UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

~~UNITED STATES~~

10-Q

~~SECURITIES AND EXCHANGE COMMISSION~~

~~WASHINGTON, D.C. 20549~~

~~FORM~~

~~10-Q~~

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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

OR

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

Commission file number

001-16174

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Exact name of registrant as specified in its charter)


Israel		No t Applicable
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

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

+972

(3) ~~914-8171~~

914-8213

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	September 30,			December 31,			June 30,			December 31,
	2020			2019			2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,827		$	1,975		$	2,436		$	2,177
Accounts receivables, net of allowance for credit losses of $117 million and $135 million as of September 30, 2020 and December 31, 2019		4,385			5,676
Accounts receivables, net of allowance for credit losses of $120 million and $126 million as of June 30, 2021 and December 31, 2020								4,488			4,581
Inventories		4,516			4,422			4,362			4,403
Prepaid expenses		895			870			1,022			945
Other current assets		423			434			484			710
Assets held for sale		113			87			29			189

Total current assets		12,160			13,464			12,822			13,005
Deferred income taxes		509			386			645			695
Other non-current assets		822			591			530			538
Property, plant and equipment, net		6,152			6,436			6,127			6,296
Operating lease right-of-use assets		557			514			531			559
Identifiable intangible assets, net		9,308			11,232			8,120			8,923
Goodwill		20,228			24,846			20,421			20,624

Total assets	$	49,737		$	57,470		$	49,195		$	50,640

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	2,106		$	2,345		$	3,530		$	3,188
Sales reserves and allowances		4,998			6,159			4,453			4,824
Accounts payables		1,716			1,718			1,551			1,756
Employee-related obligations		601			693			511			685
Accrued expenses		1,735			1,869			1,807			1,780
Other current liabilities		946			889			838			933

Total current liabilities		12,103			13,674			12,691			13,164
Long-term liabilities:
Deferred income taxes		874			1,096			932			964
Other taxes and long-term liabilities		2,181			2,640			2,215			2,240
Senior notes and loans		23,515			24,562			21,602			22,731
Operating lease liabilities		472			435			444			479

Total long-term liabilities		27,042			28,733			25,193			26,414

Commitments and contingencies , see note 10								0			0
Total liabilities		39,145			42,407			37,884			39,579

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; September 30, 2020 and December 31, 2019: authorized 2,495 million shares; issued 1,202 million shares and 1,198 million shares, respectively		57			56
Ordinary shares of NIS 0.10 par value per share; June 30, 2021 and December 31, 2020: authorized 2,495 million shares; issued 1,209 million shares and 1,202 million shares, respectively								57			57
Additional paid-in capital		27,403			27,312			27,503			27,443
Accumulated deficit		(11,096	)		(6,956	)		(10,662	)		(10,946	)
Accumulated other comprehensive loss		(2,643	)		(2,312	)		(2,446	)		(2,399	)
Treasury shares as of September 30, 2020 and December 31, 2019 — 106 million ordinary s hares		(4,128	)		(4,128	)
Treasury shares as of June 30, 2021 and December 31, 2020 — 106 million ordinary shares								(4,128	)		(4,128	)

		9,593			13,972			10,324			10,026

Non-controlling interests		999			1,091			987			1,035

Total equity		10,592			15,063			11,311			11,061

Total liabilities and equity	$	49,737		$	57,470		$	49,195		$	50,640

Amounts may not add up due to rounding.

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

5

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 March 31, 2021		1,208		57		27,474		(10,869	)		(2,534	)		(4,128	)		10,000		975			10,975
Net Income (loss)								207									207		14			221
Other comprehensive income (loss)											88						88		(1	)		87
Issuance of Shares		01		0*													0*					0*
Stock-based compensation expense						29											29		0			29

Balance at June 30, 2021		1,209	$	57	$	27,503	$	(10,662	)	$	(2,446	)	$	(4,128	)	$	10,324	$	987		$	11,311

*	Represents an amount less than $0.5 million.


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity		Non-controlling interests			Total equity
	(U.S. dollars in millions)
Balance at March 31, 2020		1,201		56		27,342		(6,887	)		(2,852	)		(4,128	)		13,531		1,057			14,588
Net Income (loss)								140									140		(87	)		53
Other comprehensive income (loss)											149						149		2			151
Issuance of Shares		1		0*																		0*
Stock-based compensation expense						32											32					32

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

*	Represents an amount less than $0.5 million.


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non-controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2020		1,202		57		27,443		(10,946	)		(2,399	)		(4,128	)		10,026			1,035			11,061
Net Income (loss)								284									284			21			306
Other comprehensive income (loss)											(47	)					(47	)		(68	)		(115	)
Issuance of Shares		6		0*													0*						0*
Stock-based compensation expense						60											60			0			60

Balance at June 30, 2021		1,209	$	57	$	27,503	$	(10,662	)	$	(2,446	)	$	(4,128	)	$	10,324		$	987		$	11,311

*	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.

98

11

~~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.

cash flows.

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~~Teva adopted the provisions of 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.as of January 1, 2021.

c.

~~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.~~11

12

Table of Contents

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

®

. 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~~Teva paid an upfront payment ~~payable by Teva, which was paid~~ in the third quarter of ~~2020.~~2020 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as R&D expenses. 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. In March 2021, Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira

®

. Alvotech has disputed these claims. In addition, there is pending patent litigation between Abbvie and Alvotech.

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~~

$25 million upfront payment that was recognized as revenue during the first quarter of 2018, and a

~~$25~~

$25 million milestone payment in March 2020 that was recognized as revenue in the first quarter of 2020. The agreement stipulates additional development and commercial milestone payments to Teva of up to

~~$150~~

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

million in consideration for the transaction. Results for these trials were received in January 2020 indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 ~~million.~~ million, which was recognized as revenue in the third quarter of 2020. On June 23, 2021, AJOVY was approved in Japan.

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.

13

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~

$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.

No additional milestone payments are expected.

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

14

~~Table~~activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of ~~Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Tel-Aviv~~

~~Headquarters Lease Agreement~~

Atdiscussing data with 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~~

FDA.

~~$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%.

~~During the second quarter of~~In July 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~~completed on February 1, 2021. ~~The closing of the transaction is subject to customary closing conditions.~~

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.

General

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 June 30, 2021 include ~~the Teva-Takeda business venture assets that are held for sale and other~~certain manufacturing assets that are expected to be sold within the next year. Assets held for sale as of December 31, 2020 included the Teva-Takeda business venture assets sold during the first quarter of 2021, certain OTC assets sold during the second quarter of 2021 and other manufacturing assets.

The table below summarizes all Teva assets included as held for sale as of ~~September~~June 30, ~~2020~~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


	June 30,			December 31,
	2021			2020
	(U.S. $ in millions)
Inventories		7			146
Property, plant and equipment, net and others		55			312
Goodwill		9			27
Adjustments of assets held for sale to fair value		(42	)		(296	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	29		$	189

15

14

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 3 – Revenue from contracts with customers:

Disaggregation of revenue

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


	Three months ended September 30, 2020												Three months ended June 30, 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		1,621		1,185			462		198		3,465
Licensing arrangements		17			7			2		1		27		9		7			2		1		19
Distribution		341			§			9		—		350		316		0§			15		0		330
Other		(1	)		(8	)		41		142		174		(2)		(8	)		7		99		96

	$	2,017		$	1,116		$	529	$	316	$	3,978	$	1,943	$	1,184		$	485	$	298	$	3,910

§ Represents an amount less than $1 million.


	Three months ended June 30, 2020
	North America		Europe			International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,658		1,000			457		211		3,326
Licensing arrangements		17		3			1		1		22
Distribution		374		0			7		0		381
Other		(2)		(2	)		23		123		141

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

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


	Six months ended June 30, 2021
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,289		2,363		902		374		6,928
Licensing arrangements		40		21		5		2		68
Distribution		605		0§		34		0		639
Other		(2)		14		35		210		257

	$	3,932	$	2,398	$	975	$	587	$	7,892

§ 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

16

15

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Nine months ended September 30, 2019


North
America

Europe

International
Markets

Other
activities

Total


(U.S. $ in millions)

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


1,080



1



14



—



1,095

Other
   §    2    146    402    549










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

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

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


	Six months ended June 30, 2020
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,283		2,370		939		388		6,981
Licensing arrangements		42		15		4		2		63
Distribution		800		2		13		0		815
Other		4		17		97		252		369

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

Variable consideration

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

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

SR&A to U.S. customers comprised approximately ~~80%~~78% of the Company’s total SR&A as of ~~September~~June 30, ~~2020,~~

2021

, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 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		192			2,139			391			3,995			143			177			6,845			7,037
Provisions related to sales made in prior periods		(5	)		(82	)		(35	)		(11	)		(40	)		(23	)		(191	)		(196	)
Credits and payments		(196	)		(2,355	)		(362	)		(3,934	)		(186	)		(176	)		(7,013	)		(7,209	)
Translation differences		—			(8	)		(3	)		(1	)		(1	)		1			(12	)		(12	)

Balance at June 30, 2021	$	71			1,748		$	819		$	1,157		$	602		$	127		$	4,453		$	4,524

17

16

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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, 2019	$	87		$	2,895		$	1,109		$	1,342		$	637		$	176		$	6,159		$	6,246
Provisions related to sales made in current year		193			2,588			434			4,325			216			50			7,613			7,806
Provisions related to sales made in prior periods		—			(191	)		(105	)		(15	)		18			—			(293	)		(293	)
Credits and payments		(206	)		(3,064	)		(505	)		(4,416	)		(211	)		(64	)		(8,260	)		(8,466	)
Translation differences		—			(9	)		—			(2	)		(2	)		(5	)		(18	)		(18	)

Balance at June 30, 2020	$	74			2,219		$	933		$	1,234		$	658		$	157		$	5,201		$	5,275

Reserves
included in
Accounts
Receivable, net

Rebates

Medicaid and
other
governmental
allowances

Chargebacks

Returns

Other

Total reserves
included in SR&A

Total


(U.S.$ in millions)

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

year
   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


	June 30, 2021		December 31, 2020
	(U.S. $ in millions)
Finished products	$	2,223	$	2,378
Raw and packaging materials		1,333		1,231
Products in process		642		605
Materials in transit and payments on account		164		189

Total	$	4,362	$	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

18

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2021		2020		2021		2020		2021		2020
	(U.S. $ in millions)
Product rights	$	19,226	$	19,650	$	12,171	$	12,094	$	7,055	$	7,556
Trade names		648		621		219		165		429		456
In process research and development		636		911		—		—		636		911

Total	$	20,510	$	21,182	$	12,390	$	12,259	$	8,120	$	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.

17

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Amortization of intangible assets was ~~$251~~$173 million and ~~$255~~$249 million in the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~ 2020,

respectively.

Amortization of intangible assets was ~~$758~~$414 million and ~~$823~~ $507

million in the

~~nine~~

six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~ 2020,

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~~

$601 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.

In the first six months of 2021, Teva reclassified $162 million of products from IPR&D to product rights, of which $123

million were reclassified in connection with lenalidomide

(generic equivalent of Revlimid®).

Intangible assets impairments

Impairments of long-lived intangible assets for the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019~~

,

were ~~$509~~$195 million and ~~$177~~$120 million, respectively.

Impairments in the ~~third~~second quarter of 2021 consisted of:

(a)

Identifiable product rights of $168 million due to: (i) $30 million related to lenalidomide (generic equivalent of Revlimid

®

), resulting from modified competition assumptions as a result of settlements between the innovator and other generic filers, and (ii) $138 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; and

(b)

IPR&D assets of $27 million due to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States.

Impairments in the second quarter of 2020 consisted of:

(a)

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

(b)

IPR&D assets of

$17

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

Impairments of long-lived intangible assets for the six months ended June 30, 2021 and 2020, were $274 million and $768 million, respectively.

Impairments in the first six months of 2021 consisted of:

(a)

Identifiable product rights of ~~$360~~

$196 million

ma

~~inly~~

due to: (i) ~~$262~~$30 million related to lenalidomide (generic equivalent of

Revlimid

®

)

~~due to~~, resulting from modified competition assumptions as a result of settlements between the innovator and other generic ~~filers;~~filers, and (ii) ~~$96~~$166 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; and

(b)

IPR&D assets of

$78

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

Impairments in the first six months of 2020 consisted of:

(a)

Identifiable product rights of $420 million, mainly due to: (i) $232

million due to updated market assumptions regarding price and volume of products acquired from Actavis Generics; and (ii)

$165

million in Japan in connection with ongoing regulatory pricing reductions and generic competition; and

18

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

(b)

IPR&D assets of $348 million, primarily due to: (i) $211 million related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States following clinical trial results received in February 2020, which failed to meet their primary endpoints; and (ii) $117 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~~

du

e

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 of 2020 consisted of:~~

~~(a)~~

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

~~mainly~~

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

®

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

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

,

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

~~(iii) $213~~

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

~~(b)~~

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

~~related~~

~~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 primarily marketed in the United States; and

19

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~(b)~~

IPR&D assets of $539 million: (i) $355 million of various generic pipeline products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate) in the United States, (ii) $125 million related to lenalidomide (generic equivalent of 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.

The fair value measurement of the impaired intangible assets in the first ~~nine~~six 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%~~7.25% to 9%10%. A probability of success factor ~~of 80%~~ranging from 20% to 90% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.

20

~~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~~June 30, ~~2020~~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:
Goodwill reclassified as assets held for sale				(7	)							(7	)
Translation differences		12		(198	)		(10	)				(196	)

Balance as of June 30, 2021 (1)	$	6,485	$	8,897		$	2,352		$	2,687	$	20,421

(1)	Accumulated goodwill impairment as of ~~September~~June 30, ~~2020~~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 an impairment of goodwill allocated to these reporting units in the future. The current projections related to AUSTEDO are a significant assumption in Teva’s future projections. Additionally, certain parts of its business volumes were impacted by the COVID-19 pandemic. Management continues to analyze the expected pace of recovery of volumes and the related impact of the COVID-19 pandemic on Teva’s business.

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.

19

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~2021, Teva completed 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~~long-range planning (“LRP”) process. The LRP is part of Teva’s internal financial planning and ~~forecasting process.~~

budgeting processes and is discussed and reviewed by Teva’s management and its board of directors.

~~During the second quarter of 2020,~~Additionally, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test ~~and utilized~~with the assistance of an independent valuation expert. NoBased on this analysis, no goodwill impairment charge was recorded during the second quarter of ~~2020.~~2021. Changes to Teva’s current assessment regarding the impact of the

COVID-19

pandemic on its projections and its long-term forecast related to AUSTEDO could result in future impairments.

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

21

~~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.~~

22

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 7 – Debt obligations:

a. Short-term debt:


							September 30, 2020		December 31, 2019			Weighted average interest rate as of June 30, 2021			Maturity		June 30, 2021		December 31, 2020
		Weighted average interest rate as of September 30, 2020			Maturity		September 30, 2020		December 31, 2019								(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								1,474		1,831
Current maturities of long-term liabilities (1)											Current maturities of long-term liabilities (1)							3,507		2,674

Total short-term debt	Total short-term debt						$	2,106	$	2,345	Total short-term debt						$	3,530	$	3,188

(1)	In July 2021, Teva repaid $ 1,475 million of its 2.2 % senior notes at maturity.

