	(0.29	)	$	(3.78	)	$	(1.02	)	$	0.07		$	0.06

Weighted average number of shares (in millions):
Basic		1,096			1,092			1,095			1,091			1,099			1,093

Diluted		1,096			1,092			1,095			1,091			1,107			1,096

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

(Unaudited)


	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2020			2019			2020			2019			2021			2020
Net income (loss)	$	(4,340	)	$	(307	)	$	(4,261	)	$	(1,076	)	$	84		$	25
Other comprehensive income (loss), net of tax:
Currency translation adjustment		70			(138	)		(348	)		(5	)		(208	)		(560	)
Unrealized gain (loss) from derivative financial instruments		9			87			46			124
Unrealized gain from available-for-sale securities		0			(2	)		0			(1	)
Unrealized loss on defined benefit plans		0			0			0			(1	)
Unrealized gain (loss) from derivative financial instruments, net														7			30

Total other comprehensive income (loss)		79			(53	)		(302	)		117			(201	)		(530	)

Total comprehensive income (loss)		(4,261	)		(360	)		(4,563	)		(959	)		(117	)		(505	)
Comprehensive income (loss) attributable to non-controlling interests		27			7			(92	)		56			(60	)		(34	)

Comprehensive income (loss) attributable to Teva	$	(4,288	)	$	(367	)	$	(4,471	)	$	(1,015	)	$	(57	)	$	(471	)

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in

capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-controlling

interests

Total
equity

(U.S. dollars in millions)

Balance at June 30, 2020
1,202 57 27,374 (6,747 ) (2,703 ) (4,128 ) 13,852 972 14,824
Net Income (loss)
(4,349 ) (4,349 ) 10 (4,340 )
Other comprehensive income

(loss)
61 61 18 79
Issuance of Shares
* * * *
Stock-based compensation expense
29 29 29

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

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

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in

capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-controlling

interests

Total
equity

(U.S. dollars in millions)

Balance at June 30, 2019
1,198 56 27,258 (6,752 ) (2,312 ) (4,128 ) 14,122 1,128 15,251
Net Income (loss)
(314 ) (314 ) 7 (307 )
Other comprehensive income (loss)
(53 ) (53 ) (53 )
Issuance of Shares
* * *
Stock-based compensation expense
35 35 35

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

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

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in

capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-controlling

interests

Total
equity

(U.S. dollars in millions)

Balance at December 31, 2019
1,198 56 27,312 (6,956 ) (2,312 ) (4,128 ) 13,972 1,091 15,063
Net Income (loss)
(4,140 ) (4,140 ) (121 ) (4,261 )
Other comprehensive income (loss)
(331 ) (331 ) 29 (302 )
Issuance of Shares
4 * * *
Stock-based compensation expense
91 91 91

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

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

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

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

~~Table of Contents~~

Teva shareholders’ equity

Ordinary shares

Number of
shares (in
millions)

Stated
value

Additional
paid-in

capital

Retained
earnings
(accumulated
deficit)

Accumulated other
comprehensive
(loss)

Treasury
shares

Total Teva
shareholders’
equity

Non-controlling

interests

Total
equity

(U.S. dollars in millions)

Balance at December 31, 2018
1,196 56 27,210 (5,958 ) (2,459 ) (4,142 ) 14,707 1,087 15,794
Net Income (loss)
(1,108 ) (1,108 ) 33 (1,076 )
Other comprehensive income (loss)
94 94 23 117
Issuance of shares
2 * * *
Issuance of Treasury
shares
(8 ) 14 6 6
Stock-based compensation expense
99 99 99
Transactions with non-controlling interest
(8 ) (8 )
Other
(8 ) (8 ) (8 )

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


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non-controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2020		1,202		57		27,443		(10,946	)		(2,399	)		(4,128	)		10,026			1,035			11,061
Net Income (loss)								77									77			7			84
Other comprehensive income (loss)											(134	)					(134	)		(67	)		(201	)
Issuance of Shares		6		0*																			0*
Stock-based compensation expense						31											31			0			31

Balance at March 31, 2021		1,208	$	57	$	27,474	$	(10,869	)	$	(2,534	)	$	(4,128	)	$	10,000		$	975		$	10,975

*	Represents an amount less than $0.5 million.

Amounts may not add up due to rounding.

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


	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)								69									69			(44	)		25
Other comprehensive income (loss)											(540	)					(540	)		10			(530	)
Issuance of shares		3		0*																			0*
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

*	Represents an amount less than $0.5 million .

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)


	Nine months ended						Three months ended
	September 30,						March 31,
	2020			2019			2021			2020
Operating activities:
Net income (loss)	$	(4,261	)	$	(1,076	)	$	84		$	25
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		1,162			1,306			376			399
Impairment of long-lived assets and assets held for sale		6,314			1,302			127			724
Net change in operating assets and liabilities		(1,627	)		(784	)		(1,076	)		(666	)
Deferred income taxes – net and uncertain tax positions		(656	)		(652	)		(11	)		(233	)
Stock-based compensation		91			99			31			30
Net loss (gain) from investments and from sale of long lived assets		(232	)		10			74			24
Research and development in process		40			0
Other items		54			5			(10	)		2

Net cash provided by operating activities		885			210
Net cash provided by (used in) operating activities								(405	)		305

Investing activities:
Beneficial interest collected in exchange for securitized accounts receivables		1,102			1,108			476			368
Purchases of property, plant and equipment		(402	)		(406	)		(150	)		(128	)
Proceeds from sale of long lived assets		54			167
Other investing activities		(32	)		56
Proceeds from sale of business and long lived assets								138			6
Proceeds from sale of investments and other investing activities								44			6

Net cash provided by investing activities		722			925			508			252

Financing activities:
Repayment of senior notes and loans and other long-term liabilities		(1,871	)		(1,715	)		0			(700	)
Net change in short-term debt		115			96
Tax withholding payments made on shares and dividends		0			(52	)
Redemption of convertible senior notes								(491	)		0
Other financing activities		(4	)		(14	)		(2	)		0

Net cash used in financing activities		(1,760	)		(1,685	)		(493	)		(700	)

Translation adjustment on cash and cash equivalents		5			9			(44	)		(28	)

Net change in cash and cash equivalents		(148	)		(541	)		(434	)		(171	)
Balance of cash and cash equivalents at beginning of period		1,975			1,782			2,177			1,975

Balance of cash and cash equivalents at end of period	$	1,827		$	1,241		$	1,743		$	1,804

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	1,055		$	1,123		$	488		$	375

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

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 normal and 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 Annual Report on Form

10-K

for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission (“SEC”). ~~Amounts~~The

year-end

balance sheet data was derived from the audited consolidated financial statements as of December 31, ~~2019 were derived from the audited balance sheet at that date,~~2020, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are ~~included.~~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 the

COVID-19

pandemic 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 the

COVID-19

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

COVID-19

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

The results of operations for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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

~~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 period ended ~~September 30, 2020~~March 31, 2021 as a result of adopting this standard update. The Company ~~will continue~~is continuing to evaluate ~~this guidance to determine~~ the potential impact ~~it may have in~~of the ~~future~~replacement of the LIBOR benchmark on its ~~consolidated financial statements.~~

~~In April 2019,~~interest rate risk management activities and has started initial negotiations to transform the ~~FASB issued ASU~~

~~2019-04~~

~~“Codification Improvements~~facility base rate of its securitization program. However, it is not expected 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 nohave a material impact on ~~its~~the consolidated financial ~~statements.~~results.

~~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.

~~In August 2018, the FASB issued ASU~~

~~2018-15~~

~~“Intangibles—Goodwill and~~

~~other—Internal-use~~

~~software (Subtopic~~

~~350-40):~~

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

~~internal-use~~

~~software. 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.~~

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES~~

~~LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~In August 2018, the FASB issued ASU~~

~~2018-13~~

“Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. 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 pronouncements, not yet adopted~~

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

~~2020-06~~

~~“Debt – Debt with Conversion and Other Options (Subtopic~~

~~470-20)~~

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

In December 2019, the FASB issued ASU

2019-12

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

year-to-date

loss exceeds the anticipated loss for the year.

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

non-income-based

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

~~Revision of Previously Reported Consolidated Financial Statements~~

In connection with the preparation of Teva’s consolidated financial statements for the fiscal year ended December 31, 2019, Teva determined that in the full years and interim periods of fiscal years 2017 and 2018, and the 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).

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.~~

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~The impact~~rates in the annual effective tax rate computation in the interim period that includes the enactment date. Teva adopted the provisions of this ~~revision is~~update as of January 1, 2021. Based on the Company’s evaluation of the above provisions, the Company notes that items (1) and (4) of this paragraph are not material. The adoption of this guidance did not have a ~~decrease in net revenues with an offsetting decrease in cost of sales. There is no~~material impact on ~~gross profit, operating income or earnings per share. In addition, there is no impact on Teva’s balance sheet or statement of cash flows for~~ the ~~related periods.~~

Company’s consolidated financial statements.

Recently issued accounting pronouncements, not yet adopted

In August 2020, the FASB issued ASU

2020-06

“Debt – Debt with Conversion and Other Options

(Subtopic 470-20)

and Derivatives and

Hedging—Contracts

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

Net revenues

Cost of sales


As reported

Adjustment

As revised

As reported

Adjustment

As revised


(U.S. $ in millions)

2019
   Q1    4,295    (146 ) 4,149    2,440    (146 ) 2,293
   Q2    4,337    (159 ) 4,177    2,443    (159 ) 2,284
   Q3    4,264    (171 ) 4,093    2,435    (171 ) 2,264

Total

12,896

(477
)

12,420

7,318

(477
)

6,841

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~financial statements.

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 2 – Certain transactions:

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

Alvotech Partnership

In August 2020, Teva entered into ~~an exclusive~~a partnership agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this partnership contains biosimilar candidates addressing multiple therapeutic ~~areas.~~areas, including a proposed biosimilar to Humira

450

million,

as well as royalty payments,

may be

payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of ~~the~~these biosimilars. Abbvie recently sued Alvotech for allegedly misappropriating confidential information relating to Humira

. Alvotech has disputed these claims.

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

received 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

million milestone payment in March

2020

that was recognized as revenue in the first quarter of ~~2020.~~

2020

. The agreement stipulates additional development and commercial milestone payments to Teva of up to $

$150

million, as well as future royalties.

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. The partnership agreement was terminated on

February 5, 2021.

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,

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

approved, to commercialize the product in Japan. Otsuka paid Teva an upfront payment of $50

million in consideration for the transaction. Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 ~~million.~~million, which was recognized as revenue in the third quarter of 2020. Teva may receive additional milestone payments upon achievement of

certain development and revenue targets. Otsuka will also pay Teva royalties on AJOVY sales 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~~

$160 million, of which Teva received an aggregate credit of $60 million as

~~$60~~

~~million as~~ of ~~September 30, 2020.~~ March 31, 2021.

Teva and Celltrion share the profit from

the commercialization of these products. These two products, ~~TRUXIMA~~Truxima and ~~HERZUMA,~~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 (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of

2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of up to $2,230

million, as well as future royalties. Currently, all non-essential activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Tel-Aviv~~

~~Headquarters Lease Agreement~~

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

~~$74 million as operating lease~~

~~right-of-use~~

~~and $66 million as operating lease liability.~~

Assets and Liabilities Held For Sale:

Certain assets of Teva’s business venture in Japan

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

In July 2020

~~During the second quarter of 2020,~~, Teva and Takeda ~~decided~~entered into a purchase agreement to sell the majority of the business venture’s generic and operational assets. ~~The purchase agreement~~This transaction was ~~signed in July 2020 and Teva expects this transaction to close by early 2021. The closing of the transaction is subject to customary closing conditions.~~completed on February 1

, 2021

Until the closing date Teva ~~is accounting~~accounted for the business venture assets and liabilities ~~to be~~that were sold, as held for sale and determined that the fair value less cost ~~to sell~~of sale did not exceed the carrying value, resulting in an impairment charge

of ~~$261~~

247

million in other assets impairments, restructuring

and

other items recognized in 2020 and in the ~~second~~first quarter of ~~2020.~~2021.

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 as of March 31, 2021, include the ~~Teva-Takeda business venture~~sale of certain OTC assets ~~that are held for sale~~ and ~~other~~ manufacturing assets that are expected to be sold within the next year. The OTC assets were sold in April 2021. Assets held for sale as of December 31, 2020, included the Teva-Takeda business venture assets sold during the first quarter of 2021 and the sale of certain OTC assets and other manufacturing assets.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The table below summarizes all Teva assets included as held for sale as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30,

December 31,


2020

2019


(U.S. $ in millions)

Inventories
   160    0
Property, plant and equipment, net and others
   239    98
Goodwill
   27    0
Adjustments of assets held for sale to fair value
   (313 )    (11 )




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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	March 31,			December 31,
	2021			2020
	(U.S. $ in millions)
Inventories		0			146
Property, plant and equipment, net and others		99			312
Goodwill		2			27
Adjustments of assets held for sale to fair value		(14	)		(296	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	87		$	189

NOTE 3 – Revenue from contracts with customers:

Disaggregation of revenue

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


	Three months ended September 30, 2020												Three months ended March 31, 2021
	North America			Europe			International Markets		Other activities		Total		North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)												(U.S. $ in millions)
Sale of goods		1,660			1,116			478		173		3,427		1,668		1,178		440		177		3,463
Licensing arrangements		17			7			2		1		27		32		14		3		1		49
Distribution		341			§			9		—		350		289		0§		19		0		308
Other		(1	)		(8	)		41		142		174		0§		22		28		111		162

	$	2,017		$	1,116		$	529	$	316	$	3,978	$	1,989	$	1,214	$	490	$	289	$	3,982

§ Represents an amount less than $1 million.

Three months ended September 30, 2019


North
America


Europe


International
Markets


Other
activities


Total


(U.S. $ in millions)

Sale of goods
   1,674    1,153    511    176    3,514
Licensing arrangements
   26    7    1    1    36
Distribution


351



1



5



—



357

Other
   §    2    48    136    186










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


	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

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

Nine months ended September 30, 2020


North
America

Europe

International
Markets

Other
activities

Total


(U.S. $ in millions)

Sale of goods
   4,943    3,487    1,417    561    10,408
Licensing arrangements
   59    22    6    3    90
Distribution
   1,141    3    21    —    1,165
Other
   3    9    138    394    543










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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Nine months ended September 30, 2019


North
America

Europe

International
Markets

Other
activities

Total


(U.S. $ in millions)

Sale of goods
   4,997    3,586    1,505    566    10,653
Licensing arrangements
   92    22    3    4    121
Distribution


1,080



1



14



—



1,095

Other
   §    2    146    402    549










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

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

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

Variable consideration

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

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

SR&A to U.S. customers comprised approximately ~~80%~~79% of the Company’s total SR&A as of ~~September 30, 2020,~~March 31, 2021, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:

Sales Reserves and Allowances


Reserves
included in
Accounts
Receivable, net

Rebates

Medicaid

and
other
governmental
allowances

Chargebacks

Returns

Other

Total reserves
included in SR&A

Total


(U.S. $ in millions)

Balance at December 31, 2019
   $ 87 $ 2,895 $ 1,109 $ 1,342 $ 637 $ 176 $ 6,159 $ 6,246
Provisions related to sales made in current year
   285 3,649 566 6,268 299 55 10,837 11,122
Provisions related to sales made in prior
period
s
   —    (192 ) (116 ) (33 ) (11 ) 2 (350 ) (350 )
Credits and payments
   (298 ) (4,224 ) (650 ) (6,418 ) (289 ) (79 ) (11,660 ) (11,958 )
Translation differences
   —    10 4 2 — (4 ) 12 12


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


	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, 2020	$	80		$	2,054		$	828		$	1,108		$	686		$	148		$	4,824		$	4,904
Provisions related to sales made in current year		100			1,126			164			2,043			76			23			3,432			3,532
Provisions related to sales made in prior periods		—			(55	)		(11	)		6			(40	)		(17	)		(117	)		(117	)
Credits and payments		(102	)		(1,210	)		(188	)		(1,987	)		(101	)		(40	)		(3,526	)		(3,628	)
Translation differences		—			(17	)		(4	)		(3	)		(3	)		(2	)		(29	)		(29	)

Balance at March 31, 2021	$	78			1,898		$	789		$	1,167		$	618		$	112		$	4,584		$	4,662


	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		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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Reserves
included in
Accounts
Receivable, net

Rebates

Medicaid and
other
governmental
allowances

Chargebacks

Returns

Other

Total reserves
included in SR&A

Total


(U.S.$ in millions)

Balance at December 31, 2018
$ 175 $ 3,006 $ 1,361 $ 1,530 $ 638 $ 176 $ 6,711 $ 6,886
Provisions related to sales made in
current

year
   334 4,004 760 7,196 195 308 12,463 12,797
Provisions related to sales made in
prior periods
   3 (28 ) (2 ) (1 ) 23 (7 ) (15 ) (12 )
Credits and payments
   (356 ) (4,276 ) (882 ) (7,299 ) (251 ) (295 ) (13,003 ) (13,359 )
Translation differences
   —   (14 ) (4 ) (1 ) (1 ) 1 (19 ) (19 )


Balance at September 30, 201
9
   $ 156 2,692 $ 1,233 $ 1,425 $ 604 $ 183 $ 6,137 $ 6,293

~~Allowance for credit losses~~

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

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:

September 30,
2020

December 31,
2019


(U.S. $ in millions)

Finished products
   $ 2,384    $ 2,504
Raw and packaging materials
   1,334    1,183
Products in process
   635    583
Materials in transit and payments on account
   163    151




Total
   $ 4,516    $ 4,422


	March 31, 2021		December 31, 2020
	(U.S. $ in millions)
Finished products	$	2,253	$	2,378
Raw and packaging materials		1,297		1,231
Products in process		663		605
Materials in transit and payments on account		193		189

Total	$	4,406	$	4,403

NOTE 5 – Identifiable intangible assets:

Identifiable intangible assets consisted of the following:

Gross carrying amount net of
impairment

Accumulated

amortization

Net carrying amount


September 30,

December 31,

September 30,

December 31,

September 30,

December 31,


2020

2019

2020

2019

2020

2019


(U.S. $ in millions)

Product rights
   $ 19,520    $ 19,663    $ 11,665    $ 10,640    $ 7,856    $ 9,023
Trade names
   609    600    154    126    455    474
In process research and development
   998    1,735    —    —      998    1,735












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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2021		2020		2021		2020		2021		2020
	(U.S. $ in millions)
Product rights	$	19,213	$	19,650	$	12,019	$	12,094	$	7,194	$	7,556
Trade names		610		621		173		165		437		456
In process research and development		814		911		—		—		814		911

Total	$	20,637	$	21,182	$	12,192	$	12,259	$	8,445	$	8,923

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 1210 years.

Amortization of intangible assets was ~~$251~~$242 million and ~~$255~~$258 million in the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively.~~

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

~~nine~~

~~months ended September 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 of $

~~964~~

$780 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 for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019~~

were ~~$509~~$79 million and ~~$177~~$649 million, respectively.

~~Impairments in the third quarter of 2020 consisted of:~~

~~(a)~~

~~IPR&D assets~~

~~of $360~~

~~million,~~

~~inly~~

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

~~Revlimid~~

)

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

~~(b)~~

~~Identifiable product rights~~

~~of $149~~

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

~~expected relaunch of~~

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

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

~~(a)~~

~~Identifiable product rights of $99 million, mainly due to supply challenges in connection with products primarily marketed in Hong Kong; and~~

~~(b)~~

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

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

~~Impairments of long-lived intangible assets for the nine months ended September 30, 2020 and 2019, were $1,278 million and $1,206 million, respectively.~~

Impairments in the first ~~nine months~~quarter of ~~2020~~2021 consisted of:

(a)

IPR&D assets of ~~$708 million,~~

~~mainly~~

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

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

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

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

~~(iii) $213~~

$51 million related to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

(b)

Identifiable product rights of ~~$570~~$28 million ~~mainly due to: (i) $271 million~~

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

~~Generics~~

~~that are~~

~~primarily marketed in the United States;~~

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

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

~~expected relaunch of~~

~~metformin~~

~~tablets~~

~~Impairments in the first nine months of 2019 consisted of:~~

~~(a)~~

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

States.

Impairments in the first quarter of 2020 consisted of:

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~(b)~~

(a)

IPR&D assets of ~~$539 million:~~$331 million, primarily due to: (i) ~~$355~~$211 million related to AUSTEDO for the treatment of ~~various~~Tourette syndrome in pediatric patients in the United States; and (ii) $106 million related to generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch ~~date or discount rate)~~date) 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 (iii) $59 million related to a change in assumptions concerning the future market share of a number of products within Teva’s Actavis Generics pipeline in Europe.

States; and;

(b)

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

The fair value measurement of the impaired intangible assets in the first ~~nine~~three months of ~~2020~~2021 is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The discount rate applied ranged from 7.5% to 9%. A probability of success factor ~~of 80%~~

ranging from

40% to 90% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 6 – Goodwill:

The changes in the carrying amount of goodwill for the period ended ~~September 30, 2020~~March 31, 2021 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
   —   (8 ) (19 ) —      (27 )
Goodwill impairment

(4,628
)
—
—
—

(4,628
)
Translation differences
   (10 ) 253 (206 ) —      37




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


	North America		Europe			International Markets			Other		Total
	(U.S. $ in millions)
Balance as of December 31, 2020 (1)	$	6,473	$	9,102		$	2,362		$	2,687	$	20,624
Changes during the period:
Translation differences		4		(312	)		(14	)				(322	)

Balance as of March 31, 2021 (1)	$	6,477	$	8,790		$	2,348		$	2,687	$	20,302

(1)	Accumulated goodwill impairment as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was approximately $25.6 ~~billion and $21.0~~ ~~billion~~ ~~, respectively.~~ billion.

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~~recognize an impairment of goodwill allocated to these reporting units in the future.

~~First Quarter Developments~~

During the first quarter of ~~2020,~~2021, management assessed developments that occurred during the quarter ~~including expected effects of the~~

~~COVID-19~~

~~pandemic on its business,~~ to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount. 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.

Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, ~~2020~~2021 and, therefore, no quantitative assessment was performed.

~~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 to more closely align the impairment assessment date with the Company’s long-term planning and forecasting process.

During the second quarter of 2020, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test and utilized the assistance of an independent valuation expert. No goodwill impairment charge was recorded during the second quarter of 2020.

As part of the aforementioned analysis, Teva analyzed the aggregated fair value of its reporting units compared to its market capitalization as part of its annual goodwill impairment test, in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis. Management noted differences between the market capitalization and management’s internal projections as of the end of the second quarter. As of June 30, 2020, those differences were believed to be attributable to the following:

•

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

Table of Contents

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

•

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

•

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

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

~~Third Quarter Developments~~

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

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

•

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

•

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

~~COVID-19~~

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

•

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

•

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

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

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

~~Table of Contents~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Following the goodwill impairment charge recorded in the third quarter of 2020 in the North America reporting unit, the carrying value of the North America reporting unit equaled its fair value as of September 30, 2020. Therefore, if business conditions or expectations were to change materially, it may be necessary to record further impairment charges to the North America reporting unit in the future.

The other reporting units all have fair value in excess of

over their book values as of March 31, 2021.

NOTE 7 – Debt obligations:

a. Short-term debt:


							September 30, 2020		December 31, 2019								March 31, 2021		December 31, 2020
		Weighted average interest rate as of September 30, 2020			Maturity		September 30, 2020		December 31, 2019			Weighted average interest rate as of March 31, 2021			Maturity		March 31, 2021		December 31, 2020
							(U.S. $ in millions)										(U.S. $ in millions)
Revolving Credit Facility			LIBOR+1.75	%			$	117	$	—
Convertible senior debentures			0.25	%		2026		514		514			0.25	%		2026		23		514
Current maturities of long-term liabilities	Current maturities of long-term liabilities							1,474		1,831	Current maturities of long-term liabilities							2,674		2,674

Total short-term debt	Total short-term debt						$	2,106	$	2,345	Total short-term debt						$	2,697	$	3,188

Convertible senior debentures

The principal amount of Teva’s 0.25% convertible senior debentures due 2026, ~~with~~was $23 million as of March 31, 2021 and $514 million ~~principal amount outstanding~~ as of

~~September~~

~~30, 2020 and~~ December 31, ~~2019,~~2020. These convertible senior debentures 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 senior debentures ~~will be able to cause Teva to redeem~~exercised their optional repurchase right and redeemed $491 million of the convertible senior debentures on February 1, ~~2021.~~2021,

which was the date to exercise this right.

~~Long-term debt:~~

Weighted average interest
rate as of September 30,
2020

Maturity

September 30,
2020

December 31,
2019


(U.S. $ in millions)

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




Total senior notes

   25,078    26,496
Other long-term debt
   1.13 % 2026    1    1
Less current maturities

   (1,474 )    (1,831 )
Less debt issuance costs

   (89 )    (103 )




Total senior notes and loans

   $ 23,515    $ 24,562

~~(1)~~

~~In July 2020, Teva repaid at maturity~~

€

~~1,010 million of its 0.375% senior notes.~~

~~(2)~~

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

Table of Contents

~~TEVA PHARMACEUTICAL INDUSTRIES~~

~~LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

b. Long-term debt:


	Weighted average interest rate as of March 31, 2021			Maturity		March 31, 2021			December 31, 2020
						(U.S. $ in millions)
Senior notes EUR 1,500 million		1.13	%		2024		1,752			1,839
Senior notes EUR 1,300 million		1.25	%		2023		1,520			1,595
Senior notes EUR 1,000 million		6.00	%		2025		1,172			1,230
Senior notes EUR 900 million		4.50	%		2025		1,054			1,107
Senior notes EUR 750 million		1.63	%		2028		873			916
Senior notes EUR 700 million		3.25	%		2022		820			861
Senior notes EUR 700 million		1.88	%		2027		818			860
Senior notes USD 3,500 million		3.15	%		2026		3,495			3,495
Senior notes USD 1,475 million		2.20	%		2021		1,474			1,472
Senior notes USD 3,000 million		2.80	%		2023		2,997			2,996
Senior notes USD 2,000 million		4.10	%		2046		1,986			1,986
Senior notes USD 1,250 million		6.00	%		2024		1,250			1,250
Senior notes USD 1,250 million		6.75	%		2028		1,250			1,250
Senior notes USD 1,000 million		7.13	%		2025		1,000			1,000
Senior notes USD 844 million		2.95	%		2022		851			853
Senior notes USD 789 million		6.15	%		2036		783			783
Senior notes USD 613 million		3.65	%		2021		615			616
Senior notes USD 588 million		3.65	%		2021		587			586
Senior notes CHF 350 million		0.50	%		2022		372			397
Senior notes CHF 350 million		1.00	%		2025		372			398

Total senior notes							25,041			25,490
Other long-term debt		0.90	%		2026		1			1
Less current maturities							(2,674	)		(2,674	)
Less debt issuance costs							(80	)		(86	)

Total senior notes and loans						$	22,288		$	22,731

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

Long-term debt as of ~~September 30, 2020~~March 31, 2021 is effectively denominated in the following currencies: ~~63%~~61% in U.S. dollar, ~~34%~~36% in euro and 3% 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 $2.3 billion unsecured syndicated revolving credit facility entered into in April 2019 (“RCF”).

The RCF agreement provides for two separate tranches, a $1.15 billion tranche A and a $1.15 billion tranche B. Tranche A had a maturity date of April 8, 2022, of which an amount of $1.065 billion was extended twice, initially to April 8, 2023 and then to April 8, 2024. Tranche B has a maturity date of April 8, 2024. 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 $1.065 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 5.75x~~was 5.50x through March 31, 2021, gradually declines to 5.00x in the third and fourth quarters of ~~2020 and declines to 5.50x~~2021, 4.50x in the first ~~and second quarters~~quarter of ~~2021,~~2022, and continues to gradually decline over the remaining term of the ~~RCF.~~RCF to 3.50x in the first quarter of 2023.

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

~~2020~~

~~, €~~

~~100 million was~~

~~outstanding under the RCF. As~~March 31, 2021, and as of the date of this

Quarterly Report on Form

10-Q,

~~, €270 million was~~0 amounts were outstanding under the RCF. Based on current and forecasted results,

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

issued.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Under specified circumstances, including

non-compliance

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

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

NOTE 8 – Derivative instruments and hedging activities:

a. Foreign exchange risk management:

In the first ~~nine~~three months of ~~2020,~~2021, approximately 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~~subsidiaries 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 Russian ruble, 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.

~~In the past, the~~

The Company ~~hedged~~may choose to hedge against possible fluctuations in foreign ~~subsidiaries’~~subsidiaries net assets (“net investment hedge”) and ~~from time to time enters~~entered into ~~cross-currency~~cross currency swaps and forward contracts in the past 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 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.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

c. Derivative instruments ~~notional amounts~~outstanding:

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

September 30,

December 31,


2020

2019


(U.S. $ in millions)

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

~~d. Derivative instrument outstanding:~~

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


	Fair value											Fair value
	Designated as hedging instruments					Not designated as hedging instruments						Not designated as hedging instruments
	September 30, 2020		December 31, 2019			September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Reported under	(U.S. $ in millions)											(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	0	$	—		$	36		$	32		$	63		$	24
Liability derivatives:
Other current liabilities:
Cross-currency swaps—net investment hedge		0		(22	)		0			—
Option and forward contracts		0		—			(67	)		(41	)		(23	)		(79	)

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 designated in fair value or cash flow hedging relationships:

Financial expenses, net


Other comprehensive income
(loss)


Three months ended,


Three months ended,


September 30,

2020


September 30,
2019


September 30,

2020


September 30,
2019

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

$
117


$
211


$
79


$
(53
)
Cross-currency swaps—cash flow hedge (1)


0



(1
)


0



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


0



(7
)


0



(39
)
Interest rate swaps—fair value hedge (3)


0



*



0



0

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Financial expenses, net

Other comprehensive income (loss)


Nine months ended,

Nine months ended,


September 30,

2020

September 30,
2019

September 30,

2020

September 30,
2019

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded
   $ 565    $ 635    $ (302 )    $ 117
Cross-currency swaps
—
cash flow hedge (1)
   0      (2 )    0      (49 )
Cross-currency swaps
—
net investment hedge (2)
   (2 )    (22 )    (21 )    (46 )
Interest rate swaps—fair value hedge (3)
   0      2    0      0


	Financial expenses, net					Other comprehensive income (loss)
	Three months ended,					Three months ended,
	March 31, 2021		March 31, 2020			March 31, 2021			March 31, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	290	$	224		$	(201	)	$	(530	)
Cross-currency swaps—net investment hedge (1)		0		(2	)		0			(21	)

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,
	March 31, 2021			March 31, 2020		March 31, 2021			March 31, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	290		$	224	$	(3,982	)	$	(4,357	)
Option and forward contracts (2)		(70	)		24		0—			—
Option and forward contracts economic hedge (3)		0—			—		(28	)		(60	)

Financial expenses, net


Net revenues


Three months ended,


Three months ended,


September 30,

2020


September 30,
2019


September 30,

2020


September 30,
2019

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

$
117


$
211


$
(3,978
)

$
(4,093
)
Option and forward contracts (4)


40



(35
)


—



—

Option and forward contracts economic hedge (5)


—



—



3



(4
)

Financial expenses, net


Net revenues


Nine months ended,


Nine months ended,


September 30,

2020


September 30,
2019


September 30,

2020


September 30,
2019

Reported under

(U.S. $ in millions)

Line items in which effects of hedges are recorded

$
565


$
635


$
(12,206
)

$
(12,420
)
Option and forward contracts (4)


78



(42
)


—



—

Option and forward contracts Economic hedge (5)


—



—



(37
)


—

(1)

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

~~(2)~~

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

float-for-float

interest rates paid and received. In the first quarter of 2020, these cross-currency swap agreements expired. The settlement of these transactions resulted in cash proceeds of $3 million.

~~(3)~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 over the life of the debt as additional interest expense.

~~(4)~~(2)

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)~~(3)

Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies ~~during the period~~to protect its projected operating results for ~~which such instruments are transacted.~~2021. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. In 2020, Teva recognized a loss of $27 million in relation with the 2021 hedging program Teva entered into in the second half of 2020. In the first three months of 2021, the positive impact from these derivatives recognized under revenues was $28 million. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. In the first nine months of 2020, the positive impact from these derivatives recognized under revenues was $37 million, partially offset by a $3 million negative impact recognized under cost of sales. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

d. 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 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 upon the debt issuance. The termination of these transactions resulted in a loss position of $493 million, which was recorded in other comprehensive income (loss) and is amortized under financial expenses, net over the life of the ~~debt.~~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

each of

the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively, and losses of $23 million and $22 million were recognized under financial expenses, net for the nine months ended September 30, 2020 and 2019, respectively.~~2020.

Fair value hedge

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

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

Cash flow hedge

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

With respect to the interest rate swap and cross-currency swap agreements, 0 gains were recognized for the three months ended March 31, 2021, compared to gains of $1 million ~~and $3 million were~~ recognized under financial expenses, net for the three months ended September 30, 2020 and 2019, respectively, and gains of $3 million and $6 million were recognized under financial expenses, net for the nine months ended September 30, 2020 and 2019, respectively.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

March 31, 2020.

NOTE 9 – Legal settlements and loss contingencies:

~~In the third quarter of 2020, Teva recorded~~

~~expenses~~

~~of $21 million in legal~~Legal settlements and loss contingencies for the first quarter of 2021

were

$104 million, compared to

~~expenses~~ an income of

~~$468~~$25 million in the ~~third~~first quarter of ~~2019.~~2020. The expense in the ~~third~~first quarter of 2021 was mainly due to the provision for the carvedilol patent litigation (see note 10). The income in the first quarter of 2020 was mainly due to

~~settling in part antitrust claims challenging a patent settlement agreement~~

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

~~In the first nine months of 2020, Teva recorded~~

~~expenses~~

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

~~expenses of~~

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

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses

and other taxes and long-term liabilities

was ~~$1,624~~$1,730 million and ~~$1,580~~1,625 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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~where the ~~Company has~~exposures were fully resolved in the prior year, or determined to no longer meet the materiality threshold for ~~disclosure.~~disclosure, or were substantially resolved. In the first quarter of 2021, Teva has removed the bortezomib intellectual property litigation as it was fully resolved during 2020. In addition, Teva has removed PROVIGIL

, lidocaine patch and the memantine hydrochloride antitrust matters exposures, which are no longer considered material risks to the results of operations and cash flows of the Company as they were substantially resolved in prior periods.