Convertible senior debentures

The principal amount of Teva’s 0.25% convertible senior debentures due 2026, ~~with~~was $23 million as of June 30, 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.

b. Long-term debt:


		Weighted average interest rate as of September 30, 2020			Maturity		September 30, 2020			December 31, 2019				Weighted average interest rate as of June 30, 2021			Maturity		June 30, 2021			December 31, 2020
							(U.S. $ in millions)												(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				1.13	%		2024	$	1,780		$	1,839
Senior notes EUR 1,300 million			1.25	%		2023		1,522			1,451				1.25	%		2023		1,544			1,595
Senior notes EUR 1,000 million			6.00	%		2025		1,174			1,120				6.00	%		2025		1,190			1,230
Senior notes EUR 900 million			4.50	%		2025		1,057			1,008				4.50	%		2025		1,071			1,107
Senior notes EUR 750 million			1.63	%		2028		874			833				1.63	%		2028		885			916
Senior notes EUR 700 million			3.25	%		2022		822			784				3.25	%		2022		832			861
Senior notes EUR 700 million			1.88	%		2027		821			782				1.88	%		2027		832			860
Senior notes USD 3,500 million			3.15	%		2026		3,495			3,494				3.15	%		2026		3,495			3,495
Senior notes USD 1,475 million			2.20	%		2021		1,474			1,474
Senior notes USD 1,475 million (1)															2.20	%		2021		1,474			1,472
Senior notes USD 3,000 million			2.80	%		2023		2,996			2,995				2.80	%		2023		2,997			2,996
Senior notes USD 2,000 million			4.10	%		2046		1,986			1,985				4.10	%		2046		1,986			1,986
Senior notes USD 1,250 million			6.00	%		2024		1,250			1,250				6.00	%		2024		1,250			1,250
Senior notes USD 1,250 million			6.75	%		2028		1,250			1,250				6.75	%		2028		1,250			1,250
Senior notes USD 1,000 million			7.13	%		2025		1,000			1,000				7.13	%		2025		1,000			1,000
Senior notes USD 844 million			2.95	%		2022		855			856				2.95	%		2022		851			853
Senior notes USD 789 million			6.15	%		2036		783			782				6.15	%		2036		783			783
Senior notes USD 700 million (2)			2.25	%		2020		—			700
Senior notes USD 613 million			3.65	%		2021		616			618				3.65	%		2021		614			616
Senior notes USD 588 million			3.65	%		2021		587			587				3.65	%		2021		588			586
Senior notes CHF 350 million			0.50	%		2022		381			361				0.50	%		2022		380			397
Senior notes CHF 350 million			1.00	%		2025		381			362				1.00	%		2025		381			398

Total senior notes	Total senior notes							25,078			26,496		Total senior notes							25,183			25,490
Other long-term debt			1.13	%		2026		1			1				1.10	%		2026		1			1
Less current maturities	Less current maturities							(1,474	)		(1,831	)	Less current maturities							(3,507	)		(2,674	)
Less debt issuance costs	Less debt issuance costs							(89	)		(103	)	Less debt issuance costs							(75	)		(86	)

Total senior notes and loans	Total senior notes and loans						$	23,515		$	24,562		Total senior notes and loans						$	21,602		$	22,731

~~(1)~~

(

1)

In July ~~2020,~~2021, Teva repaid ~~at maturity~~

€$

~~1,010~~1,475 million of its ~~0.375%~~2.2

% senior ~~notes.~~notes at maturity.

~~(2)~~

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

23

20

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~~TEVA PHARMACEUTICAL INDUSTRIES~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

Long-term debt as of ~~September~~June 30, ~~2020~~2021 is effectively denominated in the following currencies: 63% in U.S. dollar, 34% 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 June 30, 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 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~~June 30,

~~2020~~

~~, €~~

~~100 million was~~

2021, no amounts were outstanding under the RCF. ~~As of the date of this~~During July 2021,

$500

~~Quarterly Report on Form 10-Q~~

~~, €270~~ million was ~~outstanding~~drawn down 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.

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~~six months of ~~2020,~~2021, approximately ~~48%~~47% 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.

21

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

24

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

c. Derivative instruments ~~notional amounts~~

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

September 30,

December 31,


2020

2019


(U.S. $ in millions)

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

~~d. Derivative instrument~~ outstanding:

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

Fair value


Designated as hedging

instruments

Not designated as hedging

instruments


September 30,

2020

December 31,

2019

September 30,

2020

December 31,

2019

Reported under

(U.S. $ in millions)

Asset derivatives:

Other current assets:

Option and forward contracts
   $ 0      $ —      $ 36    $ 32
Liability derivatives:

Other current liabilities:

Cross-currency swaps—net investment hedge
   0      (22 )    0      —
Option and forward contracts
   0      —      (67 )    (41 )


	Fair value
	Not designated as hedging instruments
	June 30, 2021			December 31, 2020
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	30		$	24
Liability derivatives:
Other current liabilities:
Option and forward contracts		(25	)		(79	)

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:~~relationships

:


	Financial expenses, net				Other comprehensive income (loss)
	Three months ended,				Three months ended,
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	274	$	223	$	87	$	151
Cross-currency swaps - net investment hedge (1)		0		0		0		0

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.~~

25

22

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Financial expenses, net					Other comprehensive income (loss)
	Six months ended,					Six months ended,
	June 30, 2021		June 30, 2020			June 30, 2021			June 30, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are r e corde d	$	564	$	448		$	(115	)	$	(379	)
Cross-currency swaps - net investment hedge (1)		0		(2	)		0			(21	)

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

The table below provides information regarding the location and amount of

pre-tax

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


	Financial expenses, net				Net revenues
	Three months ended,				Three months ended,
	June 30, 2021		June 30, 2020		June 30, 2021			June 30, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	274	$	223	$	(3,910	)	$	(3,870	)
Option and forward contracts (2)		27		13		0—			0—
Option and forward contracts economic hedge (3)		0—		0—		15			20

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
	Six months ended,					Six months ended,
	June 30, 2021			June 30, 2020		June 30, 2021			June 30, 2020
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	564		$	448	$	(7,892	)	$	(8,227	)
Option and forward contracts (2)		(43	)		37		0—			0—
Option and forward contracts economic hedge (3 )		0—			0—		(13	)		(40	)

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

26

~~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.~~net

.

23

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~(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 six months of 2021, the positive impact from these derivatives recognized under revenues was

$13 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.

e.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.

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~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and losses of ~~$23 million and $22~~

$16

million were recognized under financial expenses, net for each of the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.

Fair value hedge

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

gains of $1

$1

million were recognized under financial expenses, net for each of the three months ended June 30, 2021 and 2020, respectively, and gains of

$1 million and $3$2 million were recognized under financial expenses, net for the ~~three~~six months ended ~~September~~June 30, 2021 and 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.

27

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 9 – Legal settlements and loss contingencies:

In the ~~third~~second quarter of ~~2020,~~2021, Teva recorded

~~expenses~~

an expense of ~~$21~~$6 million in legal settlements and loss contingencies, compared to

~~expenses of~~

~~$468~~ $13 million in the ~~third~~second quarter of ~~2019.~~2020. The expense in the ~~third~~second quarter of 2020 was mainly due to

~~settling~~ an increase in ~~part antitrust~~a provision for settlement of certain product liability claims ~~challenging a patent settlement agreement~~

,in the United States and other minor provisions, partially offset by proceeds received following a settlement of ~~an action brought against~~ the ~~sellers~~FCPA derivative proceedings in Israel.

24

Table 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.Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In the first ~~nine~~six months of ~~2020,~~2021, Teva recorded

~~expenses~~

an expense of ~~$10~~$110 million in legal settlements and loss contingencies, compared to

income of $12

~~expenses of~~

~~$1,171~~

million in the first ~~nine~~six months of ~~2019.~~2020. The expense in the first ~~nine~~six months of 2021 was mainly due to the provision for the carvedilol patent litigation (see note 10).

The income in the first six months of 2020 was mainly ~~related~~due 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~~, partially offset by an increase in a provision for settlement of certain products liability claims in the ~~first nine months of 2019 was mainly related to an estimated settlement provision recorded in connection with the opioid cases.~~

United States and other minor provisions.

As of ~~September~~June 30, ~~2020~~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~~$1,737 million and ~~$1,580~~1,625 million, respectively.

28

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 10 – Commitments and contingencies:

General

From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, as described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva generally believes that it has meritorious defenses to the actions brought against it and vigorously pursues the defense or settlement of each such action.

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

r

determined to no longer meet the materiality threshold for ~~disclosure.~~disclosure, or were substantially resolved.

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.

2

5

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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.

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

®

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

pre-

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

29

~~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~~class claims. Defendants’ motions to dismiss in the valsartan, losartan and irbesartan MDL were denied in part and granted in part. Plaintiffs have moved to file amended complaints, which defendants have opposed. 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 July 8, 2021, the district court entered an order granting dismissal of the generic manufacturer defendants, including Teva and its affiliates, without leave to further amend. Teva was also recently named in a consolidated proceeding in California state court with ~~respect to~~similar allegations as the ~~New Jersey~~ranitidine MDL. In addition to these MDLs, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic

~~manufacturers~~

’ manufacturers’ metformin products.

The defendants’ motion to dismiss the metformin complaint was granted, and on June 21, 2021, plaintiffs filed an amended complaint. Teva has also been named in one personal injury metformin case in Florida state court. Similar

lawsuits

are

pending in Canada and Germany.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Competition Matters

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

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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

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

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~~was extended until 2029.

~~ten-year~~

~~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~~in February 2021. A provision for this matter was included in the financial

statements. Teva has ~~yet been taken by~~provided the European ~~Commission. The sales of modafinil~~Commission with a bank guarantee in the ~~European Economic Area during the last full year~~amount of the ~~alleged breach amounted~~imposed fines.

2

7

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to ~~€46.5 million.~~Consolidated Financial Statements

(Unaudited)

Teva and its affiliates have been

named

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

January 2009

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

the FTC and the State of California,

, 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

in

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, thus leaving no remaining claims in ~~full.~~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.

~~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%

1

% in

November ~~2015.~~2015

. A provision for

these matters

was included in the financial statements.

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

®

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

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~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

®

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

®

in July 2010.

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

®

Lamictal®) entered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December ~~2012, the court dismissed the case, but in June 2015, the U.S. Court of Appeals for the Third Circuit reversed and remanded for further proceedings. In December~~ 2018, the district court granted the ~~direct-purchaser~~direct-purc

h

aser plaintiffs’ motion for class certification, but on April 22, 2020, the Third Circuit reversed that ruling and remanded for further class certification proceedings. On April 9, 2021, the district court denied the direct purchaser plaintiffs’ renewed motion for class certification, but allowed additional briefing on whether plaintiffs can still meet the class certification standard on certain of their claims. Annual sales of ~~Lamictal~~

®

Lamictal® were approximately

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

®

in July 2008.

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

®

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

opt-out

plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ class. 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 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic version of Niaspan

®

in September 2013.

Beginning in 2013, several putative class actions were filed 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.

28

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

end-payers

for, and direct-purchasers of, Actos

®

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

end-payers’

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

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

, 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 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,~~July 15, 2021, the U.K. Competition and Markets Authority (“CMA”) issued a ~~statement~~decision imposing fines for breaches of ~~objections (a provisional finding of breach of the Competition Act) in respect of certain allegations against~~U.K. competition law by Allergan, Actavis UK and ~~certain~~ Auden Mckenzie ~~entities alleging competition law breaches~~and a number of other companies in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. ~~On March 3, 2017~~The decision combines the CMA’s three prior investigations into the supply of hydrocortisone tablets in the U.K. and ~~February 28, 2019, the CMA issued second and third~~encompasses those allegations which were subject to prior statements of objections (a provisional finding of breach of the Competition Act), in ~~respect~~particular those under case

50277-1

(unfair pricing, originally subject to a statement of ~~certain additional allegations~~objections on December 16, 2016), case

50277-2

(anti-competitive agreement with AMCo, originally subject to a statement of objections on March 3, 2017) as well as the CMA’s subsequent investigation 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~~

.an anti-competitive agreement with Waymade. 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~~provision for ~~this matter~~the estimated exposure for Teva related to the fines and/or damages 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 calendar 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~~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~~

®

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 were coordinated and on March 15, 2021, plaintiffs filed amended complaints, which Teva, Actavis, and Watson have moved to dismiss on the grounds (among others) that the allegations do not plausibly demonstrate any improper payment from Forest to Watson that could create antitrust liability. Those motions remain in their preliminary stages, pending decisions regarding potential transfer, consolidation, appointment of lead counsel for the putative class, and the filing of a single consolidated complaint on behalf of all plaintiffs.pending. Annual sales of ~~Bystolic~~

®

Bystolic® in the United States were approximately ~~$700~~

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

2

9

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in government investigations and litigation ~~arising~~aris

i

ng 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~~drugs. The indictment identified the following generic drugs: Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream

E-Cream,

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

In May 2018, Teva received a 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.

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~~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. The motion was granted on February 9, 2021 and on May 7, 2021, the Court chose the attorneys’ general third complaint (from June 10, 2020) to serve as a bellwether complaint in the Pennsylvania MDL. In June 2021, Teva settled with the State of Mississippi for

$925,000, and the State dismissed its claims against Actavis and Teva USA, as well as certain former employees of Actavis and Teva USA, pursuant to that settlement.

30

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 USA 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 and has been transferred to the Pennsylvania MDL. On March 1, 2020, Harris County in Texas filed a complaint against several generic manufacturers including Teva and Actavis in the District Court for the Southern District of ~~Texas. This complaint largely mirrors certain allegations in the complaints in the Pennsylvania MDL 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.

In

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 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~~claims on the grounds that the claims are time-barred and/or insufficiently pled, and that motion remains pending.

In April 2021, a city and county in Washington sued Teva in the United States District Court for the Western District of Washington for alleged violations of the Racketeer Influenced and Corrupt Organizations Act, Washington’s Consumer Protection Act, and unjust enrichment concerning Teva’s sale of COPAXONE. Plaintiffs purport to represent a nationwide class of health plans and a subclass of Washington-based health plans that purchased and/or reimbursed health plan members for COPAXONE. Plaintiffs allege that Teva engaged in several fraudulent schemes that resulted in plaintiffs and the putative class members purchasing and/or reimbursing plan members for additional prescriptions of COPAXONE and/or at inflated COPAXONE prices. Plaintiffs seek treble damages for the ~~time the DPA was entered into.~~excess reimbursements and inflated costs, as well as injunctive relief. On July ~~21, 2020,~~2, 2021, Teva moved to dismiss the ~~information~~suit arguing that plaintiffs’ claims are barred by the applicable statutes of limitations, plaintiffs cannot recover under the direct purchaser rule, and that plaintiffs failed to plausibly allege fraud or other elements of their claims. That motion remains pending.

O

n June 29, 2021, Mylan Pharmaceuticals sued Teva in District Court for the District of New Jersey for alleged violations of the Lanham Act, unfair competition, monopolization, tortious interference, and trade libel. Plaintiffs claim Teva was ~~dismissed.~~involved in an unlawful scheme to delay and hinder generic competition concerning COPAXONE sales. Plaintiffs seek damages for lost profits and expens

e

s, disgorgement, treble damages, attorneys’ fees and costs, and injunctive relief.

31

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Opioids Litigation

Since May 2014, more than ~~3,000~~

3,500

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

34

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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. On June 29, 2021, a jury trial in New York (

In re Opioid Litigation

, Index No. 400000/2017)) commenced, with Teva and other defendants, focused on the marketing and distribution of 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~~

2022.

~~COVID-19~~

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

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

~~the~~

~~COVID-19~~

~~pandemic~~

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

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

On

Additionally, 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~~

®

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.~~

which has been paid.

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

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

As

D

u

ring the passage of ~~October 2020,~~time since then, the Company ~~continues~~has continued to negotiate the terms and conditions of a nationwide settlement. On July 21, 2021, it was announced that four other defendants (not including Teva) have reached a nationwide settlement, subject to certain conditions, which includes payment of up to approximately $26 billion spread over up to 18 years. The achievement of this settlement may similarly present an opportunity for Teva to arrive at a settlement, although there do remain many complex financial and legal issues still outstanding, including indemnification claims by Allergan against the ~~framework.~~

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

~~with its current terms and obligations.~~

32

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~This was followed by a Statement of Charges and Notice of Hearing filed by the NYDFS, although no hearing date is ~~cooperating with NYDFS’s inquiry and~~

~~producing~~

35

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~documents in response to the various subpoenas and requests for information.~~currently set. 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 consolidation order, plaintiffs in several of the

“opt-out”

cases filed amended complaints on May 28, 2020. On ~~July 8, 2020,~~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 their claims under Israeli laws. Those

“opt-out”

plaintiffs moved for reconsideration, which was denied on March 30, 2021. On May 24, 2021, Teva ~~and other defendants~~ moved to dismiss ~~certain of the claims brought by certain~~a majority of the

“opt-out”

~~plaintiffs. Those motions are pending.~~complaints on various other grounds. 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. That motion is pending.~~Teva’s appeal was denied. 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.

33

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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, as amended 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~~On March 26, 2021, the Court appointed lead plaintiff and lead counsel. On May 25, 2021, lead plaintiff filed an amended class action complaint, which names four additional former and current officers as defendants. The amended complaint seeks unspecified damages, legal fees, interest, and costs. ~~The case~~Defendants’ response to the amended complaint is ~~in its preliminary stages.~~currently due by August 13, 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. as well as allegations related to the European Commission investigation. In ~~October 2020, Teva filed a notice with~~June 2021, the Tel Aviv District Court approved the settlement reached with respect 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

36

~~Table of Contents~~

~~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.

Item 103 of Regulation

S-K

promulgated by the SEC requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless the Company reasonably believes that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $300,000. The following matter is disclosed in accordance with that requirement. On July 8, 2021, the National Green Tribunal Principal Bench, New Delhi, issued an order against Teva’s subsidiary in India, Teva API India Private Limited, finding

non-compliance

with environmental laws and assessed a penalty of $1.4 million. The Company expects to dispute certain of the findings and the amount of the penalty and file an appeal before the Supreme Court in India. The Company does not believe that the eventual outcome of such matter will have a material effect on its business.

34

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Other Matters

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

®

(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). Defendants moved to dismiss the complaint and on December 28, 2018, the court granted the motion in part and ~~dismissed~~di

s

missed 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~~second quarter of 2021, Teva recognized a tax expense of $98 million, on

pre-tax

income of $308 million. In the second quarter of 2020, Teva recognized a tax

~~expense~~

benefit of ~~$16~~$104 million, on

pre-tax

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

~~expense~~

~~of $11 million, on~~

~~pre-tax~~

~~loss of $292~~$51 million. Teva’s tax rate for the ~~third~~second quarter of ~~2020~~2021 was mainly affected by

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

~~other changes to tax positions and deductions.~~ interest expense disallowance.

In the first six months of 2021, Teva recognized a tax expense of $159 million, on

~~nine~~pre-tax

income of $451 million. In the first six months of 2020, Teva recognized a tax benefit of ~~$147~~$163 million, on

pre-tax

loss of ~~$4,543~~$84 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~~

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

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

~~tax~~

~~effect~~

impairments, amortization, legal settlements and ~~other changes to tax positions and deductions.~~interest expense disallowance.

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 September 2021.

~~November~~

~~2020.~~

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

asset write off oof $

~~f $140~~139

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

at

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.

37

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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 June 30,						Six months ended June 30,
	2021			2020			2021			2020
	(U.S. $ in millions)						(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	32		$	277		$	80		$	352
Contingent consideration		(19	)		76			(16	)		83
Restructuring		(13	)		33			69			73
Other		28			(6	)		33			(5	)

Total	$	28		$	381		$	165		$	502

(1)	Including impairments related to exit and disposal activities

35

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Impairments

Impairments of tangible assets for the three months

ended ~~September~~

June 30, 2021 and 2020 ~~and~~

~~2019~~ were ~~$56~~$32 million and ~~$28~~ $277

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

in

~~Teva’s~~

~~International~~

~~Markets~~

~~and Europe segments~~

.

Impairments of tangible assets for the nine months ended September 30, 2020 and 2019 were $408 million and $96 million, respectively. The impairment for the nine months ended September 30, 2020 was mainly related to the intentionagreement to sell certain assets from Teva’s business venture in Japan, which was completed in February 2021.

Impairments of tangible assets for the six months ended June 30, 2021 and 2020 were $80 million and $352

million, respectively. The impairment for the six months ended June 30, 2021 was mainly related to certain assets in Europe. The impairment for the six months ended June 30, 2020 was mainly related to the agreement to sell certain assets from Teva’s business venture in Japan, which was completed in February 2021 and plant rationalization. See note 2.

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

activities.

Contingent consideration

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

income

of ~~$179~~$19 million for contingent consideration, compared to an expense of ~~$51~~ $76

million in the three months ended ~~September~~June 30, ~~2019.~~

2020. The income in the ~~third~~second quarter of 2021 was mainly related to a change in the estimated future royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid®), which was part of the Actavis Generics acquisition. The expense in the second quarter of 2020 was mainly related to a change in the estimated future royalty payments to Eagle Pharmaceuticals, Inc. (“Eagle”) in connection with expected future bendamustine sales.

In the six months ended June 30, 2021, Teva recorded

income of $16 million for contingent consideration, compared to an expense of $83

million in the six months ended June 30, 2020. The income in the first six months of 2021 was mainly related to a change in the estimated future royalty payments to Allergan in connection with lenalidomide (generic equivalent of ~~Revlimid~~

®

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~~ The expense ~~of $4~~

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

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

®

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

Restructuring

In the three months ended ~~September~~June 30, ~~2020,~~2021, Teva recorded $9$13 million of restructuring income, compared to $33

million of restructuring expenses in the three months ended June 30, 2020. The income for the three months ended June 30, 2021 was primarily related to reassessment of the estimate of a prior employee termination provision.

In the six months ended June 30, 2021, Teva recorded $69 million of restructuring expenses, compared to ~~$61~~$73 million in the ~~three~~six months ended ~~September~~June 30, ~~2019.~~

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

~~nine~~

~~months ended September 30, 2019.~~

2020. The expenses for the ~~three and nine~~

six months ended ~~September~~June 30, ~~2020~~2021 were primarily related to network consolidation activities and residual expenses of the restructuring plan announced in ~~2017 and other network consolidation~~

~~activities~~

.

2017.

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,				Three months ended June 30,
	2020		2019		2021			2020
	(U.S. $ in millions)				(U.S. $ in millions)
Restructuring
Employee termination	$	3	$	49	$	(19	)	$	3

Other		7		11		6			30

Total	$	9	$	61	$	(13	)	$	33

38

36

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES

LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Nine months ended September 30,


2020

2019


(U.S. $ in millions)

Restructuring

Employee termination
   $ 39    $ 105




Other
   43    34




Total
   $ 82    $ 140


	Six months ended June 30,
	2021		2020
	(U.S. $ in millions)
Restructuring
Employee termination	$	61	$	36
Other		8		36

Total	$	69	$	73

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	)		(61	)		(8	)		(69	)
Utilization and other*		145			43			188			56			8			64

Balance as of September 30, 2020	$	(102	)	$	(7	)	$	(109	)
Balance as of June 30, 2021										$	(120	)	$	(7	)	$	(127	)


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2020	$	(208	)	$	(7	)	$	(215	)
Provision		(36	)		(36	)		(73	)
Utilization and other*		114			36			150

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

*	Includes adjustments for foreign currency translation.

Significant regulatory and other events

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

FDA-483

to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” ~~(OAI)~~(“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. A subsequent FDA inspection in May 2021 concluded with five observations, which Teva addressed in its response. The response is pending with the FDA. 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~~$46.3 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.

37

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls. In December 2019, Teva reached a settlement with Huahai resolving ~~its~~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 completed ~~the first step of~~partial remediation of this issue and restarted limited supply from its Goa facilities. The site experienced some additional delays in the first quarter of 2021 due to labor related issues, but the situation stabilized during the second quarter of 2021. The impact to Teva’s financial results for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~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.

39In June 2021, the Company temporarily paused manufacturing at its Irvine, California facility pending completion of an open manufacturing investigation. In July 2021, the FDA initiated an establishment inspection at the facility. During the inspection, the Company opened additional investigations, and considered proactively to suspend distribution of product from the Irvine facility until completion of these investigations. Teva continues to manage the ongoing FDA inspection, and will address any concerns raised by FDA. A decision to suspend distribution for an extended period or if Teva is unable to address additional inspection issues satisfactorily, could subject Teva to additional consequences. Teva has considered these developments and has not recorded an impairment or other loss in the financial statements. Teva will continue to assess potential financial implications, including due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and/or FDA enforcement actions.

~~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~~June 30, 2021 and June 30, 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~~earnings per share for the ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 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.

Basic and diluted ~~loss~~earnings per share ~~was $3.97~~ were $

0.19

for the three months ended ~~September~~June 30, ~~2020,~~2021, compared to basic and diluted ~~loss~~earnings per share of ~~$0.29~~ $

0.13

for the three months ended ~~September~~June 30, ~~2019.~~2020.

Basic and diluted ~~loss~~earnings per share ~~was $3.78~~ were

$

0.26

for the ~~nine~~

six

months ended ~~September~~ June

30 ~~2020,~~

,

2021

, compared to basic and diluted ~~loss~~

earnings

per share of ~~$1.02~~ $

0.19

for the ~~nine~~

six

months ended ~~September 30, 2019.~~

June

30

,

2020

.

40

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 14 – Accumulated other comprehensive income (loss):

The components of, and changes within, accumulated other ~~comprehensive~~com

p

rehensive 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		(77	)		—			—			(77	)
Amounts reclassified to the statements of income		—			18			1			19

Net other comprehensive income (loss) before tax		(77	)		18			1			(58	)

Corresponding income tax		15			(4	)		—			11

Net other comprehensive income (loss) after tax*		(62	)		14			1			(47	)

Balance as of June 30, 2021, net of taxes	$	(1,981	)	$	(349	)	$	(116	)	$	(2,446	)

*	Amounts do not include a ~~$29~~$68 million ~~gain~~loss from foreign currency translation adjustments attributable to non-controlling interests.

38

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Net Unrealized Gains (Losses)

Benefit Plans


Foreign
currency
translation
adjustments

Available-for-
sale
securities

Derivative
financial
instruments

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

Total


(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 )


	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		(432	)		19			—			(413	)
Amounts reclassified to the statements of income		—			18			—			18

Net other comprehensive income (loss) before tax		(432	)		37			—			(395	)

Corresponding income tax		4			—			—			4

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

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

*	Amounts do not include a ~~$23~~ $12 million gain from foreign currency translation adjustments attributable to non-controlling interests.

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

41

~~Table of Contents~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 15 – Segments:

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

~~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~~Amer

i

ca 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

42

39

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

a. Segment information:

Nine months ended September 30,


2020


North America

Europe

International Markets


(U.S. $ in millions)

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






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


	Three months ended June 30,
	2021
	North America			Europe		International Markets
	(U.S. $ in millions)
Revenues	$	1,943		$	1,184	$	485
Gross profit		1,040			661		270
R&D expenses		162			63		18
S&M expenses		255			209		105
G&A expenses		106			47		25
Other income		(5	)	0§			(1	)

Segment profit	$	521		$	343	$	123

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

§ Represents an amount less than $1 million.


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

Segment profit	$	573		$	244		$	97


	Six months ended June 30,
	2021
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	3,932		$	2,398		$	975
Gross profit		2,114			1,349			530
R&D expenses		322			129			35
S&M expenses		483			424			201
G&A expenses		218			117			51
Other income		(7	)		(1	)		(3	)

Segment profit	$	1,098		$	680		$	245

*

~~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.~~

43

40

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


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

Segment profit	$	1,123		$	746		$	253

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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended						Nine months ended
.													Three months ended					Six months ended
	September 30,						September 30,						June 30,					June 30,
	2020			2019			2020			2019			2021		2020			2021		2020
	(U.S. $ in millions)						(U.S. $ in millions)						(U.S. $ in millions)					(U.S. $ in millions)
North America profit	$	560		$	565		$	1,682		$	1,566		$	521	$	573		$	1,098	$	1,123
Europe profit		312			341			1,058			1,060			343		244			680		746
International Markets profit		125			130			378			363			123		97			245		253

Total reportable segments profit		997			1,036			3,118			2,989			987		914			2,023		2,121
Profit of other activities		28			16			130			92			47		66			87		102

Total segments profit		1,025			1,051			3,248			3,081			1,034		979			2,111		2,223
Amounts not allocated to segments:
Amortization		251			255			758			823			173		249			414		507
Other assets impairments, restructuring and other items		(98	)		160			404			263			28		381			165		502
Goodwill impairment														—		—			—		—
Intangible asset impairments		509			177			1,278			1,206			195		120			274		768
Goodwill impairment		4,628			—			4,628			—
Legal settlements and loss contingencies		21			468			10			1,171			6		13			110		(12	)
Other unallocated amounts		55			73			148			209			50		44			132		93

Consolidated operating income (loss)		(4,342	)		(81	)		(3,978	)		(591	)		582		173			1,015		364

Financial expenses, net		117			211			565			635			274		223			564		448

Consolidated income (loss) before income taxe s	$	(4,459	)	$	(292	)	$	(4,543	)	$	(1,226	)
Consolidated income (loss) before income taxes													$	308	$	(51	)	$	451	$	(84	)

41

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~~th

r

ee and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


North America	Three months ended June 30,
	2021		2020
	(U.S. $ in millions)
Generic products	$	951	$	923
AJOVY		46		34
AUSTEDO		174		161
BENDEKA ® /TREANDA ®		106		103
COPAXONE		152		238
ProAir ® *		55		66
Anda		316		374
Other		144		147

Total	$	1,943	$	2,047

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

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


North America	Six months ended June 30,
	2021		2020
	(U.S. $ in millions)
Generic products	$	2,004	$	1,875
AJOVY		77		63
AUSTEDO		320		283
BENDEKA/TREANDA		197		208
COPAXONE		315		435
ProAir*		109		125
Anda		605		800
Other		305		338

Total	$	3,932	$	4,129

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

Europe	Three months ended June 30,
	2021		2020
	(U.S. $ in millions)
Generic products	$	878	$	737
AJOVY		19		5
COPAXONE		100		84
Respiratory products		85		80
Other		102		95

Total	$	1,184	$	1,001

44

42

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,				Six months ended June 30,
	2020		2019		2021		2020
	(U.S. $ in millions)				(U.S. $ in millions)
Generic products	$	824	$	836	$	1,742	$	1,769
AJOVY						35		9
COPAXONE		101		106		201		193
Respiratory products		77		87		179		186
AJOVY		8		1
Other		106		134		242		246

Total	$	1,116	$	1,163	$	2,398	$	2,404

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,

International markets					Three months ended June 30,
	2020		2019		2021		2020
	(U.S. $ in millions)				(U.S. $ in millions)
Generic products	$	429	$	474	$	407	$	426
COPAXONE		14		20		7		12
Other		86		71		71		50

Total	$	529	$	565	$	485	$	488

*	~~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.~~


International markets	Six months ended June 30,
	2021		2020
	(U.S. $ in millions)
Generic products	$	799	$	875
COPAXONE		19		23
Other		157		154

Total	$	975	$	1,053

45

43

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~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are classified in the tables below in one of the three categories of fair value levels:


	September 30, 2020											June 30, 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		$	278	$	—		$	—		$	278
Cash, deposits and other		1,636		—			—			1,636			2,158		—			—			2,158
Investment in securities:
Equity securities*		20		—			297			317			35		—			—			35
Other, mainly debt securities		1		—			9			10			5		—			1			6
Derivatives:
Asset derivatives—options and forward contracts		—		36			—			36			—		30			—			30
Liability derivatives—options and forward contracts		—		(67	)		—			(67	)		—		(25	)		—			(25	)
Contingent consideration**		—		—			(279	)		(279	)		—		—			(205	)		(205	)

Total	$	1,848	$	(31	)	$	27		$	1,844		$	2,476	$	5		$	(204	)	$	2,277


	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~~first quarter of ~~2020, Teva recorded a gain of $134 million under share in profits of associated companies, net, reflecting the difference between the book value of~~2021, Teva’s ~~investment~~shares in American Well Corporation (“American Well”) ~~and its~~moved from a Level 2 measurement to a 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~~subject to a sale restriction. As of June 30, 2021, Teva sold most of its holdings 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.~~

Well, and subsequently sold its remaining holdings.