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~~

Coreg®) in

n 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~~

235.5

million, not including

pre-

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~issued an opinion overturning~~judge overturned the jury verdict, ~~and instead found~~finding no induced infringement by Teva ~~thereby finding~~and 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 in 2017 was reversed in 2018, following the opinion overturning the verdict as the exposure was no longer considered probable.damages. On October 2, 2020, in a two-to-one decision, the Court of Appeals for the Federal Circuit, overturned the ~~lower court’s~~judge’s ruling and reinstated the jury ~~verdict in a~~

~~two-to-one~~

~~decision. Teva intends to file a~~verdict. Teva’s request for ~~en banc review.~~rehearing was granted, and the October 2020 decision was vacated. On February 23, 2021, the same three-judge panel of the Federal Circuit heard additional oral argument on the issue of whether there is enough evidence to support the jury’s verdict of induced infringement during the period from January 8, 2008 through April 30, 2011 (the “skinny label” period). If further appeals are decided against Teva, the case would be remanded to the district court for it to consider Teva’s other legal and equitable defenses that have not yet been considered by the district court.

In ~~2014,~~the first quarter of 2021, Teva ~~Canada succeeded in~~recognized a provision based on 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)offer 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 limited the damages payable by either party depending on the outcome of the infringement/impeachment action. As a result, the most Janssen and Millennium could have recovered is 200 million Canadian dollars plus post-judgment interest. In June 2018, the court ruled that Janssen and Millennium pay Teva 5 million Canadian dollars in Section 8 damages. Janssen and Millennium filed an appeal, which was denied by the appellate court on November 4, 2019. On January 3, 2020, Janssen and Millennium applied for leave to appeal to the Canadian Supreme Court. On May 8, 2020, the Canadian Supreme Court denied Janssen and Millennium’s application. This matter is now closed.settle such matter.

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.~~2018 and to subsequent recalls on other products. The nitrosamine impurities in valsartan are allegedly found in the active pharmaceutical ingredient (API) supplied by multiple API manufacturers. Teva’s products allegedly at issue in the

various nitrosamine-related litigations

pending in the United States include valsartan, losartan, metformin and ranitidine. There are currently two Multi-District Litigations (“MDL”) pending in the United States District ~~Courts.~~Courts against Teva and numerous other manufacturers. One MDL is pending in the United States District Court for the District of New Jersey for valsartan, losartan and irbesartan. Teva is not named in complaints with respect to 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~~class claims. Defendants’ motions to dismiss in the ~~New Jersey MDL.~~valsartan, losartan and irbesartan MDL were denied in part and granted in part, allowing plaintiffs to file amended complaints. On December 31, 2020, the court in the ranitidine MDL granted the generic defendants’ motion to dismiss on the grounds of preemption and deficient pleading, allowing plaintiffs to re-plead certain claims. Certain plaintiffs appealed the decision. Plaintiffs in the ranitidine MDL filed amended complaints, and on March 24, 2021, defendants moved to dismiss those amended complaints on largely the same grounds as the first round of motions to dismiss. 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~~

’ manufacturers’ metformin products.

A motion to dismiss in that consolidated action is pending. 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.

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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.

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

In June 2013, the U.S. Supreme Court held, in Federal Trade Commission (“FTC”) v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws. This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.

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

In May 2015, 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 received final court 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~~antitrust claims against Cephalon ~~in the FTC Modafinil Action~~related to certain finished modafinil products (marketed as PROVIGIL

) in exchange for ~~payment of $1.2 billion (less~~

~~set-offs~~

~~for prior settlements) by~~ Cephalon and Teva ~~into~~agreeing to, among other things, abide by certain restrictions and limitations, for a ~~settlement fund. Under the Modafinil Consent Decree, Teva also agreed to certain injunctive relief with respect to the types~~period of ten years, when entering into 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,States. Those restrictions and limitations were further refined 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~~term of the Modafinil Consent Decree ~~and to restart its~~

~~ten-year~~was extended until 2029.

~~term.~~

~~Additionally, following an investigation initiated by the European Commission in April 2011 regarding a modafinil patent settlement in Europe,~~

In November 2020, the European Commission issued a ~~Statement of Objections and a Supplementary Statement of Objection~~final decision in ~~July 2017 and June 2020, respectively,~~its proceedings against both Cephalon and Teva, ~~alleging~~finding that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic ~~modafinil. No final~~modafinil, and imposed fines totaling

€

60.5

million

on Teva and Cephalon. Teva and Cephalon filed an appeal against the decision ~~regarding liability has yet been taken by the European Commission. The sales of modafinil~~in February 2021. A provision for this matter was included in the ~~European Economic Area during the last full year of the alleged breach amounted to €46.5 million.~~financial statements.

Teva and its affiliates have been

named

as defendants in lawsuits ~~that allege~~alleging that multiple patent litigation settlement agreements relating to ~~AndroGel®~~ AndroGel

1% (testosterone gel)

violate the antitrust laws. The first of these lawsuits (the “Georgia AndroGel Litigation”) was filed in

January 2009

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

the FTC and the State of California,

, and later private plaintiffs challenging

a September 2006 patent

litigation

settlement between Watson Pharmaceuticals, Inc. (“Watson”), from which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”)

. The second lawsuit (the “Philadelphia

AndroGel

Litigation”) was

filed by

the FTC

September 2014

in federal court

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

stipulated to

dismiss Teva from both litigations,

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

Decree, as described above. On July 16, 2018,

the direct purchaser plaintiffs’ motion for class certification

in the Georgia AndroGel Litigation

was denied and

Teva

later settled

with

most of the

retailer plaintiffs in the Georgia AndroGel Litigation as well as

the three direct purchasers that had sought class ~~certification. Settlement amounts were paid~~certification and on January 7, 2021,

Teva settled all claims with the remaining retailer plaintiff in ~~full.~~the Georgia AndroGel Litigation, thus leaving no remaining claims in the Georgia

AndroGel Litigation. In August 2019, certain other direct-purchaser plaintiffs (who would have been members of the direct purchaser class

in the

Georgia AndroGel Litigation,

, had it been certified) filed their own claims in

the

federal court in Philadelphia

(where the Philadelphia AndroGel

Litigation has been pending),

challenging (in one complaint) both the September 2006 settlement between Watson and Solvay,

, and the

December 2011

settlement

between Teva and

AbbVie.

Those claims remain pending.

Annual sales of AndroGel

1% were approximately ~~$350~~

350

million at the time of the

earlier Watson/Solvay

settlement and approximately ~~$140~~

140

million at the time Actavis launched its generic version of AndroGel

1% in November 2015. A provision for

these matters

was included in the financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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. In August 2019, the district court certified the direct-purchaser class, but in June 2020, the court denied the indirect purchasers’ motion for class ~~certification.~~certification without prejudice. On September 4, 2020, the indirect purchasers filed a renewed motion for class certification, which remains pending. 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 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 in June 2020, the California Supreme 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 ~~$1.1~~$

1.1

billion at the time Teva launched its generic version of Niaspan

in September ~~2013.~~

2013

Beginning in 2013, several putative class actions were filed 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. Defendants moved to dismiss that lawsuit on June 5, 2020, and those motions were granted in part and denied in part on October 16, 2020. On January 24, 2020, the State of Mississippi filed a complaint against Teva and Watson in Mississippi state court, which it subsequently amended on June 12, 2020. Teva and Watson have moved to dismiss that amended complaint, and their motion remains pending..

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 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 Teva’s settlement, annual sales of Actos

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

and Actoplus Met in August 2012, annual sales of Actos

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

respectively.

~~In 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, alleging, among other things, that the settlement agreements between Forest and the generic manufacturers to resolve patent litigation over Namenda IR

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

~~is awaiting final court approval.~~

~~Annual sales of Namenda IR~~

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

~~in July 2015.~~

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

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

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.

On August 14, 2020,

Cipla Limited

agreed to dismiss

its

claims against

Teva,

, with prejudice,

, and

those claims have since been dismissed. Putative

classes of direct-purchaser and

end-payer

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

On July 22, 2020, a magistrate judge recommended that plaintiffs’ claims be ~~dismissed. Plaintiffs have objected to~~dismissed and on November 30, 2020, the district court overruled the magistrate judge’s recommendation, ~~of dismissal,~~denied Teva’s motion to dismiss in part, and instructed plaintiffs to file amended complaints, which plaintiffs filed on February 16, 2021. Teva again moved to dismiss those ~~objections~~complaints on March 30, 2021, based on plaintiffs’ failure to allege both (a) that the settlement violated the antitrust laws and (b) that the settlement caused any actual injury to plaintiffs, and Teva’s motions remain ~~pending before the district court.~~

pending. Annual sales of Sensipar

in the United States were approximately ~~$1.4~~

$1.4

billion at the time Teva launched its generic version of Sensipar

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

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

above and a Statement of Draft

Penalty

Calculation

was issued on October

28,

~~, 2020~~

. 2020. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to the December 16, 2016 and March 3, 2017 statements of objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. A liability for this matter has been recorded in the financial statements.

In ~~October~~March 2021, following the 2019 ~~the~~ European ~~Commission commenced an~~Commission’s inspection of Teva and ~~subsequently requested~~subsequent request for information, ~~for purposes of investigating~~the European Commission opened a formal antitrust investigation to assess whether Teva may have abused a dominant position inby delaying the ~~Multiple Sclerosis field, dating back to at least 2014. No formal proceedings have been initiated.~~market entry and uptake of medicines that compete with COPAXONE

. Annual sales of

COPAXONE

in the European Economic Area for the past year were

approximately ~~$431~~$380 million.

OnBetween September 1, 2020 and ~~October~~December 20, 2020, ~~two~~ separate plaintiffs purporting to represent a putative ~~class~~classes of direct and indirect purchasers and

opt-out

retailer purchasers of Bystolic

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

violated the antitrust laws. Several other putative classes of both direct purchaser and end payer plaintiffs have also filed related complaints, although to date, none of these other complaints name Teva, Watson, or Actavis as defendants. The cases ~~remain in their preliminary stages, pending decisions regarding potential transfer, consolidation, appointment of lead counsel for the putative class,~~were coordinated and ~~the filing of a single consolidated complaint~~ on ~~behalf of all plaintiffs.~~March 15, 2021, plaintiffs filed amended complaints. Annual sales of Bystolic

in the United States were

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

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States.

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.

On August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three count indictment charging Teva USA with criminal felony Sherman Act violations. See No.

20-cr-200 ~~(E.D.~~

(E.D. Pa.). The indictment alleges Teva USA participated in a conspiracy with certain other generic drug manufacturers to maintain and fix prices, allocate customers, and other alleged antitrust offenses concerning the sale of generic drugs, including Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream

E-Cream,

Gel, and Ointment), Warfarin, Etodolac (IR), Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. A tentative trial date is yet to be scheduled. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business, including monetary penalties and debarment from federally funded health care programs.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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. An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.

~~Table of Contents~~

~~TEVA~~

~~PHARMACEUTICAL~~

~~INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. 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. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA in a similar complaint relating to dermatological generics products. In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general ~~May 10,~~November 1, 2019 amended complaint, referenced above, along with three complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints. Teva moved the court to reconsider that ruling, and the motion was granted on February 9, 2021. As a result, the attorneys’ general November 1, 2019 amended complaint is not expected to be among the bellwether complaints in the Pennsylvania MDL.

Beginning on March 2, 2016, and continuing through December 2020, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct and indirect purchaser

opt-out

plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On ~~April 6, 2017, these cases were transferred to the Pennsylvania MDL. Additional cases were transferred to that court and the plaintiffs filed consolidated amended complaints on August 15, 2017. On~~ October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, pending as of that date, 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~~both cases have been placed in deferred status. On November 13, 2019,

and again on August 24, 2020, certain

counties in New York

commenced civil actions

against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the

complaints have

been transferred to the Pennsylvania MDL. On December 15, 2020, several additional New York counties filed suit in New York state court raising similar allegations, and the case was removed to federal court on March 26, 2021. 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 and~~Texas, which has been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic drug products to the detriment of a class of private payors. The action is in its early stages.

March 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs.

Subsequently, in August 2020, the U.S. Attorney’s

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

~~In December 2016,~~ Additionally, on January 8, 2021, Humana, Inc. filed an action against Teva ~~resolved certain claims under~~in the United States District Court for the Middle District of Florida based on the allegations raised in the August 2020 complaint filed by 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~~Attorney’s Office in Boston. On April 2, 2021 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~~claims on the ~~time~~grounds that the ~~DPA was entered into. On July 21, 2020, the information was dismissed.~~

claims are time-barred and/or insufficiently pled, and that action remains pending.

Opioids Litigation

Since May 2014, more than 3,000 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of 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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

pre-trial

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

14-cv-04361

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

18-cv-07591-CRB

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

and FENTORA

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

950

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

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

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

The individual personal injury plaintiffs further seek

non-economic

damages.

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

On April 19, 2021, a bench trial in California (The People of the State of California, acting by and through Santa Clara County Counsel James R. Williams, et. al. v. Purdue Pharma L.P., et. al.) commenced with Teva and other defendants focused on the marketing of branded opioids. Absent resolutions, additional trials are expected to proceed in several states in 2021. ~~A court in New York had set a date, for a liability trial only, to start in March 2020. However, that trial has been postponed due to the impact of~~

~~the~~

~~COVID-19~~

~~pandemic and rescheduled to begin in the first quarter of 2021~~

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

~~the~~

~~COVID-19~~

~~pandemic~~

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

In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for ~~$85~~

$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.

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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. This nationwide settlement ~~framework (the “framework”). The framework is~~was designed to provide a mechanism by which the Company attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this ~~framework,~~nationwide settlement, Teva would provide buprenorphine naloxone (sublingual tablets) with an estimated value of up to approximately ~~$23~~

$23 billion at wholesale acquisition cost over a ten year period. In addition, Teva would also

provide cash payments of up to $250 million over a ten year

period.

During the passage of ~~October 2020,~~time since then, the Company ~~continues~~has continued to negotiate the terms and conditions of a nationwide settlement. There are many complex financial and legal issues still outstanding, including indemnification claims by Allergan against the ~~framework.~~

~~The~~Company, arising from the acquisition of the Actavis Generics business. Since negotiations are ongoing, the Company cannot predict if ~~the framework~~a settlement will be ~~finalized~~

finalized.

~~with its current terms and obligations.~~

The

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

non-monetary

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

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

~~producing~~

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes~~currently scheduled to ~~Consolidated Financial Statements~~

~~(Unaudited)~~

~~documents~~take place in ~~response to the various subpoenas and requests for information.~~June 2021. Currently, Teva cannot predict how ~~the~~a nationwide settlement ~~framework agreement~~ (if finalized) will affect these investigations

and

administrative ~~actions~~

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

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

may

be consolidated and are in their early stages.

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. 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 ~~June~~October 2020, ~~nineteen~~twenty 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. Pursuant to that

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Notes to Consolidated Financial Statements

(Unaudited)

~~Pursuant to that~~ consolidation order, plaintiffs in several of the

“opt-out”

cases filed amended complaints on May 28, 2020. On ~~July 8, 2020, Teva and other defendants moved~~January 22, 2021, the Court dismissed the

“opt-out”

plaintiffs’ claims arising from statements made prior to the five year statute of repose, but denied Teva’s motion to dismiss ~~certain of the~~their claims ~~brought by certain of the~~under Israeli laws. Those

“opt-out”

~~plaintiffs. Those motions are pending.~~plaintiffs moved for reconsideration, which was denied on March 30, 2021. The Ontario Teachers Securities Litigation ~~plaintiffs filed a~~plaintiffs’ Motion for Class Certification and Appointment of Class Representatives and Class Counsel was granted on ~~June 19, 2020,~~March 9, 2021, to which ~~the defendants opposed.~~Teva has sought an appeal. That motion is pending. Motions to approve securities class actions were also filed in the Tel Aviv District Court in Israel with similar allegations to those made in the Ontario Teachers Securities ~~Litigation.~~Litigation

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

10b-5.

The complaint, purportedly filed on behalf of persons who purchased or otherwise acquired Teva securities between October 29, 2015 and August 18, 2020, alleges that Teva and certain of its former officers violated federal securities laws by allegedly making false and misleading statements regarding the commercial performance of COPAXONE, namely, by failing to disclose that Teva had caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients, which allegedly impacted COPAXONE’s commercial success and the sustainability of its revenues and resulted in the above referenced August 2020 False Claims Act complaint filed by the DOJ. The securities class action complaint seeks unspecified damages, legal fees, interest, and costs. The case is in its preliminary ~~stages.~~stages, and on March 15, 2021, plaintiffs filed amended complaints. On March 26, 2021, the Court appointed lead plaintiff and lead counsel, and instructed that the lead plaintiff can file an amended complaint by May 25, 2021. A motion to approve a securities class action was also filed in the Central District Court in Israel, which has been stayed pending the U.S. litigation, with similar allegations to those made in the above complaint filed in the U.S. District Court for the Eastern District of Pennsylvania.

Motions to approve derivative actions against certain past and present directors and officers have been filed in Israeli Courts alleging negligence and recklessness with respect to the acquisition of the Rimsa business, the acquisition of Actavis 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,

the U.S. price-fixing investigations

and

allegations

the

DOJ’s complaint regarding Copaxone patient assistance program

in the

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

including

the

derivative proceedings related to allegations in connection with the ~~Lidoderm®~~ Lidoderm

patent settlement agreement.

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

~~approved~~

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

Environmental Matters

Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

clean-up

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

clean-up

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

clean-up

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

implemented.

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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.~~

June 2022.