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

46

~~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

% 90% 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~~

% 7.8%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was

~~7.9~~

% 7.7%. 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~~

44

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


	Six months ended June 30, 2021			Six months ended June 30, 2020
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(258	)		(448	)
Redemption of debt securities		(9	)		—
Revaluation of debt securities		—			1
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		22			(15	)
Eagle transaction		(7	)		(67	)
Settlement of contingent consideration:
Eagle transaction		48			58

Fair value at the end of the period	$	(204	)	$	(471	)

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*


September 30,

December 31,


2020

2019


(U.S. $ in millions)

Senior notes included under senior notes and loans
   $ 22,194    $ 22,686
Senior notes and convertible senior debentures included under short-term debt
   1,968    2,318




Total
   $ 24,162    $ 25,004


	Estimated fair value*
	June 30,		December 31,
	2021		2020
	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	21,449	$	22,684
Senior notes and convertible senior debentures included under short-term debt		3,548		3,207

Total	$	24,997	$	25,891

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

47

45

Table of Contents

ITEM 2.

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

Business Overview

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

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

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

Our Business Segments

We operate our business through three segments: North America, Europe and International Markets. Each business segment manages our entire product portfolio in its region, including generics, specialty and OTC products. This structure enables strong alignment and integration between operations, commercial regions, R&D and our global marketing and portfolio function, optimizing our product lifecycle across therapeutic areas.

In addition to these three segments, we have other activities, primarily the sale of API to third parties, certain contract manufacturing services and an

out-licensing

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

The

COVID-19

Pandemic

As a leading global pharmaceutical company, Teva provides essential medicines to millions of patients around the world every day. Our priorities remain focused on the health and well-being of our employees and on our responsibility to continue to provide our medicines to the nearly 200 million patients who depend on us every day.

~~Our industry plays a critical role, particularly during such challenging times. We are working with governments to do all they can,~~During the second quarter of 2021, we have not experienced material delays in ~~partnership with our industry, to maintain the~~ development, production ~~supply~~ and distribution of ~~high quality~~ medicines ~~for patients worldwide during this unprecedented global health crisis.~~

~~Business Continuity~~

or disruptions in our supply chains. The supply chain supporting our key products – specialty, generics and API – remains largely uninterrupted, ~~and~~ with adequate product inventory across our ~~network. Additionally, based on analysis of potential scenarios, we currently have inventory~~network and redundancy plans in place to address potential shortfalls, if any. ~~We are closely monitoring the evolving situation in our key manufacturing locations and commercial markets as well as key products, and are accordingly adapting our business continuity plans.~~ All our facilities that research, manufacture, order, pack, distribute and provide critical customer and patient services are currently functioning to meet demand for essential medicines for patients throughout the world.

~~Teva has worked since the early days of the~~

~~COVID-19~~

~~pandemic to support efforts of governments~~We did not have and health services to curb the impact of the virus. Our global manufacturing network has been tirelessly focused on securing and scaling production of both API and finished doses for potential treatments that were proven essential or may prove essential in treating the condition nearly everywhere Teva does business. Teva will continue to work with governments and international organizations throughout the world to support emerging needs related to this crisis, while doing everything possible to also continue to supply our vast portfolio of medicines to patients.

~~R&D and New Launches~~

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

COVID-19

pandemic; however, during the second quarter of 2021, we have experienced ~~immaterial~~minimal delays in clinical trials due to cessation or slow-downs of recruitment for patient studies and suspended regulatory inspections, raw material supply issues, delays in regulatory approvals of new products due to reduced capacity or

re-prioritization

of regulatory agencies and delays in

pre-commercial

launch activities. We may experience further delays if the pandemic continues for an extended period of time. All of our new product launches have been risk-assessed based on upcoming manufacturing and regulatory inspections.

~~Workforce Policy and Measures~~

~~Our employees across all aspects~~The long-term effects of ~~our business are safeguarding~~ the continuity of our activities and we are committed to supporting their efforts while caring for their personal health and safety. We are enacting appropriate measures to ensure the safe supply and transport of our medicines and APIs, and have established measures intended to ensure our sites remain open, allowing us to maintain our business, R&D and manufacturing operations. We have reduced the number of people in our facilities to enable social distancing. By doing our part to reduce physical proximity to one another, we hope to better protect our overall workforce, and ultimately, the communities in which we live.

48

~~Table of Contents~~

As we work through this health crisis, we continue to adapt our strategy for returning to usual operations at all organizational levels as events develop, under guiding principles to protect our business and maximize organizational productivity and efficiency, while simultaneously ensuring a safe workplace.

~~Trends~~

~~We still have limited insight into the extent to which our business may be impacted by the~~

~~COVID-19~~

pandemic and there are many unknowns facing our industry and society at large. We are still not experiencing material delays in development, production and distribution of medicines or disruptions in our supply chains; however, longer term effects cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. In the first quarter of 2020, we experienced increasing demand for certain medicines, as would be expected during a global crisis of this nature. We saw a compensating effect with lower demand for certain medicines during the second quarter of 2020 and continuing slightly lower demand due to less physician and hospital activity in certain regions and for certain medicines in the ~~third quarter~~second half of 2020. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will continue to see variable demand during the remainder of ~~the year, but~~2021. While

COVID-19

continues to impact sales in certain markets and for certain products, we do not currently anticipate a material negative impact on our ~~2020~~2021 financial results due to the ongoing global pandemic.

46

Table of Contents

Highlights

Significant highlights in the ~~third~~second quarter of ~~2020~~2021 included:

Revenues in the ~~third~~second quarter of ~~2020~~2021 were ~~$3,978~~$3,910 million, an increase of 1%, or a decrease of 3%2% in ~~both U.S. dollar and~~ local currency terms, compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to lower revenues ~~from generics, OTC and COPAXONE in all regions and lower revenues from QVAR and BENDEKA/TREANDA~~ in our North America segment, mainly related to COPAXONE and Anda, partially offset by positive foreign currency impacts as well as ~~reduced~~higher revenues from generic products, OTC, AJOVY and COPAXONE in our Europe 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.

Our North America segment generated revenues of ~~$2,017~~$1,943 million and profit of ~~$560~~$521 million in the ~~third~~second quarter of ~~2020.~~2021. Revenues decreased by 2%5% compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to a decrease in revenues offrom COPAXONE and ~~BENDEKA/TREANDA,~~Anda, partially offset by higher revenues from ~~AUSTEDO,~~ generic products, AUSTEDO and AJOVY. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the

COVID-19

pandemic, but has also experienced increase in demand for certain products related to the treatment of

COVID-19

and its symptoms. In addition, the ability to promote ~~our new~~certain specialty products ~~primarily AJOVY and AUSTEDO,~~ has been impacted by less physician visits by patients and less physician interactions by our sales personnel. Profit ~~was flat~~decreased by 9% compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to lower ~~revenues, offset by a change in mix of products.~~gross profit, as well as higher R&D expenses.

Our Europe segment generated revenues of ~~$1,116~~$1,184 million and profit of ~~$312~~$343 million in the ~~third~~second quarter of ~~2020.~~2021. Revenues ~~decreased~~increased by 4%18%, or 7%8% in local currency terms, compared to the ~~third~~second quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to ~~reduced demand for certain products resulting from~~changed buying patterns in the second quarter of 2020 as a result of significant customer stocking due to the

COVID-19

~~pandemic. The~~

~~COVID-19~~

pandemic ~~has led to~~in March 2020, and a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the ~~third~~second quarter of 2020. ~~This decrease is also attributed to price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate products.~~ Profit ~~decreased~~increased by 8%41%, mainly due to ~~lower~~higher revenues.

Our International Markets segment generated revenues of ~~$529~~$485 million and profit of ~~$125~~$123 million in the ~~third~~second quarter of ~~2020.~~2021. Revenues decreased by 6%1%, or 1%3% in local currency terms, compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to lower ~~sales~~revenues in Japan resulting from the divestment of the majority of the generic and operational assets of our Japanese business venture, as well as regulatory price reductions and generic competition to

off-patented

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

~~COVID-19~~

~~pandemic. The~~

COVID-19

pandemic ~~has led to a decline in doctor and hospital visits~~had on purchasing patterns. Profit increased by ~~patients resulting in fewer prescriptions during the third quarter of 2020. Profit decreased by 4%~~27%, mainly due to ~~lower sales~~the divestment in Japan ~~partially offset by lower S&M expenses.~~mentioned above and a change in product portfolio mix.

Impairments of identifiable intangible assets were ~~$509~~$195 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~$177~~$120 million in the ~~third quarter of 2019. Impairment expenses in the third quarter of 2020 comprised of $360 million of IPR&D assets and $149 million of identifiable product rights.~~

~~We recorded a goodwill impairment charge of $4,628 million related to our North America reporting unit in the third~~second quarter of 2020. See note 65 to our consolidated financial statements.

49

No goodwill impairments were recorded in the second quarters of both 2021 and 2020.

~~Table of Contents~~

We recorded other asset impairments, restructuring and other items ~~income~~expenses of ~~$98~~$28 million in the ~~third~~second quarter of ~~2020,~~2021, compared to expenses of ~~$160~~$381 million in the ~~third~~second quarter of ~~2019.~~2020. See note 12 to our consolidated financial statements.

Legal settlements and loss contingencies expenses were ~~$21~~$6 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~$468~~$13 million in the ~~third~~second quarter of ~~2019.~~2020. See note 9 to our consolidated financial statements.

Operating ~~loss~~income was ~~$4,342~~$582 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~operating loss of $81~~$173 million in the ~~third~~second quarter of ~~2019. The decrease in the third quarter of 2020~~2020. This increase was mainly due to ~~the goodwill impairment charge~~lower other assets impairments, restructuring and other items charges and higher profit in our Europe segment, partially offset by higher intangible asset impairment ~~charges in the third quarter of 2020, partially offset by lower legal settlements and loss contingencies in the third quarter of 2020.~~charges.

Financial expenses were ~~$117~~$274 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~$211~~$223 million in the ~~third~~second quarter of ~~2019.~~2020. Financial expenses in the ~~third~~second quarter of ~~2020~~2021 were mainly comprised of interest expenses of ~~$241~~$240 million ~~partially offset by gains~~and loss on revaluations of marketable securities of ~~$124~~$34 million (see note 16 to our consolidated financial statements). Financial expenses in the ~~third~~second quarter of ~~2019~~2020 were mainly comprised of interest expenses of ~~$219~~$241 million.

In the ~~third~~second quarter of 2021, we recognized a tax expense of $98 million, on

pre-tax

income of $308 million. In the second quarter of 2020, we recognized a tax ~~expense~~benefit of ~~$16~~$104 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~~$51 million. Our tax rate for the ~~third~~second quarter of ~~2020~~2021 was mainly affected by ~~the goodwill impairment charge that does not have a corresponding tax effect~~impairments, amortization and ~~other changes to tax positions and deductions.~~interest expense disallowance.

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Table of Contents

Exchange rate movements during the ~~third~~second quarter of ~~2020,~~2021, including hedging effects, positively impacted revenues by ~~$14~~$135 million and ~~negatively impacted~~ operating ~~loss~~income by ~~$18~~$26 million, compared to the ~~third~~second quarter of ~~2019.~~2020.

As of ~~September~~June 30, ~~2020,~~2021, our debt was ~~$25,621~~$25,132 million, compared to ~~$26,266~~$24,986 million as of ~~June 30, 2020.~~March 31, 2021. This ~~decrease~~increase was mainly due to ~~the repayment at maturity of our €1,010 million 0.375% senior notes in July 2020, partially offset by~~ exchange rate fluctuations. AsIn July 2021, we repaid $1,475 million of ~~September 30, 2020, €100~~our 2.2% senior notes at maturity. During July 2021, $500 million ~~were outstanding~~was drawn down under the RCF. ~~As of the date of this Quarterly Report on Form~~

~~10-Q,~~

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

Cash flow generated from operating activities during the ~~third~~second quarter of ~~2020~~2021 was ~~$307~~$218 million, compared to ~~$325~~$273 million in the ~~third~~second quarter of ~~2019.~~2020. The decrease in the ~~third~~second quarter of ~~2020~~2021 was mainly due to ~~an increase~~favorable collection of payments from customers in ~~inventory during~~ the ~~third~~second quarter of 2020, ~~compared to a decrease in inventory~~which resulted from increased sales in the ~~third~~first quarter of ~~2019.~~2020.

During the ~~third~~second quarter of ~~2020,~~2021, we generated free cash flow of ~~$506~~$625 million, which we define as comprising ~~$307~~$218 million in cash flow generated from operating activities, ~~$333~~$405 million in beneficial interest collected in exchange for securitized accounts receivables and $9$115 million in proceeds from ~~sale~~divestitures of ~~property, plant~~businesses and ~~equipment,~~other assets, partially offset by ~~$143~~$113 million in cash used for capital investment. During the ~~third~~second quarter of ~~2019,~~2020, we generated free cash flow of ~~$551~~$582 million, comprising ~~$325~~$273 million in cash flow ~~used in~~generated from operating activities, ~~$362~~$401 million in beneficial interest collected in exchange for securitized accounts receivables and ~~$33~~$39 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by ~~$169~~$131 million in cash used for capital investment. The ~~decrease~~increase in the ~~third~~second quarter of ~~2020~~2021, resulted mainly from higher proceeds from divestitures of businesses and other assets, partially offset by lower cash flow ~~generated~~ from operating activities.

~~Alvotech Partnership~~

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

50

~~Table of Contents~~

Results of Operations

Comparison of Three Months Ended ~~September~~June 30, ~~2020~~2021 to Three Months Ended ~~September~~June 30, ~~2019~~2020

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended September 30,										Three months ended June 30,
	2020					2019					2021					2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,017		100	%	$	2,051		100	%	$	1,943		100	%	$	2,047		100	%
Gross profit		1,056		52.4	%		1,048		51.1	%		1,040		53.5	%		1,090		53.3	%
R&D expenses		155		7.7	%		156		7.6	%		162		8.4	%		154		7.5	%
S&M expenses		250		12.4	%		219		10.7	%		255		13.1	%		254		12.4	%
G&A expenses		97		4.8	%		112		5.5	%		106		5.5	%		110		5.4	%
Other (income) expense		(5	)		§		(5	)		§
Other income												(5	)		§		(2	)		§

Segment profit*	$	560		27.7	%	$	565		27.5	%	$	521		26.8	%	$	573		28.0	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$2,017~~$1,943 million, a decrease of ~~$34~~$104 million, or 2%5%, compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to a decrease in revenues offrom COPAXONE and ~~BENDEKA/TREANDA,~~Anda, partially offset by higher revenues from ~~AUSTEDO,~~ generic products, AUSTEDO and AJOVY. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the

COVID-19

pandemic, but has also experienced increase in demand for certain products related to the treatment of

COVID-19

and its symptoms. In addition, the ability to promote ~~our new~~certain specialty products ~~primarily AJOVY and AUSTEDO,~~ has been impacted by less physician visits by patients and less physician interactions by our sales personnel.

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Table of Contents

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended September 30,				Percentage Change			Three months ended June 30,				Percentage Change
	2020		2019		2019-2020			2021		2020		2020-2021
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	928	$	914		2	%	$	951	$	923		3	%
AJOVY		35		25		42	%		46		34		32	%
AUSTEDO		168		105		60	%		174		161		8	%
BENDEKA/TREANDA		105		124		(15	%)		106		103		3	%
COPAXONE		236		271		(13	%)		152		238		(36	%)
ProAir*		50		71		(30	%)		55		66		(16	%)
QVAR		42		60		(29	%)
Anda		341		351		(3	%)		316		374		(16	%)
Other		113		131		(14	%)		144		147		(2	%)

Total	$	2,017	$	2,051		(2	%)	$	1,943	$	2,047		(5	%)

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

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~~Table of Contents~~

Generic products

revenues in our North America segment (including biosimilars) in the ~~third~~second quarter of ~~2020~~2021 were ~~$928~~$951 million, an increase of 2%3% compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to higher revenues from ~~TRUXIMA~~ epinephrine injectable solution (the generic equivalent of EpiPen

®

and ~~from our~~EpiPen Jr.

®

), Truxima (the biosimilar to Rituxan

®

) and ProAir

®

authorized generic, partially offset by lower volume and pricing of other generic products.

Among the most significant generic products we sold in North America in the ~~third~~second quarter of ~~2020~~2021 were ~~TRUXIMA~~Truxima (the biosimilar to Rituxan

®

), epinephrine injectable solution (the generic equivalent of EpiPen

®

and EpiPen Jr.

®

), albuterol sulfate inhalation aerosol ~~(ProAir HFA~~(our ProAir authorized ~~generic of our specialty product)~~generic) and lidocaine transdermal patch (the generic equivalent of Lidoderm Patch

®

).

~~On September 30, 2020, we launched emtricitabine and tenofovir disoproxil fumarate tablets, 200mg/300mg (the generic equivalent of Truvada~~

®

~~), and efavirenz, emtricitabine and tenofovir disoproxil fumarate tablets (the generic equivalent for Atripla~~

®

~~) for~~In the ~~prevention and treatment of HIV, respectively. We did not recognize revenues for these products in the third~~second quarter of ~~2020.~~

~~In the third quarter of 2020, we led the U.S. generics market in~~2021, our total prescriptions ~~and new prescriptions, with~~were approximately ~~365~~314 million ~~total prescriptions~~ (based on trailing twelve months), representing ~~10%~~8.8% of total U.S. generic prescriptions according to IQVIA data.

AJOVY

revenues in our North America segment in the ~~third~~second quarter of ~~2020 were $35~~2021 increased by 32% to $46 million, ~~an increase of $10 million, or 42%~~ compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to growth in ~~volume in~~volume. In the ~~third~~second quarter of ~~2020. AJOVY was approved by the FDA and launched~~2021, AJOVY’s exit market share in the United ~~States~~Stated in ~~September 2018,~~terms of total number of prescriptions was 21.2%, compared to 16.1% in the second quarter of 2020.

AJOVY is indicated for the preventive treatment of migraine in adults. ~~On January 27, 2020,~~AJOVY was launched in the ~~FDA~~U.S. in 2018, and was approved anin Canada in April 2020. Our auto-injector device for AJOVY ~~in the U.S., which~~ became commercially available in the U.S. in April ~~2020. In addition, AJOVY was approved~~2020 and in Canada onin April ~~14, 2020.~~

2021. AJOVY is ~~also~~the only anti-CGRP product indicated for quarterly treatment and in ~~clinical development to evaluate safety and efficacy in the treatment of fibromyalgia.~~January 2021 we launched a new product offering, providing a quarterly dose.

AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States. Applications for patent term extensions have been submitted in various markets around the ~~world. An additional patent~~world, and certain extensions in Europe and other countries have already been granted until 2031. Additional patents relating to the use of AJOVY in the treatment of migraine have also been issued in the United States and will expire in ~~2035. This patent is~~2035 and 2037. Such patents are also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

We have filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly ~~also~~then submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation.

49

Table of Contents

The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the Patent Trial and Appeal Board issued decisions on the first six IPRs, finding the six composition of matter patents invalid as being obvious. On April 21, 2020, we filed notices of appeal in connection with these decisions. On March 31, 2020 the Patent Trial and Appeal Board (“PTAB”) issued a decision upholding the three method of treatment patents and on June 1, 2020, Lilly filed notices of appeal in connection with the decisions on these three patents. The Court of Appeals for the Federal Circuit heard oral argument for the IPR appeals on June 7, 2021 and we await those decisions. The litigation stay ended following the ~~issuance of~~IPR decisions by the ~~most recent IPR decisions,~~PTAB, and the parties are proceeding with the litigation. We also filed another suit against Lilly on June 8, 2021, asserting two patents which issued that same day and relate to the treatment of refractory migraine. The case has been assigned to the same judge in the U.S. District Court for the District of Massachusetts and Lilly’s response to our complaint is due on August 27, 2021. In addition, in 2018 we ~~have~~ entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO

revenues in our North America segment in the ~~third~~second quarter of ~~2020~~2021 increased by ~~60%~~8%, to ~~$168~~$174 million, compared to ~~$105~~$161 million in the ~~third~~second quarter of ~~2019.~~2020. This increase was mainly due to growth in ~~volume in the third quarter of 2020.~~volume.

~~In April 2017,~~ AUSTEDO was ~~approved by the FDA and~~ launched in the ~~United States for the treatment of chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia. In May 2020, AUSTEDO was approved~~U.S. in ~~China~~2017. It is indicated for the treatment of chorea associated with Huntington disease and for the treatment of tardive ~~dyskinesia.~~dyskinesia in adults.

AUSTEDO is protected in the United States by ~~five~~six Orange Book patents expiring between 2031 and ~~2033~~2036 and in Europe by two patents expiring in 2029. We received notice letters from two ANDA filers regarding the filing of their ANDAs with paragraph (IV) certifications for certain of the patents listed in the Orange Book for AUSTEDO. On July 1, 2021, we filed a complaint against Aurobindo, asserting all six of the Orange Book patents, and a separate complaint against Lupin, asserting four of the Orange Book patents. The suits were filed in the U.S. District Court for the District of New Jersey.

BENDEKA

and

TREANDA

combined revenues in our North America segment in the ~~third~~second quarter of ~~2020 decreased~~2021 increased by ~~15%~~3% to ~~$105~~$106 million, compared to the ~~third~~second quarter of ~~2019,~~2020, mainly due to higher sales of oncology products compared to sales in the ~~emergence~~second quarter of 2020, which were impacted by the

COVID-19

pandemic, partially offset by the availability of alternative ~~novel~~ therapies and continued competition from Belrapzo

®

(a

ready-to-dilute

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

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

~~en banc,~~

~~however the petition was not granted.~~ As things currently stand, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. In April 2019, we signed an amendment to the license agreement with Eagle extending

52

~~Table of Contents~~

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. A litigation against the fifth ANDA filer was dismissed after the withdrawal of its patent challenge, and the case against a sixth ANDA filer is in the early stages of litigation. Recent suits against two filers of 505(b)(2) NDAs referencing BENDEKA are also in the initial 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.

50

Table of Contents

COPAXONE

revenues in our North America segment in the ~~third~~second quarter of ~~2020~~2021 decreased by ~~13%~~36% to ~~$236~~$152 million, compared to the ~~third~~second 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~~second quarter of ~~2020~~2021 were ~~$50~~$55 million, a decrease of ~~30%~~16% compared to the ~~third~~second 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. ~~ProAir is~~During the ~~fifth-largest short-acting beta-agonist in~~second quarter of 2021, the ~~market, with an~~ exit market share of ~~10.7% in terms of total number of prescriptions for~~our overall albuterol ~~inhalers during the third quarter of 2020, compared to 23.8% in the third quarter of 2019. The exit market share~~product, including our ProAir ~~HFA~~ authorized generic ~~is 36.3%~~was 41.4%, making ~~our overall albuterol product~~it the second largest in the market, compared to ~~44.7%~~34.9% in the ~~third~~second 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~~second quarter of 2021 decreased by 16% to $316 million, compared to $374 million in the second 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.~~demand by Anda’s customers for generic products. 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.

53

~~Table of Contents~~

Product Launches and Pipeline

In the ~~third~~second 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 Suppositories		Canasa ®		April	$	66
Isotretinoin Capsules, USP		Absorica ®		April	$	156
Erythromycin Tablets, USP		n/a		May	$	45
Tiopronin Tablets		Thiola ®		May	$	81	**
Ivermectin Cream, 1%		Soolantra ®		June	$	111
Formoterol Fumarate Inhalation Solution		Perforomist	®	June	$	300

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

**	Limited data is available for this product in IQVIA and as a result Teva estimated the brand market based on data available in Travere Therapeutic’s 10-K for the year ended December 31, 2020.

Our generic products pipeline in the United States includes, as of ~~September~~June 30, ~~2020, 228~~2021, 207 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, 2020~~March 31, 2021 exceeding ~~$115~~$106 billion, according to IQVIA. Approximately ~~69%~~72% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 8477 of these products, or ~~107~~103 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $76 billion in U.S. brand sales for the twelve months ended ~~June 30, 2020,~~March 31, 2021, according to IQVIA.

51

Table of Contents

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

so-called

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

In the ~~third~~second 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)) *
Lenalidomide Capsules, 2.5 mg and 20 mg		Revlimid	®	$	179
Pimavanserin Capsules, 34 mg		Nuplazid	®	$	173

*	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.

~~Table of Contents~~

Below is a description of key products in our specialty pipeline as of ~~September~~June 30, ~~2020:~~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~~ Fasinumab
~~CNS, Neurology and~~Osteoarthritic Pain ~~Neuropsychiatry~~ (March 2016) (1)

	TEV-48574 Respiratory

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

~~TV-46000~~ ~~(risperidone LAI)~~	~~Schizophrenia~~	~~Subcutaneous~~	~~3 (April 2018)~~

~~Migraine and Pain~~		TEV-53275 Respiratory

~~fremanezumab (anti CGRP)~~ Small Molecules		~~Post traumatic~~ Deutetrabenazine ~~headache~~Dyskinesia in Cerebral Palsy (September 2019)	~~Subcutaneous~~ Risperidone LAI Schizophrenia (2)

Digital Respiratory	2	~~The clinical trial did not meet its primary endpoint for efficacy~~	Digihaler ® (budesonide and ~~the development for this indication has been discontinued.~~formoterol fumarate dihydrate) (EU)

	~~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~~52

~~. 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. 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.

(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.

Discontinued Project

During the second quarter of 2021, ~~along with a decision on the program.~~development of fremanezumab for an additional indication was discontinued.

North America Gross Profit

Gross profit from our North America segment in the ~~third~~second quarter of ~~2020~~2021 was ~~$1,056~~$1,040 million, ~~an increase~~a decrease of 1%5%, compared to ~~$1,048~~$1,090 million in the ~~third~~second quarter of ~~2019.~~2020. This decrease was mainly due to lower gross profit from Anda and COPAXONE.

Gross profit margin for our North America segment in the ~~third~~second quarter of ~~2020~~2021 increased to ~~52.4%~~53.5%, compared to ~~51.1%~~53.3% in the ~~third~~second quarter of ~~2019.~~2020. This increase was mainly due to ~~the~~a change in the mix of products.

North America R&D Expenses

R&D expenses relating to our North America segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$155~~$162 million, ~~a decrease~~an increase of 1%5%, compared to ~~$156~~$154 million in the ~~third~~second quarter of ~~2019.~~2020.

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

55

~~Table of Contents~~

North America S&M Expenses

S&M expenses relating to our North America segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$250~~$255 million, ~~an increase of 14%,~~flat compared to ~~$219 million in~~ the ~~third~~second quarter of ~~2019. This increase is mainly due to higher S&M expenses related to AJOVY, AUSTEDO and biosimilars.~~2020.

North America G&A Expenses

G&A expenses relating to our North America segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$97~~$106 million, a decrease of ~~14%~~4%, compared to ~~$112~~$110 million in the ~~third~~second quarter of ~~2019.~~2020.

North America Profit

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

Profit from our North America segment in the ~~third~~second quarter of ~~2020~~2021 was ~~$560~~$521 million, ~~flat~~a decrease of 9% compared to ~~$565~~$573 million in the ~~third~~second quarter of ~~2019,~~2020, mainly due to lower ~~revenues, offset by a change in mix~~gross profit, as discussed above, as well as higher R&D expenses.

53

Table of ~~products.~~Contents

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended September 30,								Three months ended June 30,
	2020				2019				2021			2020
	(U.S. $ in millions / % of Segment Revenues)								(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,116		100%	$	1,163		100%	$	1,184	100%		$1,001	100%
Gross profit		637		57.1%		662		56.9%		661	55.8%		548	54.7%
R&D expenses		60		5.4%		63		5.4%		63	5.3%		65	6.5%
S&M expenses		200		17.9%		206		17.7%		209	17.7%		188	18.8%
G&A expenses		66		5.9%		56		4.9%		47	4.0%		52	5.2%
Other (income) expense		(1	)	§		(4	)	§
Other income										§	§		(1)	§

Segment profit*	$	312		28.0%	$	341		29.3%	$	343	28.9%		$244	24.3%

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

§	Represents an amount less than $1 million or 0.5%., as applicable.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$1,116~~$1,184 million, ~~a decrease~~an increase of 4%18% or ~~$47~~$183 million, compared to the ~~third~~second quarter of ~~2019.~~2020. In local currency terms, revenues ~~decreased~~increased by 7%8%, mainly due to ~~reduced demand for certain products resulting from~~changed buying patterns in the second quarter of 2020 as a result of significant customer stocking due to the

COVID-19

~~pandemic. The~~

~~COVID-19~~

pandemic ~~has led to~~in March 2020, and a decline in doctor and hospital visits by patients resulting in fewer prescriptions during the ~~third~~second quarter of 2020. ~~This decrease is also attributed to price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate products.~~

Revenues by Major Products and Activities

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

Three months ended

September 30,

Percentage
Change


2020

2019

2019-2020


(U.S. $ in millions)

Generic products
   $ 824    $ 836    (1 %)
COPAXONE
   101    106    (5 %)
Respiratory products
   77    87    (12 %)
AJOVY
   8    1    NA
Other
   106    134    (21 %)





Total
   $ 1,116    $ 1,163    (4 %)

56


	Three months ended June 30,				Percentage Change
	2021		2020		2020-2021
	(U.S. $ in millions)
Generic products	$	878	$	737		19	%
AJOVY		19		5		302	%
COPAXONE		100		84		19	%
Respiratory products		85		80		7	%
Other		102		95		7	%

Total	$	1,184	$	1,001		18	%

International Markets Segment

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


	Three months ended September 30,										Three months ended June 30,
	2020					2019**					2021				2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	529		100	%	$	565		100	%	$	485		100%	$	488			100%
Gross profit		275		52.0	%		295		52.2	%		270		55.7%		247			50.8%
R&D expenses		17		3.2	%		21		3.7	%		18		3.6%		19			3.9%
S&M expenses		101		19.1	%		114		20.1	%		105		21.7%		105			21.4%
G&A expenses		33		6.3	%		32		5.6	%		25		5.1%		29			6.0%
Other (income) expense		(1	)	§			(1	)	§
Other income												(1	)	§		(2	)	§

Segment profit*	$	125		23.6	%	$	130		23.0	%	$	123		25.5%	$	97			19.9%

§	~~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~~second quarter of ~~2020~~2021 were ~~$529~~$485 million, a decrease of ~~$35~~$3 million, or 6%1%, compared to the ~~third~~second quarter of ~~2019.~~2020. In local currency terms, revenues decreased by 1%3% compared to the ~~third~~second 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 a negative impact from ~~the sale of certain assets in the Israeli market,~~hedging activity, partially offset by higher revenues in most other ~~markets. Revenues~~markets as well as lower revenues in certain markets in the ~~third~~second quarter of 2020, ~~were also impacted by~~resulting from reduced demand ~~for certain products resulting from~~due to the impact of the

~~COVID-19~~

~~pandemic. The~~

COVID-19

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

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~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended September 30,				Percentage Change			Three months ended June 30,				Percentage Change
	2020		2019*		2019-2020			2021		2020		2020-2021
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	429	$	474		(10	%)	$	407	$	426		(5	%)
COPAXONE		14		20		(27	%)		7		12		(35	%)
Other		86		71		21	%		71		50		42	%

Total	$	529	$	565		(6	%)	$	485	$	488		(1	%)

*	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~~second quarter of ~~2020,~~2021, which include OTC products, decreased by ~~10%~~5% in both U.S. dollar and local currency terms, to ~~$429~~$407 million, compared to the ~~third~~second quarter of ~~2019. In local currency terms, revenues decreased by 4%,~~2020. This decrease was 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 Japan, partially offset by higher revenues in most other markets as well as lower revenues in certain markets in the ~~third~~second quarter of 2020, ~~were also impacted by~~resulting from reduced demand ~~for certain products resulting from~~due to 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~~had on purchasing patterns.