NOTE 11 – Income taxes:

In the ~~third~~first quarter of ~~2020,~~2021, Teva recognized a tax

expense

of ~~$16~~

$62 million, on

pre-tax

~~loss~~income of ~~$4,459~~$144 million. In the ~~third~~first quarter ~~of 2019, Teva recognized a tax~~

~~expense~~

~~of $11 million, on~~

~~pre-tax~~

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

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

~~other changes to tax positions and deductions.~~

~~In the first~~

~~nine~~

~~months~~ of 2020, Teva recognized a tax benefit of ~~$147~~ $59

million, on

pre-tax

loss of ~~$4,543~~

$33 million. ~~In the first~~

~~nine~~

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

~~pre-tax~~

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

~~nine~~

~~months~~ quarter of ~~2020~~2021 was mainly affected by

~~the goodwill impairment charge that does not have a corresponding~~

legal settlements, impairments and amortization in jurisdictions in which tax

~~effect~~

~~and other changes to~~rates are lower than Teva’s average tax ~~positions and deductions.~~rate on its ongoing business operations.

The statutory Israeli corporate tax rate is 23% in ~~2020.~~ 2021.

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

non-recurring

items.

Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. Trial in this case is scheduled to begin in

~~November~~

~~2020.~~ May 2021. A final and binding decision against Teva in this case may lead to an

asset write off oof

~~f $140~~

$140 million.

The Israeli tax authorities issued tax assessment decrees for 2008-2012 and 2013-2016, challenging the Company’s positions on several issues.

~~In September 2020,~~ Teva ~~commenced proceedings protesting~~

has protested the

2008-2012 and 2013-2016 decrees

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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Three months ended

Nine months ended


September 30,

September 30,


2020

2019

2020

2019


(U.S. $ in millions)

(U.S. $ in millions)

Impairments of long-lived tangible assets (1)

$
56


$
28


$
408


$
96

Contingent consideration


(179
)


51



(96
)


4

Restructuring


9



61



82



140

Other


15



21



10



24









Total

$
(98
)

$
160


$
404


$
263


	Three months ended
	March 31,
	2021		2020
	(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	48	$	75
Contingent consideration		3		6
Restructuring		81		39
Other		4		—

Total	$	137	$	121

(1)	Including impairments related to exit and disposal activities

Impairments

Impairments of tangible assets for the three months

ended ~~September~~

~~30,~~March 31, 2021 and 2020 ~~and~~

~~2019~~ were ~~$56~~$48 million and ~~$28~~ $75

million, respectively. The impairment for the three months ended ~~September 30, 2020~~March 31, 2021 was mainly related to ~~the intention to sell~~ certain assets

~~Teva’s~~

~~International~~ Europe.

~~Markets~~

~~and Europe segments~~31

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Impairments of tangible assets for the nine months ended September 30, 2020 and 2019 were $408 million and $96 million, respectively. The impairment for the nine months ended September 30, 2020 was mainly related

Notes to ~~the intention to sell certain assets from Teva’s business venture in Japan and plant rationalization. See note 2.~~Consolidated Financial Statements

(Unaudited)

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

Contingent consideration

In the three months ended ~~September 30, 2020,~~March 31, 2021, Teva recorded an

~~income~~

expense of ~~$179~~$3 million for contingent consideration, compared to an expense of ~~$51~~$6 million in the three months ended ~~September 30, 2019.~~

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

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

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

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

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

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

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

March 31, 2020.

Restructuring

In the three months ended ~~September 30, 2020,~~March 31, 2021, Teva recorded $9$81 million of restructuring expenses, compared to ~~$61~~$39 million in the three months ended ~~September 30, 2019.~~March 31, 2020.

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

~~nine~~

~~months ended September 30, 2019.~~

The expenses for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 were primarily related to network consolidation activities and residual expenses of the restructuring plan announced in ~~2017 and other network consolidation~~2017.

~~activities~~

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

Three months ended September 30,


2020

2019


(U.S. $ in millions)

Restructuring

Employee termination
   $ 3    $ 49




Other
   7    11




Total
   $ 9    $ 61

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~~LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Nine months ended September 30,				Three months ended March 31,
	2020		2019		2021		2020
	(U.S. $ in millions)				(U.S. $ in millions)
Restructuring
Employee termination	$	39	$	105	$	79	$	33

Other		43		34		2		6

Total	$	82	$	140	$	81	$	39

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


	Employee termination costs			Other			Total			Employee termination costs			Other			Total
	(U.S. $ in millions )									(U.S. $ in millions )
Balance as of January 1, 2020	$	(208	)	$	(7	)	$	(215	)
Balance as of January 1, 2021										$	(115	)	$	(7	)	$	(122	)
Provision		(39	)		(43	)		(82	)		(79	)		(2	)		(81	)
Utilization and other*		145			43			188			33			2			35

Balance as of September 30, 2020	$	(102	)	$	(7	)	$	(109	)
Balance as of March 31, 2021										$	(161	)	$	(7	)	$	(168	)


	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 31, 2020	$	(172	)	$	(7	)	$	(179	)

*	Includes adjustments for foreign currency translation.

Significant regulatory and other events

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

~~FDA-483~~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 it that the site continues to be classified as OAI. If Teva is unable to remediate the findings to the FDA’s satisfaction, itTeva may face additional consequences. These would potentially include continued delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments,

inventory write-offs,

customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate approximately ~~$150~~ $125

million in revenues from this site ~~in 2020,~~during the remainder of 2021, 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.~~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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

In the second quarter of 2020, Teva’s operations in its manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. During the ~~third quarter~~second half of 2020, Teva has completed ~~the first step of~~partial remediation of this issue and has restarted limited supply from its Goa facilities. The site experienced some additional delays in first quarter of 2021 due to labor related issues. The impact to Teva’s financial results for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was immaterial, however, if the full remediation takes longer than expected there may be further loss of sales, customer penalties or impairments to related assets.

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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 ~~loss~~earnings per share for the three months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and September 30, 2019, no~~basic earnings per share were adjusted to take into 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~~plans. NaN account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on ~~loss~~earnings per share.

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

~~non-vested~~

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

Basic and diluted ~~loss~~earnings per share ~~was $3.97~~were $0.07 for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to basic and diluted ~~loss~~earnings per share of ~~$0.29~~$0.06 for the three months ended ~~September 30, 2019.~~

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

March 31, 2020.

NOTE 14 – Accumulated other comprehensive income (loss):

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

Net Unrealized Gains (Losses)

Benefit Plans


Foreign
currency
translation
adjustments

Available-for-
sale
securities

Derivative
financial
instruments

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

Total


(U.S. $ in millions)

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




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




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




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




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


	Net Unrealized Gains (Losses)						Benefit Plans
	Foreign currency translation adjustments			Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)
Balance as of December 31, 2020, net of taxes	$	(1,919	)	$	(363	)	$	(117	)	$	(2,399	)

Other comprehensive income (loss) before reclassifications		(174	)		—			—			(174	)
Amounts reclassified to the statements of income		—			9						9

Net other comprehensive income (loss) before tax		(174	)		9			—			(165	)

Corresponding income tax		33			(2	)		—			31

Net other comprehensive income (loss) after tax*		(141	)		7			—			(134	)

Balance as of March 31, 2021, net of taxes	$	(2,060	)	$	(356	)	$	(117	)	$	(2,534	)

*	Amounts do not include a ~~$29~~$67 million ~~gain~~ 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
   (28 ) (1 )    103 * * 74
Amounts reclassified to the statements of income
   —   —      21 —   21




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




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




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

*	interests ~~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)


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

Other comprehensive income (loss) before reclassifications		(573	)		22			—			(551	)
Amounts reclassified to the statements of income		—			8			—			8

Net other comprehensive income (loss) before tax		(573	)		30			—			(543	)

Corresponding income tax		3			—			—			3

Net other comprehensive income (loss) after tax*		(570	)		30			—			(540	)

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

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

NOTE 15 – Segments:

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

~~Teva~~

(a)

~~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 6.

a.	~~Segment information:~~

Three months ended September 30,


2020


North America


Europe


International Markets


(U.S. $ in millions)

Revenues

$
2,017


$
1,116


$
529

Gross profit


1,056



637



275

R&D expenses


155



60



17

S&M expenses


250



200



101

G&A expenses


97



66



33

Other income


(5
)


(1
)


(1
)







Segment profit

$
560


$
312


$
125

Three months ended September 30,


2019


North America


Europe


International Markets*


(U.S. $ in millions)

Revenues

$
2,051


$
1,163


$
565

Gross profit


1,048



662



295

R&D expenses


156



63



21

S&M expenses


219



206



114

G&A expenses


112



56



32

Other (income) expense


(5
)


(4
)


(1
)







Segment profit

$
565


$
341


$
130

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

a.	Segment information:


	Three months ended March 31,
	2021
	North America			Europe		International Markets
	(U.S. $ in millions)
Revenues	$	1,989		$	1,214	$	490
Gross profit		1,074			688		260
R&D expenses		160			66		18
S&M expenses		229			214		96
G&A expenses		111			70		26
Other income		(3	)		§		(2	)

Segment profit	$	577		$	338	$	122

§ Represents an amount less than $1 million.


		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

Nine months ended September 30,


2020


North America

Europe

International Markets


(U.S. $ in millions)

Revenues
   $ 6,146    $ 3,520    $ 1,582
Gross profit
   3,208    2,009    828
R&D expenses
   455    180    51
S&M expenses
   755    590    312
G&A expenses
   325    184    96
Other income
   (9 )    (3 )    (10 )






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

Nine months ended September 30,


2019


North America

Europe

International Markets*


(U.S. $ in millions)

Revenues
   $ 6,169    $ 3,611    $ 1,668
Gross profit
   3,155    2,066    877
R&D expenses
   497    199    66
S&M expenses
   756    637    348
G&A expenses
   342    175    102
Other income
   (6 )    (5 )    (2 )






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

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table presents a reconciliation of Teva’s segment profits to its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three months ended

Nine months ended


September 30,

September 30,


2020

2019

2020

2019


(U.S.

$ in millions)

(U.S. $ in millions)

North America profit
   $ 560    $ 565    $ 1,682    $ 1,566
Europe profit
   312    341    1,058    1,060
International Markets profit
   125    130    378    363








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








Total segments profit
   1,025    1,051    3,248    3,081
Amounts not allocated to segments:

Amortization
   251    255    758    823
Other assets impairments, restructuring and other items
   (98 )    160    404    263
Intangible asset impairments
   509    177    1,278    1,206
Goodwill impairment

4,628

—

4,628

—

Legal settlements and loss contingencies
   21    468    10    1,171
Other unallocated amounts
   55    73    148    209








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








Financial expenses, net
   117    211    565    635








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


	Three months ended
	March 31,
	2021		2020
	(U.S. $ in millions)
North America profit	$	577	$	550
Europe profit		338		502
International Markets profit		122		156

Total reportable segments profit		1,036		1,208
Profit of other activities		41		36

Total segments profit		1,077		1,244
Amounts not allocated to segments:
Amortization		242		258
Other assets impairments, restructuring and other items		137		121
Intangible asset impairments		79		649
Legal settlements and loss contingencies		104		(25	)
Other unallocated amounts		82		49

Consolidated operating income (loss)		434		191

Financial expenses, net		290		224

Consolidated income (loss) before income taxes	$	144	$	(33	)

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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


North America	Three months ended March 31,
	2021		2020
	(U.S. $ in millions)
Generic products	$	1,053	$	952
AJOVY		31		29
AUSTEDO		146		122
BENDEKA/TREANDA		91		105
COPAXONE		164		198
ProAir*		54		59
Anda		289		426
Other		161		191

Total	$	1,989	$	2,082

North America

Three months ended

September 30,

2020

2019

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

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


Europe	Three months ended March 31,
	2021		2020
	(U.S. $ in millions)
Generic products	$	865	$	1,032
AJOVY		16		4
COPAXONE		100		109
Respiratory products		93		106
Other		140		151

Total	$	1,214	$	1,402


International markets	Three months ended March 31,
	2021		2020
	(U.S. $ in millions)
Generic products	$	392	$	449
COPAXONE		12		12
Other		86		104

Total	$	490	$	565

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

North America

Nine months ended
September 30,


2020


2019


(U.S. $ in millions)

Generic products

$
2,804


$
2,826

AJOVY


98



68

AUSTEDO


451



276

BENDEKA/TREANDA


313



371

COPAXONE


671



753

ProAir*


175



194

QVAR


139



183

Anda


1,141



1,080

Other


354



417

Total

$
6,146


$
6,169

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

Europe

Three months ended

September 30,


2020


2019


(U.S. $ in millions)

Generic products
   $ 824    $ 836
COPAXONE
   101    106
Respiratory products
   77    87
AJOVY
   8    1
Other
   106    134
Total
   $ 1,116    $ 1,163

Europe

Nine
months ended
September 30,


2020

2019


(U.S. $ in millions)

Generic products
   $ 2,593    $ 2,599
COPAXONE
   294    327
Respiratory products
   263    267
AJOVY
   17    1
Other
   352    416




Total
   $ 3,520 $ 3,611

International Markets

Three months ended

September 30,


2020


2019


(U.S. $ in millions)

Generic products
   $ 429    $ 474
COPAXONE
   14    20
Other
   86    71
Total
   $ 529    $ 565

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

International Markets

Nine months ended
September 30,


2020


2019


(U.S. $ in millions)

Generic products

$
1,304


$
1,404

COPAXONE


38



46

Other


241



218

Total

$
1,582


$
1,668

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

NOTE 16 – Fair value measurement:

Financial items carried at fair value on a recurring basis as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are classified in the tables below in one of the three categories of fair value ~~levels:~~level


	September 30, 2020											March 31, 2021
	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)											(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	191	$	—		$	—		$	191		$	120	$	—		$	—		$	120
Cash, deposits and other		1,636		—			—			1,636			1,623		—			—			1,623
Investment in securities:
Equity securities*		20		—			297			317			182		—			—			182
Other, mainly debt securities		1		—			9			10			5		—			1			6
Derivatives:
Asset derivatives—options and forward contracts		—		36			—			36			—		63			—			63
Liability derivatives—options and forward contracts		—		(67	)		—			(67	)		—		(23	)		—			(23	)
Contingent consideration**		—		—			(279	)		(279	)		—		—			(246	)		(246	)

Total	$	1,848	$	(31	)	$	27		$	1,844		$	1,930	$	40		$	(245	)	$	1,725


	December 31, 2019												December 31, 2020
	Level 1		Level 2				Level 3			Total			Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)												(U.S. $ in millions)
Cash and cash equivalents:						��
Money markets	$	577	$	—			$	—		$	577		$	367	$	—		$	—		$	367
Cash, deposits and other		1,398		—				—			1,398			1,810		—			—			1,810
Investment in securities:
Equity securities		42		—				—			42
Equity securities*														25		259			—			284
Other, mainly debt securities		2		—				12			14			5		—			10			15
Derivatives:
Asset derivatives—options and forward contracts		—		32				—			32			—		24			—			24
Liability derivatives—options and forward contracts		—		(41	)			—			(41	)		—		(79	)		—			(79	)
Liability derivatives—interest rate and cross-currency swaps		—		(22	)			—			(22	)
Contingent consideration**		—		—				(460	)		(460	)		—		—			(268	)		(268	)

Total	$	2,019	$	(31	)		$	(448	)	$	1,540		$	2,207	$	204		$	(258	)	$	2,153

~~During the third quarter~~As of ~~2020, Teva recorded a gain of $134 million under share in profits of associated companies, net, reflecting the difference between the book value of~~March 31, 2021, Teva’s ~~investment~~shares in American Well Corporation (“American Well”) ~~and its~~moved from a Level 2 measurement to Level 1 measurement within the fair value ~~as of the date it completed its initial public offering in September 2020. The investment was reclassified from “investment in associated companies” to “investment in marketable securities,”~~hierarchy, since ~~Teva~~they are no longer ~~has significant influence in American Well. On~~

~~September~~

~~30, 2020, Teva recorded an additional gain of $118 million under financial expenses, net, reflecting the revaluation gain of this security as of September 30, 2020.~~

subject to a sale restriction.

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

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Teva determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This

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

% 80% to

~~100~~

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

~~7.5~~

% 7.5% to

~~8.5~~

% 8.0%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was

~~7.9~~

% 7.8%. The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in ~~earnings.~~

consolidated statements of income.

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

~~The fair value measurement~~3

Table of ~~the investment in equity securities is based on a discount rate for fair value measurement, related~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~restriction of sale of shares, and thus represents a Level 3 measurement within the fair value hierarchy. The discount rate applied for the fair value measurement at September 30, 2020 was 6%.~~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:

Nine months ended
September 30, 2020


(U.S. $ in millions)

Fair value at the beginning of the period
   $ (448 )
Transfer into Level 3- equity securities

179

Revaluation of equity securities

118

Revaluation of debt securities
   (3 )
Adjustments to provisions for contingent consideration:

Actavis Generics transaction
   161
Eagle transaction
   (65 )
Settlement of contingent consideration:

Eagle transaction
   85


Fair value at the end of the period
   $ 27


	Three months ended March 31, 2021			Three months ended March 31, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(258	)		(448	)
Redemption of debt securities		(9	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(3	)		(5	)
Eagle transaction		—			(1	)
Settlement of contingent consideration:
Eagle transaction		25			31

Fair value at the end of the period	$	(245	)	$	(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 (see note 7) and are presented in the table below in terms of fair value (level 1 inputs):


	Fair value*				Estimated fair value*
	September 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
	(U.S. $ in millions)				(U.S. $ in millions)
Senior notes included under senior notes and loans	$	22,194	$	22,686	$	22,316	$	22,684
Senior notes and convertible senior debentures included under short-term debt		1,968		2,318		2,711		3,207

Total	$	24,162	$	25,004	$	25,027	$	25,891

*	~~Based~~The fair value was estimated based on quoted market ~~price. See note 7 for carrying value.~~prices.