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Table of ~~2020.~~Contents

COPAXONE

revenues in our International Markets segment in the ~~third~~second quarter of ~~2020 decreased by 27% to $14~~2021 were $7 million, a decrease of 35% compared to ~~$20 million in~~ the ~~third~~second quarter of ~~2019.~~2020. In local currency terms, revenues decreased by ~~14%~~33%.

AJOVY

.was launched in certain markets in our International Markets segment and we are moving forward with plans to launch in other markets. On ~~May 12, 2017, we entered into a license~~June 23, 2021, AJOVY was approved for the preventive treatment of migraine in adults in Japan.

AUSTEDO

was 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~~second quarter of ~~2020~~2021 was ~~$275~~$270 million, ~~a decrease~~an increase of 7%9% compared to ~~$295~~$247 million in the ~~third~~second quarter of ~~2019.~~2020.

Gross profit margin for our International Markets segment in the ~~third~~second quarter of ~~2020 decreased~~2021 increased to ~~52.0%~~55.7%, compared to ~~52.2%~~50.8% in the ~~third~~second quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to the divestment in Japan mentioned above and a ~~different~~change in product portfolio mix.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$17~~$18 million, a decrease of ~~18%~~8% compared to ~~$21~~$19 million in the ~~third~~second quarter of ~~2019.~~2020.

For a description of our R&D expenses in the ~~third~~second 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~~second quarter of ~~2020~~2021 were ~~$101~~$105 million, ~~a decrease of 11%~~flat compared to ~~$114 million in~~ the ~~third~~second quarter of ~~2019. This decrease was mainly due to lower marketing and travel costs attributed to restrictions related to the~~

~~COVID-19~~2020.

~~pandemic.~~

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the ~~third~~second quarter of ~~2020~~2021 were ~~$33~~$25 million, ~~an increase~~a decrease of 6%15% compared to ~~$32~~$29 million in the ~~third~~second 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.

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Profit from our International Markets segment in the ~~third~~second quarter of ~~2020~~2021 was ~~$125~~$123 million, ~~a decrease~~an increase of 4%27%, compared to ~~$130~~$97 million in the ~~third~~second quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to ~~lower sales in Japan, partially offset by lower S&M expenses,~~higher gross profit 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~~second quarter of ~~2020~~2021 were ~~$316~~$298 million, ~~an increase~~a decrease of 1%11% compared to the ~~third~~second quarter of ~~2019.~~2020. In local currency terms, revenues decreased by 1%13% compared to the ~~third~~second quarter of ~~2019.~~2020, mainly due to a decrease in volumes from API and Medis resulting from the

COVID-19

pandemic.

API sales to third parties in the ~~third~~second quarter of ~~2020~~2021 were ~~$175~~$199 million, ~~flat~~a decrease of 6% in both U.S. dollar and local currency terms compared to the ~~third~~second 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~~second quarter of ~~2020~~2021 were ~~$3,978~~$3,910 million, an increase of 1%, or a decrease of ~~3% in both U.S. dollar and~~2% in local currency terms, compared to the ~~third~~second quarter of ~~2019.~~2020. This decrease was mainly due to lower revenues ~~from generics, OTC and COPAXONE in all regions and lower revenues from QVAR and BENDEKA/TREANDA~~ in our North America segment, mainly related to COPAXONE and Anda, partially offset by positive foreign currency impacts as well as ~~reduced~~higher revenues from generic products, OTC, AJOVY and COPAXONE in our Europe 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~~second quarter of ~~2020,~~2021, including hedging effects, positively impacted revenues by ~~$14~~$135 million, compared to the ~~third~~second quarter of ~~2019.~~2020. See note 8d8c to our consolidated financial statements.

Gross Profit

Gross profit in the ~~third~~second quarter of ~~2020~~2021 was ~~$1,852~~$1,873 million, an increase of 1%6% compared to the ~~third~~second quarter of ~~2019.~~2020. This increase was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit margin was ~~46.6%~~47.9% in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~44.7%~~45.5% in the ~~third~~second quarter of ~~2019.~~2020.

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

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 second quarter of 2021 were $248 million, an increase of 10% compared to the second quarter of 2020.

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

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

R&D expenses as a percentage of revenues were ~~6.5%~~6.3% in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~5.9%~~5.8% in the ~~third~~second quarter of ~~2019.~~2020.

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Selling and Marketing (S&M) Expenses

S&M expenses in the ~~third~~second quarter of ~~2020~~2021 were ~~$605~~$615 million, an increase of 2%3% compared to the ~~third~~second 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%~~15.7% in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~14.5%~~15.4% in the ~~third~~second quarter of ~~2019.~~2020.

General and Administrative (G&A) Expenses

G&A expenses in the ~~third~~second quarter of ~~2020~~2021 were ~~$279~~$242 million, a decrease of 2%8% compared to the ~~third~~second quarter of ~~2019.~~2020.

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G&A expenses as a percentage of revenues were ~~7.0%~~6.2% in the ~~third~~second quarter of ~~2020, flat~~2021, compared to 6.8% in the ~~third~~second quarter of ~~2019.~~2020.

Intangible Asset Impairments

We recorded expenses of ~~$509~~$195 million for identifiable intangible asset impairments in the ~~third~~second quarter of ~~2020,~~2021, compared to expenses of ~~$177~~$120 million in the ~~third~~second 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~~second 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~~$28 million for other asset impairments, restructuring and other items in the ~~third~~second quarter of ~~2020,~~2021, compared to expenses of ~~$160~~$381 million in the ~~third~~second 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~~second quarter of ~~2020,~~2021, we recorded ~~expenses~~an expense of ~~$21~~$6 million in legal settlements and loss contingencies, compared to ~~expenses~~income of ~~$468~~$13 million in the ~~third~~second 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~~second quarter of ~~2020~~2021 was $8$43 million, compared to ~~$14~~$9 million in the ~~third~~second quarter of ~~2019.~~

~~Other~~2020. The income ~~as a percentage of revenues was 0.2%~~ in the ~~third~~second quarter of ~~2020 compared~~2021 was mainly due to ~~0.3% in~~capital gains related to the ~~third quarter~~sale of ~~2019.~~certain OTC assets.

Operating Income (Loss)

Operating ~~loss~~income was ~~$4,342~~$582 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~operating loss of $81~~$173 million in the ~~third~~second quarter of ~~2019.~~2020.

Operating ~~loss~~income as a percentage of revenues was ~~109.1%~~14.9% in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~operating loss as a percentage of revenues of 2.0%~~4.5% in the ~~third~~second quarter of ~~2019.~~2020. This ~~decrease~~increase was mainly due to ~~the goodwill impairment charge~~lower other assets impairments, restructuring and other items charges and higher profit in our Europe segment, partially offset by higher intangible asset impairment ~~charges in the third quarter of 2020, partially offset by lower legal settlements and loss contingencies in the third quarter of 2020.~~charges.

Financial Expenses, Net

Financial expenses were ~~$117~~$274 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~$211~~$223 million in the ~~third~~second quarter of ~~2019.~~2020. Financial expenses in the ~~third~~second quarter of ~~2020~~2021 were mainly comprised of interest expenses of ~~$241~~$240 million ~~partially offset by gains~~and loss on revaluations of marketable securities of ~~$124~~$34 million (see note 16 to our consolidated financial statements). Financial expenses in the ~~third~~second quarter of ~~2019~~2020 were mainly comprised of interest expenses of ~~$219~~$241 million.

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


.							Three months ended
	Three months ended September 30,						June 30,
	2020			2019			2021		2020
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	560		$	565		$	521	$	573
Europe profit		312			341			343		244
International Markets profit		125			130			123		97

Total reportable segments profit		997			1,036			987		914
Profit of other activities		28			16			47		66

Total segments profit		1,025			1,051			1,034		979
Amounts not allocated to segments:
Amortization		251			255			173		249

Other assets impairments, restructuring and other items		(98	)		160			28		381

Goodwill impairment								—		—

Intangible asset impairments		509			177			195		120
Goodwill impairment		4,628			—
Legal settlements and loss contingencies		21			468			6		13
Other unallocated amounts		55			73			50		44

Consolidated operating income (loss)		(4,342	)		(81	)		582		173

Financial expenses, net		117			211			274		223

Consolidated income (loss) before income taxes	$	(4,459	)	$	(292	)	$	308	$	(51	)

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Tax Rate

In the ~~third~~second quarter of 2021, we recognized a tax expense of $98 million, on

pre-tax

income of $308 million. In the second quarter of 2020, we recognized a tax ~~expense~~benefit of ~~$16~~$104 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~~$51 million. Our tax rate for the ~~third~~second quarter of ~~2020~~2021 was mainly affected by ~~the goodwill impairment charge that does not have a corresponding tax effect~~impairments, amortization and ~~other changes to tax positions and deductions.~~interest expense disallowance.

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~~second quarter of ~~2020~~2021 was ~~$136 million, compared to~~$11 million. We did not have any share in (profits) losses ~~of $4 million in the third quarter of 2019. Our share in profits~~ of associated companies, net in the ~~third~~second 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~~$207 million in the ~~third~~second quarter of ~~2020,~~2021, compared to ~~net loss of $314~~$140 million in the ~~third~~second 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~~June 30, 2021 and 2020 ~~and 2019 was 1,096~~were 1,109 million and ~~1,092~~1,100 million shares, respectively.

In computing diluted ~~loss~~earnings per share for the three months ended ~~September~~June 30, 2021 and June 30, 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. 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 $0.19 in the ~~third~~second quarter of ~~2020,~~2021, compared to diluted ~~loss~~earnings per share of ~~$0.29~~$0.13 in the ~~third~~second quarter of ~~2019.~~2020.

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~~June 30, ~~2020~~2021 and ~~2019,~~2020, the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,118~~1,129 million and ~~1,107~~1,119 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the ~~third~~second quarter of ~~2020,~~2021, approximately 47% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, new Israeli shekel, Canadian dollar and Russian ruble) impact our results.

During the ~~third~~second 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%, Brazilian real by 26%~~28%, Turkish lira by ~~21%~~18%, Russian ruble by ~~12%~~2% and ~~Mexican peso~~Japanese yen by ~~12%~~2%. The following main currencies relevant to our operations increased in value against the U.S. dollar: Australian dollar by 17%, Mexican peso by 16%, Swedish krona by 8%15%, ~~Swiss franc~~Chilean peso by 7%15%, British pound by ~~5% and the~~13%, Canadian dollar by 13%, euro by 5%9% and Israeli shekel by 8%.

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As a result, exchange rate movements during the ~~third~~second quarter of ~~2020,~~2021, including hedging effects, positively impacted overall revenues by ~~$14~~$135 million and ~~negatively impacted~~ our operating ~~loss~~income by ~~$18~~$26 million, in comparison with the ~~third~~second quarter of ~~2019.~~ 2020.

In the ~~third~~second quarter of 2021, a negative hedging impact of $15 million was recognized under revenues, and a minimal negative impact was recognized under cost of sales. In the second quarter of 2020, ~~the~~a negative hedging impact of $20 million was recognized under revenues ~~was $8 million, partially offset by~~and a negative impact of $2$1 million was recognized under cost of ~~sales, in comparison with the third quarter of 2019.~~ 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~~Six Months Ended ~~September~~June 30, ~~2020~~2021 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Where there are different factors affecting the ~~nine~~six months comparison, we have described them below.

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine months ended September 30,										Six months ended June 30,
	2020					2019					2021						2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	6,146		100	%	$	6,169		100.0	%	$	3,932			100	%	$	4,129			100	%
Gross profit		3,208		52.2	%		3,155		51.1	%		2,114			53.8	%		2,152			52.1	%
R&D expenses		455		7.4	%		497		8.0	%		322			8.2	%		300			7.3	%
S&M expenses		755		12.3	%		756		12.3	%		483			12.3	%		505			12.2	%
G&A expenses		325		5.3	%		342		5.5	%		218			5.5	%		228			5.5	%
Other (income) expense		(9	)	§			(6	)	§
Other income												(7	)	§				(4	)	§

Segment profit*	$	1,682		27.4	%	$	1,566		25.4	%	$	1,098			27.9	%	$	1,123			27.2	%

*	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~~six months of ~~2020~~2021 were ~~$6,146~~$3,932 million, ~~flat~~a decrease of 4.8% compared to $4,129 million in the first ~~nine~~six months of ~~2019, mainly due to higher revenues from AUSTEDO, Anda and AJOVY, offset by lower revenues from COPAXONE and BENDEKA/TREANDA.~~2020.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine months ended September 30,				Percentage Change			Six months ended June 30,				Percentage Change
	2020		2019		2019-2020			2021		2020		2020-2021
	(U.S. $ in millions)							(U.S. $ in millions)
Generic products	$	2,804	$	2,826		(1	%)	$	2,004	$	1,875		7	%
AJOVY		98		68		45	%		77		63		21	%
AUSTEDO		451		276		64	%		320		283		13	%
BENDEKA/TREANDA		313		371		(16	%)		197		208		(6	%)
COPAXONE		671		753		(11	%)		315		435		(28	%)
ProAir*		175		194		(10	%)		109		125		(13	%)
QVAR		139		183		(24	%)
Anda		1,141		1,080		6	%		605		800		(24	%)
Other		354		417		(15	%)		305		338		(10	%)

Total	$	6,146	$	6,169		§		$	3,932	$	4,129		(5	%)

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

§	61 Table of Contents ~~Represents an amount less than 0.5%.~~

North America Gross Profit

Gross profit from our North America segment in the first ~~nine~~six months of ~~2020~~2021 was ~~$3,208~~$2,114 million, ~~an increase~~a decrease of 2%, compared to ~~$3,155~~$2,152 million in the first ~~nine~~six months of ~~2019.~~2020.

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Gross profit margin for our North America segment in the first ~~nine~~six months of ~~2020~~2021 increased to ~~52.2%~~53.8% compared to ~~51.1%~~52.1% in the first ~~nine~~six months of ~~2019.~~2020.

North America R&D Expenses

R&D expenses relating to our North America segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$455~~$322 million, ~~a decrease~~an increase of 8%7%, compared to ~~$497~~$300 million in the first ~~nine~~six months of ~~2019.~~2020.

North America S&M Expenses

S&M expenses relating to our North America segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$755~~$483 million, ~~flat~~a decrease of 4% compared to ~~$756~~$505 million in the first ~~nine~~six months of ~~2019.~~2020. This decrease was mainly due to lower S&M expenses related to Anda and additional efficiency measures.

North America G&A Expenses

G&A expenses relating to our North America segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$325~~$218 million, a decrease of 5%4%, compared to ~~$342~~$228 million in the first ~~nine~~six months of ~~2019.~~2020.

North America Profit

Profit from our North America segment in the first ~~nine~~six months of ~~2020~~2021 was ~~$1,682~~$1,098 million, ~~an increase~~a decrease of 7%2%, compared to ~~$1,566~~$1,123 million in the first ~~nine~~six months of ~~2019, mainly due to lower expenses and a change in mix of products, partially offset by lower revenues.~~2020.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine months ended September 30,										Six months ended June 30,
	2020					2019					2021						2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	3,520		100	%	$	3,611		100	%	$	2,398			100	%	$	2,404			100	%
Gross profit		2,009		57.1	%		2,066		57.2	%		1,349			56.2	%		1,371			57.0	%
R&D expenses		180		5.1	%		199		5.5	%		129			5.4	%		120			5.0	%
S&M expenses		590		16.8	%		637		17.6	%		424			17.7	%		390			16.2	%
G&A expenses		184		5.2	%		175		4.8	%		117			4.9	%		118			4.9	%
Other (income) expense		(3	)	§			(5	)	§			(1	)	§				(2	)	§

Segment profit*	$	1,058		30.1	%	$	1,060		29.4	%	$	680			28.4	%	$	746			31.0	%

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

§	Represents an amount less than 0.5%.