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the royalty term applicable to the United States to the full period for which we sell BENDEKA and ~~increasing~~increased the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.

There are 15 patents listed in the U.S. Orange Book for BENDEKA with expiry dates in 2026 and 2031. In September 2019, a patent infringement action against four of ~~the five~~six 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 at least one of ~~these~~the patents. ~~As a result,~~Three of the four ANDA filers have appealed the district court decision, but barring an adverse appellate decision, these ANDA filers should be enjoined until the patents expire in 2031. The litigation against the fifth ANDA filer was dismissed after the withdrawal of its patent challenge, and the case against the sixth ANDA filer is in the early stages of litigation.

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~~In addition to the settlement with Eagle regarding its bendamustine 505(b)(2) NDA, ~~was filed for a liquid version of bendamustine~~between 2015 and 2020, we reached final settlements with 22 ~~ANDAs with paragraph IV certifications were filed~~ANDA filers for generic versions of the lyophilized form of ~~TREANDA. Between 2015~~TREANDA and ~~2020, we reached final settlements with all 23 filers,~~one 505(b)(2) NDA filer for a generic version of the liquid form of TREANDA, providing for the launch of generic versions of TREANDA prior to patent expiration.

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COPAXONE

revenues in our North America segment in the ~~third~~first quarter of ~~2020~~2021 decreased by ~~13%~~17% to ~~$236~~$164 million, compared to the ~~third~~first quarter of ~~2019,~~2020, mainly due to generic competition in the United States.

The market for MS treatments continues to develop, particularly with the ~~approvals~~approval of generic versions of ~~COPAXONE, as well as additional generic versions expected to be approved in the future. Oral~~COPAXONE. Additionally, 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

(HFA and RespiClick)

revenues in our North America segment in the ~~third~~first quarter of ~~2020~~2021 were ~~$50~~$54 million, a decrease of ~~30%~~9% compared to the ~~third~~first quarter of ~~2019.~~2020. 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. During the first quarter of 2021, ProAir iswas the fifth-largest short-acting beta-agonist in the market, with an exit market share of ~~10.7%~~10.3% in terms of total number of prescriptions for albuterol inhalers, ~~during~~compared to 15.8% in the ~~third~~first quarter of ~~2020, compared to 23.8% in the third quarter of 2019.~~2020. The exit market share including our ProAir ~~HFA~~ authorized generic is ~~36.3%~~43.9%, making our overall albuterol product the second largest in the market, compared to ~~44.7%~~38.6% in the ~~third~~first quarter of ~~2019. Generic~~2020. Other generic versions of ProAir ~~HFA from Perrigo Company plc and Lupin Pharmaceuticals, Inc. are currently available~~were launched in ~~the market.~~

~~In July 2020, we announced the launch of~~

~~ProAir~~

~~Digihaler~~

~~(albuterol sulfate 117 mcg) inhalation powder, which is the first and only digital rescue inhaler with~~

~~built-in~~

sensors which connects to a companion mobile application and provides inhaler use information to people with asthma and COPD. ProAir Digihaler was approved by the FDA on December 21, 2018 for the treatment or prevention of bronchospasm in patients aged four years and older with reversible obstructive airway disease and for prevention of exercise-induced bronchospasm (EIB) in patients aged four years and older.

~~In September 2020, we announced the launch of~~

~~AirDuo~~

~~Digihaler~~

~~(fluticasone propionate and salmeterol) inhalation powder and the launch of~~

~~ArmonAir~~

~~Digihaler~~

(fluticasone propionate) inhalation powder, two digital maintenance inhalers for adolescent and adult patients with asthma. AirDuo Digihaler is a prescription medicine used to control symptoms of asthma and to prevent symptoms such as wheezing in people 12 years of age and older. ArmonAir Digihaler is a prescription medicine for the long-term treatment of asthma in patients 12 years and older. AirDuo Digihaler and ArmonAir Digihaler are not used to relieve sudden breathing problems from asthma and will not replace the need for a rescue inhaler.

~~QVAR~~

revenues in our North America segment in the third quarter of 2020 decreased by 29% to $42 million, compared to the third 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 19.3% in terms of total number of prescriptions during the third quarter of 2020, compared to 19.9% in the third quarter of 2019.2020.

Anda

revenues in our North America segment in the ~~third~~first quarter of 2021 decreased by 32% to $289 million, compared to $426 million in the first quarter of 2020, ~~decreased by 3% to $341 million, compared to $351 million in the third quarter of 2019,~~ mainly due to ~~slightly~~ lower demand. In addition, revenues were higher in the first quarter of 2020 as a result of significant customer stocking due 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.

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Product Launches and Pipeline

In the ~~third~~first quarter of ~~2020,~~2021, 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))
*

Imiquimod Cream 3.75%
   Zyclara
®
July    $ 24
Sildenafil for Oral Suspension
   Revatio
®
August    $ 121
PEG-3350,
Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium Ascorbate, and Ascorbic Acid for Oral Solution
   MoviPrep
®
August    $ 10
Tobramycin Inhalation Solution, USP
   Bethkis
®
September    $ 42
Dimethyl Fumarate Delayed-Release Capsules
   Tecfidera
®
September    $ 3,788
Emtricitabine and Tenofovir Disoproxil Fumarate Tablets, 200mg/300mg
   Truvada
®
September    $ 2,872
Efavirenz, Emtricitabine and Tenofovir Disoproxil Fumarate Tablets
   Atripla
®
September    $ 578


Product Name	Brand Name	Launch Date	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Mesalamine Extended-Release Capsules, 0.375g	Apriso ®	January	$	344
Etonogestrel and Ethinyl Estradiol Vaginal Ring	NuvaRing ®	January	$	812
Testosterone Gel, 1.62%, 20.25mg/1.25g & 40.5mg/2.5g	AndroGel ®	February	$	40
Liothyronine Sodium Tablets USP, 5mcg, 25mcg, 50mcg	Cytomel ®	February	$	107
Brinzolamide Ophthalmic Suspension, USP, 1%	Azopt ®	March	$	184

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

Our generic products pipeline in the United States includes, as of ~~September 30, 2020, 228~~March 31, 2021, 206 product applications awaiting FDA approval, including 8072 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended ~~June 30,~~December 31, 2020 exceeding ~~$115~~$109 billion, according to IQVIA. Approximately ~~69%~~71% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 8476 of these products, or ~~107~~101 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$76~~$74 billion in U.S. brand sales for the twelve months ended ~~June 30,~~December 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.

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In the ~~third~~first quarter of ~~2020,~~2021, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a

30-month

regulatory stay lapses or a

180-day

exclusivity period awarded to another manufacturer either expires or is forfeited.

Generic Name

Brand Name

Total Annual U.S.

Branded Sales at Time

of Launch

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

Apixaban Tablets, 2.5 mg and 5 mg
   Eliquis
®
$ 11,445
Pirfenidone Tabs
   Esbriet
®
$ 540


Generic Name	Brand Name	Total Annual U.S. Branded Market (U.S. $ in millions (IQVIA)) *
Ibrutinib Caps	Imbruvica ®	$	782
Lubiprostone Caps	Amitza ®	$	410

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

54We have additional biosimilar products in development in various stages of clinical trials and regulatory review.

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Below is a description of key products in our specialty pipeline as of ~~September 30, 2020:~~March 31, 2021:



~~Product~~Phase 2	~~Potential~~ ~~Indication(s)~~Phase 3	~~Route of~~Pre-Submission
~~Administration~~ Novel Biologics	~~Development Phase~~ Fremanezumab ~~(date entered phase 3)~~ Fibromyalgia	~~Comments~~ Fremanezumab Additional indication

	~~CNS, Neurology and~~ ~~Neuropsychiatry~~ TEV-48574 Respiratory	Fasinumab Osteoarthritic Pain (March 2016) (1)

	TEV-53275 Respiratory

~~AUSTEDO (deutetrabenazine)~~	~~Dyskinesia in cerebral palsy~~	~~Oral~~	~~3 (September 2019)~~ Small Molecules

~~TV-46000~~ Deutetrabenazine Dyskinesia in Cerebral Palsy (~~risperidone LAI)~~September 2019)	Risperidone LAI Schizophrenia	~~Subcutaneous~~	~~3 (April 2018)~~	(2)

~~Migraine and Pain~~ Digital Respiratory

~~fremanezumab (anti CGRP)~~	~~Post traumatic~~ Digihaler ® ~~headache~~(budesonide and formoterol fumarate dihydrate) (EU)	~~Subcutaneous~~	2	~~The clinical trial did not meet its primary endpoint for efficacy and the development for this indication has been discontinued.~~

	~~fibromyalgia~~	~~Subcutaneous~~	2

~~fasinumab~~	~~Osteoarthritis pain~~ QVAR ® Digihaler ® (beclomethasone dipropionate HFA) (U.S.)

(1)	~~Subcutaneous~~	~~3 (March 2016)~~	Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). ~~See below table regarding~~Results for two phase 3 clinical trials, FACT OA1 and FACT OA2, were released on August 5, 2020, indicating that the co-primary endpoints for fasinumab 1 mg monthly were achieved. Fasinumab 1 mg monthly demonstrated significant improvements in pain and physical function over placebo at week 16 and week 24, respectively. Fasinumab 1 mg monthly also showed nominally significant benefits in physical function in two trials and pain in one trial, ~~results.~~

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 ~~Respiratory~~sub-group

~~GoResp~~ ® ~~DigiHaler~~ ® ~~/ DuoResp~~ ® ~~DigiHaler~~ ®	~~Treatment~~ of ~~asthma~~patients from one phase 3 long-term safety trial, there was an increase in ~~patients aged 12 years and older and COPD~~	~~Oral inhalation~~	~~Under regulatory review~~	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.

~~Fasinumab~~45

~~. 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~~

Table 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~~Contents

~~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.

Active treatment of patients with fasinumab, which only involved dosing in an optional second-year extension phase of one trial, has been discontinued following a recommendation from the fasinumab program’s Independent Data Monitoring Committee that the program should be terminated, based on available evidence obtained to date. The core efficacy data has already been obtained to support potential fasinumab regulatory filings. Long-term safety data continues to be gathered, and is expected to be reported in ~~2021, along~~2021. Currently, all non-essential activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with ~~a decision on~~Regeneron, with the ~~program.~~intention of discussing data with the FDA.

(2)

In January 2021, we announced positive results for a phase 3 clinical trial designed to evaluate the efficacy of risperidone LAI. No new safety signals were identified that are inconsistent with the known safety profile of other risperidone formulations. The second phase 3 study evaluating long-term safety and tolerability is ongoing.

North America Gross Profit

Gross profit from our North America segment in the ~~third~~first quarter of ~~2020~~2021 was ~~$1,056~~$1,074 million, an increase of 1%, compared to ~~$1,048~~$1,062 million in the ~~third~~first quarter of ~~2019.~~2020.

Gross profit margin for our North America segment in the ~~third~~first quarter of ~~2020~~2021 increased to ~~52.4%~~54.0%, compared to ~~51.1%~~51.0% in the ~~third~~first quarter of ~~2019.~~2020. This increase was mainly due to the change in mix of products.

North America R&D Expenses

R&D expenses relating to our North America segment in the ~~third~~first quarter of ~~2020~~2021 were ~~$155~~$160 million, ~~a decrease~~an increase of 1%10%, compared to ~~$156~~$146 million in the ~~third~~first quarter of ~~2019.~~2020.

For a description of our R&D expenses in the ~~third~~first quarter of ~~2020,~~2021, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Three months ended September 30,										Three months ended March 31,
	2020					2019**					2021				2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	529		100	%	$	565		100	%	$	490		100%	$	565		100%
Gross profit		275		52.0	%		295		52.2	%		260		53.0%		305		54.0%
R&D expenses		17		3.2	%		21		3.7	%		18		3.6%		15		2.7%
S&M expenses		101		19.1	%		114		20.1	%		96		19.6%		106		18.8%
G&A expenses		33		6.3	%		32		5.6	%		26		5.3%		34		6.0%
Other (income) expense		(1	)	§			(1	)	§			(2	)	§		(6	)	(1.1%)

Segment profit*	$	125		23.6	%	$	130		23.0	%	$	122		24.9%	$	156		27.6%

§	~~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 for additional information.Represents an amount less than 0.5%.

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. ~~Countries~~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,~~February 1, 2021, we ~~entered into an agreement to sell~~completed the sale of the majority of the generic and operational assets of our business venture in Japan. ~~We expect this transaction to close by early 2021. The closing of the transaction is subject to customary closing conditions.~~

Revenues from our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 were ~~$529~~$490 million, a decrease of ~~$35~~$75 million, or 6%13%, compared to the ~~third~~first quarter of ~~2019.~~2020. In local currency terms, revenues decreased by 1%7% compared to the ~~third~~first quarter of ~~2019,~~2020, mainly due to lower ~~sales~~revenues in Japan resulting from the divestment mentioned above, as well as regulatory price reductions and generic competition to

off-patented

products ~~as well as loss of revenues~~in Japan and lower positive impact from the sale of certain assets in the Israeli market, partially offset by higher revenues in other markets. Revenues in the third quarter of 2020 were also impacted by reduced demand for certain products resulting from the impact of the

~~COVID-19~~hedging activity.

~~pandemic. The~~

~~COVID-19~~

~~pandemic has led to a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020.~~

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

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Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Three months ended September 30,				Percentage Change			Three months ended March 31,				Percentage Change
	2020		2019*		2019-2020			2021		2020		2020-2021
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	429	$	474		(10	%)	$	392	$	449		(13	%)
COPAXONE		14		20		(27	%)		12		12		(1	%)
Other		86		71		21	%		86		104		(17	%)

Total	$	529	$	565		(6	%)	$	490	$	565		(13	%)

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

Generic products

revenues in our International Markets segment in the ~~third~~first quarter of ~~2020,~~2021, which include OTC products, decreased by ~~10%~~13% to ~~$429~~$392 million, compared to the ~~third~~first quarter of ~~2019.~~2020. In local currency terms, revenues decreased by 4%11%, mainly due to lower sales in Japan resulting from the divestment mentioned above, as well as regulatory price reductions and generic competition to

off-patented

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

~~COVID-19~~

~~pandemic. The~~

~~COVID-19~~

~~pandemic has led to a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the third quarter of 2020.~~Japan.

COPAXONE

revenues in our International Markets segment in the ~~third~~first quarter of ~~2020 decreased by 27% to $14~~2021 were $12 million, flat compared to ~~$20 million in~~ the ~~third~~first quarter of ~~2019.~~2020. In local currency terms, revenues ~~decreased~~increased by ~~14%~~4%.

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AJOVY

~~. On May 12, 2017,~~was launched in certain International Markets countries and we ~~entered into a license~~are moving forward with plans to launch in other countries.

AUSTEDO

launched in China for the treatment of chorea associated with Huntington disease and ~~collaboration agreement~~for the treatment of tardive dyskinesia in early 2021. We continue with ~~Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY~~additional submissions in Japan and, once approved, to commercialize the product in Japan. On July 29, 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan. As a result, Otsuka paid Teva a milestone payment of $15 million in the third quarter of 2020, which was recorded as revenue under “Other” in the table above.various other countries.

International Markets Gross Profit

Gross profit from our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 was ~~$275~~$260 million, a decrease of 7%15% compared to ~~$295~~$305 million in the ~~third~~first quarter of ~~2019.~~2020.

Gross profit margin for our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 decreased to ~~52.0%~~53.0%, compared to ~~52.2%~~54.0% in the ~~third~~first quarter of ~~2019.~~2020. This decrease was mainly due to lower positive impact from hedging activity and a ~~different portfolio mix.~~change in mix of products.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 were ~~$17~~$18 million, ~~a decrease~~an increase of ~~18%~~16% compared to ~~$21~~$15 million in the ~~third~~first quarter of ~~2019.~~2020.

For a description of our R&D expenses in the ~~third~~first quarter of ~~2020,~~2021, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 were ~~$101~~$96 million, a decrease of ~~11%~~9% compared to ~~$114~~$106 million in the ~~third~~first quarter of ~~2019.~~2020. This decrease was mainly due to 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 ~~third~~first quarter of ~~2020~~2021 were ~~$33~~$26 million, ~~an increase~~a decrease of 6%23% compared to ~~$32~~$34 million in the ~~third~~first quarter of ~~2019.~~2020.

International Markets Profit

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

~~Table of Contents~~

Profit from our International Markets segment in the ~~third~~first quarter of ~~2020~~2021 was ~~$125~~$122 million, a decrease of 4%22%, compared to ~~$130~~$156 million in the ~~third~~first quarter of ~~2019.~~2020. This decrease was mainly due to lower positive impact from hedging activity as well as lower sales in Japan resulting from regulatory price reductions and generic competition to

off-patented

products, partially offset by lower S&M 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 ~~third~~first quarter of ~~2020~~2021 were ~~$316~~$289 million, ~~an increase~~a decrease of 1%6% compared to the ~~third~~first quarter of ~~2019.~~2020. In local currency terms, revenues decreased by 1%9% compared to the ~~third~~first quarter of ~~2019.~~2020.

API sales to third parties in the ~~third~~first quarter of ~~2020~~2021 were ~~$175~~$178 million, flat in both U.S. dollar and local currency terms compared to the ~~third~~first quarter of ~~2019.~~2020.

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Teva Consolidated Results

~~The~~

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

Revenues

Revenues in the ~~third~~first quarter of ~~2020~~2021 were ~~$3,978~~$3,982 million, a decrease of ~~3% in both U.S. dollar and~~9%, or 10% in local currency terms, compared to the ~~third~~first quarter of ~~2019.~~2020. This decrease was mainly due to lower revenues from ~~generics,~~generic, OTC and respiratory products and from COPAXONE in ~~all regions and~~our Europe segment, lower revenues from ~~QVAR~~Anda, COPAXONE and BENDEKA/TREANDA in our North America segment, lower revenues from Japan resulting from the divestment of a majority of the generic and operational assets of our Japanese business venture, as well as ~~reduced~~regulatory price reductions and generic competition to

off-patented

products in Japan, partially offset by higher revenues from generic products and AUSTEDO in our North America segment. Revenues were also affected by changes in demand for certain products resulting from the impact of the

COVID-19

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

Exchange rate movements during the ~~third~~first quarter of ~~2020, including~~2021, net of hedging effects, positively impacted revenues by ~~$14~~$74 million, compared to the ~~third~~first quarter of ~~2019.~~2020. See note 8d8c to our consolidated financial statements.

Gross Profit

Gross profit in the ~~third~~first quarter of ~~2020~~2021 was ~~$1,852~~$1,878 million, ~~an increase~~a decrease of 1%9% compared to the ~~third~~first quarter of ~~2019.~~2020. 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 margin was ~~46.6%~~47.2% in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~44.7%~~47.3% in the ~~third~~first quarter of ~~2019.~~2020.

The ~~increase~~decrease in gross profit margin was mainly due to lower revenues from our Europe segment, partially offset by higher profitability in North America resulting from the change in mix of ~~products as well as operational cost efficiencies and network optimization, partially offset by lower sales of COPAXONE and other specialty products in all segments.~~products.

Research and Development (R&D) Expenses

~~R&D expenses in the third quarter of 2020 were $258 million, an increase of 7% compared to the third 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.

Our R&D activities for specialty and biosimilar 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.

R&D expenses in the first quarter of 2021 were $254 million, an increase of 15% compared to the first quarter of 2020.

In the ~~third~~first quarter of ~~2020,~~2021, our R&D expenses related primarily to specialty product candidates in the ~~pain,~~ respiratory and ~~neuropsychiatry~~pain therapeutic areas, with additional activities in selected other areas and generic products including biosimilars.

Our higher R&D expenses in the ~~third~~first quarter of ~~2020,~~2021, compared to the ~~third~~first quarter of ~~2019,~~2020, were mainly due to an ~~upfront payment made~~increase in ~~the third quarter of 2020.~~respiratory and biosimilar projects.

R&D expenses as a percentage of revenues were ~~6.5%~~6.4% in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~5.9%~~5.1% in the ~~third~~first quarter of ~~2019.~~2020.

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Selling and Marketing (S&M) Expenses

S&M expenses in the ~~third~~first quarter of ~~2020~~2021 were ~~$605~~$585 million, ~~an increase~~a decrease of 2%5% compared to the ~~third~~first quarter of ~~2019.~~2020. 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 ~~15.2%~~14.7% in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~14.5%~~14.1% in the ~~third~~first quarter of ~~2019.~~2020.

General and Administrative (G&A) Expenses

G&A expenses in the ~~third~~first quarter of ~~2020~~2021 were ~~$279~~$290 million, a decrease of 2%5% compared to the ~~third~~first quarter of ~~2019.~~2020.

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G&A expenses as a percentage of revenues were 7.3% in the first quarter of 2021, compared to 7.0% in the ~~third~~first quarter of ~~2020, flat compared to the third quarter of 2019.~~2020.

Intangible Asset Impairments

We recorded expenses of ~~$509~~$79 million for identifiable intangible asset impairments in the ~~third~~first quarter of ~~2020,~~2021, compared to expenses of ~~$177~~$649 million in the ~~third~~first quarter of ~~2019.~~2020. See note 5 to our consolidated financial statements.

Goodwill Impairment

WeNo goodwill impairments were recorded ~~a goodwill impairment charge of $4,628 million related to our North America reporting unit~~ in the ~~third quarter~~first quarters of both 2021 and 2020. ~~See note 6 to our consolidated financial statements.~~

Other Asset Impairments, Restructuring and Other Items

We recorded ~~income~~expenses of ~~$98~~$137 million for other asset impairments, restructuring and other items in the ~~third~~first quarter of ~~2020,~~2021, compared to expenses of ~~$160~~$121 million in the ~~third~~first quarter of ~~2019. See~~2020. For further details, as well as a description of significant regulatory and other events, 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 $150 million in revenues from this site in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility, however, delays in FDA approvals of future products from the site may occur.

In July 2018, 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 by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, we have been actively engaged with global regulatory 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. In December 2019, we reached a settlement with Huahai resolving our claims related to certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses 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. During the third quarter of 2020, we have completed the first step of remediation of this issue and have restarted supply from our Goa facilities. The impact to our financial results for the nine months ended September 30, 2020 was immaterial, however, if the full remediation takes longer than expected there may be further loss of sales, customer penalties or impairments to related assets.

~~Restructuring~~

In the third quarter of 2020, we recorded $9 million of restructuring expenses, compared to $61 million in the third quarter of 2019. The expenses in the third quarter of 2020 were primarily related to residual expenses of the restructuring plan announced in 2017 and other network consolidation impacts.

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Legal Settlements and Loss Contingencies

In the ~~third~~first quarter of ~~2020,~~2021, we recorded ~~expenses~~an expense of ~~$21~~$104 million in legal settlements and loss contingencies, compared to ~~expenses~~an income of ~~$468~~$25 million in the ~~third~~first quarter of ~~2019. The expense in the third quarter of 2020 was mainly due~~2020. See note 9 to settling in part antitrust claims challenging a patent settlement agreement, partially offset by proceeds received following a settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). The expense in the third quarter of 2019 was mainly related to an increase in the estimated settlement provision recorded in connection with the opioid cases.our consolidated financial statements.

Other Income

Other income in the ~~third~~first quarter of ~~2020~~2021 was $8$5 million, compared to ~~$14~~$13 million in the ~~third~~first quarter of ~~2019.~~

~~Other income as a percentage of revenues was 0.2% in the third quarter of 2020 compared to 0.3% in the third quarter of 2019.~~2020.

Operating Income (Loss)

Operating ~~loss~~income was ~~$4,342~~$434 million in the ~~third~~first quarter of ~~2020,~~2021, compared to operating ~~loss~~income of ~~$81~~$191 million in the ~~third~~first quarter of ~~2019.~~2020.

Operating ~~loss~~income as a percentage of revenues was ~~109.1%~~10.9% in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~operating loss as a percentage of revenues of 2.0%~~4.4% in the ~~third~~first quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to the ~~goodwill impairment charge and higher~~lower intangible asset impairment charges, ~~in the third quarter of 2020,~~ partially offset by lower profit in our Europe segment along with higher legal settlements and loss ~~contingencies in the third quarter of 2020.~~contingencies.

Financial Expenses, Net

Financial expenses were ~~$117~~$290 million in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~$211~~$224 million in the ~~third~~first quarter of ~~2019.~~2020. Financial expenses in the ~~third~~first quarter of 2021 were mainly comprised of interest expenses of $239 million and loss on revaluations of marketable securities of $64 million. Financial expenses in the first quarter of 2020 were mainly comprised of interest expenses of $241 ~~million, partially offset by gains on revaluations~~million.

Table of marketable securities of $124 million (see note 16 to our consolidated financial statements). Financial expenses in the third quarter of 2019 were mainly comprised of interest expenses of $219 million.Contents

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three months ended

September 30,


2020

2019


(U.S. $ in millions)

North America profit
   $ 560    $ 565
Europe profit
   312    341
International Markets profit
   125    130




Total reportable segments profit
   997    1,036
Profit of other activities
   28    16




Total segments profit
   1,025    1,051
Amounts not allocated to segments:

Amortization
   251    255
Other assets impairments, restructuring and other items
   (98 )    160
Intangible asset impairments
   509    177
Goodwill impairment
   4,628    —
Legal settlements and loss contingencies
   21    468
Other unallocated amounts
   55    73




Consolidated operating income (loss)
   (4,342 )    (81 )




Financial expenses, net
   117    211




Consolidated income (loss) before income taxes
   $ (4,459 )    $ (292 )


	Three months ended
	March 31,
	2021		2020
	(U.S. $ in millions)
North America profit	$	577	$	550
Europe profit		338		502
International Markets profit		122		156

Total reportable segments profit		1,036		1,208
Profit of other activities		41		36

Total segments profit		1,077		1,244
Amounts not allocated to segments:
Amortization		242		258
Other assets impairments, restructuring and other items		137		121
Intangible asset impairments		79		649
Legal settlements and loss contingencies		104		(25	)
Other unallocated amounts		82		49

Consolidated operating income (loss)		434		191

Financial expenses, net		290		224

Consolidated income (loss) before income taxes	$	144	$	(33	)

Tax Rate

In the ~~third~~first quarter of 2021, we recognized a tax expense of $62 million, on

pre-tax

income of $144 million. In the first quarter of 2020, we recognized a tax ~~expense~~benefit of ~~$16~~$59 million, on

pre-tax

loss of ~~$4,459 million. In the third quarter of 2019, we recognized a tax expense of $11 million, on~~

~~pre-tax~~

~~loss of $292~~$33 million. Our tax rate for the ~~third~~first quarter of ~~2020~~2021 was mainly affected by ~~the goodwill impairment charge that does not have a corresponding~~legal settlements, impairments and amortization in jurisdictions in which tax ~~effect and other changes to~~rates are lower than Teva’s average tax ~~positions and deductions.~~rate on its ongoing business operations.

The statutory Israeli corporate tax rate is 23% in ~~2020.~~2021. 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 ~~discrete~~nonrecurring items.

Share In (Profits) Losses of Associated Companies, Net

Share in ~~profits~~losses of associated companies, net in the ~~third~~first quarter of ~~2020~~2021 was ~~$136~~$3 million, compared to share in ~~losses~~profits of $4$1 million in the ~~third~~first quarter of 2019. Our share in profits of associated companies, net in the third quarter of 2020 was mainly due to a gain of $134 million reflecting the difference between the book value of our investment in American Well Corporation and its fair value as of the date it completed its initial public offering in September 2020 (see note 16 to our consolidated financial statements).2020.

Net Income (Loss) Attributable to Teva

Net ~~loss~~income was ~~$4,349~~$77 million in the ~~third~~first quarter of ~~2020,~~2021, compared to ~~net loss of $314~~$69 million in the ~~third~~first quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to the ~~goodwill impairment charge and higher intangible asset impairment charges~~increase in ~~the third quarter of 2020, partially offset by lower legal settlements and loss contingencies in the third quarter of 2020.~~operating income, as discussed above.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019 was 1,096~~were 1,107 million and ~~1,092~~1,096 million shares, respectively.

non-vested

RSUs granted under employee stock compensation ~~plans, and~~plans. No account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on ~~loss~~earnings per share.

Diluted ~~loss~~earnings per share ~~was $3.97~~were $0.07 in the ~~third~~first quarter of ~~2020,~~2021, compared to diluted ~~loss~~earnings per share of ~~$0.29~~$0.06 in the ~~third~~first quarter of ~~2019.~~2020.

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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 and the conversion of our convertible senior debentures, in each case, at period end.

As of ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,118~~1,130 million and ~~1,107~~1,118 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the ~~third~~first quarter of ~~2020,~~2021, approximately ~~47%~~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. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, new Israeli shekel, Canadian dollar and Russian ruble) impact our results.

During the ~~third~~first quarter of ~~2020,~~2021, 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 ~~32%~~31%, Brazilian real by ~~26%~~19%, Turkish lira by ~~21%~~17%, Russian ruble by ~~12%~~11% and ~~Mexican peso~~Ukrainian hryvnia by ~~12%~~10%. The following main currencies relevant to our operations increased in value against the U.S. dollar: Australian dollar by 17%, Swedish krona by 8%15%, ~~Swiss franc~~Chilean peso by 7%11%, Euro by 9%, Bulgarian lev by 9% and British pound by ~~5% and the euro by 5%~~8%.

As a result, exchange rate movements during the ~~third~~first quarter of ~~2020, including~~2021, net of hedging effects, positively impacted overall revenues by ~~$14~~$74 million and negatively impacted our operating ~~loss~~income by ~~$18~~$14 million, in comparison with the ~~third~~first quarter of ~~2019.~~ 2020.

In the ~~third~~first quarter of ~~2020, the negative~~2021, a positive hedging impact of $28 million was recognized under revenues, ~~was $8 million, partially offset by~~and a minimal negative impact ~~of $2 million~~was recognized under cost of ~~sales, in comparison with~~sales. In the ~~third~~first quarter of ~~2019.~~ 2020, a positive hedging impact of $60 million was recognized under revenues and a positive impact of $5 million was recognized under cost of sales.

Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d8c 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.

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~~Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 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 nine months ended September 30, 2020 and 2019. Where there are different factors affecting the nine 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 nine months ended September 30, 2020 and 2019:~~

Nine months ended September 30,


2020

2019


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

Revenues
   $ 6,146    100 % $ 6,169    100.0 %
Gross profit
   3,208    52.2 % 3,155    51.1 %
R&D expenses
   455    7.4 % 497    8.0 %
S&M expenses
   755    12.3 % 756    12.3 %
G&A expenses
   325    5.3 % 342    5.5 %
Other (income) expense
   (9 )    § (6 )    §






Segment profit*
   $ 1,682    27.4 % $ 1,566    25.4 %

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

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

~~North America Revenues~~

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first nine months of 2020 were $6,146 million, flat compared to the first nine months of 2019, mainly due to higher revenues from AUSTEDO, Anda and AJOVY, offset by lower revenues from COPAXONE and BENDEKA/TREANDA.

~~Revenues by Major Products and Activities~~

~~The following table presents revenues for our North America segment by major products and activities for the nine months ended September 30, 2020 and 2019:~~

Nine months ended September 30,

Percentage
Change


2020

2019

2019-2020


(U.S. $ in millions)

Generic products
   $ 2,804    $ 2,826    (1 %)
AJOVY
   98    68    45 %
AUSTEDO
   451    276    64 %
BENDEKA/TREANDA
   313    371    (16 %)
COPAXONE
   671    753    (11 %)
ProAir*
   175    194    (10 %)
QVAR
   139    183    (24 %)
Anda
   1,141    1,080    6 %
Other
   354    417    (15 %)





Total
   $ 6,146    $ 6,169    §

*	~~Does not include 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 nine months of 2020 was $3,208 million, an increase of 2%, compared to $3,155 million in the first nine months of 2019.~~

~~Table of Contents~~

~~Gross profit margin for our North America segment in the first nine months of 2020 increased to 52.2% compared to 51.1% in the first nine months of 2019.~~

~~North America R&D Expenses~~

~~R&D expenses relating to our North America segment in the first nine months of 2020 were $455 million, a decrease of 8%, compared to $497 million in the first nine months of 2019.~~

~~North America S&M Expenses~~

~~S&M expenses relating to our North America segment in the first nine months of 2020 were $755 million, flat compared to $756 million in the first nine months of 2019.~~

~~North America G&A Expenses~~

~~G&A expenses relating to our North America segment in the first nine months of 2020 were $325 million, a decrease of 5%, compared to $342 million in the first nine months of 2019.~~

~~North America Profit~~

Profit from our North America segment in the first nine months of 2020 was $1,682 million, an increase of 7%, compared to $1,566 million in the first nine months of 2019, mainly due to lower expenses and a change in mix of products, partially offset by lower revenues.

~~Europe Segment~~

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

Nine months ended September 30,


2020

2019


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

Revenues
   $ 3,520    100 % $ 3,611    100 %
Gross profit
   2,009    57.1 % 2,066    57.2 %
R&D expenses
   180    5.1 % 199    5.5 %
S&M expenses
   590    16.8 % 637    17.6 %
G&A expenses
   184    5.2 % 175    4.8 %
Other (income) expense
   (3 )    § (5 )    §






Segment profit*
   $ 1,058    30.1 % $ 1,060    29.4 %

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

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

~~Europe Revenues~~

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first nine months of 2020 were $3,520 million, a decrease of 3% or $91 million, compared to the first nine months of 2019. In local currency terms, revenues decreased by 2%, compared to the first nine months of 2019, mainly due to a decrease in revenues from COPAXONE and oncology products due to price erosion. Revenues from generic products were flat, due to higher demand for certain products resulting from the

~~COVID-19~~

~~pandemic in the first quarter of 2020, new generic product launches in the first and second quarters of 2020 and reduced demand for certain products resulting from the~~

~~COVID-19~~

~~pandemic in the second and third quarters of 2020.~~

~~Revenues by Major Products and Activities~~

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

Nine months ended

September 30,


2020

2019


(U.S. $ in millions)

Generic products
   $ 2,593    $ 2,599
COPAXONE
   294    327
Respiratory products
   263    267
AJOVY
   17    1
Other
   352    416




Total
   $ 3,520    $ 3,611

~~Table of Contents~~

~~Europe Gross Profit~~

~~Gross profit from our Europe segment in the first nine months of 2020 was $2,009 million, a decrease of 3% compared to $2,066 million in the first nine months of 2019.~~

~~Gross profit margin for our Europe segment in the first nine months of 2020 decreased to 57.1% compared to 57.2% in the first nine months of 2019.~~

~~Europe R&D Expenses~~

~~R&D expenses relating to our Europe segment in the first nine months of 2020 were $180 million, a decrease of 10% compared to $199 million in the first nine months of 2019.~~

~~Europe S&M Expenses~~

~~S&M expenses relating to our Europe segment in the first nine months of 2020 were $590 million, a decrease of 7% compared to $637 million in the first nine months of 2019.~~

~~Europe G&A Expenses~~

~~G&A expenses relating to our Europe segment in the first nine months of 2020 were $184 million, an increase of 5% compared to $175 million in the first nine months of 2019.~~

~~Europe Profit~~

Profit from our Europe segment in the first nine months of 2020 was $1,058 million, flat compared to the first nine months of 2019, mainly due to lower revenues, offset by lower expenses, as discussed above.