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Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$3,520~~$2,398 million, ~~a decrease of 3% or $91 million,~~flat compared to the first ~~nine~~six months of ~~2019.~~2020. In local currency terms, revenues decreased by 2%8%, compared to the first ~~nine~~six months of ~~2019, mainly~~2020, as a result of significant customer stocking 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~~March 2020, ~~new generic product launches~~partially offset by changes in ~~the first and second quarters of 2020 and reduced demand for certain products resulting from the~~

~~COVID-19~~

~~pandemic~~buying patterns in the second ~~and third quarters~~quarter 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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

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

65


	Six months ended June 30,
	2021		2020
	(U.S. $ in millions)
Generic products	$	1,742	$	1,769
AJOVY		35		9
COPAXONE		201		193
Respiratory products		179		186
Other		242		246

Total	$	2,398	$	2,404

~~Table of Contents~~

Europe Gross Profit

Gross profit from our Europe segment in the first ~~nine~~six months of ~~2020~~2021 was ~~$2,009~~$1,349 million, a decrease of 3%2% compared to ~~$2,066~~$1,371 million in the first ~~nine~~six months of ~~2019.~~2020.

Gross profit margin for our Europe segment in the first ~~nine~~six months of 2021 decreased to 56.2% compared to 57.0% in the first six months of 2020, ~~decreased~~mainly due to ~~57.1% compared to 57.2%~~a change in the ~~first nine months~~mix of ~~2019.~~products.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$180~~$129 million, ~~a decrease~~an increase of ~~10%~~8% compared to ~~$199~~$120 million in the first ~~nine~~six months of ~~2019.~~2020.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$590~~$424 million, ~~a decrease~~an increase of 7%9% compared to ~~$637~~$390 million in the first ~~nine~~six months of ~~2019.~~2020.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$184~~$117 million, ~~an increase~~a decrease of 5%1% compared to ~~$175~~$118 million in the first ~~nine~~six months of ~~2019.~~2020.

Europe Profit

Profit from our Europe segment in the first ~~nine~~six months of ~~2020~~2021 was ~~$1,058~~$680 million, ~~flat~~a decrease of 9% compared to ~~the~~ first ~~nine~~six months of ~~2019,~~2020, 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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine months ended September 30,
	2020					2019**					2021						2020
	(U.S. $ in millions / % of Segment Revenues)										(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,582		100	%	$	1,668		100	%	$	975			100	%	$	1,053		100	%
Gross profit		828		52.3	%		877		52.6	%		530			54.4	%		552		52.5	%
R&D expenses		51		3.3	%		66		4.0	%		35			3.6	%		34		3.3	%
S&M expenses		312		19.7	%		348		20.9	%		201			20.7	%		211		20.0	%
G&A expenses		96		6.1	%		102		6.1	%		51			5.2	%		63		6.0	%
Other (income) expense		(10	)	(0.6	%)		(2	)	§			(3	)	§				(8	)	(0.8	%)

Segment profit*	$	378		23.9	%	$	363		21.7	%	$	245			25.2	%	$	253		24.0	%

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

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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~~six months of ~~2020~~2021 were ~~$1,582~~$975 million, a decrease of ~~$86~~$78 million, or 5%7%, compared to the first ~~nine~~six months of ~~2019.~~2020. In local currency terms, revenues decreased by 2%5% compared to the first ~~nine~~six months of ~~2019, mainly due to lower sales in Japan and loss of revenues from the sale of certain assets in the Israeli market, partially offset by increased revenues in other markets.~~2020. 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~~six months of 2020 included ~~$25~~$20 million from a positive hedging impact, which are included in “Other” in the table below. The hedging impact in the first six months of 2021 was immaterial. See note 8d8c to our consolidated financial statements.

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Revenues by Major Products and Activities

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


	Nine months ended September 30,				Six months ended June 30,				Percentage Change
	2020		2019		2021		2020		2020-2021
	(U.S. $ in millions)				(U.S. $ in millions)
Generic products	$	1,304	$	1,404	$	799	$	875		(9	%)
COPAXONE		38		46		19		23		(18	%)
Other		241		218		157		154		2	%

Total	$	1,582	$	1,668	$	975	$	1,053		(7	%)

*	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~~six months of ~~2020~~2021 was ~~$828~~$530 million, a decrease of 6%4% compared to ~~$877~~$552 million in the first ~~nine~~six months of ~~2019.~~2020, mainly due to a negative impact from hedging activity as well as regulatory price reductions and generic competition to off-patented products in Japan.

Gross profit margin for our International Markets segment in the first ~~nine~~six months of ~~2020 decreased~~2021 increased to ~~52.3%~~54.4%, compared to ~~52.6%~~52.5% in the first ~~nine~~six months of ~~2019.~~2020.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$51~~$35 million, ~~a decrease~~an increase of ~~23%~~3% compared to ~~$66~~$34 million in the first ~~nine~~six months of ~~2019.~~2020.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$312~~$201 million, a decrease of ~~10%~~4% compared to ~~$348~~$211 million in the first ~~nine~~six months of ~~2019.~~2020.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the first ~~nine~~six months of ~~2020~~2021 were ~~$96~~$51 million, a decrease of 5%19% compared to ~~$102~~$63 million in the first ~~nine~~six months of ~~2019.~~2020.

International Markets Profit

Profit from our International Markets segment in the first ~~nine~~six months of ~~2020~~2021 was ~~$378~~$245 million, ~~an increase~~a decrease of 4%3%, compared to ~~$363~~$253 million in the first ~~nine~~six months of ~~2019.~~2020. This ~~increase~~decrease was mainly due to lower ~~expenses and a positive hedging impact,~~gross profit, partially offset by lower ~~revenues, as discussed above.~~S&M and G&A expenses.

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Other Activities

Our revenues from other activities in the first ~~nine~~six months of ~~2020~~2021 decreased by 2%9% to ~~$957~~$587 million, compared to the first ~~nine~~six months of ~~2019.~~2020. In local currency terms, revenues decreased by 1%11%.

API sales to third parties in the first ~~nine~~six months of ~~2020~~2021 were ~~$564~~$376 million, ~~flat compared to the first nine months~~a decrease of ~~2019~~3% in both U.S dollar and local currency ~~terms.~~terms, compared to the first six months of 2020.

Teva Consolidated Results

Revenues

Revenues in the first ~~nine~~six months of ~~2020~~2021 were ~~$12,206~~$7,892 million, a decrease of 2%4%, or 1%7% in local currency terms, compared to the first ~~nine~~six months of ~~2019.~~2020.

Exchange rate movements during the first ~~nine~~six months of ~~2020,~~2021, including hedging effects, negatively impacted revenues by ~~$68~~$209 million, compared to the first ~~nine~~six months of ~~2019.~~2020. See note 8d8c to our consolidated financial statements.

Gross Profit

Gross profit in the first ~~nine~~six months of ~~2020~~2021 was ~~$5,678~~$3,750 million, ~~an increase~~a decrease of 2% compared to the first ~~nine~~six months of ~~2019.~~2020. This decrease was mainly due to lower gross profit from COPAXONE and Anda in our North America segment as well as lower gross profit from generic products in our Europe segment, partially offset by higher gross profit from generic products in our North America segment.

Gross profit margin was 47.5% in the first six months of 2021, compared to 46.5% in the first ~~nine~~six months of ~~2020, compared to 44.9% in the first nine months of 2019.~~2020.

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Research and Development (R&D) Expenses

R&D expenses in the first ~~nine~~six months of ~~2020~~2021 were ~~$704~~$501 million, ~~a decrease~~an increase of 9%12% compared to the first ~~nine~~six 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%~~6.4% in the first ~~nine~~six months of ~~2020,~~2021, compared to ~~6.3%~~5.4% in the first ~~nine~~six months of ~~2019.~~2020.

Selling and Marketing (S&M) Expenses

S&M expenses in the first ~~nine~~six months of ~~2020~~2021 were ~~$1,815~~$1,200 million, a decrease of 5%1% compared to the first ~~nine~~six months 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 ~~14.9%~~15.2% in the first ~~nine~~six months of ~~2020,~~2021, compared to ~~15.4%~~14.7% in the first ~~nine~~six months of ~~2019.~~2020.

General and Administrative (G&A) Expenses

G&A expenses in the first ~~nine~~six months of ~~2020~~2021 were ~~$846~~$532 million, a decrease of 3%6% compared to the first ~~nine~~six months of ~~2019.~~2020.

G&A expenses as a percentage of revenues were 6.7% in the first six months of 2021, compared to 6.9% in the first ~~nine~~six months of ~~2020, compared to 7.0% in the first nine months of 2019.~~2020.

Intangible Asset Impairments

We recorded expenses of ~~$1,278~~$274 million for identifiable intangible asset impairments, in the first ~~nine~~six months of ~~2020,~~2021, compared to expenses of ~~$1,206~~$768 million in the first ~~nine~~six months 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 first ~~nine~~six months of both 2021 and 2020. ~~See note 6 to our consolidated financial statements.~~

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of ~~$404~~$165 million for other asset impairments, restructuring and other items in the first ~~nine~~six months of ~~2020,~~2021, compared to expenses of ~~$263~~$502 million in the first ~~nine~~six months of ~~2019.~~2020. See note 12 to our consolidated financial statements.

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Legal Settlements and Loss Contingencies

In the first ~~nine~~six months of ~~2020,~~2021, we recorded expenses of ~~$10~~$110 million in legal settlements and loss contingencies, compared to ~~expenses~~income of ~~$1,171~~$12 million in the first ~~nine~~six months of ~~2019. The expense in the first nine months of 2020 was mainly related~~2020. See note 9 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.our consolidated financial statements.

Other Income

Other income in the first ~~nine~~six months of ~~2020~~2021 was ~~$30~~$48 million, compared to ~~$29~~$22 million in the first ~~nine~~six months of ~~2019.~~

~~Other~~2020. The income ~~as a percentage of revenues was 0.2%~~ in the ~~first nine months~~second quarter of ~~both 2020 and 2019.~~2021 was mainly due to capital gains related to the sale of certain OTC assets.

Operating Income (Loss)

Operating ~~loss~~income was ~~$3,978~~$1,015 million in the first ~~nine~~six months of ~~2020,~~2021, compared to ~~operating loss of $591~~$364 million in the first ~~nine~~six months of ~~2019.~~2020.

Operating ~~loss~~income as a percentage of revenues was ~~32.6%~~12.9% in the first ~~nine~~sixth months of ~~2020,~~2021, compared to ~~operating loss as a percentage of revenues of 4.8%~~4.4% in the first ~~nine~~six months of ~~2019.~~2020.

Financial Expenses, Net

Financial expenses were ~~$565~~$564 million in the first ~~nine~~six months of ~~2020,~~2021, compared to ~~$635~~$448 million in the first ~~nine~~six months of ~~2019.~~2020. Financial expenses in the first ~~nine~~six months of 2021 were mainly comprised of interest expenses of $479 million and loss on revaluations of marketable securities of $98 million (see note 16 to our consolidated financial statements). Financial expenses in the first six months of 2020 were mainly comprised of interest expenses of ~~$722~~$482 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~~$29 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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine months ended September 30,
.							Six months ended June 30,
	2020			2019			2021		2020
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	1,682		$	1,566		$	1,098	$	1,123
Europe profit		1,058			1,060			680		746
International Markets profit		378			363			245		253

Total reportable segments profit		3,118			2,989			2,023		2,121
Profit (loss) of other activities		130			92
Profit of other activities								87		102

Total segments profit		3,248			3,081			2,111		2,223
Amounts not allocated to segments:
Amortization		758			823			414		507
Other asset impairments, restructuring and other items		404			263
Other assets impairments, restructuring and other items								165		502
Goodwill impairment								—		—
Intangible asset impairments		1,278			1,206			274		768
Goodwill impairment		4,628			—
Legal settlements and loss contingencies		10			1,171			110		(12	)
Other unallocated amounts		148			209			132		93

Consolidated operating income (loss)		(3,978	)		(591	)		1,015		364

Financial expenses, net		565			635			564		448

Consolidated income (loss) before income taxes	$	(4,543	)	$	(1,226	)	$	451	$	(84	)

Tax Rate

In the first ~~nine~~six months of 2021, we recognized a tax expense of $159 million, on

pre-tax

income of $451 million. In the first six months of 2020, we recognized a tax benefit of ~~$147~~$163 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~~$84 million. Our tax rate ~~for~~in the first ~~nine~~six months of ~~2020~~2021 was mainly affected by ~~the goodwill impairment charge that does not have a corresponding tax effect~~impairments, amortization, legal settlements and ~~other changes to tax positions and deductions.~~interest expense disallowance.

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Share in (Profits) Losses of Associated Companies, Net

Share in ~~profits~~loss of associated companies, net in the first ~~nine~~six months of ~~2020~~2021 was ~~$135 million, compared to~~$14 million. We did not have any share in (profits) 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~~six 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).2020.

Net Income (Loss) Attributable to Teva

Net ~~loss~~income was ~~$4,140~~$284 million in the first ~~nine~~six months of ~~2020,~~2021, compared to ~~net loss of $1,108~~$209 million in the first ~~nine~~six months of ~~2019.~~2020.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~1,095~~1,108 million and ~~1,091~~1,098 million shares, respectively.

In computing diluted ~~loss~~earnings per share for the ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 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. 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 $3.78~~were $0.26 in the first ~~nine~~six months of ~~2020,~~2021, compared to diluted ~~loss~~earnings per share of ~~$1.02~~$0.19 in the first ~~nine~~six months of ~~2019.~~2020.

Impact of Currency Fluctuations on Results of Operations

In the first ~~nine~~six months of ~~2020,~~2021, approximately ~~48%~~47% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks 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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six months of ~~2020,~~2021, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinian peso by ~~34%~~29%, Turkish lira by 18%, Brazilian real by ~~23%~~10%, ~~Turkish lira by 16%, Chilean peso by 15%, Mexican peso by 12% and~~ Russian ruble by 8%7% and Ukrainian hryvnia by 7% (all compared on a ~~nine-month~~

six-month

average basis). The following main currencies relevant to our operations increased in value against the U.S. dollar: ~~Swiss franc~~Australian dollar by 5%17%, Swedish krona by 15%, Chilean peso by 13%, British pound by 10%, euro by 9%, Canadian dollar by 9% and new Israeli shekel by ~~3% and Japanese yen by 1%~~7%.

As a result, exchange rate movements during the first ~~nine~~six months of ~~2020 negatively~~2021 positively impacted overall revenues by ~~$68~~$209 million and our operating ~~loss~~income by ~~$28~~$12 million, in comparison to the first ~~nine~~six months of ~~2019.~~ 2020.

In the first ~~nine~~six months of 2021, a positive hedging impact of $13 million was recognized under revenues, and a minimal negative impact was recognized under cost of sales. In the first six months of 2020, ~~the~~a positive hedging impact of $40 million was recognized under revenues ~~was $36 million, partially offset by~~and a positive impact of $3$4 million was recognized under cost of ~~sales, in comparison to the first nine months of 2019.~~ 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.

Liquidity and Capital Resources

Total balance sheet assets were ~~$49,737 million as of September 30, 2020, compared to $54,991~~$49,195 million as of June 30, ~~2020.~~2021, compared to $49,004 million as of March 31, 2021.

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 million as of September 30, 2020, compared to $209~~$1,196 million as of June 30, ~~2020.~~2021, compared to $1,179 million as of March 31, 2021.

Cash investment in property, plant and equipment in the ~~third~~second quarter of ~~2020~~2021 was ~~$143~~$113 million, compared to ~~$131~~$150 million in the ~~second~~first quarter of ~~2020.~~2021. Depreciation in ~~the third quarter of 2020 was $130 million, compared to $134 million in~~both the second ~~quarter~~and first quarters of ~~2020.~~2021 was $134 million.