~~International Markets Segment~~

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

Nine months ended

September 30,


2020

2019**


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

Revenues
   $ 1,582    100 % $ 1,668    100 %
Gross profit
   828    52.3 % 877    52.6 %
R&D expenses
   51    3.3 % 66    4.0 %
S&M expenses
   312    19.7 % 348    20.9 %
G&A expenses
   96    6.1 % 102    6.1 %
Other (income) expense
   (10 )    (0.6 %) (2 )    §






Segment profit*
   $ 378    23.9 % $ 363    21.7 %

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

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

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

~~International Markets Revenues~~

Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first nine months of 2020 were $1,582 million, a decrease of $86 million, or 5%, compared to the first nine months of 2019. In local currency terms, revenues decreased by 2% compared to the first nine months of 2019, mainly due to lower sales in Japan and loss of revenues from the sale of certain assets in the Israeli market, partially offset by increased revenues in other markets. Revenues in the first nine months of 2020 were also impacted by higher demand for certain products resulting from the

~~COVID-19~~

~~pandemic in the first quarter of 2020 and reduced demand for certain products resulting from the impact of the~~

~~COVID-19~~

pandemic in the second and third quarters of 2020. The revenues in the first nine months of 2020 included $25 million from a positive hedging impact, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

~~Table of Contents~~

~~Revenues by Major Products and Activities~~

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

Nine months ended
September 30,


2020

2019


(U.S. $ in millions)

Generic products
   $ 1,304    $ 1,404
COPAXONE
   38    46
Other
   241    218




Total
   $ 1,582    $ 1,668

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

~~International Markets Gross Profit~~

~~Gross profit from our International Markets segment in the first nine months of 2020 was $828 million, a decrease of 6% compared to $877 million in the first nine months of 2019.~~

~~Gross profit margin for our International Markets segment in the first nine months of 2020 decreased to 52.3%, compared to 52.6% in the first nine months of 2019.~~

~~International Markets R&D Expenses~~

~~R&D expenses relating to our International Markets segment in the first nine months of 2020 were $51 million, a decrease of 23% compared to $66 million in the first nine months of 2019.~~

~~International Markets S&M Expenses~~

~~S&M expenses relating to our International Markets segment in the first nine months of 2020 were $312 million, a decrease of 10% compared to $348 million in the first nine months of 2019.~~

~~International Markets G&A Expenses~~

~~G&A expenses relating to our International Markets segment in the first nine months of 2020 were $96 million, a decrease of 5% compared to $102 million in the first nine months of 2019.~~

~~International Markets Profit~~

Profit from our International Markets segment in the first nine months of 2020 was $378 million, an increase of 4%, compared to $363 million in the first nine 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 nine months of 2020 decreased by 2% to $957 million, compared to the first nine months of 2019. In local currency terms, revenues decreased by 1%.~~

~~API sales to third parties in the first nine months of 2020 were $564 million, flat compared to the first nine months of 2019 in both U.S dollar and local currency terms.~~

~~Teva Consolidated Results~~

~~Revenues~~

~~Revenues in the first nine months of 2020 were $12,206 million, a decrease of 2%, or 1% in local currency terms, compared to the first nine months of 2019.~~

Exchange rate movements during the first nine months of 2020, including hedging effects, negatively impacted revenues by $68 million, compared to the first nine months of 2019. See note 8d to our consolidated financial statements.

~~Gross Profit~~

~~Gross profit in the first nine months of 2020 was $5,678 million, an increase of 2% compared to the first nine months of 2019.~~

~~Gross profit margin was 46.5% in the first nine months of 2020, compared to 44.9% in the first nine months of 2019.~~

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

R&D expenses in the first nine months of 2020 were $704 million, a decrease of 9% compared to the first nine months of 2019, mainly due to the life cycle and stage of various projects, partially offset by an upfront payment made in the third quarter of 2020.

~~R&D expenses as a percentage of revenues were 5.8% in the first nine months of 2020, compared to 6.3% in the first nine months of 2019.~~

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

S&M expenses in the first nine months of 2020 were $1,815 million, a decrease of 5% compared to the first nine 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 14.9% in the first nine months of 2020, compared to 15.4% in the first nine months of 2019.~~

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

~~G&A expenses in the first nine months of 2020 were $846 million, a decrease of 3% compared to the first nine months of 2019.~~

~~G&A expenses as a percentage of revenues were 6.9% in the first nine months of 2020, compared to 7.0% in the first nine months of 2019.~~

~~Intangible Asset Impairments~~

We recorded expenses of $1,278 million for identifiable intangible asset impairments, in the first nine months of 2020, compared to expenses of $1,206 million in the first nine months of 2019. See note 5 to our consolidated financial statements.

~~Goodwill Impairment~~

~~We recorded a goodwill impairment charge of $4,628 million related to our North America reporting unit in the first nine months of 2020. See note 6 to our consolidated financial statements.~~

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

We recorded expenses of $404 million for other asset impairments, restructuring and other items in the first nine months of 2020, compared to expenses of $263 million in the first nine months of 2019. See note 12 to our consolidated financial statements.

~~Legal Settlements and Loss Contingencies~~

In the first nine months of 2020, we recorded expenses of $10 million in legal settlements and loss contingencies, compared to expenses of $1,171 million in the first nine months of 2019. The expense in the first nine months of 2020 was mainly related to an increase of a reserve for certain legal expenses and settlement contributions related to product liability claims in the United States and settling in part antitrust claims challenging a patent settlement agreement, partially offset by proceeds received following a settlement of the FCPA derivative proceedings in Israel and settlement of an action brought against the sellers of Auden McKenzie (an acquisition made by Actavis Generics). The expense in the first nine months of 2019 was mainly related to an estimated settlement provision recorded in connection with the opioid cases.

~~Other Income~~

~~Other income in the first nine months of 2020 was $30 million, compared to $29 million in the first nine months of 2019.~~

~~Other income as a percentage of revenues was 0.2% in the first nine months of both 2020 and 2019.~~

~~Operating Income (Loss)~~

~~Operating loss was $3,978 million in the first nine months of 2020, compared to operating loss of $591 million in the first nine months of 2019.~~

~~Operating loss as a percentage of revenues was 32.6% in the first nine months of 2020, compared to operating loss as a percentage of revenues of 4.8% in the first nine months of 2019.~~

~~Financial Expenses, Net~~

Financial expenses were $565 million in the first nine months of 2020, compared to $635 million in the first nine months of 2019. Financial expenses in the first nine months of 2020 were mainly comprised of interest expenses of $722 million, partially offset by gains on revaluations of marketable securities of $118 million (see note 16 to our consolidated financial statements) as well as a gain of $27 million resulting from our hedging and derivatives activities. Financial expenses in the first nine months of 2019 were mainly comprised of interest expenses of $672 million, partially offset by interest income of $36 million.

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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 nine months ended September 30, 2020 and 2019:

Nine months ended September 30,


2020

2019


(U.S. $ in millions)

North America profit
   $ 1,682    $ 1,566
Europe profit
   1,058    1,060
International Markets profit
   378    363




Total reportable segments profit
   3,118    2,989
Profit (loss) of other activities
   130    92




Total segments profit
   3,248    3,081
Amounts not allocated to segments:

Amortization
   758    823
Other asset impairments, restructuring and other items
   404    263
Intangible asset impairments
   1,278    1,206
Goodwill impairment
   4,628    —
Legal settlements and loss contingencies
   10    1,171
Other unallocated amounts
   148    209




Consolidated operating income (loss)
   (3,978 )    (591 )




Financial expenses, net
   565    635




Consolidated income (loss) before income taxes
   $ (4,543 )    $ (1,226 )

~~Tax Rate~~

~~In the first nine months of 2020, we recognized a tax benefit of $147 million, on~~

~~pre-tax~~

~~loss of $4,543 million. In the first nine months of 2019, we recognized a tax benefit of $159 million, on~~

~~pre-tax~~

loss of $1,226 million. Our tax rate for the first nine months of 2020 was mainly affected by the goodwill impairment charge that does not have a corresponding tax effect and other changes to tax positions and deductions.

~~Share in (Profits) Losses of Associated Companies, Net~~

Share in profits of associated companies, net in the first nine months of 2020 was $135 million, compared to share in losses of associated companies, net of $8 million in the first nine months of 2019. Our share in profits of associated companies, net in the first nine months of 2020 was mainly due to a gain of $134 million reflecting the difference between the book value of our investment in American Well Corporation and its fair value as of the date it completed its initial public offering in September 2020 (see note 16 to our consolidated financial statements).

~~Net Income (Loss) Attributable to Teva~~

~~Net loss was $4,140 million in the first nine months of 2020, compared to net loss of $1,108 million in the first nine 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 nine months ended September 30, 2020 and 2019 was 1,095 million and 1,091 million shares, respectively.

~~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 loss per share was $3.78 in the first nine months of 2020, compared to diluted loss per share of $1.02 in the first nine months of 2019.~~

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

In the first nine 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 nine

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months of 2020, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinian peso by 34%, Brazilian real by 23%, Turkish lira by 16%, Chilean peso by 15%, Mexican peso by 12% and Russian ruble by 8% (all compared on a nine-month average basis). The following main currencies relevant to our operations increased in value against the U.S. dollar: Swiss franc by 5%, new Israeli shekel by 3% and Japanese yen by 1%.

As a result, exchange rate movements during the first nine months of 2020 negatively impacted overall revenues by $68 million and our operating loss by $28 million, in comparison to the first nine months of 2019. In the first nine months of 2020, the positive hedging impact recognized under revenues was $36 million, partially offset by a positive impact of $3 million recognized under cost of sales, in comparison to the first nine months of 2019. Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.

Liquidity and Capital Resources

Total balance sheet assets were ~~$49,737~~$49,004 million as of ~~September 30, 2020,~~March 31, 2021, compared to ~~$54,991~~$50,640 million as of ~~June 30,~~December 31, 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 ~~$223~~$1,179 million as of ~~September 30, 2020,~~March 31, 2021, compared to ~~$209~~$662 million as of ~~June 30,~~December 31, 2020. This increase was mainly due to decreases in SR&A, employee-related obligations and other current liabilities.

Employee-related obligations, as of March 31, 2021, were $526 million, compared to $685 million as of December 31, 2020. The decrease in the first quarter of 2021 was mainly due to performance incentive payments to employees for 2020.

Cash investment in property, plant and equipment in the ~~third~~first quarter of ~~2020~~2021 was ~~$143~~$150 million, compared to ~~$131~~$128 million in the ~~second~~first quarter of 2020. Depreciation in the ~~third~~first quarter of ~~2020~~2021 was ~~$130~~$134 million, compared to ~~$134~~$141 million in the ~~second~~first quarter of 2020.

Cash and cash equivalents and short-term and long-term investments as of ~~September 30, 2020~~March 31, 2021 were ~~$2,155~~$1,933 million, compared to ~~$2,431~~$2,478 million as of ~~June 30,~~December 31, 2020. The decrease in the ~~third~~first quarter of ~~2020~~2021 was mainly due to ~~repayment at maturity~~the redemption of our ~~€1,010 million 0.375%~~convertible senior ~~notes.~~debentures, a decrease in valuation of marketable securities, partially offset by cash flow 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.

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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”).

The RCF agreement provides for two separate tranches, a $1.15 billion tranche A and a $1.15 billion tranche B. Tranche A has a maturity date of April 8, 2022, of which an amount of $1.065 billion was extended twice, initially to April 8, 2023 and then to April 8, 2024. Tranche B has a maturity date of April 8, 2024. 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 $1.065 billion were extended to April 8, 2023. Tranche B has a maturity date of April 8, 2024.~~

The RCF can be used for general corporate purposes, including repaying existing debt. As of ~~September 30, 2020, €100 million was outstanding under the RCF. As~~March 31, 2021, and as of the date of this Quarterly Report on Form

10-Q,

~~€270 million was~~no amounts were outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.

Under specified circumstances, including

non-compliance

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

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

Debt Balance and Movements

As of ~~September 30, 2020,~~March 31, 2021, our debt was ~~$25,621~~$24,986 million, compared to ~~$26,266~~$25,919 million as of ~~June 30,~~December 31, 2020. This decrease was mainly due to ~~the repayment at maturity~~redemption of $491 million of our ~~€1,010 million 0.375%~~convertible senior ~~notes in July 2020, partially offset by~~debentures and 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 €1,010 million 0.375% senior notes.~~

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During the third quarter of 2020, we borrowed €200 million under our RCF and repaid €100 million of such borrowings. As of September 30, 2020, €100 million were outstanding under the RCF. As of the date of this Quarterly Report on Form

~~10-Q,~~

~~€270 million were outstanding under the RCF.~~

Our debt as of ~~September 30, 2020~~March 31, 2021 was effectively denominated in the following currencies: 65% in U.S. dollars, 32% in euros and 3% in Swiss francs.

The portion of total debt classified as short-term as of ~~September 30, 2020~~March 31, 2021 was 8%11%, compared to 6%12% as of ~~June 30,~~December 31, 2020.

Our financial leverage was ~~71%~~69% as of ~~September 30, 2020,~~March 31, 2021, compared to ~~64%~~70% as of ~~June 30,~~December 31, 2020.

Our average debt maturity was approximately ~~6.0~~5.6 years as of ~~September 30, 2020,~~March 31, 2021, compared to ~~6.1~~5.8 years as of ~~June 30,~~December 31, 2020.

Total Equity

Total equity was ~~$10,592~~$10,975 million as of ~~September 30, 2020,~~March 31, 2021, compared to ~~$14,824~~$11,061 million as of ~~June 30,~~December 31, 2020. This decrease was mainly due to a negative impact of $208 million from exchange rate fluctuations, partially offset by net ~~loss~~income of ~~$4,340 million, primarily due to the goodwill impairment charge recorded in the third quarter of 2020.~~$84 million.

Exchange rate fluctuations affected our balance sheet, as approximately ~~54%~~58% of our net assets in the ~~third~~first quarter of ~~2020~~2021 (including both

non-monetary

and monetary assets) were in currencies other than the U.S. dollar. When compared to ~~June 30,~~December 31, 2020, changes in currency rates had a ~~positive~~negative impact of ~~$70~~$208 million on our equity as of ~~September 30, 2020,~~March 31, 2021, mainly due to the changes in value against the U.S. dollar of: the ~~Russian ruble~~Japanese yen by ~~13%~~7%, the ~~British pound~~Swiss franc by 4%7%, the Polish zloty by 7%, the euro by 5%, the Croatian kuna by ~~2%, the Mexican peso by 3%, the Canadian dollar by 2%, the Polish zloty by 3%,~~5% and the Chilean peso by ~~4% and the euro by 4%~~3%. All comparisons are on a

quarter-end

basis.

Cash Flow

We seek to continually improve the efficiency of our working capital management. From time to time, as part of our cash management activities, we may make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers or deceleration of payments to vendors, having the effect of increasing or decreasing cash from operations in an individual period. Such decisions had no material impact on our ~~nine month~~

year-to-date

operating cash flow measurement, but may impact

quarter-to-quarter

results.

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Cash flow used in operating activities during the first quarter of 2021 was $405 million, compared to $305 million cash flow generated from operating activities ~~during~~in the ~~third~~first quarter of ~~2020 was $307 million, compared to $325 million in the third quarter of 2019.~~2020. The decrease in the ~~third~~first quarter of ~~2020~~2021 was mainly due to changes in working capital items resulting from a decrease in SR&A and an increase in inventory, ~~during the third quarter of 2020, compared to a decrease~~as well as lower profit in ~~inventory in the third quarter of 2019.~~our Europe segment.

During the ~~third~~first quarter of ~~2020,~~2021, we generated free cash flow of ~~$506~~$59 million, which we define as comprising ~~$307~~$405 million in cash flow ~~generated from~~used in operating activities, ~~$333~~$476 million in beneficial interest collected in exchange for securitized accounts receivables and $9$138 million in proceeds from ~~sale~~divestitures of ~~property, plant~~businesses and ~~equipment,~~other assets, partially offset by ~~$143~~$150 million in cash used for capital investment. During the ~~third~~first quarter of ~~2019,~~2020, we generated free cash flow of $551 million, comprising ~~$325~~$305 million in cash flow ~~used in~~generated from operating activities, ~~$362~~$368 million in beneficial interest collected in exchange for securitized accounts receivables and ~~$33~~$6 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by ~~$169~~$128 million in cash used for capital investment. The decrease in the ~~third~~first quarter of ~~2020~~2021 resulted mainly from lower cash flow ~~generated~~ from operating ~~activities.~~activities, partially offset by higher sales of assets.

Dividends

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

Commitments

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

In August 2020, we entered into ~~an exclusive~~a partnership agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this partnership contains biosimilar candidates addressing multiple therapeutic ~~areas.~~areas, including a proposed biosimilar to Humira

. Under this agreement, Alvotech ~~will be~~is 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~~We paid an upfront payment ~~payable by Teva, which was paid~~ in the third quarter of ~~2020.~~2020 that was recorded as R&D expense. Additional development and commercial milestone payments of up to ~~$490~~$450 million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of ~~the~~these biosimilars. Abbvie recently sued Alvotech for allegedly misappropriating confidential information relating to Humira

. Alvotech has disputed these claims.

In September 2016, we entered into ana collaborative agreement with Regeneron 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~~rights to this product with Regeneron (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated R&D costs of approximately ~~$1.0~~$1 billion. ~~Additional~~We made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of up to $2,230 million, as well as future royalties. For information regarding recent fasinumab ~~phase 3 clinical trial results,~~developments, see “—North America Segment —Product Launches and Pipeline” above.

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In October 2016, we entered into ~~an exclusive partnership~~a collaborative agreement with Celltrion to commercialize Truxima

and Herzuma

, two ~~of Celltrion’s~~ biosimilar products ~~in development~~ for the U.S. and Canadian markets. We paid Celltrion $160 million, of which we received an aggregate credit of $60 million as of ~~September 30, 2020.~~March 31, 2021. We share the profit from the commercialization of these products with Celltrion. These two products, ~~TRUXIMA~~Truxima and ~~HERZUMA,~~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.

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

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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.

~~2020~~2021 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.~~2020.

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:

amortization of purchased intangible assets;

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

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

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

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

step-up

and

in-process

R&D acquired in development arrangements;

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expenses related to our equity compensation;

significant

one-time

financing costs and ~~devaluation~~ marketable securities investment valuation gains/losses;

unusual tax items;

other awards or settlement amounts, either paid or received;

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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:

7358

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The following table presents the GAAP measures, related

non-GAAP

adjustments and the corresponding

non-GAAP

amounts for the applicable periods:

Three Months Ended September 30, 2020

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

GAAP Excluded for
non-GAAP
measurement Non-GAAP
Amortization
of purchased
intangible
assets
Legal
settlements
and loss
contingencies
Goodwill
impairment
Impairment
of long
lived
assets
Other
R&D
expenses Restructuring
costs
Costs
related to
regulatory
actions
taken in
facilities
Equity
compensation Contingent
consideration
Other
non-GAAP

items
Other
items Corresponding
tax effect
Cost of sales
2,126 221 6 7 (2 ) 1,894
R&D expenses
258 21 5 233
S&M expenses
605 31 8 566
G&A expenses
279 10 269
Other (income) expense
(8 ) (8 )
Legal settlements and loss contingencies
21 21 —
Other assets impairments, restructuring and other items
(98 ) 56 9 (179 ) 15 —
Intangible assets impairments
509 509 —
Goodwill impairment
4,628 4,628 —
Financial expenses, net
117 (124 ) 241
Income taxes
16 (117 ) 133
Share in losses of associated companies – net
(136 ) (134 ) (1 )
Net income (loss) attributable to
non-controlling
interests
10 (6 ) 15

Total reconciled items
251 21 4,628 565 21 9 6 30 (179 ) 14 (264 ) (117 )

EPS - Basic
(3.97 ) 4.55 0.58
EPS - Diluted
(3.97 ) 4.55 0.58

~~The~~

~~non-GAAP~~

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


	Three Months Ended March 31, 2021
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																					Non-GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Other R&D expenses		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Other non-GAAP items*		Other items
Net revenues		3,982																								3,982
Cost of sales		2,104			215										5		6				41					1,838

Gross profit		1,878			215		—		—		—		—		5		6		—		41		—			2,144
Gross profit margin		47.2	%																							53.8	%
R&D expenses		254									5						5				—					244
S&M expenses		585			27												9				—					549
G&A expenses		290															11				—					278
Other income		(5	)																							(5	)
Legal settlements and loss contingencies		104					104																			—
Other assets impairments, restructuring and other items		137							48				81						3		4					—
Intangible assets impairments		79							79																	—

Operating income (loss)		434			242		104		127		5		81		5		31		3		45		—			1,077
Financial expenses, net		290																					64			227

Income (loss) before income taxes		144			242		104		127		5		81		5		31		3		45		64			851
Income taxes		62																					(85	)		146
Share in profits (losses) of associated companies – net		(3	)																				2			(4	)

Net income (loss)		84			242		104		127		5		81		5		31		3		45		(19	)		709
Net income (loss) attributable to non-controlling interests		7																					(3	)		10

Net income (loss) attributable to Teva		77			242		104		127		5		81		5		31		3		45		(22	)		699

Total reconciled items					242		104		127		5		81		5		31		3		45		(22	)

EPS - Basic		0.07																					0.57			0.64
EPS - Diluted		0.07																					0.56			0.63

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Three Months Ended September 30, 2019

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

GAAP Excluded for
non-GAAP
measurement Non-GAAP
Amortization
of purchased
intangible
assets
Legal
settlements
and loss
contingencies

Impairment
of long
lived assets
Restructuring
costs
Costs
related to
regulatory
actions
taken in
facilities
Equity
compensation Contingent
consideration
Gain
on sale
of
business

Other
non-
GAAP
items
Other
items Corresponding
tax effect
Cost of sales*
2,264 220 11 7 35 1,990
R&D expenses
240 5 (7 ) 242
S&M expenses
595 35 9 551
G&A expenses
285 14 1 270
Other (income) expense
(14 ) (3 ) (11 )
Legal settlements and loss contingencies
468 468 —
Other assets impairments, restructuring and other items
160 28 61 51 21 —
Intangible assets impairments
177 177 —
Financial expenses, net
211 3 208
Income taxes
11 (172 ) 183
Share in losses of associated
companies – net
4 4
Net income (loss) attributable to
non-controlling
interests
7 (12 ) 19

Total reconciled items
255 468 204 61 11 35 51 (3 ) 51 (9 ) (172 )

EPS - Basic
(0.29 ) 0.87 0.58
EPS - Diluted
(0.29 ) 0.87 0.58

The non-GAAP diluted weighted average number of shares was ~~1,093~~1,107 million for the three months ended ~~September 30, 2019.~~March 31, 2021.

Non-GAAP income taxes for the three months ended March 31, 2021 were 17% on pre-tax non-GAAP income.

~~The data presented for prior periods has been revised~~Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to ~~reflect a revision~~facilitate an understanding of trends in our financial results, such as certain accelerated depreciation expenses and inventory write offs, primarily related to the ~~presentation~~rationalization of ~~net revenues~~our plants and ~~cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.~~other unusual events.

~~Table of Contents~~

Nine Months Ended September 30, 2020

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

GAAP Excluded for
non-GAAP
measurement Non-GAAP
Amortization
of purchased
intangible
assets
Legal
settlements
and loss
contingencies
Goodwill
impairment
Impairment
of long-
lived assets
Restructuring
costs
Costs
related to
regulatory
actions
taken in
facilities
Equity
compensation Contingent
consideration Other non
GAAP
items Other
items
Corresponding
tax effect

Cost of sales
6,528 663 17 19 30 5,799
R&D expenses
704 14 3 687
S&M expenses
1,815 95 25 1,695
G&A expenses
846 31 12 803
Other (income) expense
(30 ) (3 ) (27 )
Legal settlements and loss contingencies
10 10 —
Other assets impairments, restructuring and other items
404 408 82 (96 ) 10 —
Intangible assets impairment
1,278 1,278 —
Goodwill impairment
4,628 4,628 —
Financial expenses, net
565 (118 ) 683
Income taxes
(147 ) (583 ) 436
Share in losses of associated companies – net
(135 ) (134 ) (1 )
Net income (loss) attributable to
non-controlling
interests
(121 ) (174 ) 53

Total reconciled items
758 10 4,628 1,686 82 17 90 (96 ) 52 (427 ) (583 )

EPS - Basic
(3.78 ) 5.68 1.90
EPS - Diluted
(3.78 ) 5.67 1.89

~~The~~

~~non-GAAP~~

~~diluted weighted average number of shares was 1,099 million for the nine months ended September 30, 2020.~~

~~Table of Contents~~

Nine months ended September 30, 2019

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

GAAP Excluded for
non-GAAP
measurement
Non-

GAAP
Amortization
of purchased
intangible
assets Legal
settlements
and loss
contingencies Impairment
of long-
lived assets Acquisition,
integration
and related
expenses Restructuring
costs Costs
related to
regulatory
actions
taken in
facilities Equity
compensation Contingent
consideration
Gain
on
sale of
business
Other
non
GAAP
items Other
items Corresponding
tax effect Unusual
tax
item*
Cost of sales**
6,841 717 28 21 96 5,978
R&D expenses
778 17 (7 ) 768
S&M expenses
1,908 105 29 1,774
G&A expenses
873 37 836
Other (income) expense
(29 ) (12 ) (17 )
Legal settlements and loss contingencies
1,171 1,171 —
Other assets impairments, restructuring and other items
263 96 2 140 4 22 —
Intangible assets impairment
1,206 1,206 —
Financial expenses, net
635 9 626
Income taxes
(159 ) (662 ) 61 442
Share in losses of associated companies – net
8 8
Net income (loss) attributable to
non-controlling
interests
33 (28 ) 61

Total reconciled items
823 1,171 1,302 2 140 28 104 4 (12 ) 111 (19 ) (662 ) 61

EPS - Basic
(1.02 ) 2.80 1.78
EPS - Diluted
(1.02 ) 2.80 1.78

~~The~~

~~non-GAAP~~

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

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

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

7759

Table of Contents


	Three Months Ended March 31, 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
Net revenues		4,357																										4,357
Cost of sales		2,294			223												4		6				15					2,046

Gross profit		2,063			223		—			—		—			—		4		6		—		15		—			2,312
Gross profit margin		47.3	%																									53.1	%
R&D expenses		221										(4	)						5									221
S&M expenses		613			35														9									570
G&A expenses		304																	10				4					290
Other income		(13	)																									(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																		—

Operating income (loss)		191			258		(25	)		724		(4	)		39		4		30		6		20		—			1,244
Financial expenses, net		224																							11			213

Income (loss) before income taxes		(33	)		258		(25	)		724		(4	)		39		4		30		6		20		11			1,030
Income taxes		(59	)																						(234	)		175
Share in profit (losses) of associated companies – net		1																										1

Net income (loss)		25			258		(25	)		724		(4	)		39		4		30		6		20		(223	)		854
Net income (loss) attributable to non-controlling interests		(44	)																						(63	)		20

Net income (loss) attributable to Teva		69			258		(25	)		724		(4	)		39		4		30		6		20		(286	)		835

Total reconciled items					258		(25	)		724		(4	)		39		4		30		6		20		(286	)

EPS - Basic		0.06																							0.70			0.76
EPS - Diluted		0.06																							0.70			0.76

The non-GAAP diluted weighted average number of shares was 1,096 million for the three months ended March 31, 2020.

Non-GAAP income taxes for the three months ended March 31, 2020 were 17% on pre-tax non-GAAP income.

Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of our plants and other unusual events.

Table of Contents

Non-GAAP

Tax Rate

Non-GAAP

income taxes for the ~~third~~first quarter of ~~2020~~2021 were ~~$133~~$146 million, or 17%, on

pre-tax

non-GAAP

income of ~~$784~~$851 million.

Non-GAAP

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

pre-tax

non-GAAP

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

non-GAAP

tax rate for the ~~third~~first quarter of ~~2020~~2021 was mainly affected by the mix of products we sold and ~~other changes to tax positions and deductions.~~

~~Non-GAAP~~

~~income taxes for the first nine months of 2020 were $436 million, or 17%, on~~

~~pre-tax~~

~~non-GAAP~~

~~income of $2,565 million.~~

~~Non-GAAP~~

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

~~pre-tax~~

~~non-GAAP~~

~~income of $2,454 million.~~interest expense disallowance.

We expect our annual

non-GAAP

tax rate for ~~2020~~2021 to be

between 17%~~-18%~~ to 18%,

~~slightly lower than~~ similar to our

non-GAAP

tax rate for ~~2019,~~2020, which was ~~18%~~17%. ~~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,~~2020, 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.~~2020.

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.~~2020.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and procedures” (as defined in

Rules 13a-15(e) and 15d-15(e) under

the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

After evaluating the effectiveness of our disclosure controls and procedures as of ~~September 30, 2020,~~March 31, 2021, 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 ~~September 30, 2020,~~March 31, 2021, 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.

7861

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~~

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 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 impacts or delays from the~~

~~COVID-19~~

pandemic on our business operations. We have experienced immaterial delays in clinical trials due to cessation or slow-downs of recruitment for patient studies and suspended regulatory inspections, delays in regulatory approvals of new products due to reduced capacity or

~~re-prioritization~~

~~of regulatory agencies and delays in~~

~~pre-commercial~~

~~launch activities. In addition, we experienced reduced demand for certain products in the second and third quarters of 2020, resulting from the impact of the~~

~~COVID-19~~

pandemic. As we expect to be able to continue our operations and to satisfy the demand for our products, while protecting the health and safety of our employees and customers, the uncertainty surrounding the severity and continued spread of the coronavirus, including the severity of a “second wave” or other additional periods of increases or spikes in the number of

~~COVID-19~~

~~cases in areas in which we operate, may result in a period of business disruption. The~~

~~COVID-19~~

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

~~pre-commercial~~

~~launch activities and regulatory reviews and approvals. The~~

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

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

~~Additionally, if the~~

~~COVID-19~~

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

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

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

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

~~Further, the~~

~~COVID-19~~

pandemic, and the volatile global economic conditions stemming from the pandemic, could precipitate or amplify the other risk factors that we identify in the “Risk Factors” section of our Annual Report on Form

~~10-K~~

~~for the year ended December 31, 2019, which could materially adversely affect our business, operations and financial condition and results.~~

~~Table of Contents~~

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended ~~September 30, 2020.~~March 31, 2021.

Repurchase of Shares

We did not repurchase any of our shares during the three months ended ~~September 30, 2020~~March 31, 2021 and currently cannot conduct share repurchases or pay dividends due to our accumulated deficit.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

8062

Table of Contents

ITEM 6.

EXHIBITS


~~10.1~~		~~Teva Pharmaceutical Industries Limited 2020 Long-Term Equity-Based Incentive Plan(1)~~

~~10.2~~		Form Award Agreement under Teva’s 2020 Long-Term Equity-Based Incentive Plan *

~~10.3~~		Teva Pharmaceutical Industries Limited Israeli Subplan of Teva’s 2020 Long-Term Equity-Based Incentive Plan *

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

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

32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS		XBRL Taxonomy Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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

*	Filed herewith.

~~(1)~~

~~Incorporated by reference to Appendix A to our Definitive Proxy Statement filed on April 22, 2020.~~

8163

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.


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)

~~Item 1.~~	~~Financial Statements (unaudited)~~
	Consolidated Balance Sheets	5
	Consolidated Statements of Income (loss)	6
	Consolidated Statements of Comprehensive Income (loss)	7
	Consolidated statements of changes in equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	10
	~~Notes to Consolidated Financial Statements~~ Item 2.	11
~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4839
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7861
Item 4.	Controls and Procedures	7861

PART II.	OTHER INFORMATION

Item 1.	~~OTHER INFORMATION~~

~~Item 1.~~	Legal Proceedings	7962
Item 1A.	Risk Factors	7962
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8062
Item 3.	Defaults Upon Senior Securities	8062
Item 4.	Mine Safety Disclosures	8062
Item 5.	Other Information	8062
Item 6.	Exhibits	8163
	Signatures	8264


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

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


	Three months ended September 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,674		1,153		511		176		3,514
Licensing arrangements		26		7		1		1		36
Distribution		351		1		5		—		357
Other		§		2		48		136		186

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


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

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


	Nine months ended September 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		4,997		3,586		1,505		566		10,653
Licensing arrangements		92		22		3		4		121
Distribution		1,080		1		14		—		1,095
Other		§		2		146		402		549

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


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

Total	$	4,516	$	4,422


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

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


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


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

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


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

Total	$	3,520	$	3,611


	Nine months ended September 30, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(448	)
Transfer into Level 3- equity securities		179
Revaluation of equity securities		118
Revaluation of debt securities		(3	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		161
Eagle transaction		(65	)
Settlement of contingent consideration:
Eagle transaction		85

Fair value at the end of the period	$	27


	Three months ended September 30,				Percentage Change			Three months ended March 31,				Percentage Change
	2020		2019		2019-2020			2021		2020		2020-2021
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	928	$	914		2	%	$	1,053	$	952		11	%
AJOVY		35		25		42	%		31		29		8	%
AUSTEDO		168		105		60	%		146		122		20	%
BENDEKA/TREANDA		105		124		(15	%)		91		105		(14	%)
COPAXONE		236		271		(13	%)		164		198		(17	%)
ProAir*		50		71		(30	%)		54		59		(9	%)
QVAR		42		60		(29	%)
Anda		341		351		(3	%)		289		426		(32	%)
Other		113		131		(14	%)		161		191		(16	%)

Total	$	2,017	$	2,051		(2	%)	$	1,989	$	2,082		(5	%)


Product Name	Brand Name	Launch Date	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA)) *
Imiquimod Cream 3.75%	Zyclara ®	July	$	24
Sildenafil for Oral Suspension	Revatio ®	August	$	121
PEG-3350, Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium Ascorbate, and Ascorbic Acid for Oral Solution	MoviPrep ®	August	$	10
Tobramycin Inhalation Solution, USP	Bethkis ®	September	$	42
Dimethyl Fumarate Delayed-Release Capsules	Tecfidera ®	September	$	3,788
Emtricitabine and Tenofovir Disoproxil Fumarate Tablets, 200mg/300mg	Truvada ®	September	$	2,872
Efavirenz, Emtricitabine and Tenofovir Disoproxil Fumarate Tablets	Atripla ®	September	$	578


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

Total	$	3,520	$	3,611

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Date: ~~November 5, 2020~~April 28, 2021

/s/ Eli Kalif

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