Cash and cash equivalents and short-term and long-term investments as of ~~September~~June 30, ~~2020~~2021 were ~~$2,155~~$2,479 million, compared to ~~$2,431~~$1,933 million as of ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in the ~~third~~second quarter of ~~2020~~2021 was mainly due to ~~repayment at maturity of our €1,010 million 0.375% senior notes.~~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 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 June 30, 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 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~~June 30, ~~2020, €100 million was~~2021, no amounts were outstanding under the RCF. ~~As of the date of this Quarterly Report on Form~~

~~10-Q,~~

~~€270~~During July 2021, $500 million was ~~outstanding~~drawn down 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~~June 30, ~~2020,~~2021, our debt was ~~$25,621~~$25,132 million, compared to ~~$26,266~~$24,986 million as of ~~June 30, 2020.~~March 31, 2021. This ~~decrease~~increase was mainly due to ~~the repayment at maturity of our €1,010 million 0.375% senior notes in July 2020, partially offset by~~ exchange rate fluctuations.

In ~~March 2020,~~July 2021, 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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~~Table of Contents~~

~~During the third quarter of 2020, we borrowed €200 million under our RCF and repaid €100~~$1,475 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,~~our 2.2% senior notes at maturity.

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

Our debt as of ~~September~~June 30, ~~2020~~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~~June 30, ~~2020~~2021 was 8%14%, compared to 6%11% as of ~~June 30, 2020.~~March 31, 2021.

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

Our average debt maturity was approximately ~~6.0 years as of September 30, 2020, compared to 6.1~~5.3 years as of June 30, ~~2020.~~2021, compared to 5.6 years as of March 31, 2021.

Total Equity

Total equity was ~~$10,592 million as of September 30, 2020, compared to $14,824~~$11,311 million as of June 30, ~~2020.~~2021, compared to $10,975 million as of March 31, 2021. This ~~decrease~~increase was mainly due to net ~~loss~~income of ~~$4,340~~$221 million ~~primarily due to the goodwill impairment charge recorded in the third quarter~~and a positive impact of ~~2020.~~$79 million from exchange rate fluctuations.

Exchange rate fluctuations affected our balance sheet, as approximately ~~54%~~56% of our net assets in the ~~third~~second 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, 2020,~~March 31, 2021, changes in currency rates had a positive impact of ~~$70~~$79 million on our equity as of ~~September~~June 30, ~~2020,~~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%, the euro by 3%, the Croatian kuna by ~~2%, the Mexican peso by~~ 3%~~, the Canadian dollar by 2%~~, the Polish zloty by ~~3%,~~2% and the Chilean peso by ~~4% and the euro by 4%~~2%. All comparisons are on a

quarter-end

to

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 generated from operating activities during the ~~third~~second quarter of ~~2020~~2021 was ~~$307~~$218 million, compared to ~~$325~~$273 million in the ~~third~~second quarter of ~~2019.~~2020. The decrease in the ~~third~~second quarter of ~~2020~~2021 was mainly due to ~~an increase~~favorable collection of payments from customers in ~~inventory during~~ the ~~third~~second quarter of 2020, ~~compared to a decrease in inventory~~which resulted from increased sales in the ~~third~~first quarter of ~~2019.~~2020.

During the ~~third~~second quarter of ~~2020,~~2021, we generated free cash flow of ~~$506~~$625 million, which we define as comprising ~~$307~~$218 million in cash flow generated from operating activities, ~~$333~~$405 million in beneficial interest collected in exchange for securitized accounts receivables and $9$115 million in proceeds from ~~sale~~divestitures of ~~property, plant~~businesses and ~~equipment,~~other assets, partially offset by ~~$143~~$113 million in cash used for capital investment. During the ~~third~~second quarter of ~~2019,~~2020, we generated free cash flow of ~~$551~~$582 million, comprising ~~$325~~$273 million in cash flow ~~used in~~generated from operating activities, ~~$362~~$401 million in beneficial interest collected in exchange for securitized accounts receivables and ~~$33~~$39 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by ~~$169~~$131 million in cash used for capital investment. The ~~decrease~~increase in the ~~third~~second quarter of ~~2020~~2021 resulted mainly from higher proceeds from divestitures of businesses and other assets, partially offset by lower cash flow ~~generated~~ from operating activities.

Dividends

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

Commitments

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

In August 2020, we entered into ~~an exclusive~~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 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as R&D expenses. 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. In March 2021, Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira

®

. Alvotech has disputed these claims. In addition, there is pending patent litigation between Abbvie and Alvotech.

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,~~ 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. No additional milestone payments are expected.

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.

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

~~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;

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other awards or settlement amounts, either paid or received;

other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, such as inventory write-offs or related consulting costs, or other unusual events; and

corresponding tax effects of the foregoing items.

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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:

73

~~Table of Contents~~

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																																		Three Months Ended June 30, 2021
	U.S. $ and shares in millions (except per share amounts)																																		U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																												Non-GAAP			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									Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Restructuring costs			Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non-GAAP items*			Other items
Net revenues																																				3,910																									3,910
Cost of sales		2,126			221												6		7					(2	)								1,894			2,037			148									8		6					50						1,826

Gross profit																																				1,873			148									8		6					50						2,084
Gross profit margin																																				47.9	%																								53.3	%
R&D expenses		258											21						5														233			248														5											243
S&M expenses		605			31														8														566			615			25											8											582
G&A expenses		279																	10														269			242														11											231
Other (income) expense		(8	)																														(8	)
Other income																																				(43	)																		(37	)					(6	)
Legal settlements and loss contingencies		21					21																										—			6					6																				—
Other assets impairments, restructuring and other items		(98	)								56				9						(179	)		15									—			28							32		(13	)						(19	)		28						—
Intangible assets impairments		509									509																						—			195							195																		—
Goodwill impairment		4,628							4,628																								—

Operating income (loss)																																				582			173		6		226		(13	)		8		29		(19	)		42						1,034
Financial expenses, net		117																									(124	)					241			274																						34			240

Income (loss) before income taxes																																				308			173		6		226		(13	)		8		29		(19	)		42			34			794
Income taxes		16																												(117	)		133			98																						(36	)		133
Share in losses of associated companies – net		(136	)																								(134	)					(1	)
Share in (profits) losses of associated companies – net																																				(11	)																					(3	)		(8	)

Net income (loss)																																				221			173		6		226		(13	)		8		29		(19	)		42			(5	)		669
Net income (loss) attributable to non-controlling interests		10																									(6	)					15			14																						(3	)		18

Total reconciled items					251		21		4,628		565		21		9		6		30		(179	)		14			(264	)		(117	)
Net income (loss) attributable to Teva																																				207			173		6		226		(13	)		8		29		(19	)		42			(8	)		651

EPS - Basic		(3.97	)																											4.55			0.58			0.19																						0.40			0.59
EPS - Diluted		(3.97	)																											4.55			0.58			0.19																						0.40			0.59

The

non-GAAP

diluted weighted average number of shares was 1,109 million for the three months ended June 30, 2021.

Non-GAAP

income taxes for the three months ended June 30, 2021 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.

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	Three Months Ended June 30, 2020
	U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																							Non-GAAP
				Amortization of purchased intangible assets		Legal settlements and loss contingencies		Impairment of long lived assets		Other R&D expenses			Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Other non-GAAP items*			Other items
Net revenues		3,870																										3,870
Cost of sales		2,107			219											6		6				16						1,859

Gross profit		1,763			219											6		6				16						2,011
Gross profit margin		45.5	%																									52.0	%
R&D expenses		225									(13	)						5										233
S&M expenses		597			30													8										559
G&A expenses		264																11				8						245
Other income		(9	)																			(4	)					(6	)
Legal settlements and loss contingencies		13					13																					—
Other assets impairments, restructuring and other items		381							277					33						76		(6	)					—
Intangible assets impairments		120							120																			—

Operating income (loss)		173			249		13		396		(13	)		33		6		30		76		14						979
Financial expenses, net		223																							(5	)		229

Income (loss) before income taxes		(51	)		249		13		396		(13	)		33		6		30		76		14			(5	)		751
Income taxes		(104	)																						(231	)		128
Net income (loss)		53			249		13		396		(13	)		33		6		30		76		14			(237	)		623
Net income (loss) attributable to non-controlling interests		(87	)																						(105	)		19

Net income (loss) attributable to Teva		140			249		13		396		(13	)		33		6		30		76		14			(342	)		605

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

The

non-GAAP

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

Non-GAAP

income taxes for the three months ended June 30, 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.

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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 million for the three months ended September 30, 2019.~~

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

75


	Six Months Ended June 30, 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		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration			Other non-GAAP items*			Other items
Net revenue		7,892																								7,892
Cost of sales		4,141			363								13		12					91						3,663

Gross profit		3,750			363								13		12					91						4,228
Gross profit margin		47.5	%																							53.6	%
R&D expenses		501													10					5						487
S&M expenses		1,200			52										18					—						1,131
G&A expenses		532													21					0						510
Other (income) expense		(48	)																	(37	)					(11	)
Legal settlements and loss contingencies		110					110																			—
Other assets impairments, restructuring and other items		165							80		69						(16	)		33						—
Intangible assets impairment		274							274																	—

Operating income (loss)		1,015			414		110		354		69		13		60		(16	)		92						2,111
Financial expenses, net		564																					98			467

Income (loss) before income taxes		451			414		110		354		69		13		60		(16	)		92			98			1,644
Income taxes		159																					(120	)		280
Share in (profits) losses of associated companies – net		(14	)																				(1	)		(13	)

Net income (loss)		306			414		110		354		69		13		60		(16	)		92			(24	)		1,377
Net income (loss) attributable to non-controlling interests		21																					(6	)		28

Net income (loss) attributable to Teva		284			414		110		354		69		13		60		(16	)		92			(30	)		1,350

EPS - Basic		0.26																					0.97			1.23
EPS - Diluted		0.26																					0.96			1.22

~~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~~1,108 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Non-GAAP

income taxes for the six months ended June 30, 2021 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.

7674

Table of Contents


	Nine months ended September 30, 2019																																				Six months ended June 30, 2020
	U.S. $ and shares in millions (except per share amounts)																																				U.S. $ and shares in millions (except per share amounts)
	GAAP			Excluded for non-GAAP measurement																														Non- GAAP			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*								Amortization of purchased intangible assets		Legal settlements and loss contingencies			Impairment of long- lived assets		Restructuring costs		Costs related to regulatory actions taken in facilities		Equity compensation		Contingent consideration		Other non-GAAP items*			Other items
Cost of sales**		6,841			717										28		21							96											5,978
Net revenue																																						8,227																								8,227
Cost of sales																																						4,402			443									11		12				32						3,905

Gross profit																																						3,826			443									11		12				32						4,322
Gross profit margin																																						46.5	%																							52.5	%
R&D expenses		778															17							(7	)										768			446														9				(17	)					454
S&M expenses		1,908			105												29																		1,774			1,210			64											17										1,129
G&A expenses		873															37																		836			567														21				12						535
Other (income) expense		(29	)																		(12	)													(17	)		(22	)																	(3	)					(19	)
Legal settlements and loss contingencies		1,171					1,171																												—			(12	)				(12	)																		—
Other assets impairments, restructuring and other items		263							96		2		140						4					22											—			502								352		73						83		(5	)					—
Intangible assets impairment		1,206							1,206																										—			768								768																—

Operating income (loss)																																						364			507		(12	)		1,121		73		11		60		83		18			—			2,223
Financial expenses, net		635																									9								626			448																					6			442

Income (loss) before income taxes																																						(84	)		507		(12	)		1,121		73		11		60		83		18			6			1,781
Income taxes		(159	)																											(662	)		61		442			(163	)																				(465	)		303
Share in losses of associated companies – net		8																																	8

Net income (loss) attributtible to Teva																																						78			507		(12	)		1,121		73		11		60		83		18			(460	)		1,478
Net income (loss) attributable to non-controlling interests		33																									(28	)							61			(131	)																				(169	)		38

Total reconciled items					823		1,171		1,302		2		140		28		104		4		(12	)		111			(19	)		(662	)		61
Net income (loss)																																						209			507		(12	)		1,121		73		11		60		83		18			(629	)		1,440

EPS - Basic		(1.02	)																														2.80		1.78			0.19																								1.32
EPS - Diluted		(1.02	)																														2.80		1.78			0.19																								1.31

The

non-GAAP

diluted weighted average number of shares was ~~1,093~~1,098 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Non-GAAP

income taxes for the six months ended June 30, 2021 were 17% on

pre-tax

non-GAAP

income.

*

Other

~~Interest disallowance~~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 ~~a result~~certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of ~~the U.S Tax Cuts~~our plants and ~~Jobs Act.~~

other unusual events.

**	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.

7775

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Non-GAAP

Tax Rate

Non-GAAP

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

pre-tax

non-GAAP

income of ~~$784~~$794 million.

Non-GAAP

income taxes ~~for~~in the ~~third~~second quarter of ~~2019~~2020 were ~~$183~~$128 million, or ~~22%~~17%, on

pre-tax

non-GAAP

income of ~~$843~~$751 million. Our

non-GAAP

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

Non-GAAP

income taxes ~~for~~in the first ~~nine~~six months of ~~2020~~2021 were ~~$436~~$280 million, or 17%, on

pre-tax

non-GAAP

income of ~~$2,565~~$1,644 million.

Non-GAAP

income taxes in the first ~~nine~~six months of ~~2019~~2020 were ~~$442~~$303 million, or ~~18%~~17%, on

pre-tax

non-GAAP

income of ~~$2,454~~$1,781 million.

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~~June 30, ~~2020,~~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~~June 30, ~~2020,~~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.

7876

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.~~

79

~~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~~June 30, ~~2020.~~2021.

Repurchase of Shares

We did not repurchase any of our shares during the three months ended ~~September~~June 30, ~~2020~~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.

8077

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.~~

8178

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.

8279


PART I.	Financial Statements (unaudited)

Item 1.	Financial Statements (unaudited)

~~Item 1.~~5	~~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	10
	Notes to Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4846
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7876
Item 4.	Controls and Procedures	7876

PART II.	OTHER INFORMATION	77

Item 1.	Legal Proceedings	7977
Item 1A.	Risk Factors	7977
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8077
Item 3.	Defaults Upon Senior Securities	8077
Item 4.	Mine Safety Disclosures	8077
Item 5.	Other Information	8077
Item 6.	Exhibits	8178
	Signatures	8279


	Nine months ended						Six months ended
	September 30,						June 30,
	2020			2019			2021			2020
Operating activities:
Net income (loss)	$	(4,261	)	$	(1,076	)	$	306		$	78
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		1,162			1,306			681			781
Impairment of long-lived assets and assets held for sale		6,314			1,302			354			1,120
Net change in operating assets and liabilities		(1,627	)		(784	)		(1,679	)		(1,002	)
Deferred income taxes – net and uncertain tax positions		(656	)		(652	)		5			(502	)
Stock-based compensation		91			99			60			62
Net loss (gain) from investments and from sale of long lived assets		(232	)		10			93			24
Research and development in process		40			0
Other items		54			5			(7	)		17

Net cash provided by operating activities		885			210
Net cash provided by (used in) operating activities								(187	)		578

Investing activities:
Beneficial interest collected in exchange for securitized accounts receivables		1,102			1,108			881			769
Purchases of property, plant and equipment		(402	)		(406	)		(263	)		(259	)
Proceeds from sale of long lived assets		54			167
Proceeds from sale of business and long lived assets								254			45
Proceeds from sale of investments								153			9
Other investing activities		(32	)		56			(36	)		1

Net cash provided by investing activities		722			925			989			565

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	)		(3	)		(3	)

Net cash used in financing activities		(1,760	)		(1,685	)		(494	)		(703	)

Translation adjustment on cash and cash equivalents		5			9			(49	)		(13	)

Net change in cash and cash equivalents		(148	)		(541	)		259			427
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		$	2,436		$	2,402

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	1,055		$	1,123		$	878		$	728


		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


	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


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


	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


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


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

Total	$	24,162	$	25,004


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

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Date: ~~November 5, 2020~~July 28, 2021

/s/ Eli Kalif

Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer)