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TEVA Teva- Pharmaceutical Industries

Filed: 21 Feb 20, 9:59am
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-K
 
(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the fiscal year ended December 31, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from              to             
Commission file number
001-16174
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Exact name of registrant as specified in its charter)
 
   
Israel
 
Not Applicable
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer 
Identification No.)
 
 
 
 
 
5 Basel Street, Petach Tikva, ISRAEL, 4951033
(Address of principal executive offices and Zip Code)
+972 (3)
 914-8171
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
American Depositary Shares, each representing one Ordinary Share
 
TEVA
 
New York Stock Exchange
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  
    No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  
    No  
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  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
232-405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
       
Large accelerated filer
 
 
Accelerated filer
 
       
Non-accelerated
 filer
 
 
Smaller reporting company
 
       
  
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  ☒
The aggregate market value of the voting common equity held by
non-affiliates
of the registrant, computed by reference to the closing price at which the American Depositary Shares were last sold on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2019), was approximately $8.82 billion. Teva Pharmaceutical Industries Limited has no
non-voting
common equity. For purpose of this calculation only, this amount excludes ordinary shares and American Depositary Shares held by directors and executive officers and by each person who owns or may be deemed to own 10% or more of the registrant’s common equity at June 30, 2019.
As of December 31, 2019, the registrant had 1,092,189,007 ordinary shares outstanding.
Portions of the registrant’s definitive proxy statement for its annual meeting of shareholders to be filed within 120 days after the close of the registrant’s fiscal year are incorporated by reference into Part III of this Annual Report on Form
 10-K.
 
 


INTRODUCTION AND USE OF CERTAIN TERMS
Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “ADS(s)” are to Teva’s American Depositary Share(s). References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA (formerly IMS Health Inc.), a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “Actavis Generics” are to the generic pharmaceuticals business we purchased from Allergan plc (“Allergan”) on August 2, 2016. References to “R&D” are to Research and Development, references to “IPR&D” are to
in-process
R&D, references to “S&M” are to Selling and Marketing and references to “G&A” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form
10-K,
and the reports and documents incorporated by reference in this Annual Report on Form
10-K,
may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:
 our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; competition for our specialty products, especially COPAXONE
®
, our leading medicine, which faces competition from existing and potential additional generic versions, competing glatiramer acetate products and orally-administered alternatives; the uncertainty of commercial success of AJOVY
®
or AUSTEDO
®
; competition from companies with greater resources and capabilities; delays in launches of new products and our ability to achieve expected results from investments in our product pipeline; ability to develop and commercialize biopharmaceutical products; efforts of pharmaceutical companies to limit the use of generics, including through legislation and regulations and the effectiveness of our patents and other measures to protect our intellectual property rights;
 
 our substantial indebtedness, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us;
 
 our business and operations in general, including: implementation of our restructuring plan announced in December 2017; our ability to attract, hire and retain highly skilled personnel; our ability to develop and commercialize additional pharmaceutical products; compliance with anti-corruption, sanctions and trade control laws; manufacturing or quality control problems; interruptions in our supply chain; disruptions of information technology systems; breaches of our data security; variations in intellectual property laws; challenges associated with conducting business globally, including adverse effects of political or economic instability, major hostilities or terrorism; significant sales to a limited number of customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; our prospects and opportunities for growth if we sell assets and potential difficulties related to the operation of our new global enterprise resource planning (ERP) system;
 
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 compliance, regulatory and litigation matters, including: increased legal and regulatory action in connection with public concern over the abuse of opioid medications in the U.S. and our ability to reach a final resolution of the remaining opioid-related litigation; costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; governmental investigations into S&M practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;
 
 other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;
 
and other factors discussed in this Annual Report on Form
10-K,
including in the sections captioned “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements.
PART I
ITEM 1. BUSINESS
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
over-the-counter
(“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 active pharmaceutical ingredients (“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.
In December 2017, we announced a comprehensive
two-year
restructuring plan intended to reduce our cost base by $3 billion, unify and simplify our organization and improve business performance, profitability, cash flow generation and productivity. This plan achieved its goals, including a total cost base reduction of $3 billion by the end of 2019. We are continuing to evaluate opportunities to further optimize our manufacturing and supply network to achieve additional operational efficiencies.
2

For information regarding our major customers, see note 19 to our consolidated financial statements.
Below is an overview of our three business segments.
North America
Our North America segment includes the United States and Canada.
We are the leading generic drug company in the United States. We market over 500 generic prescription products in more than 1,500 dosage strengths, packaging sizes and forms, including oral solid dosage forms, injectable products, inhaled products, liquids, ointments and creams. Most of our generic sales in the United States are made to retail drug chains, mail order distributors and wholesalers.
Our wholesale and retail selling efforts are supported by participation in key pharmaceutical conferences as well as focused advertising in professional journals and on leading pharmacy websites. We continue to strengthen consumer awareness of the benefits of generic medicines through partnerships and digital marketing programs.
During 2019, our generics business in the United States continued to be affected by certain adverse market forces, including: (i) pricing pressure that has impacted certain products or product families in our generic portfolio, (ii) an accelerated FDA approval process for generic versions of
off-patent
medicines, resulting in increased competition for these products, and (iii) delays in the launch of some of our new generic products. We have also experienced supply discontinuities due to regulatory actions and approval delays, which also had an impact on our ability to timely meet demand in certain instances. These adverse market forces have been affecting our business for a number of years and, consequently, have a direct impact on our overall performance.
Our specialty portfolio in North America has an established presence in central nervous system (“CNS”) medicines. COPAXONE
®
is among the leading products for the treatment of multiple sclerosis (“MS”) in North America. In addition, we continue to strengthen our specialty portfolio with AJOVY
®
, a preventive treatment for migraine, and the continued growth of our neurodegenerative and movement disorder treatment medicine, AUSTEDO
®
. We are committed to maintaining a leading presence in the respiratory market by delivering a range of medicines for the treatment of asthma and chronic obstructive pulmonary disease (“COPD”).
We maintain a meaningful presence in oncology medicines, including both specialty and generic medicines. In November 2019, we launched TRUXIMA
®
, our first oncology biosimilar product in the United States.
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.
Europe
Our Europe segment includes the European Union and certain other European countries.
We are the leading generic pharmaceutical company in Europe. We are among the top three generic pharmaceutical companies in a majority of European Union markets, including some of the largest markets in the European Union. No single country in Europe represents more than 25% of our total European generic revenues, and therefore we are not highly dependent on any single country that could be affected by pricing reforms or changes in public policy.
3

Despite their diversity and highly fragmented nature, the European markets share many characteristics that allow us to leverage our
pan-European
presence and broad portfolio. Global customers are important partners in our generic business and are expanding across Europe, although customer consolidation is lower than in the United States. We are one of a few generic pharmaceutical companies with a
pan-European
footprint. Most competitors focus on a select few markets or business lines.
Our OTC portfolio in Europe includes global brands such as SUDOCREM
®
as well as local and regional brands such as NasenDuo
®
in Germany, Flegamina
®
in Poland and FLUX
®
and Decubal
®
in the Nordic countries.
Our specialty portfolio in Europe focuses on three main areas: CNS and pain, respiratory and oncology. Our leading product, COPAXONE, continues to be among the leading products for the treatment of MS, though new treatments are being introduced to various markets in the European Union.
AJOVY was granted marketing authorization in the European Union by the European Medicines Agency (“EMA”) in a centralized process in April 2019. We commenced launching AJOVY in certain European markets in May 2019 and are moving forward with plans to launch the product in other European countries.
International Markets
Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. These markets comprise more than 35 countries, covering a substantial portion of the global pharmaceutical market.
Our key international markets are Japan, Russia and Israel. In Japan, we operate our business through a business venture with Takeda Pharmaceutical Companies Limited (“Takeda”), in which we own a 51% stake and Takeda owns the remaining 49%. The countries in our International Markets segment range from highly regulated, pure generic markets, such as Israel, to hybrid markets, such as Japan, to branded generics oriented markets, such as Russia and certain Latin American markets.
Each market’s strategy is built upon differentiation and filling the unmet needs of that market. Our integrated sales force enables us to extract synergies across our branded generic, OTC and specialty medicines product offerings and across various channels (e.g., retail, institutional).
Our specialty portfolio in International Markets focuses on three main areas: CNS and pain, respiratory and oncology.
Our Product Portfolio and Business Offering
Our product and service portfolio includes generic medicines, biopharmaceuticals, specialty medicines, OTC products, a distribution business, API and contract manufacturing. Each region manages the entire range of products and services offered in its region and our global marketing and portfolio function optimizes our pipeline and product lifecycle across therapeutic areas. In most markets in which we operate, we use an integrated and comprehensive marketing model, offering a broad portfolio of products, including specialty, generic and OTC products.
Generic Medicines
Generic medicines are the chemical and therapeutic equivalents of originator medicines and are typically more affordable in comparison to the originator’s products. Generics are required to meet similar governmental requirements as their brand-name equivalents, such as those relating to manufacturing processes and health authorities’ inspections, and must receive regulatory approval prior to their sale in any given country. Generic
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medicines may be manufactured and marketed if relevant patents on their brand-name equivalents (and any additional government-mandated market exclusivity periods) have expired or have been challenged or otherwise circumvented.
We develop, manufacture and sell generic medicines in a variety of dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments and creams. We offer a broad range of basic chemical entities, as well as specialized product families, such as sterile products, hormones, high-potency drugs and cytotoxic substances, in both parenteral and solid dosage forms.
Our generics business has a wide-reaching commercial presence. We are the leading generic pharmaceutical company in the United States and have a top three leadership position in many countries, including some of the key European markets. We have a robust product portfolio, comprehensive R&D capabilities and product pipeline and a global operational network, which enables us to execute key generic launches to further expand our product pipeline and diversify our revenue stream. We use these capabilities to help overcome price erosion in our generics business.
When considering whether to develop a generic medicine, we take into account a number of factors, including our overall strategy, regional and local patient and customer needs, R&D and manufacturing capabilities, regulatory considerations, commercial factors and the intellectual property landscape. We will challenge patents when appropriate if we believe they are either invalid or would not be infringed by our generic version. We may seek alliances to acquire rights to products we do not have in our portfolio, to share development costs or litigation risks, or to resolve patent and regulatory barriers to entry.
As part of the comprehensive restructuring plan announced in December 2017 and implemented through 2019, we substantially optimized our global generics portfolio, particularly in the United States, through product discontinuation and price adjustments, with a focus on increasing profitability. This resulted in the restructuring and optimization of our manufacturing and supply network, including the closure or divestment of a significant number of manufacturing plants in the United States, Europe and International Markets. We plan to continue to optimize our generics portfolio and manufacturing and supply network prospectively as well.
In markets such as the United States, the United Kingdom, Canada, the Netherlands and Israel, generic medicines may be substituted by the pharmacist for their brand name equivalent or prescribed by International Nonproprietary Name (“INN”). In these
so-called
“pure generic” markets, physicians and patients have little control over the choice of generic manufacturer, and consequently generic medicines are not actively marketed or promoted to physicians or consumers. Instead, the relationship between the manufacturer and pharmacy chains and distributors, health funds and other health insurers is critical. Many of these markets have automatic substitution models when generics are available as alternatives to brands. In Russia, Turkey, Ukraine, Kazakhstan and certain Latin American and European countries, generic medicines are generally sold under brand names alongside the originator brand. These markets are referred to as “branded generic” markets and are generally “out of pocket” markets in which consumers can pay for a particular branded generic medicine (as opposed to government or privately funded medical health insurance), often at the recommendation of their physician. Branded generic products are actively promoted and a sales force is necessary to create and maintain brand awareness. Other markets, such as Germany, Japan, France, Italy and Spain, are hybrid markets with elements of both approaches.
Our position in the generics market is supported by our global R&D function, as well as our API R&D and manufacturing activities, which provide significant vertical integration for our products.
For information about our product launches and pipeline of generic medicines in North America and Europe, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Information—North America Segment” and “Item 7—Management’s Discussions and Analysis of Financial Condition and Results of Operations—Segment Information—Europe Segment.”
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Biosimilar Medicines
Below is a description of our key biosimilar products:
TRUXIMA
 
TRUXIMA
(rituximab-abbs) is a monoclonal antibody biosimilar to Rituxan
®
(rituximab). It was approved by the FDA in November 2018 for the treatment of adult patients in three indications: (i) relapsed or refractory,
low-grade
or follicular, CD20-positive,
B-cell
Non–Hodgkin’s Lymphoma (NHL) as a single agent, (ii) previously untreated follicular, CD20-positive,
B-cell
NHL in combination with first line chemotherapy and, in patients achieving a complete or partial response to a rituximab product in combination with chemotherapy, as single-agent maintenance therapy, and (iii)
 non-progressing
(including stable disease),
low-grade,
CD20-positive,
B-cell
NHL as a single agent after first-line cyclophosphamide, vincristine, and prednisone (CVP) chemotherapy. In May 2019, the FDA approved TRUXIMA for two additional indications, thus matching all of the reference product’s oncology indications for NHL and CLL. The two additional oncology indications are: (i) previously untreated diffuse large
B-cell,
CD20-positive NHL in combination with (cyclophosphamide, doxorubicin, vincristine, and prednisone) (CHOP) or other anthracycline-based chemotherapy regimens and (ii) previously untreated and previously treated CD20-positive Chronic Lymphocytic Leukemia (CLL) in combination with fludarabine and cyclophosphamide (FC). In December 2019, the FDA further approved TRUXIMA for the treatment of (i) Rheumatoid Arthritis (RA) in combination with methotrexate in adult patients with
moderately-to
severely-active RA who have inadequate response to one or more TNF antagonist therapies and (ii) Granulomatosis with Polyangiitis (GPA) (Wegener’s Granulomatosis) and Microscopic Polyangiitis (MPA) in adult patients in combination with glucocorticoids.
 
 
 
 
 
 We entered into an exclusive partnership with Celltrion, Inc. (“Celltrion”) in October 2016 to commercialize
TRUXIMA
in the United States and Canada.
 
 
 
 
 
 TRUXIMA, our first oncology biosimilar product in the United States, launched in November 2019 and is the first rituximab biosimilar to be approved in the United States.
 
 
 
 
 
 We reached an agreement with Genentech, Inc. (“Genentech”) to settle U.S. patent litigation regarding TRUXIMA. Under the terms of the settlement agreement, TRUXIMA became available in the United States with the approved oncology indications on November 11, 2019. In addition, we have a license from Genentech to expand the TRUXIMA label to include the RA and GPA/MPA indications in the second quarter of 2020.
 
 
 
 
 
HERZUMA
®
 
HERZUMA
(trastuzumab-pkrb) is a HER2/neu receptor antagonist biosimilar to Herceptin
®
(trastuzumab). HERZUMA was initially approved by the FDA in December 2018, with additional indications approved in May 2019, so that HERZUMA’s label now matches all of the reference product’s indications: (i) adjuvant treatment of HER2 overexpressing node positive or node negative (ER/PR negative or with one high risk feature) breast cancer, as part of a treatment regimen consisting of doxorubicin, cyclophosphamide, and either paclitaxel or docetaxel, as part of a treatment regimen with docetaxel and carboplatin, or as a single agent following multi-modality anthracycline based therapy, and (ii) in combination with paclitaxel for first-line treatment of HER2-overexpressing metastatic breast cancer, or as a single agent for treatment of HER2-overexpressing breast cancer in patients who have received one or more chemotherapy regimens for metastatic disease, and (iii) in combination with cisplatin and capecitabine or
5-fluorouracil,
for the treatment of patients with HER2 overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma who have not received prior treatment for metastatic disease.
 
 
 
 
 
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 We entered into an exclusive partnership with Celltrion in October 2016 to commercialize HERZUMA in the United States and Canada.
 
 
 
 
 
 We reached an agreement with Genentech to settle U.S. patent litigation regarding HERZUMA. Under the terms of the settlement agreement, HERZUMA is expected to be available in the United States in the first quarter of 2020.
 
 
 
 
 
Specialty Medicines
Our specialty medicines business, which is focused on delivering innovative solutions to patients and providers via medicines, devices and services in key regions and markets around the world, includes our core therapeutic areas of CNS (with a strong emphasis on MS, neurodegenerative disorders, movement disorders and pain care including migraine) and respiratory medicines (with a focus on asthma and COPD). We also have specialty products in oncology and selected other areas.
We deploy medical and sales and marketing professionals within specific therapeutic areas who seek to address the needs of patients and healthcare professionals. We tailor our patient support, payer relations and medical affairs activities to the distinct characteristics of each therapeutic area and medicine.
The U.S. market is the most significant market in our specialty business. In Europe and International Markets, we leverage existing synergies between our specialty business and our generics and OTC businesses. Our specialty presence in International Markets is mainly built on our CNS franchise, with gradual development in other therapeutic areas closely related to our branded generics portfolios in those countries.
We have built specialized “Patient Support Programs” to help patients adhere to their treatments, improve patient outcomes and, in certain markets, to ensure timely delivery of medicines and assist in securing reimbursement. These programs reflect the importance we place on supporting patients and ensuring better medical outcomes for them. As part of our restructuring plan, we outsourced certain of these services to external vendors. Patient Support Programs are currently operated in many countries around the world in multiple therapeutic areas. We believe that it is important to provide a range of services and solutions tailored to meet the needs of patients according to their specific condition and local market requirements. We believe this capability provides an important competitive advantage in the specialty medicines market.
Below is a description of our key specialty products:
CNS and Pain
Our
CNS and pain
portfolio includes COPAXONE for the treatment of relapsing forms of MS, AJOVY for the preventive treatment of migraine and AUSTEDO for the treatment of tardive dyskinesia and chorea associated with Huntington disease.
COPAXONE
 
COPAXONE
(glatiramer acetate injection) is one of the leading MS therapies in the United States (according to IQVIA data as of December 2019). COPAXONE is indicated for the treatment of patients with relapsing forms of MS (“RMS”), including the reduction of the frequency of relapses in relapsing-remitting multiple sclerosis (“RRMS”), including in patients who have experienced a first clinical episode and have MRI features consistent with MS.
 
 
 
 
 
 COPAXONE is believed to have a unique mechanism of action that works with the immune system, unlike many therapies that are believed to rely on general immune suppression or cell sequestration to exert their effect. COPAXONE provides a proven mix of efficacy, safety and tolerability.
 
 
 
 
 
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 The FDA approved generic versions of COPAXONE 40 mg/mL in October 2017 and February 2018 and a second generic version of COPAXONE 20 mg/mL in October 2017 in the United States. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved in the European Union.
 COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various European jurisdictions. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.
 The market for MS treatments continues to develop, particularly with the approval of generic versions of COPAXONE discussed above, as well as additional generic versions expected to be approved in the future. Oral treatments for MS, such as Tecfidera
®
, Gilenya
®
and Aubagio
®
, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus
®
.
AJOVY (anti CGRP)
 
AJOVY
(fremanezumab-vfrm) injection is a fully humanized monoclonal antibody that binds to calcitonin gene-related peptide (“CGRP”). In September 2018, AJOVY was approved by the FDA for the preventive treatment of migraine in adults and was subsequently launched in the United States.
 AJOVY was granted a marketing authorization in the European Union by the EMA in a centralized process in April 2019. We commenced launching AJOVY in certain European markets in May 2019 and are moving forward with plans to launch in other European countries.
 During 2019, we received marketing authorizations for AJOVY in Israel and Australia and we continue to move forward with submissions in various other countries in our International Markets segment.
 On May 12, 2017, we entered into a license and collaboration agreement with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY in Japan and, once approved, to commercialize the product in Japan. Results for these trials were received in January 2020, indicating that primary and secondary endpoints were achieved and that no clinically significant adverse events were observed in subjects.
 On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S. We have also received approval from the EMA for AJOVY’s auto-injector submission in the EU.
 AJOVY is also in clinical development to evaluate safety and efficacy in the treatment of post traumatic headache and fibromyalgia.
 AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States. Applications for patent term extensions have been submitted in various markets around the world. An additional patent relating to the use of AJOVY in the treatment of migraine is issued in the United States and will expire in 2035. This patent is also pending in other countries. AJOVY will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.
 We have filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly has also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court has been stayed pending resolution of the IPR petitions. The patent office hearing concerning the first six IPRs was held on November 22, 2019 and the hearing concerning the remaining three IPRs was held on January 8, 2020. On February 18, 2020, the Patent Trial and Appeal Board issued decisions on the first six IPRs, finding the six patents invalid as being obvious. We are currently reviewing the possibility of appealing these decisions. In addition, we have entered into separate agreements with Alder Biopharmaceuticals, Inc. (“Alder”) and Lilly, resolving the
 
 
 
 
 
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 European Patent Office oppositions that they have 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
®
(deutetrabenazine)
 
AUSTEDO
(deutetrabenazine) is a deuterated form of a small molecule inhibitor of vesicular monoamine 2 transporter, or VMAT2, that is designed to regulate the levels of a specific neurotransmitter, dopamine, in the brain. The FDA granted Deutetrabenazine New Chemical Entity Exclusivity until April 2022 and Orphan Drug exclusivity for the treatment of chorea associated with Huntington disease until April 2024.
 AUSTEDO was approved by the FDA and launched in April 2017 in the United States for the treatment of chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia (“TD”) in adults in the United States and we launched AUSTEDO for the treatment of TD in September 2017. TD is a debilitating, often irreversible movement disorder caused by certain medications used to treat mental health or gastrointestinal conditions.
 During 2019, we submitted requests for marketing authorizations for AUSTEDO in certain countries in our International Markets segment. We continue to move forward with additional submissions in various other countries around the world.
 In September 2017, we entered into a partnership agreement with Nuvelution Pharma, Inc (“Nuvelution”) for the development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. In February 2020, we received results for these clinical trials, which found that the clinical trials failed to meet their primary endpoints. No new safety signals were identified in these studies.
 AUSTEDO is protected in the United States by five Orange Book patents expiring between 2031 and 2033 and in Europe by two patents expiring in 2029.
Oncology
Our specialty
oncology
portfolio includes BENDEKA
®
/ TREANDA
®
, GRANIX
®
and TRISENOX
®
in the United States and LONQUEX
®
, TEVAGRASTIM
®
/RATIOGRASTIM
®
and TRISENOX
®
outside the United States.
BENDEKA and TREANDA
 
BENDEKA
(bendamustine hydrochloride) injection and TREANDA (bendamustine hydrochloride) for injection are approved in the United States for the treatment of patients with chronic lymphocytic leukemia (“CLL”) and patients with indolent
B-cell
non-Hodgkin’s
lymphoma (“NHL”) that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. BENDEKA, which was launched in the United States in January 2016, is a liquid,
low-volume
(50 mL) and short-time
10-minute
infusion formulation of bendamustine hydrochloride that we licensed from Eagle Pharmaceuticals, Inc. (“Eagle”). In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increasing the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.
 Eagle launched a
ready-to-dilute
bendamustine hydrochloride in June 2018, which competes directly with BENDEKA. Other competitors to BENDEKA include combination therapies such as
R-CHOP
(a combination of cyclophosphamide, vincristine, doxorubicin and prednisone in combination with rituximab) and
CVP-R
(a combination of cyclophosphamide, vincristine and prednisolone in combination with rituximab) for the treatment of NHL, as well as a combination of fludarabine, doxorubicin and rituximab for the treatment of CLL and newer targeted oral therapies, such as ibrutinib, idelilisib and venetoclax.
 
 
 
 
 
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 There are 15 patents listed in the U.S. Orange Book for BENDEKA with expiry dates between 2026 and 2031. Teva and Eagle received notices of Abbreviated New Drug Application (“ANDA”) filings by Slayback Pharmaceuticals, Fresenius Kabi, Apotex, Mylan, and Lupin Pharmaceuticals, Inc. (“Lupin”) for generic versions of BENDEKA, which all contained Paragraph IV challenges against one or more of the BENDEKA patents. In response, Teva and Eagle filed patent infringement lawsuits against each of the ANDA filers in the U.S. District Court for the District of Delaware, four of which are pending a decision by the court, which could come as early as the first half of 2020. The respective
30-month
stays, automatically triggered by the patent infringement lawsuits, began expiring in January 2020. The asserted patents expire in 2031. Additionally, Teva and Eagle received a notification from early 2018 that Hospira, Inc. (“Hospira”) filed a 505(b)(2) new drug application (“NDA”) referencing BENDEKA. In July 2018, Teva and Eagle filed suit against Hospira in the U.S. District Court for the District of Delaware. Hospira’s
30-month
stay expires in December 2020. On December 16, 2019, the Delaware District Court dismissed the case against Hospira on all but one of the asserted patents, which expires in 2031. Trial against Hospira on that patent is scheduled to begin on November 15, 2021.
 We have U.S. Orange Book patents for TREANDA expiring between 2026 and 2031. One 505(b)(2) NDA was filed for a liquid version of bendamustine and 21 ANDAs were filed for generic versions of the lyophilized form of TREANDA. We have reached final settlements with all 22 filers, providing for the launch of generic versions of TREANDA prior to patent expiration.
 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. The FDA has appealed the district court’s decision, but barring a reversal of the decision by the appellate court, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. If the decision is reversed, generic versions of TREANDA may be launched immediately.
Respiratory
Our
respiratory
portfolio includes ProAir
®
, QVAR
®
, DuoResp
®
Spiromax
®
, AirDuo
®
RespiClick
®
/ ArmonAir
®
RespiClick
®
and CINQAIR
®
/CINQAERO
®
.
We are committed to maintaining a leading presence in the respiratory market by delivering a range of medicines for the treatment of asthma and COPD. Our portfolio is centered on optimizing respiratory treatment for patients and healthcare providers through the development and commercialization of innovative delivery systems and therapies that help address unmet needs.
Our respiratory pipeline is based on drug molecules delivered in our proprietary dry powder formulations and breath-actuated device technologies and targeted biologics. With this portfolio, we are targeting high value markets in the respiratory area such as inhaled short-acting beta agonists, inhaled corticosteroids, fixed-dose corticosteroid and beta2 agonist combinations, long-acting muscarinic antagonist products and biologics.
The key areas of focus for our respiratory R&D include development of differentiated respiratory therapies for patients using innovative delivery systems to deliver chemical and biological therapies. Our device strategy is intended to result in “device consistency,” allowing physicians to choose the device that best matches a patient’s needs both in terms of ease of use and effectiveness of delivery of the prescribed molecule.
Our innovative delivery systems include:
 A breath-actuated inhaler (“BAI”) recently approved in the United States for use with QVAR as QVAR RediHaler
®
; and
 Spiromax (EU) or RespiClick (U.S.), a novel inhalation-driven multi-dose dry powder inhaler (“MDPI”).
 
 
 
 
 
10

ProAir
 The ProAir line of products includes ProAir hydrofluoroalkane (“HFA”), ProAir RespiClick
®
and ProAir Digihaler
®
, which are sold only in the United States.
 
 
 
 
 
 
 
 
ProAir HFA
(albuterol sulfate) is an inhalation aerosol with dose counter and is indicated for patients four years of age and older for the treatment or prevention of bronchospasm with reversible obstructive airway disease and for the prevention of exercise-induced bronchospasm. ProAir HFA is among the leading quick relief inhalers in the United States. 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. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo Pharmaceuticals (“Perrigo”), under which Perrigo is now permitted to launch its generic product. In November 2017, we settled another patent challenge to ProAir HFA, under which Lupin is now permitted to launch its generic product. As of the date hereof, neither Perrigo nor Lupin have launched generic versions of ProAir HFA.
 
 
 
 
 
 
 
 
ProAir Digihaler
(albuterol sulfate 117 mcg) inhalation powder 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. Commercial availability of ProAir Digihaler is planned for 2020 through targeted launch activities.
 
 
 
 
 
 
 
 
ProAir RespiClick
(albuterol sulfate) inhalation powder is a breath-actuated, multi-dose,
dry-powder,
short-acting beta-agonist inhaler for the treatment or prevention of bronchospasm with reversible obstructive airway disease and for the prevention of exercise-induced bronchospasm in patients four years of age and older. ProAir RespiClick was approved by the FDA for use in adults and adolescents aged 12 years and older in March 2015 and its label was expanded for use by children 4 to 11 years of age in April 2016.
 
 
 
 
 
 
 
 Three major brands compete with ProAir HFA and ProAir RespiClick in the United States in the short-acting beta agonist market: Ventolin
®
HFA (albuterol), Proventil
®
HFA (albuterol) and Xopenex
®
HFA (levalbuterol). In addition, an authorized generic version Ventolin
®
HFA (albuterol) was approved in January 2019.
 
 
 
 
 
 
 
QVAR
 
QVAR
(beclomethasone dipropionate HFA) is indicated as a maintenance treatment for asthma as a prophylactic therapy in patients five years of age or older. QVAR is also indicated for asthma patients who require systemic corticosteroid administration, where adding QVAR may reduce or eliminate the need for systemic corticosteroids. We market QVAR in the United States and in major European markets.
 
 
 
 
 
 
 
 Four major brands compete with QVAR in the mono inhaled corticosteroid segment: Flixotide/Flovent
®
(fluticasone), Pulmicort Flexhaler
®
(budesonide), Asmanex
®
(mometasone) and Alvesco
®
(ciclesonide).
 
 
 
 
 
 
 
 
QVAR RediHaler
(beclomethasone dipropionate HFA) inhalation aerosol, a breath actuated inhaler, was approved by the FDA in August 2017 for the maintenance treatment of asthma as a prophylactic therapy in patients four years of age and older. This product became commercially available in February 2018. The RediHaler device is the next generation of our QVAR product and contains the same small particle aerosol formulation as the existing QVAR in a breath-actuated device.
 
 
 
 
 
 
 
 
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CINQAIR/CINQAERO
 
CINQAIR/CINQAERO
(reslizumab) injection, a humanized
interleukin-5
antagonist monoclonal antibody for
add-on
maintenance treatment of adult patients with severe asthma and with an eosinophilic phenotype, received FDA, EMA and Health Canada approval in 2016. This biologic treatment became commercially available to patients in the United States in April 2016, in certain European countries in November 2016 and in Canada in 2017.
 
 
 
 
 
 
 
 
 Major brands competing with CINQAIR/CINQAERO in the United States, Europe and Canada in the
interleukin-5
market are Nucala
®
(mepolizumab) and Fasenra
®
(benralizumab).
 
 
 
 
 
 
 
 
AirDuo RespiClick / ArmonAir RespiClick / AirDuo Digihaler
 
AirDuo RespiClick
(fluticasone propionate and salmeterol inhalation powder) is a combination of an inhaled corticosteroid and a long acting beta-agonist bronchodilator, approved in the United States for the treatment of asthma in patients aged 12 years and older who are uncontrolled on an inhaled corticosteroid (“ICS”) or whose disease severity clearly warrants the use of an ICS/long-acting beta2-adrenergic agonist (“LABA”) combination.
 
 
 
 
 
 
 
 
 AirDuo RespiClick and its authorized generic have the same active ingredients as Advair
®
but are delivered via Teva’s breath-activated, MDPI, RespiClick, which is used with other approved medicines in our respiratory product portfolio
 
 
 
 
 
 
 
 
 
ArmonAir RespiClick
(fluticasone propionate MDPI U.S.) is a formulation of long acting ICS using our MDPI device, indicated for maintenance treatment of asthma as prophylactic therapy in patients 12 years of age and older, with an enhanced lung delivery designed to allow lower doses to achieve the same clinical outcomes as Flovent
®
Diskus.
 
 
 
 
 
 
 
 
 
AirDuo Digihaler
(fluticasone propionate and salmeterol inhalation powder) is the first and only digital maintenance inhaler with
built-in
sensors which connects to a companion mobile application and provides inhaler use information to people with asthma. AirDuo Digihaler was approved by the FDA on July 12, 2019 for treatment of asthma in patients aged 12 years and older who are uncontrolled on an ICS or whose disease severity clearly warrants the use of an ICS/LABA combination. Commercial availability of AirDuo Digihaler is planned for 2020 through targeted launch activities.
 
 
 
 
 
 
 
 
BRALTUS
®
 
BRALTUS
(tiotropium bromide), a long-acting muscarinic antagonist, indicated for adult patients with COPD, delivered via the Zonda
®
inhaler, was launched in Europe in August 2016.
 
 
 
 
 
 
 
 
Below is a description of key products in our specialty pipeline:
         
Product
 
Potential
Indication(s)
 
Route of
Administration
 
Development Phase
(date entered phase 3)
 
Comments
CNS, Neurology and
Neuropsychiatry
    
AUSTEDO (deutetrabenazine)
 
Tourette syndrome
 
Oral
 
3 (December 2017)
 
Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with
 
 
 
 
 
 
 
 
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Product
 
Potential
Indication(s)
 
Route of
Administration
 
Development Phase
(date entered phase 3)
 
Comments
    
Tourette syndrome in pediatric patients in the United States. In February 2020, we received results for these clinical trials, which found that the clinical trials failed to meet their primary endpoints. No new safety signals were identified in these studies.
 
Dyskinesia in cerebral palsy
 
Oral
 
3 (September 2019)
 
TV-46000
(risperidone LAI)
 
Schizophrenia
 
Subcutaneous
 
3 (April 2018)
 
Migraine and Pain
    
fremanezumab (anti CGRP)
 
Post traumatic
headache
 
Subcutaneous
 
2
 
 
fibromyalgia
 
Subcutaneous
 
2
 
fasinumab
 
Osteoarthritis pain
 
Subcutaneous
 
3 (March 2016)
 
Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”).
In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W).
Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States
 
 
 
 
 
 
 
 
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Product
 
Potential
Indication(s)
 
Route of
Administration
 
Development Phase
(date entered phase 3)
 
Comments
    
and 10 years from marketing approval in Europe.
Respiratory
    
ProAir
 e-RespiClick
 
Bronchospasm and exercise induced bronchitis
 
Oral inhalation
 
Approved by FDA
(December 2018)
 
AirDuo Digihaler
 
Treatment of asthma in patients aged 12 years and older
 
Oral inhalation
 
Approved by FDA (July 2019)
 
ArmonAir DigiHaler
 
Treatment of asthma in patients aged 12 years and older
 
Oral inhalation
 
Under regulatory review
 
GoResp
®
DigiHaler / DuoResp DigiHaler
 
Treatment of asthma in patients aged 12 years and older and COPD
 
Oral inhalation
 
Under regulatory review
 
Oncology
    
HERZUMA
 
(biosimilar to
Herceptin
®
US)
  
Approved by
FDA (December 2018) Approved in Canada (September 2019)
 
 
 
 
 
During 2019, development of the following projects was either discontinued or transferred:
 CINQAIR/CINQAERO for severe asthma with eosinophilia;
 
 
 
 
 Fremanezumab (anti CGRP) for episodic cluster headache; and
 
 
 
 
 Fasinumab for chronic lower back pain has been put on hold.
 
 
 
 
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.
We produce approximately 350 APIs for our own use and for sale to third parties in many therapeutic areas. APIs used in pharmaceutical products are subject to regulatory oversight by national health authorities. We utilize a variety of production technologies, including chemical synthesis, semi-synthetic fermentation, enzymatic synthesis, high potency manufacturing, plant extract technology and peptide synthesis. Our advanced technology and expertise in the field of solid state particle technology enable us to meet specifications for particle size distribution, bulk density, specific surface area and polymorphism, as well as other characteristics.
We provide contract manufacturing services related to products divested in connection with the sale of certain business lines, as well as other miscellaneous items. Our other activities are not included in our North America, Europe and International Markets segments described above.
Research and Development
Our R&D activities span the breadth of our business, including generic medicines (finished goods and API), specialty pharmaceuticals, biopharmaceuticals and OTC medicines.
All of our R&D activities are concentrated under one global group with overall responsibility for generics, specialty and biologics, enabling better focus and efficiency.
14

A strong focus for Teva is the development of new generic medicines. We develop generic products for the United States, Europe, and our International Markets segment. Our focus is on developing complex formulations with complex technologies, which have higher barriers to entry. Generic R&D activities, which are carried out in development centers located around the world, include product formulation, analytical method development, stability testing, management of bioequivalence,
bio-analytical
studies, other clinical studies and registration of generic drugs in all of the markets where we operate. We also operate several clinics where most of our bioequivalent studies are performed. We have more than 1,250 generic products in our
pre-approved
global pipeline, which includes products in all stages of the approval process:
pre-submission,
post-submission and after tentative approval.
In addition, our generic R&D supports our OTC business in developing OTC products, as well as in overseeing the work performed by contract developers.
Current R&D capabilities include solid oral dosage forms (such as tablets and capsules), inhalation, semi-solid and liquid formulations (such as ointments and creams), sterile formulations and other dosage forms, and delivery systems, such as matrix systems, special coating systems for sustained release products, orally disintegrating systems, sterile systems, such as vials, syringes and blow-fill-seal systems, and more recently, capability
build-up
in long-acting release injectable, transdermal patches, oral thin film, drug device combinations and nasal delivery systems. In addition, we are in the process of developing multiple
AB-rated
respiratory programs and devices for our long active injectable pipeline.
Our API R&D division focuses on the development of processes for the manufacturing of APIs, including intermediates, chemicals and fermentation products, for both our generic and proprietary drugs. Our facilities include two large development centers in India and Croatia, focusing on synthetic products, and three centers with specific expertise: a center in Hungary specializing in fermentation and semi-synthetic products, a center in Israel for oligonucleotides and a center in the Czech Republic for high-potency APIs. Our substantial investment in API R&D generates a steady flow of API products, supporting the timely introduction of generic products to market. The API R&D division also seeks methods to continuously reduce API production costs, enabling us to improve our cost structure.
Our specialty R&D product pipeline is focused on biologic products, biosimilar products and discovery of new biologic candidates. Specialty development activities include preclinical assessment (including toxicology, pharmacokinetics, pharmacodynamics and pharmacology studies), clinical development (including pharmacology and the design, execution and analysis of global safety and efficacy trials), as well as regulatory strategy to deliver registration of our pipeline products.
Our specialty R&D develops novel specialty products in our core therapeutic and disease focus areas. We have CNS projects in areas such as migraine, pain, movement disorders/neurodegeneration and neuropsychiatry. Our respiratory projects are focused on asthma and COPD and include both novel compounds and delivery systems designed to address unmet patient needs. We also pursue select pipeline projects (e.g., biosimilars) in other therapeutic and disease areas that leverage our global R&D and commercial areas of expertise.
While our focus is on internal growth that leverages our R&D capabilities, we have entered into, and expect to pursue,
in-licensing,
acquisition and partnership opportunities to supplement and expand our existing specialty pipeline (e.g., the transactions with Celltrion, Eagle and Regeneron). In parallel, we evaluate and expand the development scope of our existing R&D pipeline products as well as our existing products for submission in additional markets.
Operations
We operate our business globally and believe that our global infrastructure provides us with the following capabilities and advantages:
 global R&D facilities that enable us to have a broad global generic pipeline and product line, as well as a focused pipeline of specialty products;
 
 
 
 
 
 
 
 
15

 pharmaceutical manufacturing facilities approved by the FDA, EMA and other regulatory authorities located around the world, which offer a broad range of production technologies and the ability to concentrate production in order to achieve high quality and economies of scale;
 API manufacturing capabilities that offer a stable, high-quality supply of key APIs, vertically integrated with our pharmaceutical operations; and
 high-volume, technologically advanced distribution facilities that allow us to deliver new products to our customers quickly and efficiently, providing a cost-effective, safe and reliable supply.
These capabilities provide us with the means to respond on a global scale to a wide range of therapeutic and commercial requirements of patients, customers and healthcare providers.
Pharmaceutical Production
We operate 47 finished dosage and packaging pharmaceutical plants in 22 countries. These plants manufacture solid dosage forms, sterile injectables, liquids, semi-solids, inhalers, transdermal patches and medical devices. In 2019, we produced approximately 73 billion tablets and capsules and approximately 753 million sterile units.
Our primary manufacturing technologies, solid dosage forms, injectables and blow-fill-seal, are available in North America, Europe, Latin America and Israel. The manufacturing sites located in Israel, Germany, Hungary, Croatia, Bulgaria, India, Spain, Poland and the Czech Republic make up the majority of our production capacity.
We use several external contract manufacturers to achieve operational and cost benefits. We continue to strengthen our third party operations unit to strategically work with our supplier base in order to meet cost, supply security and quality targets on a sustainable base in alignment with our global procurement organization.
Our policy is to maintain multiple supply sources for our strategic products and APIs to appropriately mitigate risk in our supply chain to the extent possible. However, our ability to do so may be limited by regulatory and other requirements.
Since 2017, we closed or divested a significant number of manufacturing plants in North America, Europe, Israel and Japan in connection with our restructuring plan, announced in December 2017. We plan to continue to optimize our manufacturing and supply network prospectively as well.
Raw Materials for Pharmaceutical Production
In general, we purchase our raw materials and supplies required for the production of our products in the open market. For some products, we purchase such raw materials and supplies from one source (the only source available to us) or a single source (the only approved source among many available to us), thereby requiring us to obtain such raw materials and supplies from that particular source. We attempt, if possible, to mitigate our raw material supply risks through inventory management and alternative sourcing strategies.
We source a large portion of our APIs from our own manufacturing facilities. Additional APIs are purchased from suppliers located in Europe, Asia and the United States. We have implemented a supplier audit program to ensure that our suppliers meet our high standards and are able to fulfill the requirements of our global operations.
We currently have 17 API production facilities, producing approximately 350 APIs in various therapeutic areas. Our API intellectual property portfolio includes hundreds of granted patents and pending applications worldwide.
16

We have expertise in a variety of production technologies, including chemical synthesis, semi-synthetic fermentation, enzymatic synthesis, high-potency manufacturing, plant extract technology, peptides synthesis, vitamin D derivatives synthesis and prostaglandins synthesis. Our advanced technology and expertise in the field of solid state particle technology enable us to meet specifications for particle size distribution, bulk density, specific surface area and polymorphism, as well as other characteristics.
Our API facilities are required to comply with applicable current Good Manufacturing Practices (“cGMP”) requirements under U.S., European, Japanese and other applicable quality standards. Our API plants are regularly inspected by the FDA, European agencies and other authorities, as applicable.
Patents and Other Intellectual Property Rights
We rely on a combination of patents, trademarks, copyrights, trade secrets and other proprietary
know-how
and regulatory exclusivities, as well as contractual protections, to establish and protect our intellectual property rights. We own or license numerous patents covering our products in the United States and other countries. We have also developed many brand names and own many trademarks covering our products. We consider the overall protection of our intellectual property rights to be of material value and act to protect these rights from infringement. We license or assign certain intellectual property rights to third parties in connection with certain business transactions.
Environment, Health and Safety
We are committed to business practices that promote socially and environmentally responsible economic growth. During 2019, we continued to make significant progress on our multi-year plan towards our long-term environment, health and safety (“EHS”) goal referred to as “Target Zero”: zero incidents, zero injuries and zero releases. Among other things, in 2019, we:
 continued the implementation of our global EHS management system, which promotes proactive compliance with applicable EHS requirements, establishes EHS standards throughout our global operations and helps drive continuous improvement in our EHS performance;
 provided EHS regulatory monitoring tools in all countries where we have significant operations; and
 proactively evaluated EHS compliance through self-evaluation and an internal audit program, addressing
non-conformities
through appropriate corrective and preventative action.
Quality
We are committed not only to complying with quality requirements but to developing and leveraging quality as a competitive advantage. In 2019, we successfully completed numerous inspections by various regulatory agencies of our finished dosage pharmaceutical plants and our pharmacovigilance function, continued discussions with authorities about drug shortages and participated in several industry-wide task forces. We continue to focus on maintaining a solid and sustainable quality compliance foundation, as well as making quality a priority to continuous compliance. We seek to ensure that quality is an embedded part of our corporate culture and is reflected in all of our daily operations, delivering reliable and high quality products.
For information regarding significant regulatory events, see note 15 to our consolidated financial statements.
Geographic Areas
Our business is conducted in many countries around the world and a significant portion of our revenues is generated from operations outside the United States. We operate our business through three segments: North America, Europe and International Markets. Each region manages our entire product portfolio, including generics, specialty and OTC products. The products we manufacture and sell around the world include many of those described above under “—Our Product Portfolio and Business Offering.”
17

Investments and activities in some countries outside the Unites States are subject to higher risks than comparable U.S. activities because the investment and commercial climate in such countries may be influenced by financial instability in international economies, restrictive economic policies and political and legal system uncertainties. Changes in the relative value of international currencies may also materially affect our results of operations. For a discussion of these risks, see “Item 1A—Risk Factors.”
Competition
Sales of generic medicines have benefitted from increasing awareness and acceptance on the part of healthcare insurers and institutions, consumers, physicians and pharmacists around the world. Factors contributing to this increased awareness are the passage of legislation permitting or encouraging generic substitution and the publication by regulatory authorities of lists of equivalent pharmaceuticals, which provide physicians and pharmacists with generic alternatives. In addition, various government agencies and many private managed care or insurance programs encourage the substitution of brand-name pharmaceuticals with generic products as a cost-savings measure in the purchase of, or reimbursement for, prescription pharmaceuticals.
In the United States, we are subject to competition in the generic drug market from domestic and international generic drug manufacturers and brand-name pharmaceutical companies through lifecycle management initiatives, authorized generics, existing brand equivalents and manufacturers of therapeutically similar drugs. An increase in FDA approvals for generic products is increasing the competition on our base generic products. Price competition from additional generic versions of the same product typically results in margin pressures, which is causing some generics companies to increase focus on portfolio efficiency and product life cycle management.
The European market continues to be ever more competitive, especially in terms of pricing, higher quality standards, customer service and portfolio relevance. We are one of only a few companies with a
pan-European
footprint, while most of our European competitors focus on a limited number of selected markets or business lines. Our leadership position in Europe allows us to be a reliable partner to fulfill the needs of patients, physicians, pharmacies, customers and payers.
In our International Markets, our global scale and broad portfolio give us a significant competitive advantage over local competitors, allowing us to optimize our offerings through a combination of high quality medicines and unique
go-to-market
approaches.
Furthermore, in significant markets such as Japan and Russia, governments have issued or are in process of issuing regulations designed to increase generic penetration. Specifically, in Japan, ongoing regulatory pricing reductions and generic competition to
off-patented
products have negatively affected our sales in Japan. These conditions result in intense competition in the generic market, with generic companies competing for advantage based on pricing, time to market, reputation and customer service.
Our specialty medicines business faces intense competition from both specialty and generic pharmaceutical companies. The specialty business may continue to be affected by price reforms and changes in the political landscape, following recent public debate in the United States. We believe that our primary competitive advantages include our commercial marketing teams, global R&D capabilities, the body of scientific evidence substantiating the safety and efficacy of our various medicines, our patient-centric solutions, physician and patient experience with our medicines and our medical capabilities, which are tailored to our product offerings, regional and local markets and the needs of our stakeholders.
18

Regulation
United States
Food and Drug Administration and the Drug Enforcement Administration
All pharmaceutical manufacturers selling products in the United States are subject to extensive regulation by the United States federal government, principally by the FDA and the Drug Enforcement Administration (“DEA”), and, to a lesser extent, by state and local governments. The Federal Food, Drug, and Cosmetic Act, the Controlled Substances Act (“CSA”) and other federal and state statutes and regulations govern or influence the development, manufacture, testing, safety, efficacy, labeling, approval, storage, distribution, recordkeeping, advertising, promotion, sale, import and export of our products. Our facilities are periodically inspected by the FDA, which has extensive enforcement powers over the activities of pharmaceutical manufacturers. Noncompliance with applicable requirements may result in fines, criminal penalties, civil injunction against shipment of products, recall and seizure of products, total or partial suspension of production, sale or import of products, refusal of the government to enter into supply contracts or to approve NDAs, ANDAs or biologics license applications (“BLAs”) and criminal prosecution by the Department of Justice. The FDA also has the authority to deny or revoke approvals of marketing applications and the power to halt the operations of
non-complying
manufacturers. Any failure to comply with applicable FDA policies and regulations could have a material adverse effect on our operations.
FDA approval is required before any “new drug” (including generic versions of previously approved drugs) may be marketed, including new strengths, dosage forms and formulations of previously approved drugs. Applications for FDA approval must contain information relating to bioequivalence (for generics), safety, toxicity and efficacy (for new drugs), product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. FDA procedures generally require that commercial manufacturing equipment be used to produce test batches for FDA approval. The FDA also requires validation of manufacturing processes so that a company may market new products. The FDA conducts
pre-approval
and post-approval reviews and plant inspections to implement these requirements.
The federal CSA and its implementing regulations establish a closed system of controlled substance distribution for legitimate handlers. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements upon legitimate handlers under the oversight of the DEA. The DEA categorizes controlled substances into one of five schedules—Schedule I, II, III, IV, or V—with varying qualifications for listing in each schedule. Facilities that manufacture, distribute, conduct chemical analysis, import or export any controlled substance must register annually with the DEA. The DEA inspects all registered facilities to review security, record keeping and reporting and handling prior to issuing a controlled substance registration and periodically thereafter. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action, such as civil penalties, refusal to renew necessary registrations or the initiation of proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.
The Drug Price Competition and Patent Term Restoration Act (the “Hatch-Waxman Act”) established the procedures for obtaining FDA approval for generic forms of brand-name drugs. This act also provides market exclusivity provisions that can delay the approval of certain NDAs and ANDAs. One such provision allows a five-year period of data exclusivity for NDAs containing new chemical entities and a three-year period of market exclusivity for NDAs (including different dosage forms) containing new clinical trial(s) essential to the approval of the application. The Orphan Drug Act grants seven years of exclusive marketing rights to a specific drug for a specific orphan indication. The term “orphan drug” refers, generally, to a drug that treats a rare disease affecting fewer than 200,000 Americans. Market exclusivity provisions are distinct from patent protections and apply equally to patented and
non-patented
drug products. Another provision of the Hatch-Waxman Act extends certain patents for up to five years as compensation for the reduction of effective life of the patent which resulted from time spent in clinical trials and time spent by the FDA reviewing a drug application.
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Under the Hatch-Waxman Act, any company submitting an ANDA or an NDA under Section 505(b)(2) of the Food, Drug, and Cosmetic Act (i.e., an NDA that, similar to an ANDA, relies, in whole or in part, on FDA’s prior approval of another company’s drug product; also known as a “505(b)(2) application”) must make certain certifications with respect to the patent status of the drug for which it is seeking approval. In the event that such applicant plans to challenge the validity or enforceability of an existing listed patent or asserts that the proposed product does not infringe an existing listed patent, it files a “Paragraph IV” certification. In the case of ANDAs, the Hatch-Waxman Act provides for a potential
180-day
period of generic exclusivity for the first company to submit an ANDA with a Paragraph IV certification. This filing triggers a regulatory process in which the FDA is required to delay the final approval of subsequently filed ANDAs containing Paragraph IV certifications until 180 days after the first commercial marketing. For both ANDAs and 505(b)(2) applications, when litigation is brought by the patent holder, in response to this Paragraph IV certification, the FDA generally may not approve the ANDA or 505(b)(2) application until the earlier of 30 months or a court decision finding the patent invalid, not infringed or unenforceable. Submission of an ANDA or a 505(b)(2) application with a Paragraph IV certification can result in protracted and expensive patent litigation.
Products manufactured outside the United States and marketed in the United States are subject to all of the above regulations, as well as to FDA, DEA and United States customs regulations at the port of entry. Products marketed outside the United States that are manufactured in the United States are additionally subject to various export statutes and regulations, as well as regulation by the country in which the products are to be sold.
Our products also include biopharmaceutical products that are comparable to brand-name biologics, but that are not approved as biosimilar versions of such brand-name products. While regulations are still being developed by the FDA relating to the Biologics Price Competition and Innovation Act of 2009, which created a statutory pathway for the approval of biosimilar versions of brand-name biological products and a process to resolve patent disputes, the FDA has issued guidance to provide a roadmap for development of biosimilar products.
In August 2017, the FDA user fee reauthorization legislation, known as the FDA Reauthorization Act of 2017 (“FDARA”) was enacted in the United States. The agreements for pharmaceuticals, biosimilars and medical devices were negotiated with industry representatives over the course of 2016 to establish the amounts regulated companies would pay the FDA to support the product review process at the agency. Various fees must be paid by these manufacturers at different times, such as annually and with the submission of different types of applications. In return for this additional funding, the FDA has entered into agreements with each of the affected industries (known as the “user fee agreements”) that commit the agency to interacting with manufacturers and reviewing applications such as NDAs, ANDAs and BLAs in certain ways, and taking action on those applications at certain times. The agency is obligated to set specific timelines to communicate with companies, meet with company product sponsors during the review process and take action on their applications. On the generics side, FDARA established a new
180-day
exclusivity for generic drugs that are no longer protected by exclusivity or patents, as well as new programs for enhanced and priority review of certain generic drug applications. On the branded side, this was the sixth agreement between the industry and the FDA. The user fee agreement for biosimilars was reauthorized for the second time as well.
The Patient Protection and Affordable Care Act and Certain Government Programs
The Patient Protection and Affordable Care Act (“ACA”) from 2010 represented the most significant health care reform in the United States in over thirty years. It was passed to require individuals to have health insurance and to control the rate of growth in healthcare spending through, among other things, stronger prevention and wellness measures, increased access to primary care, changes in healthcare delivery systems and the creation of health insurance exchanges. Enrollment in the health insurance exchanges began in October 2013. However, the individual mandate was subsequently repealed by Congress in the tax reform bill signed into law in December 2017. The Joint Committee on Taxation estimates that the repeal will result in over 13 million Americans losing their health insurance coverage over the next ten years and is likely to lead to increases in insurance premiums. In
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December 2018, a U.S. federal district court ruled that the ACA is unconstitutional, but such decision has been stayed and will not take effect while such decision is on appeal.
The ACA requires the pharmaceutical industry to share in the costs of reform, by, among other things, increasing Medicaid rebates and expanding Medicaid rebates to cover Medicaid managed care programs. The ACA also included funding of pharmaceutical costs for Medicare patients in excess of the prescription drug coverage limit and below the catastrophic coverage threshold. Commencing 2019, under the ACA, pharmaceutical companies are obligated to fund 70% of the patient obligation for branded prescription pharmaceuticals in this gap, or “donut hole.” Additionally, an excise tax was levied against certain branded pharmaceutical products. The tax is specified by statute to be approximately $3.5 billion in 2017, $4.2 billion in 2018 and $2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical companies based on an allocation of their governmental programs as a portion of total pharmaceutical government programs.
The Centers for Medicare & Medicaid Services (“CMS”) administer the Medicaid drug rebate program, in which pharmaceutical manufacturers pay quarterly rebates to each state Medicaid agency. Generally, for generic drugs marketed under ANDAs, manufacturers (including Teva) are required to rebate 13% of the average manufacturer price, and for products marketed under NDAs or BLAs, manufacturers are required to rebate the greater of 23.1% of the average manufacturer price or the difference between such price and the best price during a specified period. An additional rebate for products marketed under NDAs or BLAs is payable if the average manufacturer price increases at a rate higher than inflation and other methodologies apply to new formulations of existing drugs. This provision was extended at the end of 2015 to cover generic drugs marketed under ANDAs as well. The Association for Accessible Medicines, the generic drug manufacturers’ trade association, is working to undo this policy as penalty on the industry and will continue to lobby for its abolishment.
In addition, the ACA revised certain definitions used for purposes of calculating the rebates, including the definition of “average manufacturer price.” The Comprehensive Addiction and Recovery Act of 2016 contains language intended to exempt certain abuse-deterrent formulations of a drug from the definition of line extension for purposes of the program.
On September 27, 2019, the Continuing Appropriations Act of 2020 and the Health Extenders Act of 2019 became effective, amending the Medicaid Drug Rebate Statute in two key ways: (i) by requiring manufacturers to exclude (rather than include) the prices paid by wholesalers to manufacturers for authorized generic drugs from the calculation of the “average manufacturers’ price” in the United States (i.e., the average between the price paid to manufacturers by wholesalers who distribute generic drugs to retail community pharmacies and the price paid to manufacturers by retail community pharmacies that purchase drugs directly from the manufacturer and (ii) by deleting references to “manufacturers” from the definition of wholesaler.
Various state Medicaid programs have implemented voluntary supplemental drug rebate programs that may provide states with additional manufacturer rebates in exchange for preferred status on a state’s formulary or for patient populations that are not included in the traditional Medicaid drug benefit coverage.
Europe
General
In Europe, marketing authorizations for pharmaceutical products may be obtained either through a centralized procedure involving the EMA, a mutual recognition procedure which requires submission of applications in other member states following approval by a
so-called
reference member state, a decentralized procedure that entails simultaneous submission of applications to chosen member states or occasionally through a local national procedure.
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During 2019, we continued to register products in the European Union, primarily using the decentralized procedure (simultaneous submission of applications to chosen member states). We continue to use, on occasion, the mutual recognition and centralized procedures.
The European pharmaceutical industry is highly regulated and much of the legislative and regulatory framework is driven by the European Parliament and the European Commission. This has many benefits, including the potential to harmonize standards across the complex European market, but it also has the potential to create complexities affecting the entire European market.
In November 2017, the last part of the 2012 European Union regulation regarding pharmacovigilance was implemented, requiring centralized reporting in the European Union instead of individual country reporting. Under this regulation, all adverse events need to be reported regardless of severity.
European Union
The medicines regulatory framework of the European Union requires that medicinal products, including generic versions of previously approved products and new strengths, dosage forms and formulations of previously approved products, receive a marketing authorization before they can be placed on the market in the European Union. Authorizations are granted after a favorable assessment of quality, safety and efficacy by the respective health authorities. In order to obtain authorization, application must be made to the EMA or to the competent authority of the member state concerned. Besides various formal requirements, the application must contain the results of pharmaceutical (physico-chemical, biological or microbiological) tests,
pre-clinical
(toxicological and pharmacological) tests and clinical trials. All of these tests must have been conducted in accordance with relevant European regulations and must allow the reviewer to evaluate the quality, safety and efficacy of the medicinal product.
In order to control expenditures on pharmaceuticals, most member states of the European Union regulate the pricing of such products and in some cases limit the range of different forms of a drug available for prescription by national health services. These controls can result in considerable price differences among member states.
In addition to patent protection, exclusivity provisions in the European Union may prevent companies from applying for marketing approval for a generic product for eight years (or ten years for orphan medicinal products) from the date of the first marketing authorization of the original product in the European Union. Further, the generic product will be barred from market entry (marketing exclusivity) for a further two years, with the possibility of extending the market exclusivity by one additional year under certain circumstances.
The term of certain pharmaceutical patents may be extended in the European Union by up to five years upon grant of Supplementary Patent Certificates (“SPC”). The purpose of this extension is to increase effective patent life (i.e., the period between grant of a marketing authorization and patent expiry) to 15 years.
Subject to the respective pediatric regulation, the holder of an SPC may obtain a further patent term extension of up to six months under certain conditions. This
six-month
period cannot be claimed if the license holder claims a
one-year
extension of the period of marketing exclusivity based on the grounds that a new pediatric indication brings a significant clinical benefit in comparison with other existing therapies.
In July 2019, the SPC Manufacturing Waiver Regulation came into force in the European Union (subject to certain conditions and transitional provisions) allowing products manufactured prior to SPC expiry to be exempt from SPC infringement if such products are manufactured for export to
non-European
Union markets or for launch in the European Union upon expiry of the SPC.
Orphan designated products, which receive, under certain conditions, a blanket period of ten years of market exclusivity, may receive an additional two years of exclusivity instead of an extension of the SPC if the requirements of the pediatric regulation are met.
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The legislation also allows for R&D work during the patent term for the purpose of developing and submitting registration dossiers.
In 2016, the United Kingdom conducted a referendum and voted to leave the European Union, also known as “Brexit.” On March 29, 2017, the British government invoked Article 50 of the Treaty on the European Union and on January 31, 2020 the United Kingdom left the European Union. The United Kingdom and European Union entered a transition period of 11 months which may be extended once by agreement of the E.U. and the U.K. before July 2020 for up to one or two years. However, the transition agreement between the two parties means that the United Kingdom will abide by current regulatory and trading frameworks at least until December 31, 2020 pending the agreement of their future relationship. As pharmaceutical legislation in the United Kingdom is largely derived from European Union law and relies on mutual recognition of decision making, implementation of a number of practical steps is required before the end of 2020 if the transition period is not extended. We are working on processes to ensure a smooth transition irrespective of the future relationship between the European Union and the United Kingdom.
International Markets
In addition to regulations in the United States and Europe, we, and our partners, are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales, marketing and distribution of our products. Such regulations may be similar or, in some cases, more stringent than those applicable in the United States and Europe.
Whether or not we, or our partners, obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of such product in those countries. The requirements and processes governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In addition, we, and our partners, may be subject to foreign laws and regulations and other compliance requirements, including, without limitation, anti kickback laws, false claims laws and other fraud and abuse laws, as well as laws and regulations requiring transparency of pricing and marketing information and governing the privacy and security of health information.
If we, or our partners, fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Miscellaneous Regulatory Matters
We are subject to various national, regional and local laws of general applicability, such as laws regulating working conditions. We are also subject to country specific data protection laws and regulations applicable to the storage and processing of personal data around the world. In addition, we are subject to various national, regional and local environmental protection laws and regulations, including those governing the emission of material into the environment. We are also subject to various national, regional and local laws regulating how we interact with healthcare professionals and representatives of government that impact our promotional activities.
Data exclusivity provisions exist in many countries around the world and may be introduced in additional countries in the future, although their application is not uniform. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of the brand-name product in that country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the submission of generic drug applications for some products even after the patent protection has expired.
In October 2015, the European Commission adopted regulations providing detailed rules for the safety features appearing on the packaging of medicinal products for human use. This legislation, part of the Falsified
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Medicines Directive (“FMD”), is intended to prevent counterfeit medicines entering into the supply chain and will allow wholesale distributors and others who supply medicines to the public to verify the authenticity of the medicine at the level of the individual pack. The safety features comprise a unique identifier and a tamper-evident seal on the outer packaging, which are to be applied to certain categories of medicines. FMD is effective as of February 2019. Teva’s packaging sites, distribution centers and contract manufacturing operators (“CMOs”) for the European market comply with this new requirement.
In November 2017, the federal Drug Supply Chain Security Act became effective in the United States, mandating an industry-wide, national serialization system for pharmaceutical packaging with a
ten-year
phase-in
process. By November 2018, all manufacturers and
re-packagers
were required to mark each prescription drug package with a unique serialized code. Teva’s packing sites, distribution centers and CMOs for the U.S. market comply with the new requirements. Other countries are following suit with variations of two main requirements: (i) to be able to associate the unit data with the uniquely-identified shipping package, or (ii) to report the data for tracking and tracing of products, reimbursements and other purposes. Certain countries, such as Russia, China, Korea, Turkey, Argentina, Brazil and India (for exported products), already have laws mandating serialization and aggregation and we are working to comply with these requirements. Other countries, including India (domestic market), Indonesia, Kazakhstan, Malaysia, Taiwan and other Latin American countries are currently considering mandating similar requirements.
Employees
As of December 31, 2019, Teva’s work force consisted of 40,039 full-time-equivalent employees. In certain countries, we are party to collective bargaining agreements with certain groups of employees.
The following table presents our work force by geographic area:
             
 
December 31,
 
 
2019
  
2018
  
2017
 
United States
  
6,390
   
7,056
   
8,807
 
Europe
  
18,780
   
19,236
   
22,352
 
International Markets (excluding Israel)
  
10,908
   
11,351
   
14,387
 
Israel
  
3,961
   
4,893
   
6,245
 
             
Total
  
40,039
   
42,535
   
51,792
 
 
Since the announcement of our restructuring plan, we reduced our global headcount by approximately 13,000 full-time-equivalent employees. Restructuring efforts were conducted in accordance with applicable local requirements.
Available Information
Our main corporate website address is http://www.tevapharm.com. Copies of our Quarterly Reports on Form
10-Q,
Annual Report on Form
10-K
and Current Reports on Form
8-K
filed or furnished to the U.S. Securities and Exchange Commission (the “SEC”), and any amendments to the foregoing, will be provided without charge to any shareholder submitting a written request to our company secretary at our principal executive offices or by calling
1-800-950-5089.
All of our SEC filings are also available on our website at http://www.tevapharm.com, as soon as reasonably practicable after having been electronically filed or furnished to the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information on our website is not, and will not be deemed, a part of this Report or incorporated into any other filings we make with the SEC. We also file our annual reports and other information with the Israeli Securities Authority through its fair disclosure electronic system called MAGNA. You may review these filings on the website of the MAGNA system operated by the Israeli Securities Authority at www.magna.isa.gov.il or on the website of the Tel Aviv Stock Exchange (the “TASE”) at www.tase.co.il.
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ITEM 1A.RISK FACTORS
 
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition and results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Forward-Looking Statements” on page 1.
Risks related to our ability to successfully compete in the marketplace
Sales of our generic medicines comprise a significant portion of our business, and we therefore continue to be subject to the significant risks associated with the generic pharmaceutical business.
In 2019, total revenues from sales of our generic medicines in all our business segments were $9,325 million, or 55% of our total revenues. Generic pharmaceuticals are, as a general matter, less profitable than specialty pharmaceuticals, and have faced price erosion in each of our business segments, placing even greater importance on our ability to continually introduce new products. We have become more dependent on sales of our generics medicines and are increasingly subject to market and regulatory factors and other risks affecting generic pharmaceuticals worldwide.
During 2019, our generics business in the United States continued to be affected by certain adverse market forces, including: (i) pricing pressure that has impacted certain products or product families in our generic portfolio, (ii) an accelerated FDA approval process for generic versions of
off-patent
medicines, resulting in increased competition for these products, and (iii) delays in the launch of some of our new generic products. We have also experienced supply discontinuities due to regulatory actions and approval delays, which also had an impact on our ability to timely meet demand in certain instances. These adverse market forces have been affecting our business for a number of years and, consequently, have a direct impact on our overall performance.
We also expect to continue to experience significant adverse challenges in the U.S. generics market deriving from limitations on our ability to influence generic medicine pricing in the long term and a decrease in value from future launches and growth. The developments in the U.S. generics market were the cause of goodwill impairments of $17.1 billion in 2017. If these trends continue or worsen, or if we experience further difficulty in this market, this may continue to adversely affect our revenues and profits from our North America business segment.
In 2018, we experienced certain challenges in our International Markets business segment, particularly in Japan and Russia, and with our Medis reporting unit. These developments were the cause of goodwill impairments of $3.0 billion in 2018. If these trends continue or worsen, or if we experience further difficulty in International Markets, this may continue to adversely affect our revenues and profits from our International Markets business segment.
Sales of our generic products may be adversely affected by the continuing consolidation of our customer base and commercial alliances among our customers.
A significant portion of our sales are made to relatively few U.S. retail drug chains, wholesalers, managed care purchasing organizations, mail order distributors and hospitals. These customers have undergone significant consolidation and formed various commercial alliances in recent years, which may continue to increase the pricing pressures that we face in the United States. Additionally, the emergence of large buying groups, and the prevalence and influence of managed care organizations and similar institutions, have increased pressure on price, as well as terms and conditions required to do business. During 2017, certain of these Group Purchasing Organizations (“GPOs”) made aggressive requests for pricing proposals and established commercial alliances
25

resulting in greater bargaining power. Due to such consolidation and commercial alliances, there are three large GPOs that account for approximately 85% of generics purchases in the United States. We expect the trend of increased pricing pressures from our customers and price erosion in the U.S. generics market to continue.
The traditional model for distribution of pharmaceutical products is also undergoing disruption as a result of the entry or potential entry of new competitors and significant mergers among key industry participants. For example, Amazon.com has made initial moves to develop a pharmaceutical distribution business. Also, the consolidation resulting from the merger between CVS Health and Aetna in November 2018 created a vertically integrated organization with increased control over the physician and pharmacy networks and, ultimately, over which medicines are sold to patients. In addition, several major hospital systems in the United States announced a plan to form a nonprofit company that will provide U.S. hospitals with a number of generic drugs. In January 2018, Amazon Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co., announced that they plan to join forces by forming an independent health care company for their combined one million U.S. employees. This initiative is expected to further increase competition and enhance price erosion. These changes to the traditional supply chain could lead to our customers having increased negotiation leverage and to additional pricing pressure and price erosion.
Our net sales may also be affected by fluctuations in the buying patterns of retail chains, mail order distributors, wholesalers and other trade buyers, whether resulting from seasonality, pricing, wholesaler buying decisions or other factors. In addition, since a significant portion of our U.S. revenues is derived from relatively few key customers, any financial difficulties experienced by a single key customer, or any delay in receiving payments from such a customer, could have a material adverse effect on our business, financial condition and results of operations.
The increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products may adversely affect our revenues and profits
.
Our ability to achieve continued growth and profitability through sales of generic pharmaceuticals is dependent on our continued success in challenging patents, developing
non-infringing
products or developing products with increased complexity to provide opportunities with U.S. market exclusivity or limited competition.
To the extent that we succeed in being the first to market a generic version of a product, and particularly if we are the only company authorized to sell during the
180-day
period of exclusivity in the U.S. market, as provided under the Hatch-Waxman Act, our sales, profits and profitability can be substantially increased in the period following the introduction of such product and prior to a competitor’s introduction of an equivalent product. Even after the exclusivity period ends, there is often continuing benefit from having the first generic product in the market.
However, the number of generic manufacturers targeting significant new generic opportunities with exclusivity under the Hatch-Waxman Act, or which are complex to develop, continues to increase. Additionally, many of the smaller generic manufacturers have increased their capabilities, level of sophistication and development resources in recent years. The FDA has also been limiting the availability of exclusivity periods for new products, which reduces the economic benefit from being
first-to-file
for generic approvals. The failure to maintain our industry-leading performance in the United States on
first-to-file
opportunities and to develop and commercialize high complexity generic products could adversely affect our sales and profitability.
The
180-day
market exclusivity period is triggered by commercial marketing of the generic product. However, the exclusivity period can be forfeited by our failure to obtain tentative or final approval of our product within a specified statutory period or to launch a product following final court decisions that are no longer subject to appeal holding the applicable patents to be invalid, unenforceable or not infringed. The Hatch-Waxman Act also contains other forfeiture provisions that may deprive the first “Paragraph IV” filer of exclusivity if certain conditions are met, some of which may be outside our control. Accordingly, we may face the risk that our exclusivity period is forfeited before we are able to commercialize a product.
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Our revenues and profits from generic products may decline as a result of competition from other pharmaceutical companies and changes in regulatory policy.
Our generic drugs face intense competition. Prices of generic drugs may, and often do, decline, sometimes dramatically, especially as additional generic pharmaceutical companies (including
low-cost
generic producers based in China and India) receive approvals and enter the market for a given product and competition intensifies. Consequently, our ability to sustain our sales and profitability on any given product over time is affected by the number of companies selling such product, including new market entrants, and the timing of their approvals. The goals established under the Generic Drug User Fee Act, and increased funding of the FDA’s Office of Generic Drugs, have led to more and faster generic approvals, and consequently increased competition for some of our products. The FDA has stated that it has established new steps to enhance competition, promote access and lower drug prices and is approving record-breaking numbers of generic applications. While these FDA improvements are expected to benefit Teva’s generic product pipeline, they will also benefit competitors that seek to launch products in established generic markets where Teva currently offers products.
Furthermore, brand pharmaceutical companies continue to defend their products vigorously through life cycle management and marketing agreements with payers, pharmacy benefits managers and generic manufacturers. For example, brand companies often sell or license their own generic versions of their products, either directly or through other generic pharmaceutical companies
(so-called
“authorized generics”). No significant regulatory approvals are required for authorized generics, and brand companies do not face any other significant barriers to entry into such market. Brand companies may seek to delay introductions of generic equivalents through a variety of commercial and regulatory tactics. These actions may increase the costs and risks of our efforts to introduce generic products and may delay or prevent such introduction altogether.
Our leading specialty medicine, COPAXONE, faces increasing competition from generic versions in the United States and competing glatiramer acetate products in Europe, as well as from orally-administered therapies.
The FDA approved generic versions of COPAXONE 40 mg/mL in October 2017 and February 2018 and a second generic version of COPAXONE 20 mg/mL in October 2017. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved in the European Union. Competitors have launched and may launch additional generic products in the U.S. market and these launches have reduced, and we expect will continue to reduce, our revenues from COPAXONE and our MS market share.
COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. This patent is being challenged in various jurisdictions across Europe. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected. The patent was upheld by the Opposition Division of the European Patent Office in April 2019. A hearing for an appeal in this case has been set for June 2020.
The market for MS treatments continues to develop, particularly with the approvals of generic versions of COPAXONE discussed above, as well as additional generic versions expected to be approved in the future. Oral treatments for MS, such as Tecfidera
®
, Gilenya
®
and Aubagio
®
, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus
®
.
Our COPAXONE revenues were $1,512 million, $2,365 million and $3,801 million in 2019, 2018, and 2017, respectively. Following the approval of generic competition, COPAXONE’s revenues and profitability have decreased. We expect this trend to continue in the future, which is expected to have a material adverse effect on our financial results and cash flow.
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If generic products that compete with any of our specialty products are approved and sold, sales of our specialty products will be adversely affected.
In addition to COPAXONE, certain of our other leading specialty medicines also face patent challenges and impending patent expirations. For example, 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. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo, under which Perrigo is now permitted to launch its generic product. In November 2017, we settled another patent challenge to ProAir HFA with Lupin, under which Lupin is now permitted to launch its generic product. As of the date hereof, neither Perrigo nor Lupin have launched generic versions of ProAir HFA. Also, in addition to the ANDAs and NDAs filed by competitors in connection with TREANDA and BENDEKA, Eagle has launched a
ready-to-dilute
bendamustine hydrochloride in June 2018, which directly competes with BENDEKA.
Generic equivalents for branded pharmaceutical products are typically sold at lower costs than the branded products. After the introduction of a competing generic product, a significant percentage of the prescriptions previously written for the branded product are often written for the generic version. Legislation enacted in most U.S. states allows or, in some instances mandates, that a pharmacist dispense an available generic equivalent when filling a prescription for a branded product in the absence of specific instructions from the prescribing physician. Pursuant to the provisions of the Hatch Waxman Act, manufacturers of branded products often bring lawsuits to enforce their patent rights against generic products released prior to the expiration of branded products’ patents, but it is possible for generic manufacturers to offer generic products while such litigation is pending. As a result, branded products typically experience a significant loss in revenues following the introduction of a competing generic product, even if subject to an existing patent. Our specialty products are or may become subject to competition from generic equivalents because our patent protection expired or may expire soon. In addition, we may not be successful in our efforts to extend the proprietary protection afforded our specialty products through the development and commercialization of proprietary product improvements and new and enhanced dosage forms.
Our specialty pharmaceutical products face intense competition from companies that have greater resources and capabilities.
We face intense competition to our specialty pharmaceutical products. Many of our competitors are larger and/or have substantially longer experience in the development, acquisition and marketing of branded, innovative and consumer-oriented products. They may be able to respond more quickly to new or emerging market preferences or to devote greater resources to the development and marketing of new products and/or technologies than we can. As a result, any products and/or innovations that we develop may become obsolete or noncompetitive before we can recover the expenses incurred in connection with their development. In addition, we must demonstrate the benefits of our products relative to competing products that are often more familiar or otherwise better established to physicians, patients and third-party payers. If competitors introduce new products or new variations on their existing products, our marketed products, even those protected by patents, may be replaced in the marketplace or we may be required to lower our prices. For example:
 AJOVY, which was launched in the United States in September 2018, faces strong competition from two products that were introduced into the market around the same time and are competing for market share in the same space, as well as from other emerging competing therapies. Also, our auto-injector for AJOVY was just approved by the FDA in January 2020. Until we begin marketing AJOVY with the auto-injector, we are at a competitive disadvantage in our ability to sell and market this product.
 
 Our future success also depends on our ability to maximize the growth and commercial success of AUSTEDO. If our revenues derived from AUSTEDO do not increase as expected, this would have an adverse effect on our results of operations.
 
In addition, our specialty pharmaceutical products require much greater use of a direct sales force than does our core generics business. Our ability to realize significant revenues from direct marketing and sales activities
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depends on our ability to attract and retain qualified sales personnel. Competition for qualified sales personnel is intense. We may also need to enter into
co-promotion,
contract sales force or other such arrangements with third parties, for example, where our own direct sales force is not large enough or sufficiently well-aligned to achieve maximum market penetration. Any failure to attract or retain qualified sales personnel or to enter into third-party arrangements on favorable terms could prevent us from successfully maintaining current sales levels or commercializing new innovative and specialty products.
We have experienced, and may continue to experience, delays in launches of our new generic products.
Although we believe we have one of the most extensive pipelines of generic products in the industry, we were unable to successfully execute a number of key generic launches in 2017, 2018 and 2019. Certain launches planned for 2020 may also be delayed due to unforeseen circumstances. As a result of these delays, we may not realize the economic benefits previously anticipated in connection with these launches due to increased competition in the market for such products or otherwise. If we cannot execute timely launches of new products, we may not be able to offset the increasing price erosion on existing products in the United States resulting from pricing pressures and accelerated generics approvals for competing products. Such delays can be caused by many factors, including delays in regulatory approvals, lack of operational readiness or patent litigation. Delays in launches of new generic products could have a material adverse effect on our business, financial condition and results of operations.
Investments in our pipeline of specialty and other products may not achieve expected results.
We must invest significant resources to develop specialty medicines, both through our own efforts and through collaborations with, and
in-licensing
or acquisition of products from, third parties. We have entered into, and expect to pursue,
in-licensing,
acquisition and partnership opportunities to supplement and expand our existing specialty pipeline (e.g., the transactions with Celltrion, Eagle and Regeneron).
The development of specialty medicines involves processes and expertise different from those used in the development of generic medicines, which increase the risk of failure. For example, the time from discovery to commercial launch of a specialty medicine can be 15 years or more and involves multiple stages, including intensive preclinical and clinical testing and highly complex, lengthy and expensive approval processes, which vary from country to country. The longer it takes to develop a new product, the less time that remains to recover development costs and generate profits. Specialty medicines currently in development include fasinumab for osteoarthritic pain, AUSTEDO for Tourette syndrome and fremanezumab for post-traumatic headache and fibromyalgia.
During each stage, we may encounter obstacles that delay the development process and increase expenses, potentially forcing us to abandon a potential product in which we may have invested substantial amounts of time and money. These obstacles may include preclinical failures, difficulty enrolling patients in clinical trials, delays in completing formulation and other work needed to support an application for approval, adverse reactions or other safety concerns arising during clinical testing, insufficient clinical trial data to support the safety or efficacy of the product candidate and delays or failure to obtain the required regulatory approvals for the product candidate or the facilities in which it is manufactured. For example, in 2019, the development of CINQAIR/CINQAERO for severe asthma with eosinophilia and the development of fremanezumab for episodic cluster headache were both discontinued.
When we enter into partnerships and joint ventures with third parties, such as our collaborations with Celltrion, Eagle, Otsuka, Nuvelution and Regeneron, we face the risk that some of these third parties may fail to perform their obligations or fail to reach the levels of success that we are relying on to meet our revenue and profit goals. There is a trend in the specialty pharmaceutical industry of seeking to “outsource” drug development by acquiring companies with promising drug candidates and we face substantial competition from historically innovative companies, as well as companies with greater financial resources than us, for such acquisition targets.
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We may be unable to take advantage of the increasing number of high-value biopharmaceutical opportunities.
We aim to be a global leader in biopharmaceuticals. TRUXIMA, our first oncology biosimilar product in the United States, launched in November 2019 and is the first rituximab biosimilar to be approved in the United States. HERZUMA, a biosimilar to Herceptin
®
(trastuzumab), is expected to be available in the United States in the first quarter of 2020. We are developing a product pipeline and manufacturing capabilities for biosimilar products, which are expected to make up an increasing proportion of the high-value generic opportunities in the coming years. The development, manufacture and commercialization of biopharmaceutical products require specialized expertise and are very costly and subject to complex regulation, which is still evolving. We are behind many of our competitors in developing biopharmaceuticals and will require significant investments and collaborations with third parties to benefit from these opportunities. Failure to develop and commercialize biopharmaceuticals could have a material adverse effect on our business, financial condition, results of operations and prospects.
If pharmaceutical companies are successful in limiting the use of generic products through their legislative, regulatory and other efforts, our sales of generic products may suffer.
Many pharmaceutical companies increasingly have used state and federal legislative and regulatory means to delay generic competition. These efforts have included:
 pursuing new patents for existing products which may be granted just before the expiration of earlier patents, which could extend patent protection for additional years or otherwise delay the launch of generic competitors;
 
 selling the brand product as their own generic equivalent (an authorized generic), either by the brand company directly, through an affiliate or by a marketing partner;
 
 using the Citizen Petition process to request amendments to FDA standards or otherwise delay generic drug approvals;
 
 seeking changes to U.S. Pharmacopeia, an organization which publishes industry recognized compendia of drug standards;
 
 attempting to use the legislative and regulatory process to have drugs reclassified or rescheduled;
 
 attaching patent extension amendments to unrelated federal legislation; and
 
 entering into agreements with pharmacy benefit management companies that have the effect of blocking the dispensing of generic products.
 
If pharmaceutical companies or other third parties are successful in limiting the use of generic products through these or other means, our sales of generic products may decline. A material decline in generic product sales could have a material adverse effect on our business, financial condition and results of operations.
The United States Congress and various state legislatures in the United States have passed, or have proposed passing, legislation that could have an adverse impact on pharmaceutical manufacturers’ ability (i) to settle litigation initiated pursuant to the federal Hatch-Waxman Act and Biologics Price Competition and Innovation Act (“BPCIA”) and (ii) to secure the full benefit of
first-to-file
regulatory approval status secured under the federal Hatch-Waxman Act. Hatch-Waxman and BPCIA create various pathways for generic drug manufacturers to secure accelerated approvals of their abbreviated new drug applications and abbreviated biologics license applications. The new laws and proposals from the states and federal government could change Hatch-Waxman and BPCIA, as well as impact the ability of generic manufacturers to accelerate the launch of their new generic and biosimilar products, and the ability of brand manufacturers to protect their investments in the intellectual property associated with their branded specialty and innovative biologic products. Teva continues to monitor these legislative developments and advocate for policies that support both innovation and access to high quality medicines for patients.
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We depend on the effectiveness of our patents, confidentiality agreements and other measures to protect our intellectual property rights.
The success of our specialty medicines business depends substantially on our ability to obtain patents and to defend our intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market products identical or similar to ours. We have been issued numerous patents covering our specialty medicines, and have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. Currently pending patent applications may not result in issued patents or be approved on a timely basis or at all. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may be challenged or circumvented by competitors or governments.
Efforts to defend the validity of our patents are expensive and time-consuming, and there can be no assurance that such efforts will be successful. Our ability to enforce our patents also depends on the laws of individual countries and each country’s practices regarding the enforcement of intellectual property rights. The loss of patent protection or regulatory exclusivity on specialty medicines could materially impact our business, results of operations, financial condition and prospects. For example, COPAXONE 40 mg/mL is protected by one European patent expiring in 2030. The European Patent Office upheld the patent in its first instance decision; an appeal hearing will be heard in June 2020. This patent is also being challenged in various European jurisdictions.
We also rely on trade secrets, unpatented proprietary
know-how,
trademarks, regulatory exclusivity and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. These measures may not provide adequate protection for our unpatented technology. If these agreements are breached, it is possible that we will not have adequate remedies. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors or we may not be able to maintain the confidentiality of information relating to such products. If we are unable to adequately protect our technology, trade secrets or proprietary
know-how,
or enforce our intellectual property rights, our results of operations, financial condition and cash flows could suffer.
Risks related to our substantial indebtedness
We have substantial debt of $26,908 million as of December 31, 2019, which has increased our expenses and restricts our ability to incur additional indebtedness or engage in other transactions.
Our consolidated debt was $26,908 million at December 31, 2019, compared to $28,917 million at December 31, 2018. If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance our indebtedness and other financial transactions, seek additional debt or equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms, if at all. Any refinancing of our indebtedness could be at significantly higher interest rates, incur significant transaction fees or include more restrictive covenants. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” and note 9 to our consolidated financial statements for a detailed discussion of our outstanding indebtedness.
We may have lower-than-anticipated cash flows in the future, which could further reduce our available cash. Although we believe that we will have access to cash sufficient to meet our business objectives and capital needs, this reduced availability of cash could constrain our ability to grow our business. We may have lower-than-anticipated net income in the future. Our revolving credit facility 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. We borrowed $500 million from our revolving credit facility during 2019, which has since been fully repaid. As of December 31, 2019, we did not have any outstanding debt under the revolving credit facility. Under specified
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circumstances, including
non-compliance
with any of the covenants and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the revolving credit facility. Additionally, violations of the covenants, under certain circumstances, would result in an event of default in all borrowings under the revolving credit facility 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.
As of December 31, 2019, we were in compliance with all applicable financial ratios. We continue to take steps to reduce our debt levels and improve profitability to ensure continual compliance with the financial maintenance covenants. If such covenants will not be met, we believe we will be able to renegotiate and amend the covenants, or refinance the debt with different repayment terms to address such situation as circumstances warrant. We have amended such covenants in the past, including the net debt to EBITDA ratio covenant to permit a higher ratio, most recently in April 2019, when we amended the terms of our revolving credit facility. Although we have successfully negotiated amendments to our loan agreements in the past, we cannot guarantee that we will be able to amend such agreements on terms satisfactory to us, or at all, if required to maintain compliance in the future. If we experience lower than required earnings and cash flows to continue to maintain compliance and efforts could not be successfully completed on commercially acceptable terms, we may curtail additional planned spending, may divest additional assets in order to generate enough cash to meet our debt requirements and all other financial obligations.
This substantial level of debt and lower levels of cash flow and earnings have severely impacted our business and resulted in the restructuring plan announced in December 2017 that included: (i) a substantial reduction in our global workforce; (ii) substantial optimization of our generics medicines portfolio; (iii) the restructuring and optimization of our manufacturing and supply network, including the closure or divestment of a significant number of manufacturing plants around the world; (iv) a thorough review of R&D programs in preparation of the closure or divestment of a significant number of R&D facilities, headquarters and other office locations across all geographies; (v) a review of additional potential divestments of
non-core
assets; and (vi) the suspension of dividend payments to holders of ordinary shares.
Our substantial net debt could also have other important consequences to our business, including, but not limited to:
 making it more difficult for us to satisfy our obligations;
 
 
 limiting our ability to borrow additional funds and increasing the cost of any such borrowing;
 
 
 increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;
 
 
 limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
 
 placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly leveraged; and
 
 
 restricting us from pursuing certain business opportunities.
 
 
We may need to raise additional funds in the future, which may not be available on acceptable terms or at all.
We may consider issuing additional debt or equity securities in the future to refinance existing debt or for general corporate purposes, including to fund potential acquisitions or investments. If we issue ordinary equity, convertible preferred equity or convertible debt securities to raise additional funds, our existing shareholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing shareholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest and potentially lowering our credit
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ratings. We may not be able to market such issuances on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements.
If our credit ratings are further downgraded by leading rating agencies, we may not be able to raise debt or borrow funds in amounts or on terms that are favorable to us, if at all.
Our credit ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings at any time will reflect each rating organization’s then opinion of our financial strength, operating performance and ability to meet our debt obligations. Following the completion of the Actavis Generics acquisition, Standard and Poor’s Financial Services LLC (“Standard and Poor’s”) and Moody’s Investor Service, Inc. (“Moody’s”) downgraded our ratings to BBB and Baa2, respectively, compared to
A-
and A2, respectively, prior to the announcement of the acquisition in July 2015. In February 2017, following the court ruling invalidating our COPAXONE 40 mg/mL patents, both Standard and Poor’s and Moody’s changed our ratings outlook from stable to negative. In August 2017, following our release of revised 2017 guidance, both Standard and Poor’s and Moody’s downgraded our rating to
BBB-
and Baa3, respectively. In November 2017, Fitch Ratings Inc. (“Fitch”) downgraded our rating to
non-investment
grade, from
BBB-
to BB, with a negative outlook. On January 12, 2018, Moody’s downgraded our rating to
non-investment
grade from Baa3 to Ba2, with a stable outlook. On February 8, 2018, Standard and Poor’s downgraded our rating to
non-investment
grade from
BBB-
to BB, with a stable outlook. On February 14, 2019, Standard and Poor’s revised our rating outlook from stable to negative. On August 16, 2019, Moody’s revised our rating outlook to negative. On October 24, 2019, Standard and Poor’s placed our rating on Creditwatch negative following the announcement of the framework agreement to settle the multistate opioid litigation.
The downgrade of our ratings to
non-investment
grade by Fitch, Moody’s and Standard & Poor’s limits our ability to borrow at interest rates consistent with the interest rates that were available to us prior to such downgrades. This may limit our ability to sell additional debt securities or borrow money in the amounts, at the times or interest rates, or upon the terms and conditions that would have been available to us if our previous credit ratings had been maintained.
Additional risks related to our business and operations
Implementation of our restructuring plan may adversely affect our business, financial condition and results of operations.
In December 2017, we announced a comprehensive restructuring plan aimed at restoring our financial security and stabilizing our business by realizing operational efficiencies and reducing our total cost base by $3 billion by the end of 2019. The restructuring plan included:
 substantial optimization of the generics portfolio globally, and most specifically in the United States, through a more tailored approach to the portfolio with increased focus on profitability;
 
 
 closure or divestment of a significant number of manufacturing plants in the United States, Europe, Israel and International Markets;
 
 
 closure or divestment of a significant number of R&D facilities, headquarters and other office locations across all geographies; and
 
 
 a thorough review of all R&D programs across the Company to prioritize core projects and immediately terminate others.
 
 
The restructuring plan has resulted in the reduction of approximately 13,000 full-time-equivalent employees from Teva’s total workforce since December 31, 2017. We recorded restructuring charges of approximately $199 million in 2019 due to the implementation of the restructuring plan.
 
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We may face wrongful termination, discrimination or other legal claims from employees affected by ongoing changes in our workforce. We may incur substantial costs defending against such claims, regardless of their merits, and such claims may significantly increase our severance costs. Additionally, we may see variances in the estimated severance costs depending on the category of employees and locations in which severance is incurred.
Upon the proposed divestiture of any facility in connection with our ongoing plant optimization, we may not be able to divest such facility at a favorable price or in a timely manner. Any divestiture that we are unable to complete may cause additional costs associated with retaining the facility or closing and disposing of the impacted businesses.
The workforce reduction and site consolidation in connection with the restructuring plan, specifically the site consolidation in the United States, including the ongoing relocation of our principal U.S. headquarters from North Wales, Pennsylvania to Parsippany, New Jersey, may result in the loss of numerous long-term employees, the loss of institutional knowledge and expertise, the reallocation of certain job responsibilities and the disruption of business continuity, all of which could negatively affect operational efficiencies and our ability to achieve growth and profitability through the development and sale of new pharmaceutical products.
We cannot guarantee that, following completion of the restructuring plan, our business will be more efficient or effective than prior to implementation of the plan, and we may need to take additional restructuring steps in the future to maintain the goals announced in December 2017.
Our continued success depends on our ability to attract, hire and retain highly skilled key personnel.
Given the size, complexity and global reach of our business and our multiple areas of focus, we are especially reliant upon our ability to recruit and retain highly qualified management and other key employees. Our ability to attract and retain such employees may be diminished by the relatively frequent senior management transitions in recent years (including the departure of our Chief Financial Officer, Head of Global Operations and Head of Global Brand and Communications in 2019) and the financial challenges we face. In addition, the success of our R&D activity depends on our ability to attract and retain sufficient numbers of skilled scientific personnel, which may be limited by the streamlining and reduction of our R&D programs. Any difficulty in recruiting, hiring, retaining and motivating talented and skilled members of our organization may delay or prevent the achievement of major business objectives.
Any significant leadership change or executive management transition involves risks. If there is a failure to effectively transfer knowledge or information as part of the leadership transition process, it may hinder our strategic planning, execution and anticipated performance.
Our success depends on our ability to develop and commercialize additional pharmaceutical products.
Our financial results depend upon our ability to develop and commercialize additional generic, specialty and biopharmaceutical products in a timely manner, particularly in light of the increasing generic competition to COPAXONE, generic and other competition to our respiratory products, such as ProAir, and patent challenges and impending patent expirations facing certain of our other specialty medicines, such as BENDEKA and TREANDA. Commercialization requires that we successfully develop, test and manufacture pharmaceutical products. All of our products must receive regulatory approval and meet (and continue to comply with) regulatory and safety standards; if health or safety concerns arise with respect to a product, we may be forced to withdraw it from the market. Developing and commercializing additional pharmaceutical products is also subject to difficulties relating to the availability, on commercially reasonable terms, of raw materials, including API and other key ingredients; preclusion from commercialization by the proprietary rights of others; the costs of manufacture and commercialization; costly legal actions brought by our competitors that may delay or prevent development or commercialization of a new product; and delays and costs associated with the approval process of the FDA and other U.S. and international regulatory agencies.
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The development and commercialization process, particularly with respect to specialty and biosimilar medicines, as well as the complex generic medicines that we increasingly focus on, is both time-consuming and costly, and involves a high degree of business risk. Our products currently under development, including fasinumab for osteoarthritic pain, AUSTEDO for Tourette syndrome and fremanezumab for post-traumatic headache and fibromyalgia, if and when fully developed and tested, may not perform as we expect. Necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to produce and market such products successfully and profitably. Delays in any part of the process or our inability to obtain regulatory approval of our products could adversely affect our operating results by restricting or delaying our introduction of new products.
We may be subject to further adverse consequences following our resolution with the United States government of our FCPA investigations and related matters
.
We are required to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar anti-corruption laws in other jurisdictions around the world where we do business. Compliance with these laws has been the subject of increasing focus and activity by regulatory authorities, both in the United States and elsewhere, in recent years. Actions by our employees, or by third-party intermediaries acting on our behalf, in violation of such laws, whether carried out in the United States or elsewhere in connection with the conduct of our business (including the conduct described below) have exposed us, and may further expose us, to significant liability for violations of the FCPA or other anti-corruption laws and accordingly may have a material adverse effect on our reputation, business, financial condition and results of operations.
In December 2016, we reached a resolution with the SEC and U.S. Department of Justice (“DOJ”) to fully resolve FCPA investigations by the DOJ and SEC. The resolution included a deferred prosecution agreement (“DPA”) by Teva to retain an independent compliance monitor for a period of three years. In November 2019, Teva’s independent compliance monitor certified that Teva’s compliance program is reasonably designed and implemented to prevent and detect violations of anti-corruption laws.
If, however, prior to the DPA being vacated and the consent decree expiring, the DOJ determines that we have committed a felony under federal law, provided deliberately false or misleading information or otherwise breached the DPA, we could be subject to prosecution and additional fines or penalties, including the deferred charges.
As a result of the settlement and the underlying conduct, our sales and operations in the affected countries may be negatively impacted, and we may be subject to additional criminal or civil penalties or adverse impacts, including lawsuits by private litigants or investigations and fines imposed by authorities other than the U.S. government. We have received inquiries from governmental authorities in certain of the countries referenced in our resolution with the SEC and DOJ and we entered into a contingent cessation of proceedings arrangement with Israeli authorities regarding an investigation into the conduct that was the subject of the FCPA investigation and resulted in the above-mentioned resolution with the SEC and DOJ, requiring us to pay approximately $22 million. In addition, there can be no assurance that the remedial measures we have taken and will take in the future will be effective or that there will not be a finding of a material weakness in our internal controls. Any one or more of the foregoing, including any violation of the DPA, could have a material adverse effect on our reputation, business, financial condition and results of operations.
Sanctions and other trade control laws create the potential for significant liabilities, penalties and reputational harm.
As a company with global operations, we may be subject to national laws as well as international treaties and conventions controlling imports, exports,
re-export,
transfer and diversion of goods (including finished goods, materials, APIs, packaging materials, other products and machines), services and technology. These include import and customs laws, export controls, trade embargoes and economic sanctions, restrictions on sales
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to parties that are listed on (or are owned or controlled by one or more parties listed on) denied party watch lists and anti-boycott measures (collectively “Customs and Trade Controls”). Applicable Customs and Trade Controls are administered by Israel’s Ministry of Finance, the U.S. Treasury’s Office of Foreign Assets Control (OFAC), the U.S. Department of Commerce, other U.S. agencies and multiple other agencies of other jurisdictions around the world where we do business. Customs and Trade Controls relate to a number of aspects of our business, including most notably the sales of finished goods and API as well as the licensing of our intellectual property. Compliance with Customs and Trade Controls has been the subject of increasing focus and activity by regulatory authorities, both in the United States and elsewhere, in recent years, and requirements under applicable Customs and Trade Controls in general change frequently. Although we have policies and procedures designed to address compliance with Customs and Trade Controls, actions by our employees, by third-party intermediaries (such as distributors and wholesalers) or others acting on our behalf in violation of relevant laws and regulations may expose us to liability and penalties for violations of Customs and Trade Controls and accordingly may have a material adverse effect on our reputation and our business, financial condition and results of operations.
Manufacturing or quality control problems may damage our reputation for quality production, demand costly remedial activities and negatively impact our financial results.
As a pharmaceutical company, we are subject to substantial regulation by various governmental authorities. For instance, we must comply with requirements of the FDA, EMA and other healthcare regulators with respect to the manufacture, labeling, sale, distribution, marketing, advertising, promotion and development of pharmaceutical products. Failure to strictly and promptly comply with these regulations and requirements may damage our reputation and lead to financial penalties, compliance expenditures associated with remediation efforts, the recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the applicable regulator’s review of our submissions, enforcement actions, injunctions and criminal prosecution.
We must register our facilities, whether located in the United States or elsewhere, with the FDA as well as with regulators outside the United States, and our products must be produced in a manner consistent with cGMP, or similar quality and compliance standards in each territory in which we manufacture. In addition, the FDA and other agencies periodically inspect our manufacturing facilities. Following an inspection, an agency may issue a notice listing conditions that are believed to violate cGMP or other regulations, or a warning letter for violations of “regulatory significance” that may result in enforcement action if not promptly and adequately corrected.
In recent years, regulatory agencies around the world have increased their scrutiny of pharmaceutical manufacturers. This has resulted in requests for product recalls, temporary plant shutdowns to address specific issues and other remedial actions. Our manufacturing facilities, as well as those of our vendors and manufacturing partners, have also been the subject of increased regulatory oversight, leading to increased expenditures required to ensure compliance with new or more stringent production and quality control regulations. For example:
 Following an inspection of our manufacturing plant in Davie, Florida, the FDA issued a Form
FDA-483
and in October 2018 notified us that the inspection of the site was 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 cGMP requirements as quickly and as thoroughly as possible. An FDA follow up inspection occurred in January 2020, resulting in some follow up findings. If we are unable to remediate the findings to the FDA’s satisfaction, we may face additional consequences. These would potentially include delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. We expect to generate approximately $230 million in revenues from this site in 2020, assuming remediation or enforcement does not cause
 
 
 
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 any unscheduled slowdown or stoppage at the facility or prevent approvals of new products from the site.
 
 We announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of an unexpected nitrosamine impurity in the API provided by our third party supplier in July 2018. Since July 2018, we have been actively engaged with regulatory agencies around the world in reviewing our sartan and other products to determine whether a previously unknown nitrosamine impurity called NDMA and/or other nitrosamine related impurities are present in specific products. Where necessary, we initiated additional voluntary recalls. The aggregate direct impact of this recall on our 2018 and 2019 financial statements was $54 million, primarily related to inventory write-downs and returns. As a result of this loss, we initiated negotiations with Zhejiang Huahai Pharmaceutical Co., Ltd. (“Huahai”), and in December 2019 we reached a settlement with Huahai resolving our claims related to certain sartan API supplied by Huahai to us. Under the settlement agreement, Huahai agreed to compensate Teva for some of the direct losses suffered by Teva and provide Teva prospective cost reductions for API. The settlement does not release Huahai from liability for our future purchases of API, or 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. Although we are permitted to seek indemnification from Huahai for the claims described above, as litigation is inherently uncertain it is possible that we may face challenges when enforcing a judgment against Huahai in China. In addition, multiple lawsuits have been filed in connection with this matter. These may lead to additional customer penalties, impairments, and litigation costs. We expect additional expenses and loss of revenues and profits in connection with this matter going forward.
 
These regulatory actions also adversely affected our ability to supply various products around the world and to obtain approvals for new products manufactured at the affected facilities. If any regulatory body were to require one or more of our significant manufacturing facilities to cease or limit production, our business and reputation could be adversely affected. In addition, because regulatory approval to manufacture a drug is site-specific, the delay and cost of remedial actions or obtaining approval to manufacture at a different facility could also have a material adverse effect on our business, financial condition and results of operations.
The manufacture of our products is highly complex, and an interruption in our supply chain or problems with internal or third party information technology systems could adversely affect our results of operations.
Our products are either manufactured at our own facilities or obtained through supply agreements with third parties. Many of our products are the result of complex manufacturing processes, and some require highly specialized raw materials. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, natural disasters, and environmental factors. For some of our key raw materials, we have only a single, external source of supply, and alternate sources of supply may not be readily available. If our supply of certain raw materials or finished products is interrupted from time to time, or proves insufficient to meet demand, our cash flows and results of operations could be adversely impacted. Moreover, the streamlining of our manufacturing network may result in our product supply becoming more dependent on a smaller number of specific manufacturing plants. Our inability to timely manufacture any of our key products may result in claims and penalties from customers and could have a material adverse effect on our business, financial condition and results of operations.
In recent years, medicine shortages have become an increasingly widespread problem around the world and particularly in Europe. We are working diligently across our supply chain to ensure continuous and stable supply. Many European countries are implementing legal and regulatory measures, such as mandatory stockpiling and high penalties in order to prevent supply disruptions. Such measures may lead to substantial monetary losses in case we experience long-term supply disruptions in the relevant territories.
We also rely on complex shipping arrangements to and from the various facilities of our supply chain. Customs clearance and shipping by land, air or sea routes rely on and may be affected by factors that are not in our full control or are hard to predict.
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The workforce reduction and site consolidation in connection with the restructuring plan resulted in the loss of numerous long-term employees, the loss of institutional knowledge and expertise, and the reallocation of certain job responsibilities, all of which could negatively affect operational efficiencies going forward.
In addition, we rely on complex information technology systems, including Internet-based systems, to support our supply-chain processes as well as internal and external communications. The size and complexity of our systems make them potentially vulnerable to breakdown or interruption, whether due to computer viruses, lack of system upgrades or other causes that may result in the loss of key information or the impairment of production and other supply chain processes. Such disruptions and breaches of security could have a material adverse effect on our business, financial condition and results of operation.
Significant disruptions of our information technology systems could adversely affect our business.
We rely extensively on information technology systems in order to conduct business, including some systems that are managed by third-party service providers. These systems include, but are not limited to, programs and processes relating to internal and external communications, ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers, processing transactions, summarizing and reporting results of operations, and complying with regulatory, legal or tax requirements. These information technology systems could be damaged or cease to function properly due to the poor performance or failure of third-party service providers, catastrophic events, power outages, network outages, failed upgrades or other similar events. If our business continuity plans do not effectively resolve such issues on a timely basis, we may suffer significant interruptions in conducting our business, which may adversely impact our business, financial condition and results of operations.
Furthermore, our systems and networks have been, and are expected to continue to be, the target of advanced cyber-attacks which may pose a risk to the security of our systems and the confidentiality, availability and integrity of our data, as well as disrupt our operations or damage our facilities or those of third parties. As cybersecurity threats rapidly evolve in sophistication and become more prevalent, we are continually increasing our attention to these threats. We assess potential threats and vulnerabilities and make investments seeking to address them, including ongoing monitoring and updating of networks and systems, increasing specialized information security skills, deploying employee security training and updating our security policies. However, because the techniques, tools and tactics used in cyber-attacks frequently change and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after such an attack. As a result, a significant cyber-attack on our information technology systems may lead to substantial interruptions in our business, legal claims and liability, regulatory investigations and penalties, and reputational damage, which could have a material adverse effect on our business, financial condition and results of operations.
A significant data security breach could adversely affect our business and reputation.
In the ordinary course of our business, we collect and store sensitive data in our data centers and on our networks, including intellectual property, proprietary business information (both ours and that of our customers, suppliers and business partners) and personally identifiable information of our employees. We are subject to laws and regulations governing the collection, use and transmission of personal information, including health information. As the legislative and regulatory landscape for data privacy and protection continues to evolve around the world, there has been an increasing focus on privacy and data protection issues that may affect our business, including the U.S.’s federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), the EU’s General Data Protection Regulation (“GDPR”), California Consumer Privacy Act (“CCPA”) and other laws and regulations governing the collection, use, disclosure and transmission of data.
HIPAA mandates the adoption of specific standards for electronic transactions and code sets that are used to transmit certain types of health information. HIPAA’s objective is to encourage efficiency and reduce the cost of
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operations within the healthcare industry. To protect the information transmitted using the mandated standards and the patient information used in the daily operations of a covered entity, HIPAA also sets forth federal rules protecting the privacy and security of protected health information (“PHI”). The privacy and security regulations address the use and disclosure of individually identifiable health information and the rights of patients to understand and control how their information is used and disclosed. The law provides both criminal and civil fines and penalties for covered entities that fail to comply with HIPAA. Under HIPAA, covered entities must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic PHI maintained or transmitted by them or by others on their behalf. Covered entities we engage are in material compliance with the privacy, security and National Provider Identifier requirements of HIPAA.
The Health Information Technology for Economic and Clinical Health (“HITECH”) Act imposed certain of the HIPAA privacy and security requirements directly upon business associates of covered entities and significantly increased the monetary penalties for violations of HIPAA. Regulations also require business associates to notify covered entities, who in turn must notify affected individuals and government authorities, of data security breaches involving unsecured PHI. Since the passage of the HITECH Act, enforcement of HIPAA violations has increased. If we knowingly breach the HIPAA privacy and security requirements made applicable to business associates by the HITECH Act, it could expose us to criminal liability (as well as contractual liability to the associated covered entity); a breach of safeguards and processes that is not due to reasonable cause or involves willful neglect could expose us to significant civil penalties and the possibility of civil litigation under HIPAA and applicable state law.
We have procedures in place to detect and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. We outsource administration of certain functions to vendors that could be targets of cyber attacks. Any theft, loss and/or fraudulent use of customer, employee or proprietary data as a result of a cyber attack targeting us or one of our third-party service providers could subject us to significant litigation, liability and costs, as well as adversely impact our reputation with customers and regulators, among others. If our efforts to protect the security of information about our customers, suppliers and employees are unsuccessful, a significant data security breach may result in costly government enforcement actions, private litigation and negative publicity resulting in reputation or brand damage with customers, and our business, financial condition, results of operations or prospects could suffer. While we maintain insurance coverage that is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the event we experience a cybersecurity incident, data security breach or disruption, unauthorized access or failure of systems.
Because our facilities are located throughout the world, we are subject to varying intellectual property laws that may adversely affect our ability to manufacture our products.
We are subject to intellectual property laws in all countries where we have manufacturing facilities. Modifications of such laws or court decisions regarding such laws may adversely affect us and may impact our ability to produce and export products manufactured in any such country in a timely fashion. Additionally, the existence of third-party patents in such countries, with the attendant risk of litigation, may cause us to move production to a different country (potentially leading to significant production delays) or otherwise adversely affect our ability to export certain products from such countries.
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We have significant operations globally, including in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism, which exposes us to risks and challenges associated with conducting business internationally.
We are a global pharmaceutical company with worldwide operations. Although approximately 51% of our sales are in the United States and Western Europe, an increasing portion of our sales and operational network are located in other regions, such as Latin America, Central and Eastern Europe and Asia, which may be more susceptible to political and economic instability. Other countries and regions, such as the United States and Western Europe, also face potential instability due to political and other developments. In the United States, although the reforms in the U.S. tax code did not include a “border adjustment tax” or other restrictions on trade, if such tax or restriction were to be implemented in the future, this could interfere with international trade in pharmaceuticals. In addition, in the United States, the executive administration has discussed, and in some cases implemented, changes with respect to certain trade policies, tariffs and other government regulations affecting trade between the United States and other countries. As a company that manufactures most of its products outside the United States, a “border adjustment tax” or other restriction on trade, if enacted, may have a material adverse effect on our business, financial condition and results of operations. In addition, given that a significant portion of our business is conducted in the European Union, including the U.K., the formal change in the relationship between the U.K. and the European Union caused by the U.K. referendum to leave the European Union, referred to as “Brexit,” may pose certain implications to our research, commercial and general business operations in the U.K. and the European Union, including the approval and supply of our products. Finalization of the long-term relationship between the United Kingdom and the European Union following the end of the transitional period as early as December 31, 2020 and the impact on the remaining European Union countries will dictate how and whether the broader European Union will be impacted and what the resulting impact on our business may be.
Significant portions of our operations are conducted outside the markets in which our products are sold, and accordingly we often import a substantial number of products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability to ship products from any of our sites as a result of a closing of the borders of the countries in which we sell our products, or in which our operations are located, due to economic, legislative, political and military conditions, including hostilities and acts of terror, in such countries. In addition, certain countries have put regulations in place requiring local manufacturing of goods, while foreign-made products are subject to pricing penalties or even bans from participation in public procurement auctions.
We face additional risks inherent in conducting business internationally, including compliance with laws and regulations of many jurisdictions that apply to our international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, competition regulations, import and trade restrictions, economic sanctions, export requirements, the Foreign Corrupt Practices Act, the UK Bribery Act 2010 and other local laws that prohibit corrupt payments to governmental officials or certain payments or remunerations to customers. Given the high level of complexity of these laws, there is a risk that some provisions may be breached by us, for example through fraudulent or negligent behavior of individual employees (or third parties acting on our behalf), our failure to comply with certain formal documentation requirements, or otherwise. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violation could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our ability to attract and retain employees, our business, our financial condition and our results of operations.
Our corporate headquarters and a sizable portion of our manufacturing activities are located in Israel. Our Israeli operations are dependent upon materials imported from outside Israel. Accordingly, our operations could be materially and adversely affected by acts of terrorism or if major hostilities were to occur in the Middle East or trade between Israel and its present trading partners were materially impaired, including as a result of acts of terrorism in the United States or elsewhere.
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A significant portion of our revenues is derived from sales to a limited number of customers.
A significant portion of our revenues are derived from sales to a limited number of customers. If we were to experience a significant reduction in or loss of business with one or more such customers, or if one or more such customers were to experience difficulty in paying us on a timely basis, our business, financial condition and results of operations could be materially adversely affected. During the years ended December 31, 2019, 2018 and 2017, McKesson Corporation represented 13%, 12% and 16% of our revenues, respectively, and AmerisourceBergen Corporation represented 12%, 14% and 15% of our revenues, respectively.
We may not be able to find or successfully bid for suitable acquisition targets or licensing opportunities, or consummate and integrate future acquisitions.
We may evaluate or pursue potential acquisitions, collaborations and licenses, among other transactions. Relying on acquisitions and other transactions as sources of new specialty, biosimilar and other products, or a means of growth, involves risks that could adversely affect our future revenues and operating results. For example:
 Appropriate opportunities to enable us to execute our business strategy may not exist, or we may fail to identify them.
 
 Competition in the pharmaceutical industry for target companies and development programs has intensified and has resulted in decreased availability of, or increased prices for, suitable transactions. We may not be able to pursue relevant transactions due to financial capacity constraints.
 
 We may not be able to obtain necessary regulatory approvals, including those of competition authorities, and as a result, or for other reasons, we may fail to consummate an announced acquisition.
 
 The negotiation of transactions may divert management’s attention from our existing business operations, resulting in the loss of key customers and/or personnel and exposing us to unanticipated liabilities.
 
 We may fail to integrate acquisitions successfully in accordance with our business strategy or achieve expected synergies and other results. Integrating the operations of multiple new businesses with that of our own is a complex, costly and time-consuming process, which requires significant management attention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would preclude realization of the full benefits expected by us.
 
 We may not be able to retain experienced management and skilled employees from the businesses we acquire and, if we cannot retain such personnel, we may not be able to attract new skilled employees and experienced management to replace them.
 
 We may purchase a company that has excessive known or unknown contingent liabilities, including, among others, patent infringement or product liability claims, or that otherwise has significant regulatory or other issues not revealed as part of our due diligence.
 
We may decide to sell assets, which could adversely affect our prospects and opportunities for growth.
We may from time to time consider selling certain assets if we determine that such assets are not critical to our strategy or we believe the opportunity to monetize the asset is attractive or for various other reasons, including for the reduction of indebtedness. We closed or divested a significant number of manufacturing plants and R&D facilities in connection with our restructuring plan and may close or divest additional plants and facilities as part of our ongoing efficiency measures and plant rationalization process. We have explored and may continue to explore the sale of certain
non-core
assets. We may fail to identify appropriate opportunities to divest assets on terms acceptable to us. If divestiture opportunities are found, consummation of any such divestiture may be subject to closing conditions, including obtaining necessary regulatory approvals, including those of competition authorities, and as a result, or for other reasons, we may fail to consummate an announced
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divestiture. Although our expectation is to engage in asset sales only if they advance or otherwise support our overall strategy, any such sale could reduce the size or scope of our business, our market share in particular markets or our opportunities with respect to certain markets.
We may experience difficulties operating our new global enterprise resource planning (“ERP”) system.
We rely heavily on various information and other business systems to manage our complex global operations. In the third quarter of 2019, we implemented a new ERP system for a substantial portion of our U.S. business to upgrade certain operational and financial processes. We intend to implement the same ERP system on a global basis, including for a substantial portion of our Israeli operations in the first quarter of 2020.
Implementing and operating new systems carries substantial risk, including failure to operate as designed, failure to properly integrate with other systems, potential loss of data or information, cost overruns, implementation delays and disruption of operations. Any disruptions or malfunctions affecting our ERP system could cause critical information upon which we rely to be delayed, defective, corrupted, inadequate or inaccessible.
We do not expect that the recently implemented ERP system will have an adverse effect on our business. However, if the design or implementation of our new ERP system is deficient, it could adversely affect our operations, such as manufacturing or distribution, and/or the effectiveness of our internal controls.
Compliance, regulatory and litigation risks
We are subject to extensive governmental regulation, which can be costly and subject our business to disruption, delays and potential penalties.
We are subject to extensive regulation by the FDA and various other U.S. federal and state authorities and the EMA and other foreign regulatory authorities. The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, future products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues and substantial additional costs. For example, in the last three years, we experienced delays in obtaining anticipated approvals for various generic and specialty products, and we may continue to experience similar delays.
In addition, no assurance can be given that we will remain in compliance with applicable FDA and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. Our facilities are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities, and we must incur expense and expend effort to ensure compliance with these complex regulations. In addition, we are subject to regulations in various jurisdictions, including the Federal Drug Supply Chain Security Act in the U.S., the Falsified Medicines Directive in the EU and many other such regulations in other countries that require us to develop electronic systems to serialize, track, trace and authenticate units of our products through the supply chain and distribution system. Compliance with these regulations may result in increased expenses for us or impose greater administrative burdens on our organization, and failure to meet these requirements could result in fines or other penalties.
Failure to comply with all applicable regulatory requirements may subject us to operating restrictions and criminal prosecution, monetary penalties and other disciplinary actions, including, sanctions, warning letters, product seizures, recalls, fines, injunctions, suspension, shutdown of production, revocation of approvals or the inability to obtain future approvals, or exclusion from future participation in government healthcare programs. Any of these events could disrupt our business and have a material adverse effect on our revenues, profitability and financial condition.
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Healthcare reforms, and related reductions in pharmaceutical pricing, reimbursement and coverage, by governmental authorities and third-party payers may adversely affect our business.
The continuing increase in expenditures for healthcare has been the subject of considerable government attention almost everywhere we conduct business. Both private health insurance funds and government health authorities continue to seek ways to reduce or contain healthcare costs, including by reducing or eliminating coverage for certain products and lowering reimbursement levels. The focus on reducing or containing healthcare costs has been increased by controversies, political debate and publicity about prices for pharmaceutical products that some consider excessive, including Congressional and other inquiries into drug pricing, including with respect to our specialty medicines, which could have a material adverse effect on our reputation. In most of the countries and regions where we operate, including the United States, Western Europe, Israel, Russia, Japan, certain countries in Central and Eastern Europe and several countries in Latin America, pharmaceutical prices are subject to new government policies designed to reduce healthcare costs, and may be subject to additional regulatory efforts, funding restrictions, legislative proposals, policy interpretations, investigations and legal proceedings regarding pricing practices. These changes frequently adversely affect pricing and profitability and may cause delays in market entry. Certain U.S. states have implemented, and other states are considering, pharmaceutical price controls or patient access constraints under the Medicaid program, and some jurisdictions are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Private third-party payers, such as health plans, increasingly challenge pharmaceutical product pricing, which could result in lower prices, lower reimbursement rates and a reduction in demand for our products. We cannot predict which additional measures may be adopted or the impact of current and additional measures on the marketing, pricing and demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
Significant developments that may adversely affect pricing in the United States include (i) the enactment of federal healthcare reform laws and regulations, including the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the ACA and (ii) trends in the practices of managed care groups and institutional and governmental purchasers, including the impact of consolidation of our customers. Changes to the healthcare system enacted as part of healthcare reform in the United States, as well as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, may result in increased pricing pressure by influencing, for instance, the reimbursement policies of third-party payers. Healthcare reform legislation has increased the number of patients who have insurance coverage for our products, but provisions such as the assessment of a branded pharmaceutical manufacturer fee and an increase in the amount of rebates that manufacturers pay for coverage of their drugs by Medicaid programs may have an adverse effect on us. It is uncertain how current and future reforms in these areas will influence the future of our business operations and financial condition. In 2017, a new executive administration, which had promised to repeal and replace the ACA, took office in the United States. In December 2018, a U.S. federal district court ruled that the ACA is unconstitutional, but such decision has been stayed and will not take effect while such decision is on appeal. We cannot predict the outcome of litigation regarding the constitutionality of the ACA or the form any replacement of the ACA may take, if any, although it may have the impact of reducing the number of insured individuals as well as coverage for pharmaceutical products.
In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement governmental controls on pharmaceutical pricing. Both the executive and legislative branches of the U.S. government have recently unveiled a number of proposals to implement such controls, including a proposal to move from the current U.S. pricing and reimbursement regime to one that would establish pharmaceutical pricing by reference to a target price derived from the international price index (such a change may be expected to result in significant savings for the government for purchases of certain pharmaceuticals). Certain states have also proposed measures that are designed to control the costs of pharmaceuticals for which they provide reimbursement. A change in pharmaceutical pricing in the United States (through the federal or state governments) based on the international price index (or similar model) could have a substantial adverse effect on the revenues generated from the sale of our specialty products in the United States.
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In addition, “tender systems” for generic pharmaceuticals have been implemented (by both public and private entities) in a number of significant markets in which we operate, including Germany and Russia, in an effort to lower prices. Under such tender systems, manufacturers submit bids that establish prices for generic pharmaceutical products. These measures impact marketing practices and reimbursement of drugs and may further increase pressure on reimbursement margins. Certain other countries may consider the implementation of a tender system. Failing to win tenders or our withdrawal from participating in tenders, or the implementation of similar systems in other markets leading to further price declines, could have a material adverse effect on our business, financial position and results of operations.
Public concern over the abuse of opioid medications in the United States, including increased legal and regulatory action, could negatively affect our business.
Certain governmental and regulatory agencies are focused on the abuse of opioid medications in the United States. Federal, state and local governmental and regulatory agencies are conducting investigations of us, other pharmaceutical manufacturers and other supply chain participants with regard to the manufacture, sale, marketing and distribution of opioid medications. A number of state attorneys general, including a coordinated multistate effort, are investigating our sales and marketing of opioids and we have received subpoena requests from the DOJ seeking documents relating to the manufacture, marketing and sale of opioid medications. In addition, we are currently litigating civil claims brought by various states and political subdivisions as well as private claimants, against various manufacturers, distributors and retail pharmacies throughout the United States in connection with our manufacture, sale and distribution of opioids. On October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General from North Carolina, Pennsylvania, Tennessee and Texas for a nationwide settlement framework. The framework is designed to provide a mechanism by which Teva attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof. Under this agreement, Teva would provide buprenorphine naloxone (sublingual tablets), in quantities with an estimated value 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. This global settlement framework is predicated on settlement with all U.S. states and related subdivisions. Teva cannot predict if the nationwide settlement framework will be finalized. Responding to governmental investigations and managing legal proceedings is costly and involves a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations, including failure to consummate the broad resolution contemplated by the framework agreement, may involve substantial monetary penalties and could have a material adverse effect on our reputation, business, results of operations and cash flows. See “Government Investigations and Litigation Relating to Pricing and Marketing” in note 12 to the consolidated financial statements.
In addition, legislative, regulatory or industry measures to address the misuse of prescription opioid medications may also affect our business in ways that we are not able to predict. For example, a number of states, including New York, have enacted legislation that requires entities to pay assessments or taxes on the sale or distribution of opioid medications in those states. If other state or local jurisdictions successfully enact similar legislation and we are not able to mitigate the impact on our business through operational changes or commercial arrangements, such legislation in the aggregate may have a material adverse effect on our business, financial condition and results of operations.
Governmental investigations into sales and marketing practices may result in substantial penalties.
We operate around the world in complex legal and regulatory environments, and any failure to comply with applicable laws, rules and regulations may result in civil and/or criminal legal proceedings. As those rules and regulations change or as interpretations of those rules and regulations evolve, our prior conduct or that of companies we have acquired may be called into question. In the United States, we are currently responding to federal investigations into our marketing practices with regard to several of our specialty pharmaceutical
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products, which could result in civil litigation brought on behalf of the federal government. In addition, Teva is party to numerous claims brought by state officials and private plaintiffs, alleging that Teva, together with other pharmaceutical manufacturers, engaged in conspiracies to fix prices and/or allocate market share of generic products in the United States. Responding to such investigations is costly and involves a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. Future settlements may involve large monetary penalties. In addition, government authorities have significant leverage to persuade pharmaceutical companies to enter into corporate integrity agreements, which can be expensive and disruptive to operations. See “Government Investigations and Litigation Relating to Pricing and Marketing” in note 12 to our consolidated financial statements. Following calls in recent years from policy makers and other stakeholders in many countries for governmental intervention against the high prices of certain pharmaceutical products, we are currently and may be subject to governmental investigations, claims or other legal action or regulatory action regarding our pricing, including U.S. Congressional investigations regarding both our branded and generic medications. It is not possible to predict the ultimate outcome of any such investigations or claims or what other investigations or lawsuits or regulatory responses may result from such assertions, and could have a material adverse effect on our reputation, business, financial condition and results of operations.
Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products, and we have sold and may in the future elect to sell products prior to the final resolution of outstanding patent litigation, and, as a result, we could be subject to liability for damages in the United States, Europe and other markets where we do business.
Our ability to introduce new products depends in large part upon the success of our challenges to patent rights held by third parties or our ability to develop
non-infringing
products. Based upon a variety of legal and commercial factors, we may elect to sell a product even though patent litigation is still pending, either before any court decision is rendered or while an appeal of a lower court decision is pending. The outcome of such patent litigation could, in certain cases, materially adversely affect our business. For example, we launched a generic version of Protonix
®
(pantoprazole) despite pending litigation with the company that sells the brand versions, which we eventually settled in 2013 for $1.6 billion.
If we sell products prior to a final court decision, whether in the United States, Europe or elsewhere, and such decision is adverse to us, we could be required to cease selling the infringing products, causing us to lose future sales revenue from such products and to face substantial liabilities for patent infringement, in the form of either payment for the innovator’s lost profits or a royalty on our sales of the infringing products. These damages may be significant, and could materially adversely affect our business. In the United States, in the event of a finding of willful infringement, the damages assessed may be up to three times the profits lost by the patent owner. Because of the discount pricing typically involved with generic pharmaceutical products, patented brand products generally realize a significantly higher profit margin than generic pharmaceutical products. As a result, the damages assessed may be significantly higher than our profits. In addition, even if we do not suffer damages, we may incur significant legal and related expenses in the course of successfully defending against infringement claims.
We may be susceptible to significant product liability claims that are not covered by insurance.
Our business inherently exposes us to claims for injuries allegedly resulting from the use of our products. As our portfolio of available products expands, particularly with new specialty products, we may experience increases in product liability claims asserted against us.
Teva maintains an insurance program, 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. Teva sells, and will continue to sell, pharmaceutical products 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
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result, Teva may not be able to obtain the type and amount of insurance it desires, or any insurance on reasonable terms, in the markets in which it operates.
Our patent settlement agreements, which are important to our business, face increased government scrutiny in both the United States and Europe, and may expose us to significant damages.
We have been involved in numerous litigations involving challenges to the validity or enforceability of listed patents (including our own), and therefore settling patent litigations has been and will likely continue to be an important part of our business. Parties to such settlement agreements in the United States, including us, are required by law to file them with the Federal Trade Commission (“FTC”) and the Antitrust Division of the DOJ for review. In June 2013, the United States Supreme Court held, in Federal Trade Commission v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test – analyzing settlements in their entirety – should be applied to determine whether such settlements violate the federal antitrust laws. This test has resulted in increased scrutiny of Teva’s patent settlements, including by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.
Accordingly, we may receive formal or informal requests from the FTC for information about a particular settlement agreement, and there is a risk that the FTC, customers, other downstream purchasers or others, may commence an action against us alleging violations of antitrust laws. We have been, and are currently, defendants in private antitrust actions brought by the FTC involving numerous settlement agreements. In addition, in 2015, Cephalon entered into a
ten-year
consent decree with the FTC pursuant to which we agreed to certain injunctive relief with respect to the types of settlement agreements Teva may enter into to resolve patent litigation in the United States. In February 2019, a number of revisions were made in the consent decree and its
ten-year
period was restarted.
The United States Congress and certain state legislatures in the United States have also passed, or proposed passing, legislation that could adversely impact our ability to settle patent litigations. California, for example, has enacted legislation that prohibits, with certain exceptions and safe harbors, various types of patent litigation settlements, and imposes substantial monetary penalties on companies and individuals who do not comply. Such legislation, by creating a risk of significant potential exposure for settling patent litigations and, in turn, making it more difficult to settle in the first place, could have a material adverse effect on our business.
The European Commission is also placing intense scrutiny on the European pharmaceutical sector in general, including on patent settlement agreements, and has found that several patent settlement agreements had the goal of infringing competition. Such findings were confirmed by the European General Court. The increased scrutiny of the European pharmaceutical sector by the European Commission or other national authorities may also have an adverse impact on our results of operations in Europe. See “Competition Matters” in note 12 to our consolidated financial statements.
Any failure to comply with the complex reporting and payment obligations under the Medicare and Medicaid programs may result in further litigation or sanctions, in addition to those that we have announced in previous years.
The U.S. laws and regulations regarding Medicare and/or Medicaid reimbursement and rebates and other governmental programs are complex. Some of the applicable laws may impose liability even in the absence of specific intent to defraud. The subjective decisions and complex methodologies used in making calculations under these programs are subject to review and challenge, and it is possible that such reviews could result in material changes. A number of state attorney generals and others have filed lawsuits alleging that we and other pharmaceutical companies reported inflated average wholesale prices, leading to excessive payments by Medicare and/or Medicaid for prescription drugs. Such allegations could, if proven or settled, result in additional monetary penalties (beyond the lawsuits we have already settled) and possible exclusion from Medicare, Medicaid and other programs. In addition, we are notified from time to time of governmental investigations
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regarding drug reimbursement or pricing issues. See “Government Investigations and Litigation Relating to Pricing and Marketing” in note 12 to our consolidated financial statements. Certain parts of Medicare benefits are under scrutiny, as the U.S. Congress looks for ways to reduce government spending on prescription medicines.
Our failure to comply with applicable environmental laws and regulations worldwide could adversely impact our business and results of operations.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, storage, use and disposal of materials, including the discharge of pollutants into the environment. If we fail to comply with these laws and regulations, we may be subject to enforcement proceedings including fines and penalties. In the normal course of our business, we are also exposed to risks relating to possible releases of hazardous substances into the environment, which could cause environmental or property damage or personal injuries, and which could require remediation of contaminated soil and groundwater. Under certain laws, we may be required to remediate contamination at certain of our properties, regardless of whether the contamination was caused by us or by previous occupants or users of the property.
Additional financial risks
Because we have substantial international operations, our sales and profits may be adversely affected by currency fluctuations and restrictions as well as credit risks.
In 2019, approximately 48% of revenues were denominated in currencies other than the U.S. dollar. As a result, we are subject to significant foreign currency risks, including repatriation restrictions in certain countries, and may face heightened risks as we enter new markets. An increasing proportion of our sales, particularly in Latin America, Central and Eastern European countries and Asia, are recorded in local currencies, which exposes us to the direct risk of devaluations, hyperinflation or exchange rate fluctuations. Exchange rate movements during 2019 in comparison with 2018 negatively impacted overall revenues by $402 million and negatively impacted our operating income by $135 million. The imposition of price controls or restrictions on the conversion of foreign currencies could also have a material adverse effect on our financial results.
In particular, although the majority of our net sales and operating costs is recorded in, or linked to, the U.S. dollar, our reporting currency, in 2019 we incurred a substantial amount of operating costs in currencies other than the U.S. dollar.
As a result, fluctuations in exchange rates between the currencies in which such costs are incurred and the U.S. dollar may have a material adverse effect on our results of operations, the value of balance sheet items denominated in foreign currencies and our financial condition.
We use derivative financial instruments and “hedging” techniques to manage some of our net exposure to currency exchange rate fluctuations in the major foreign currencies in which we operate. However, not all of our potential exposure is covered, and some elements of our consolidated financial statements, such as our equity position or operating profit, are not fully protected against foreign currency exposures. Therefore, our exposure to exchange rate fluctuations could have a material adverse effect on our financial results.
Our intangible assets may continue to lead to significant impairments in the future.
We regularly review our long-lived assets, including identifiable intangible assets, goodwill and property, plant and equipment, for impairment. Goodwill and acquired indefinite life intangible assets are subject to impairment review on an annual basis and whenever potential impairment indicators are present. Other long-lived assets are reviewed when there is an indication that impairment may have occurred. The amount of
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goodwill, identifiable intangible assets and property, plant and equipment on our consolidated balance sheet has increased significantly in the past five years mainly as a result of our acquisitions. In 2017, we recorded goodwill impairments of $17.1 billion and impairments of intangible assets of $3.2 billion. In 2018, we recorded goodwill impairments of $3.0 billion and impairments of intangible assets of $2.0 billion. In 2019, we recorded impairments of intangible assets of $1,639 million. Changes in market conditions or other changes in the future outlook of value may lead to further impairments in the future. In addition, the potential divestment of assets, including the closure or divestment of manufacturing plants and R&D facilities, headquarters and other office locations, may lead to additional impairments. Future events or decisions may lead to asset impairments and/or related charges. For assets that are not impaired, we may adjust the remaining useful lives. Certain
non-cash
impairments may result from a change in our strategic goals, business direction or other factors relating to the overall business environment. Any significant impairment could have a material adverse effect on our results of operations.
Our tax liabilities could be larger than anticipated.
We are subject to tax in many jurisdictions, and significant judgment is required in determining our provision for income taxes. Likewise, we are subject to audit by tax authorities in many jurisdictions. In such audits, our interpretation of tax legislation may be challenged and tax authorities in various jurisdictions may disagree with, and subsequently challenge, the amount of profits taxed in such jurisdictions under our inter-company agreements.
Although we believe our estimates are reasonable, the ultimate outcome of such audits and related litigation could be different from our provision for taxes and may have a material adverse effect on our consolidated financial statements and cash flows.
The base erosion and profit shifting (“BEPS”) project undertaken by the Organization for Economic Cooperation and Development (“OECD”) may have adverse consequences to our tax liabilities. The BEPS project contemplates changes to numerous international tax principles, as well as national tax incentives, and these changes, when adopted by individual countries, could adversely affect our provision for income taxes. Countries have only recently begun to translate the BEPS recommendations into specific national tax laws, and it remains difficult to predict the magnitude of the effect of such new rules on our financial results.
The termination or expiration of governmental programs or tax benefits, or a change in our business, could adversely affect our overall effective tax rate.
Our tax expenses and the resulting effective tax rate reflected in our consolidated financial statements may increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the various countries in which we operate or changes in our product mix or the mix of countries where we generate profit. We have benefited, and currently benefit, from a variety of Israeli and other government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain such benefits. If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received. Additionally, some of these programs and the related tax benefits are available to us for a limited number of years, and these benefits expire from time to time.
Any of the following could have a material effect on our overall effective tax rate:
 some government programs may be discontinued, or the applicable tax rates may increase;
 
 
 
 we may be unable to meet the requirements for continuing to qualify for some programs and the restructuring plan may lead to the loss of certain tax benefits we currently receive;
 
 
 
 these programs and tax benefits may be unavailable at their current levels;
 
 
 
 
 
48

upon expiration of a particular benefit, we may not be eligible to participate in a new program or qualify for a new tax benefit that would offset the loss of the expiring tax benefit; or
 
 
 we may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
 
 
Equity ownership risks
Shareholder rights and responsibilities as a shareholder are governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders of U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising his or her rights and performing his or her obligations towards the company and other shareholders, and to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of control and negatively impact our share price.
Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving directors, officers or significant shareholders, and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us or to some of our shareholders. For example, Israeli tax law may subject a shareholder who exchanges his or her ordinary shares for shares in a foreign corporation to taxation before disposition of the investment in the foreign corporation. These provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a change of control and, therefore, depress the price of our shares.
In addition, our articles of association contain certain provisions that may make it more difficult to acquire us, such as provisions that provide for a classified Board of Directors and that our Board of Directors may issue preferred shares. These provisions may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.
We do not expect to pay dividends in the near future.
Although we have paid dividends in the past, we do not expect to pay dividends in the near future. Any decision to declare and pay dividends in the future will be made by our Board of Directors, and will depend on, among other things, our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors may deem relevant. Accordingly, investors cannot rely on dividend income from our ordinary shares, and any returns in the near future on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.
49

Our ADSs and ordinary shares are traded on different markets and this may result in price variations.
Our ADSs have been traded in the United States since 1982, and since 2012 on the New York Stock Exchange (the “NYSE”), and our ordinary shares have been listed on the TASE since 1951. Trading in our securities on these markets takes place in different currencies (our ADSs are traded in U.S. dollars and our ordinary shares are traded in New Israeli Shekels), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). As a result, the trading prices of our securities on these two markets may differ due to these factors. In addition, any decrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.
It may be difficult to enforce a
non-Israeli
judgment against us, our officers and our directors.
We are incorporated in Israel. Certain of our executive officers and directors and our outside auditors are not residents of the United States, and a substantial portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce against us or any of those persons in an Israeli court a U.S. court judgment based on the civil liability provisions of the U.S. federal securities laws. It may also be difficult to effect service of process on these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions filed in Israel.
Substantial future sales or the perception of sales of our ADSs or ordinary shares, or securities convertible into our ADSs or ordinary shares, could cause the price of our ADSs or ordinary shares to decline.
Sales of substantial amounts of our ADSs or ordinary shares, or securities convertible into our ADSs or ordinary shares, in the public market, or the perception that these sales could occur, could adversely affect the price of our ADSs and ordinary shares, and could impair our ability to raise capital through the sale of such securities.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We own or lease 90 manufacturing and R&D facilities, occupying approximately 25.3 million square feet. As of December 31, 2019, our manufacturing and R&D facilities are used by our business segments as follows:
         
Business Segment
 
Number of
Facilities
  
Square Feet
(in thousands)
 
North America
  
19
   
4,442
 
Europe
  
34
   
12,605
 
International Markets
  
37
   
8,226
 
         
Worldwide Total Manufacturing and R&D Facilities
  
90
   
25,273
 
 
 
 
In addition to the manufacturing facilities discussed above, we maintain numerous office, distribution and warehouse facilities around the world.
We generally seek to own our manufacturing and R&D facilities, although some, principally in
non-U.S.
locations, are leased. Office, distribution and warehouse facilities are often leased.
50

We are committed to maintaining all of our properties in good operating condition and repair, and the facilities are well utilized.
In Israel, our principal executive offices and corporate headquarters in Petach-Tikva are leased until December 2021. We expect to move our corporate headquarters to a consolidated site in
Tel-Aviv
in 2020.
 
In the United States, our principal leased properties are our North American headquarters, warehousing and distribution centers and offices in Parsippany, New Jersey and Westchester, Pennsylvania. We are currently completing the process of relocating our principal U.S. headquarters from North Wales and Frazer, Pennsylvenia to Parsippany, New Jersey.
Following our comprehensive restructuring plan announced in December 2017, we continue with the optimization of our manufacturing and supply network, including the closure or divestment of manufacturing plants around the world.
ITEM 3.
LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in “Item 8. Financial Statements—Note 12b—Contingencies” and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
American Depositary Shares (“ADSs”)
Our ADSs, which have been traded in the United States since 1982, were admitted to trade on the Nasdaq National Market in October 1987 and were subsequently traded on the Nasdaq Global Select Market. On May 30, 2012, we transferred the listing of our ADSs to the New York Stock Exchange (the “NYSE”). The ADSs are quoted under the symbol “TEVA.” Citibank, N.A. serves as depositary for the ADSs. Each ADS represents one ordinary share.
Various other stock exchanges quote derivatives and options on our ADSs under the symbol “TEVA.”
Ordinary Shares
Our ordinary shares have been listed on the Tel Aviv Stock Exchange (“TASE”) since 1951.
Holders
The number of record holders of ADSs at December 31, 2019 was 2,767.
The number of record holders of ordinary shares at December 31, 2019 was 189.
The number of record holders is based upon the actual number of holders registered on our books at such date and does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.
51

Dividends
We have not paid dividends on our ordinary shares or ADSs since December 2017.
 
Our dividend policy is regularly reviewed by our Board of Directors based upon conditions then existing, including our earnings, financial condition, capital requirements and other factors. Our ability to pay cash dividends in the future may be restricted by instruments governing our debt obligations. When paid, dividends are declared in U.S. dollars and are paid by the depositary of our ADSs for the benefit of owners of ADSs. 
Dividends paid by an Israeli company to
non-Israeli
residents are generally subject to withholding of Israeli income tax at a rate of up to 25%. Such tax rates apply unless a lower rate is provided in a treaty between Israel and the shareholder’s country of residence. In our case, the applicable withholding tax rate will depend on the particular Israeli production facilities that have generated the earnings that are the source of the specific dividend and, accordingly, the applicable rate may change from time to time. A 20% tax is generally withheld on dividends declared and distributed.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
52

Performance Graph
Set forth below is a performance graph comparing the cumulative total return (assuming reinvestment of dividends), in U.S. dollars, for the calendar years ended December 31, 2015, 2016, 2017, 2018 and 2019, of $100 invested on December 31, 2014 in the Company’s ADSs, the Standard & Poor’s 500 Index and the Dow Jones U.S. Pharmaceuticals Index.
 
 
*$100 invested on December 31, 2014 in stock or index—including reinvestment of dividends. Indexes calculated on
month-end
basis
 
 
 
 
 
 
 
 
 
53

ITEM 6. SELECTED FINANCIAL DATA
Operating Data
                     
 
For the year ended December 31,
 
 
    2019    
  
    2018    
  
    2017    
  
    2016    
  
    2015    
 
 
(U.S. dollars in millions, except share and per share amounts)
 
Income Statement Data: 
(a)
               
Net revenues 
(b)
  
16,887
   
18,271
   
21,853
   
21,464
   
19,303
 
Cost of sales 
(b)
  
9,351
   
9,975
   
11,237
   
9,811
   
8,183
 
                     
Gross profit
  
7,537
   
8,296
   
10,615
   
11,653
   
11,120
 
Research and development expenses
  
1,010
   
1,213
   
1,778
   
2,077
   
1,525
 
Selling and marketing expenses
  
2,614
   
2,916
   
3,395
   
3,583
   
3,242
 
General and administrative expenses
  
1,192
   
1,298
   
1,451
   
1,390
   
1,360
 
Intangible assets impairment
  
1,639
   
1,991
   
3,238
   
589
   
265
 
Goodwill impairment
  
—  
   
3,027
   
17,100
   
900
   
—  
 
Other asset impairments, restructuring and other items
  
423
   
987
   
1,836
   
830
   
911
 
Legal settlements and loss contingencies
  
1,178
   
(1,208
)  
500
   
899
   
631
 
Other Income
  
(76
)  
(291
)  
(1,199
)  
(769
)  
(166
)
                     
Operating income (loss)
  
(443
)  
(1,637
)  
(17,484
)  
2,154
   
3,352
 
Financial expenses—net
  
822
   
959
   
895
   
1,330
   
1,000
 
                     
Income (loss) before income taxes
  
(1,265
)  
(2,596
)  
(18,379
)  
824
   
2,352
 
Income taxes (benefit)
  
(278
)  
(195
)  
(1,933
)  
521
   
634
 
Share in (profits) losses of associated companies—net
  
13
   
71
   
3
   
(8
)  
121
 
                     
Net income (loss)
  
(1,000
)  
(2,472
)  
(16,449
)  
311
   
1,597
 
Net income (loss) attributable to
non-controlling
interests
  
(2
)  
(322
)  
(184
)  
(18
)  
9
 
                     
Net income (loss) attributable to Teva
  
(999
)  
(2,150
)  
(16,265
)  
329
   
1,588
 
                     
Accrued dividends on preferred shares
  
—  
   
249
   
260
   
261
   
15
 
                     
Net income (loss) attributable to ordinary shareholders
  
(999
)  
(2,399
)  
(16,525
)  
68
   
1,573
 
                     
Earnings (loss) per share attributable to ordinary shareholders:
               
Basic ($)
  
(0.91
)  
(2.35
)  
(16.26
)  
0.07
   
1.84
 
                     
Diluted ($)
  
(0.91
)  
(2.35
)  
(16.26
)  
0.07
   
1.82
 
                     
Weighted average number of shares (in millions):
               
Basic
  
1,091
   
1,021
   
1,016
   
955
   
855
 
                     
Diluted
  
1,091
   
1,021
   
1,016
   
961
   
864
 
                     
Dividends per ordinary share
  
—  
   
—  
  $
0.51
  $
1.36
  $
1.36
 
 
 
 
 
 
 
 
(a)For a discussion of items that affected the comparability of results for the years 2019, 2018 and 2017, refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
 
 
 
 
 
(b)The data presented for prior periods (including the years 2015 and 2016) have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1b to our consolidated financial statements for additional information.
 
 
 
 
 
 
54

Balance Sheet Data
                     
 
As at December 31,
 
 
2019
  
2018
  
2017
  
2016
  
2015
 
 
(U.S. dollars in millions)
 
Financial assets (cash, cash equivalents and investment in securities)
  
2,033
   
1,846
   
1,060
   
1,949
   
8,404
 
Identifiable intangible assets, net
  
11,232
   
14,005
   
17,640
   
21,487
   
7,675
 
Goodwill
  
24,846
   
24,917
   
28,414
   
44,409
   
19,025
 
Working capital (operating assets minus liabilities)
  
74
   
(186
)  
(384
)  
303
   
32
 
Total assets
  
57,470
   
60,683
   
70,615
   
93,057
   
54,233
 
Short-term debt, including current maturities
  
2,345
   
2,216
   
3,646
   
3,276
   
1,585
 
Long-term debt, net of current maturities
  
24,562
   
26,700
   
28,829
   
32,524
   
8,358
 
                     
Total debt
  
26,908
   
28,916
   
32,475
   
35,800
   
9,943
 
Total equity
  
15,063
   
15,794
   
18,745
   
34,993
   
29,927
 
 
 
 
 
 
 
 
 
 
55

ITEM 7. 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.
In December 2017, we announced a comprehensive
two-year
restructuring plan intended to reduce our cost base by $3 billion, unify and simplify our organization and improve business performance, profitability, cash flow generation and productivity. This plan achieved its goals, including a total cost base reduction of $3 billion by the end of 2019. We are continuing to evaluate opportunities to further optimize our manufacturing and supply network to achieve additional operational efficiencies.
Highlights
Significant highlights of 2019 included:
 Our revenues in 2019 were $16,887 million, a decrease of 8% in U.S. dollar, or 5% in local currency terms, compared to 2018, mainly due to generic competition to COPAXONE, a decline in revenues from our U.S. generics business, BENDEKA/TREANDA and Japan, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR in the United States. 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 1b to our consolidated financial statements for additional information.
 
 
 
 
 
 
 Our North America segment generated revenues of $8,542 million and profit of $2,252 million in 2019. Revenues decreased by 8%, mainly due to a decline in revenues from COPAXONE, our U.S. generics business and certain other specialty products, partially offset by higher revenues from AUSTEDO, our Anda business and AJOVY. Profit decreased by 21%, mainly due to lower revenues from COPAXONE and
non-recurrence
of other income, partially offset by cost reductions and efficiency measures as part of the restructuring plan.
 
 
 
 
 
 
 Our Europe segment generated revenues of $4,795 million and profit of $1,318 million in 2019. Revenues decreased by 8%, or 2% in local currency terms, mainly due to a decline in COPAXONE
 
 
 
 
 
 
56

 revenues due to competing glatiramer acetate products, lower sales of respiratory products in the United Kingdom and lower revenues from our oncology products due to competing biopharmaceutical products, partially offset by new generic product launches. Profit increased by 4%, mainly due to cost reductions and efficiency measures as part of the restructuring plan.
 
 
 
 Our International Markets segment generated revenues of $2,246 million and profit of $464 million in 2019. Revenues decreased by 7%, or 3% in local currency terms, mainly due to lower sales in Japan and certain discontinued activities in Israel. Profit decreased by 7%, mainly due to lower revenues in Japan, partially offset by higher sales in other markets and lower S&M and G&A expenses. 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 1b to our consolidated financial statements for additional information.
 
 
 
 Impairment of identifiable intangible assets were $1,639 million and $1,991 million in the years ended December 31, 2019 and 2018, respectively. See note 6 to our consolidated financial statements.
 
 
 
 No goodwill impairment charges were recorded in 2019, compared to a goodwill impairment charge of $3,027 million in 2018.
 
 
 
 We recorded expenses of $423 million for other asset impairments, restructuring and other items in 2019, compared to expenses of $987 million in 2018. See note 15 to our consolidated financial statements.
 
 
 
 In 2019, we recorded an expense of $1,178 million in legal settlements and loss contingencies, compared to an income of $1,208 million in 2018. The expense in 2019 was mainly related to an estimated settlement provision recorded in connection with the remaining opioid cases. See note 12 to our consolidated financial statements.
 
 
 
 Operating loss was $443 million in 2019, compared to an operating loss of $1,637 million in 2018, mainly due to higher impairment charges recorded in 2018.
 
 
 
 Financial expenses were $822 million in 2019, compared to $959 million in 2018. Financial expenses in 2019 and 2018 were mainly comprised of interest expenses of $881 million and $920 million, respectively.
 
 
 
 In 2019, we recognized a tax benefit of $278 million, or 22%, on a
pre-tax
loss of $1,265 million. In 2018, we recognized a tax benefit of $195 million, or 8%, on a
pre-tax
loss of $2,596 million. Our tax rate for 2018 was lower than in 2019, due to
one-time
legal settlements and divestments that had a low corresponding tax effect.
 
 
 
 Exchange rate movements during 2019, in comparison with 2018, negatively impacted revenues by $402 million and operating income by $135 million.
 
 
 
 As of December 31, 2019, our debt was $26,908 million, compared to $28,916 million as of December 31, 2018. This decrease was mainly due to senior notes repaid at maturity or prepaid with cash generated during the year.
 
 
 
 Cash flow generated from operating activities was $748 million in 2019, a decrease of $1,698 million, or 69%, compared to 2018. This decrease was mainly due to the working capital adjustment with Allergan and the Rimsa settlement in 2018 and lower profit in our North America segment.
 
 
 
 During 2019, we generated free cash flow of $2,053 million, which we define as comprising $748 million in cash flow generated from operating activities, $1,487 million in beneficial interest collected in exchange for securitized trade receivables and $343 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $525 million in cash used for capital investments.
 
 
 
57

Results of Operations
The following table sets forth, for the periods indicated, certain financial data derived from our financial statements, presented according to generally accepted accounting principles in the United States (“U.S. GAAP”), presented as percentages of net revenues, and the percentage change for each item as compared to the previous year.
                     
 
Percentage of Net Revenues
Year Ended December 31,
  
Percentage Change Comparison
 
 
    2019    
  
    2018    
  
    2017    
  
    
2019-2018
    
  
    
2018-2017
    
 
 
%
  
%
  
%
  
%
  
%
 
Net revenues
  
100.0
   
100.0
   
100.0
   
(8
)  
(16
)
Gross profit
  
44.6
   
45.4
   
48.6
   
(9
)  
(22
)
Research and development expenses
  
6.0
   
6.6
   
8.1
   
(17
)  
(32
)
Selling and marketing expenses
  
15.5
   
16.0
   
15.5
   
(10
)  
(14
)
General and administrative expenses
  
7.1
   
7.1
   
6.6
   
(8
)  
(11
)
Intangible assets impairments
  
9.7
   
10.9
   
14.8
   
(18
)  
(39
)
Goodwill impairment
  
*
   
16.6
   
78.3
   
(100
)  
(82
)
Other asset impairments, restructuring and other items
  
2.5
   
5.4
   
8.4
   
(57
)  
(46
)
Legal settlements and loss contingencies
  
7.0
   
(6.6
)  
2.3
   
n/a
   
n/a
 
Other Income
  
(0.5
)  
(1.6
)  
(5.5
)  
(74
)  
(76
)
Operating (loss) income
  
(2.6
)  
(9.0
)  
(80.0
)  
(73
)  
(91
)
Financial expenses—net
  
4.9
   
5.2
   
4.1
   
(14
)  
7
 
Income (loss) before income taxes
  
(7.5
)  
(14.2
)  
(84.2
)  
(51
)  
(86
)
Income taxes (benefit)
  
(1.6
)  
(1.1
)  
(8.8
)  
42
   
(90
)
Share in (profits) losses of associated companies—net
  
0.1
   
0.4
   
*
   
(81
)  
2,267
 
Net income (loss) attributable to
non-controlling
interests
  
*
   
(1.8
)  
*
   
(99
)  
922
 
Net income (loss) attributable to Teva
  
(5.9
)  
(11.8
)  
(74.4
)  
(54
)  
(87
)
 
 
 
 
 
 
 
*Represents an amount less than 0.5%.
 
 
 
 
 
 
Segment Information
North America Segment
The following table presents revenues, expenses and profit for our North America segment for the past three years:
                         
 
Year ended December 31,
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions / % of Segment Revenues)
 
Revenues
 $
8,542
   
100
% $
9,297
   
100.0
% $
12,141
   
100
%
Gross profit
  
4,350
   
50.9
%  
4,979
   
53.6
%  
7,322
   
60.3
%
R&D expenses
  
652
   
7.6
%  
713
   
7.7
%  
969
   
8.0
%
S&M expenses
  
1,021
   
12.0
%  
1,154
   
12.4
%  
1,288
   
10.6
%
G&A expenses
  
439
   
5.1
%  
484
   
5.2
%  
533
   
4.4
%
Other (income) expense
  
(14
)  
§
   
(209
)  
(2.2
%)  
(92
)  
(0.8
%)
                         
Segment profit*
 $
2,252
   
26.4
% $
2,837
   
30.5
% $
4,624
   
38.1
%
                         
 
 
 
 
 
 
 
*Segment profit does not include amortization and certain other items.
 
 
 
 
 
 
§Represents an amount less than 0.5%.
 
 
 
 
 
 
58

North America Revenues
Our North America segment includes the United States and Canada. Revenues from our North America segment in 2019 were $8,542 million, a decrease of $755 million, or 8%, compared to 2018, mainly due to a decline in revenues from COPAXONE, our U.S. generics business and certain other specialty products, partially offset by higher revenues from AUSTEDO, our Anda business and AJOVY.
Comparison of 2018 to 2017.
Revenues from our North America segment in 2018 were $9,297 million, compared to $12,141 million in 2017. This decrease was mainly due
to a decline in revenues from COPAXONE, our U.S. generics business, certain other specialty products
, as well as 
the loss of revenues from the sale of our women’s health business, partially offset by higher revenues from AUSTEDO and our Anda business
.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the past three years:
                 
 
Year ended December 31,
  
Percentage
Change
2018-2019
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions)
   
Generic products
 $
3,963
  $
4,056
  $
5,203
   
(2
%)
COPAXONE
  
1,017
   
1,759
   
3,116
   
(42
%)
BENDEKA/TREANDA
  
496
   
642
   
656
   
(23
%)
ProAir*
  
274
   
397
   
501
   
(31
%)
QVAR
  
250
   
182
   
313
   
38
%
AJOVY
  
93
   
3
   
—  
   
N/A
 
AUSTEDO
  
412
   
204
   
24
   
102
%
Anda
  
1,492
   
1,347
   
1,153
   
11
%
Other
  
546
   
708
   
1,175
   
(23
%)
                 
Total
 $
8,542
  $
9,297
  $
12,141
    
                 
 
 
 
 
 
 
 
*Does not include revenues from the ProAir authorized generic, which are included under generic products.
 
 
 
 
 
 
Generic products
revenues in our North America segment (including biosimilars) in 2019 decreased by 2% to $3,963 million, compared to 2018, mainly due to a decline in significant products resulting from competition and certain other factors, as well as price erosion across the portfolio. The most significant declines were in cinacalcet (the generic equivalent of Sensispar
®
), daptomycin (the generic equivalent of Cubicin
®
), methyphenidate (the generic equivalent of Ritalin
®
) and tadalafil (the generic equivalent of Cialis
®
). These declines were partially offset by new generic launches in 2019 and growth in certain products compared to 2018, primarily TRUXIMA (the biosimilar to Rituxan
®
), epinephrine injectable solution (the generic equivalent of EpiPen
®
and EpiPen Jr.
®
), amphetamine salt tablets (the generic equivalent of Adderall IR) and our authorized generic version of ProAir.
Among the most significant generic products we sold in North America in 2019 were epinephrine injectable solution (the generic equivalent of EpiPen
®
and EpiPen Jr.
®
), albuterol sulfate inhalation aerosol (ProAir
HFA authorized generic of Teva’s specialty product), lidocaine transdermal patch (the generic equivalent of Lidoderm Patch
®
), amphetamine salt tablets (the generic equivalent of Adderall IR) and TRUXIMA (the biosimilar to Rituxan
®
).
We launched TRUXIMA in the United States in November 2019. HERZUMA (the biosomilar to Herceptin
®
) is expected to be available in the United States in the first quarter of 2020. TRUXIMA and HERZUMA are expected to be available in Canada in the first quarter of 2020.
59

In 2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 388 million total prescriptions (based on trailing twelve months), representing 10.5% of total U.S. generic prescriptions according to IQVIA data.
Comparison of 2018 to 2017.
Revenues from generic products in our North America segment in 2018 were $4,056 million, compared to $5,203 million in 2017. This decrease was mainly due
to additional competition to methylphenidate extended-release tablets (Concerta
®
authorized generic), portfolio optimization primarily as part of the restructuring plan, as well as market dynamics and price erosion in our U.S. generics business, partially offset by new generic product launches.
COPAXONE
revenues in our North America segment in 2019 decreased by 42% to $1,017 million, compared to 2018, mainly due to generic competition in the United States.
Revenues of COPAXONE in our North America segment were 67% of global COPAXONE revenues in 2019, compared to 74% in 2018.
COPAXONE global sales accounted for approximately 9% of our global revenues in 2019 and a significantly higher percentage of our profits and cash flow from operations during this period.
For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”
Comparison of 2018 to 2017.
COPAXONE revenues in our North America segment in 2018 were $1,759 million, compared to $3,116 million in 2017. This decrease was mainly due
to generic competition in the United States
.
BENDEKA
and
TREANDA
combined revenues in our North America segment in 2019 decreased by 23% to $496 million, compared to 2018, mainly due to the June 2018 launch of Belrapzo
®
(a
ready-to-dilute
bendamustine hydrochloride) by Eagle Pharmaceuticals, Inc.
Comparison of 2018 to 2017
. BENDEKA and TREANDA combined revenues in our North America segment in 2018 were $642 million, compared to $656 million in 2017.
ProAir
revenues in our North America segment in 2019 decreased by 31% to $274 million, compared to 2018, mainly due to shifting volume to our ProAir HFA authorized generic (included under “generic products” above). In 2019, ProAir was the second-largest short-acting beta-agonist in the market, with an exit market share of 24.9% (46.7% including our ProAir HFA authorized generic) in terms of total number of prescriptions for albuterol inhalers, compared to 46.1% in 2018.
Comparison of 2018 to 2017.
ProAir revenues in our North America segment in 2018 were $397 million, compared to $501 million in 2017. This decrease was mainly due
to higher sales reserves recorded in the fourth quarter of 2018 in anticipation of generic competition to the short-acting beta-agonist class of drugs, including an approved generic version of Ventolin HFA
.
QVAR
revenues in our North America segment in 2019 increased by 38% to $250 million, compared to 2018. This increase was mainly due to a higher net price and an increase in volume. In 2019, QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of 20.5% in terms of total number of prescriptions, compared to 21.5% in 2018.
Comparison of 2018 to 2017
. QVAR revenues in our North America segment in 2018 were $182 million, compared to $313 million in 2017. This decrease was mainly due
lower volumes in connection with the launch of QVAR
®
RediHaler
and lower net pricing.
60

AJOVY
revenues in our North America segment in 2019 were $93 million. In 2019, AJOVY’s exit market share in the United Stated in terms of total number of prescriptions was 17%.
On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S.
For more information on AJOVY, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AJOVY.”
AUSTEDO
revenues in our North America segment in 2019 increased by 102% to $412 million, compared to 2018. This increase was mainly due to growth in volume in 2019.
For more information on AUSTEDO, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AUSTEDO.”
Comparison of 2018 to 2017
. AUSTEDO revenues in our North America segment in 2018 were $204 million, compared to $24 million in 2017.
Anda
revenues from third parties in our North America segment in 2019 increased by 11% to $1,492 million, compared to 2018, mainly due to higher volumes.
Comparison of 2018 to 2017
. Anda revenues from third parties in our North America segment in 2018 were $1,347 million, compared to $1,153 million in 2017. This increase was mainly due to higher volumes.
Product Launches and Pipeline
In 2019, we launched the generic version of the following branded products in North America:
             
Product Name
 
Brand
Name
  
Launch
Date
  
Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))
(1)
 
Vardenafil hydrochloride tablets, 2.5 mg, 5 mg, 10 mg & 20 mg
  
Levitra
®
   
January
  $
88
 
Albuterol sulfate HFA inhalation aerosol with dose counter, 90 mcg 
(2)
  
ProAir
®
   
January
  $
1,497
 
Vigabatrin tablets, USP, 500 mg
  
Sabril
®
   
February
  $
183
 
ALYQ
TM
(tadalafil tablets), USP, 20 mg
  
Adcirca
®
   
February
  $
475
 
Ketoconazole cream, 2% 
(3)
  
Nizoral
®
   
February
  $
92
 
Clindamycin phosphate and benzoyl peroxide gel, 1.2%/2.5%
  
Acanya
®
   
February
  $
21
 
Minocycline hydrochloride extended-release tablets, USP, 80 mg & 105 mg
  
Solodyn
®
ER
   
February
  $
173
 
Diclofenac epolamine topical patch, 1.3%
  
Flector
®
   
March
  $
123
 
Cyclobenzaprine hydrochloride extended-release capsules, 15 mg & 30 mg 
(2)
  
Amrix
®
   
March
  $
50
 
Deferasirox tablets, 125 mg, 250 mg & 500 mg
  
Exjade
®
   
March
  $
134
 
Methylergonovine maleate tablets, USP, .2 mg
  
Methergine
®
   
March
  $
62
 
Docosanol cream, 10%
  
Abreva
®
   
March
  $
88
 
Fluoxetine tablets, USP 20 mg
  
—  
   
April
  $
56
 
Testosterone gel, metered 1.62% CIII
  
AndroGel
®
1.62% [CIII]
   
April
  $
755
 
Solifenacin succinate tablets, 5 mg & 10 mg
  
Vesicare
®
   
April
  $
946
 
Ambrisentan tablets, 5 mg & 10 mg
  
Letairis
®
   
May
  $
254
 
 
 
 
61

             
Product Name
 
Brand
Name
  
Launch
Date
  
Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))
(1)
 
Erlotinib tablets, 100 mg & 150 mg
  
Tarceva
®
   
May
  $
188
 
Mesalamine delayed-release capsules, 400 mg
  
Delzicol
®
   
May
  $
130
 
Ranolazine extended-release tablets, 500 mg & 1000 mg
  
Ranexa
®
   
May
  $
950
 
Aspirin and extended-release dipyridamole capsules, 25 mg/200 mg 
(3)
  
Aggrenox
®
   
June
  $
168
 
Desmopressin acetate injection, USP, 4 mcg/mL 
(3)
  
DDAVP
®
   
June
  $
58
 
Albendazole tablets, USP, 200 mg
  
Albenza
®
   
June
  $
85
 
Bosentan tablets, 62.5 mg & 125 mg
  
Tracleer
®
   
June
  $
84
 
Doxylamine succinate and pyridoxine hydrochloride delayed-release tablets, 10 mg/10 mg
  
Diclegis
®
   
June
  $
151
 
Penicillamine capsules, USP, 250 mg
  
Cuprimine
®
   
June
  $
130
 
1% Sodium hyaluronate injection
  
 
        (4)
   
June
   
—  
 
Oseltamivir phosphate for oral suspension, 6 mg/mL
  
Tamiflu
®
   
July
  $
281
 
Icatibant injection, 30 mg/3 mL
  
Firazyr
®
   
July
  $
304
 
Pregabalin capsules, 25 mg, 50 mg, 75 mg, 100 mg, 150 mg, 200 mg, 225 mg & 300 mg
  
Lyrica
®
   
July
  $
5,456
 
Ramelteon tablets, 8 mg
  
Rozerem
®
   
July
  $
91
 
Bisoprolol fumarate and hydrochlorothiazide tablets, 2.5 mg/6.25 mg, 5 mg/6.25 mg & 10 mg/6.25 mg 
(2)
  
Ziac
®
   
August
  $
42
 
Doxycycline hyclate delayed-release tablets, USP, 50 mg & 200 mg
  
Doryx
®
   
August
  $
20
 
Mycophenolic acid delayed-release tablets, USP, 180 mg & 360 mg
  
Myfortic
®
DR
   
August
  $
180
 
Epinephrine injection, USP (auto-injector), 0.15 mg/0.3 mL
  
EpiPen Jr
®
   
August
  $
201
 
Minocycline hydrochloride extended-release tablets, USP, 55 mg
  
Solodyn
®
ER
   
August
  $
44
 
Fulvestrant Injection, 250 mg/5 mL (50 mg/mL)
  
 
        (5)
   
August
   
—  
 
Triamcinolone acetonide injectable suspension, USP, 40 mg/mL (40 mg), 40 mg/mL (200 mg) & 40 mg/mL (400 mg)
  
Kenalog
®
-40
   
August
  $
135
 
Acyclovir cream, 5% 
(6)
  
Zovirax
®
   
August
  $
97
 
Fosaprepitant for injection, 150 mg/Vial
  
 
        (5)
   
September
   
—  
 
Treprostinil injection, 1 mg/mL (20 mg), 2.5 mg/mL (50 mg), 5 mg/mL (100 mg) & 10 mg/mL (200 mg)
  
Remodulin
®
   
September
  
$
3
 
Ivermectin cream, 1%
  
Soolantra
®
   
October
  
$
206
 
TRUXIMA, 100 mg/10 mL & 500 mg/50 mL
  
Rituxan
®
 
        (7)
   
November
  $
4,378
 
Deferasirox tablets, 90 mg & 360 mg
  
Jadenu
®
   
November
  $
390
 
 
 
 
 
(1)The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or
re-launch.
 
 
 
(2)Authorized generic of a Teva specialty product.
 
 
 
(3)Products were
re-launched.
 
 
 
(4)Approved via 515(d)(1)(B)(ii) regulatory pathway for medical devices; not equivalent to a brand product.
 
 
 
62

(5)Approved via 505(b)(2) regulatory pathway; not equivalent to a brand product.
 
 
 
(6)Authorized generic.
 
 
 
(7)Biosimilar.
 
 
 
Our generic products pipeline in the United States includes, as of December 31, 2019, 251 product applications awaiting FDA approval, including 79 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 September 30, 2019 exceeding $117 billion, according to IQVIA. Approximately 70% of pending applications include a paragraph IV patent challenge and we believe we are first to file with respect to 95 of these products, or 116 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $75 billion in U.S. brand sales for the twelve months ended September 30, 2019, according to IQVIA.
IQVIA reported brand sales are one of the many indicators of future potential value of a launch, but equally important are the mix and timing of competition, as well as cost effectiveness. The potential advantages of being the first filer with respect to some of these products may be subject to forfeiture, shared exclusivity or competition from
so-called
“authorized generics,” which may ultimately affect the value derived.
In 2019, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a
30-month
regulatory stay lapses or a
180-day
exclusivity period awarded to another manufacturer either expires or is forfeited.
         
Generic Name
 
Brand Name
  
Total U.S. Annual Branded
Market (U.S. $
in millions (IQVIA))*
 
Dapagliflozin tablets, 5 mg
  
Farxiga
®
  $
1,688
 
Deferasirox Oral Tablets 180 mg
  
Jadenu
®
  $
55
 
Efinaconazole Topical Solution
  
Jublia
®
  $
231
 
Enzalutamide capsules, 40 mg
  
Xtandi
®
  $
999
 
Everolimus tablets, 2.5 mg, 5 mg, 7.5 mg & 10 mg
  
Afinitor
®
  $
770
 
Icatibant injection, 30 mg/3 mL
  
Firazyr
®
  $
318
 
Ivermectin lotion, 0.5%
  
Sklice
®
  $
81
 
Sildenafil, 10 mg/mL
  
Revatio
®
  $
189
 
Sorafenib tablets, 200 mg
  
Nexavar
®
  $
55
 
 
 
 
 
*For the twelve months ended in the calendar quarter immediately prior to the receipt of tentative approval.
 
 
 
For a description of our specialty product pipeline, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines” above.
North America Gross Profit
Gross profit from our North America segment in 2019 was $4,350 million, a decrease of 13% compared to $4,979 million in 2018. This decrease was mainly due to lower revenues from COPAXONE.
Gross profit margin for our North America segment in 2019 decreased to 50.9%, compared to 53.6% in 2018. This decrease was mainly due to lower COPAXONE revenues and a higher proportion of Anda revenues, partially offset by higher revenues from AUSTEDO.
63

Comparison of 2018 to 2017
. Gross profit from our North America segment in 2018 was $4,979 million, compared to $7,322 million in 2017. This decrease was mainly due to
lower revenues from COPAXONE and a decline in sales of generic and other specialty products.
North America R&D Expenses
R&D expenses relating to our North America segment in 2019 were $652 million, a decrease of 9% compared to $713 million in 2018.
For a description of our R&D expenses in 2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
Comparison of 2018 to 2017
. R&D expenses relating to our North America segment in 2018 were $713 million, compared to $969 million in 2017.
North America S&M Expenses
S&M expenses relating to our North America segment in 2019 were $1,021 million, a decrease of 11% compared to $1,154 million in 2018. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. S&M expenses relating to our North America segment in 2018 were $1,154 million, compared to $1,288 million in 2017. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
North America G&A Expenses
G&A expenses relating to our North America segment in 2019 were $439 million, a decrease of 9% compared to $484 million in 2018. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. G&A expenses relating to our North America segment in 2018 were $484 million, compared to $533 million in 2017. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
North America Other Income
Other income from our North America segment in 2019 was $14 million, compared to $209 million in 2018. The higher other income in 2018 was mainly due to higher Section 8 recoveries from multiple cases in Canada and recovery of lost profits in cases in which U.S. patent infringement litigation had previously prevented the sale of certain products.
Comparison of 2018 to 2017
. Other income from our North America segment in 2018 was $209 million, compared to $92 million in 2017. This increase was mainly due to
higher Section 8 recoveries in Canada.
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.
64

Profit from our North America segment in 2019 was $2,252 million, a decrease of 21% compared to $2,837 million in 2018. This decrease was mainly due to lower revenues from COPAXONE and
non-recurrence
of other income, partially offset by cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. Profit from our North America segment in 2018 was $2,837 million, compared to $4,624 million in 2017. This decrease was mainly due to lower revenues from COPAXONE and a decline in sales of generic and other specialty products, partially offset by cost reductions and efficiency measures as part of the restructuring plan.
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the past three years:
                         
 
Year ended December 31,
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions / % of Segment Revenues)
 
Revenues
 $
4,795
   
100
% $
5,186
   
100
% $
5,466
   
100
%
Gross profit
  
2,704
   
56.4
%  
2,884
   
55.6
%  
2,887
   
52.8
%
R&D expenses
  
262
   
5.5
%  
283
   
5.5
%  
390
   
7.1
%
S&M expenses
  
890
   
18.6
%  
1,003
   
19.3
%  
1,130
   
20.7
%
G&A expenses
  
239
   
5.0
%  
325
   
6.3
%  
354
   
6.5
%
Other (income) expense
  
(5
)  
§
   
—  
   
§
   
(16
)  
§
 
                         
Segment profit*
 $
1,318
   
27.5
% $
1,273
   
24.5
% $
1,029
   
18.8
%
                         
 
 
 
 
*Segment profit does not include amortization and certain other items.
 
 
 
§Represents an amount less than 0.5%.
 
 
 
Europe Revenues
Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in 2019 were $4,795 million, a decrease of $391 million, or 8%, compared to 2018. In local currency terms, revenues decreased by 2%, mainly due to a decline in COPAXONE revenues due to competing glatiramer acetate products, lower sales of respiratory products in the United Kingdom and lower revenues from our oncology products due to competing biopharmaceutical products, partially offset by new generic product launches.
Comparison of 2018 to 2017
. Revenues from our Europe segment in 2018 were $5,186 million, compared to $5,466 million in 2017. This decrease was mainly due to the loss of revenues from the closure of our distribution business in Hungary, the sale of our women’s health business and a decline in COPAXONE revenues due to competing glatiramer acetate products, partially offset by new generic product launches
.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the past three years:
                 
 
Year ended December 31,
  
Percentage
Change
2018-2019
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions)
   
Generic products
 $
3,470
  $
3,593
  $
3,471
   
(3
%)
COPAXONE
  
432
   
535
   
595
   
(19
%)
Respiratory products
  
354
   
402
   
368
   
(12
%)
Other
  
539
   
656
   
1,033
   
(18
%)
                 
Total
 $
4,795
  $
5,186
  $
5,466
   
(8
%)
                 
 
 
 
65

Generic products
revenues in our Europe segment in 2019, including OTC products, decreased by 3% to $3,470 million, compared to 2018. In local currency terms, revenues increased by 2%, mainly due to new generic product launches.
Comparison of 2018 to 2017
. Generic products revenues in our Europe segment in 2018 were $3,593 million, compared to $3,471 million in 2017. This increase was mainly due to currency fluctuations and new generic product launches, partially offset by the loss of revenues from the termination of the PGT joint venture and the impact of the valsartan voluntary recall.
COPAXONE
revenues in our Europe segment in 2019 decreased by 19% to $432 million, compared to 2018. In local currency terms, revenues decreased by 15%, mainly due to price reductions resulting from competing glatiramer acetate products.
Revenues of COPAXONE in our Europe segment were 29% of global COPAXONE revenues in 2019, compared to 23% in 2018.
For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”
Comparison of 2018 to 2017
. COPAXONE revenues in our Europe segment in 2018 were $535 million, compared to $595 million in 2017. This decrease was mainly due to price reductions resulting from the entry of competing glatiramer acetate products.
Respiratory products
revenues in our Europe segment in 2019 decreased by 12% to $354 million, compared to 2018. In local currency terms, revenues decreased by 7%, mainly due to lower sales in the United Kingdom.
Comparison of 2018 to 2017
. Respiratory products revenues from our Europe segment in 2018 were $402 million, compared to $368 million in 2017. This increase was mainly due to the
launch of BRALTUS
®
in 2017
.
AJOVY
was granted a Marketing Authorization by the European Medicines Agency (“EMA”) in the European Union in a centralized process in April 2019. We commenced launching AJOVY in certain European markets in May 2019 and are moving forward with plans to launch the product in other European countries. We received approval from the EMA for AJOVY’s auto-injector submission in the European Union.
For information about AJOVY patent protection, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AJOVY.”
Product Launches and Pipeline
As of December 31, 2019, our generic products pipeline in Europe included 660 generic approvals relating to 84 compounds in 178 formulations, and approximately 1,083 marketing authorization applications pending approval in 37 European countries, relating to 123 compounds in 243 formulations.
For a description of our specialty product pipeline, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines” above.
Europe Gross Profit
Gross profit from our Europe segment in 2019 was $2,704 million, a decrease of 6% compared to $2,884 million in 2018. This decrease was mainly due to lower revenues from COPAXONE and other specialty products as well as higher cost of goods sold, partially offset by new generic product launches.
66

Gross profit margin for our Europe segment in 2019 increased to 56.4%, compared to 55.6% in 2018. This increase was mainly due to the termination of the PGT joint venture in 2018.
Comparison of 2018 to 2017
. Gross profit from our Europe segment in 2018 was $2,884 million, flat compared to 2017. Gross profit was affected by the loss of revenues from the sale of our women’s health business and a decline in COPAXONE revenues, offset by new generic product launches and lower cost of goods sold.
Europe R&D Expenses
R&D expenses relating to our Europe segment in 2019 were $262 million, a decrease of 7% compared to $283 million in 2018.
For a description of our R&D expenses in 2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
Comparison of 2018 to 2017
. R&D expenses relating to our Europe segment in 2018 were $283 million, compared to $390 million in 2017.
Europe S&M Expenses
S&M expenses relating to our Europe segment in 2019 were $890 million, a decrease of 11% compared to $1,003 million in 2018. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. S&M expenses relating to our Europe segment in 2018 were $1,003 million, compared to $1,130 million in 2017. This decrease was mainly due to cost reductions as part of the restructuring plan.
Europe G&A Expenses
G&A expenses relating to our Europe segment in 2019 were $239 million, a decrease of 26% compared to $325 million in 2018. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. G&A expenses relating to our Europe segment in 2018 were $325 million, compared to $354 million in 2017. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Europe Profit
Profit of our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our Europe segment in 2019 was $1,318 million, an increase of 4% compared to $1,273 million in 2018. This increase was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. Profit from our Europe segment in 2018 was $1,273 million, compared to $1,029 million in 2017. This increase was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
67

International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the past three years:
                         
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions / % of Segment Revenues)
 
Revenues
 $
2,246
   
100
% $
2,422
   
100
% $
2,863
   
100
%
Gross profit
  
1,167
   
51.9
%  
1,254
   
51.8
%  
1,433
   
50.1
%
R&D expenses
  
88
   
3.9
%  
96
   
4.0
%  
154
   
5.4
%
S&M expenses
  
481
   
21.4
%  
518
   
21.4
%  
672
   
23.5
%
G&A expenses
  
138
   
6.1
%  
153
   
6.3
%  
189
   
6.6
%
Other (income) expense
  
(3
)  
§
   
(11
)  
§
   
(8
)  
§
 
                         
Segment profit*
 $
464
   
20.6
% $
498
   
20.6
% $
426
   
14.9
%
                         
 
 
 
 
*Segment profit does not include amortization and certain other items.
 
 
 
§Represents an amount less than 0.5%.
 
 
 
The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1b to our consolidated financial statements for additional information.
International Markets Revenues
Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical market. Our key international markets are Japan, Russia and Israel. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics oriented markets, such as Russia and certain Latin American markets, and hybrid markets, such as Japan.
Revenues from our International Markets segment in 2019 were $2,246 million, a decrease of $176 million, or 7%, compared to 2018. In local currency terms, revenues decreased by 3% compared to 2018, mainly due to lower sales in Japan and certain discontinued activities in Israel.
Comparison of 2018 to 2017
. Revenues from our International Markets segment in 2018 were $2,422 million, compared to $2,863 million in 2017. This decrease was mainly due to
lower sales in Russia and Japan, the effect of the deconsolidation of our subsidiaries in Venezuela and loss of revenues from the sale of our women’s health business.
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 1b 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 past three years:
                 
 
Year ended December 31,
  
Percentage
Change
2018-2019
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions)
   
Generic products
 $
1,893
  $
2,022
  $
2,370
   
(6
%)
COPAXONE
  
63
   
72
   
91
   
(13
%)
Distribution
  
20
   
19
   
17
   
6
%
Other
  
271
   
309
   
385
   
(12
%)
                 
Total
 $
2,246
  $
2,422
  $
2,863
   
(7
%)
                 
 
 
 
Generic products
revenues in our International Markets segment in 2019, which include OTC products, decreased by 6% to $1,893 million, compared to 2018. In local currency terms, revenues decreased by 3%, mainly due to lower revenues in Japan resulting from regulatory price reductions and generic competition to
off-patented
products.
Comparison of 2018 to 2017
. Generic products revenues in our International Markets segment in 2018 were $2,022 million, compared to $2,370 million in 2017. This decrease was mainly due to lower revenues in Russia, lower sales in Japan resulting from regulatory price reductions and generic competition to
off-patented
products, loss of revenues from the termination of the PGT joint venture and the effect of the deconsolidation of our subsidiaries in Venezuela.
COPAXONE
revenues in our International Markets segment in 2019 decreased by 13% to $63 million, compared to 2018. In local currency terms, revenues decreased by 1%.
For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”
Comparison of 2018 to 2017
. COPAXONE revenues in our International Markets segment in 2018 were $72 million, compared to $91 million in 2017.
Distribution
revenues in our International Markets segment in 2019 increased by 6% to $20 million, compared to 2018. In local currency terms, revenues increased by 24%
.
Comparison of 2018 to 2017
. Distribution revenues in our International Markets segment in 2018 were $19 million, compared to $17 million in 2017.
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 1b to our consolidated financial statements for additional information.
International Markets Gross Profit
Gross profit from our International Markets segment in 2019 was $1,167 million, a decrease of 7% compared to $1,254 million in 2018.
Gross profit margin for our International Markets segment in 2019 increased to 51.9%, compared to 51.8% in 2018. This increase was mainly due portfolio optimization.
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Comparison of 2018 to 2017
. Gross profit from our International Markets segment in 2018 was $1,254 million, compared to $1,433 million in 2017.
International Markets R&D Expenses
R&D expenses relating to our International Markets segment in 2019 were $88 million, a decrease of 9% compared to $96 million in 2018.
For a description of our R&D expenses in 2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
Comparison of 2018 to 2017
. R&D expenses relating to our International Markets segment in 2018 were $96 million, compared to $154 million in 2017.
International Markets S&M Expenses
S&M expenses relating to our International Markets segment in 2019 were $481 million, a decrease of 7% compared to $518 million in 2018. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. S&M expenses relating to our International Markets segment in 2018 were $518 million, compared to $672 million in 2017. This decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
International Markets G&A Expenses
G&A expenses relating to our International Markets segment in 2019 were $138 million, a decrease of 10% compared to $153 million in 2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.
Comparison of 2018 to 2017
. G&A expenses relating to our International Markets segment in 2018 were $153 million, compared to $189 million in 2017. This decrease was mainly due to cost reductions as part of the restructuring plan.
International Markets Profit
Profit of our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our International Markets segment in 2019 was $464 million, a decrease of 7% compared to $498 million in 2018. This decrease was mainly due to a decline in revenues in Japan, partially offset by higher sales in other markets and lower S&M and G&A expenses.
Comparison of 2018 to 2017
. Profit from our International Markets segment in 2018 was $498 million, compared to $426 million in 2017. This increase was mainly due to
cost reductions and efficiency measures as part of the restructuring plan.
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.
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Our revenues from other activities in 2019 decreased by 5% to $1,304 million compared to 2018. In local currency terms, revenues decreased by 3%.
API sales to third parties in 2019 increased by 1% to $754 million, in both U.S. dollar and local currency terms.
Comparison of 2018 to 2017
. Revenues from other activities in 2018 were $1,366 million, compared to $1,383 million in 2017.
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 1b to our consolidated financial statements for additional information.
Revenues
Revenues in 2019 were $16,887 million, a decrease of 8%, or 5% in local currency terms, compared to 2018, mainly due to generic competition to COPAXONE, a decline in revenues from our U.S. generics business, BENDEKA/TREANDA and Japan, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR in the United States. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.
Exchange rate movements during 2019 negatively impacted revenues by $402 million, compared to 2018.
Comparison of 2018 to 2017.
Revenues in 2018 were $18,271 million, a decrease of 16% compared to 2017, mainly due to generic competition to COPAXONE, a decline in revenues in our U.S. generics business and loss of revenues following the divestment of certain products and discontinuation of certain activities.
Gross Profit
Gross profit in 2019 was $7,537 million, a decrease of 9% compared to 2018. This decrease was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”
Gross profit as a percentage of revenues was 44.6% in 2019, compared to 45.4% in 2018.
This decrease in gross profit as a percentage of revenues was mainly due to lower profitability in North America, resulting from a decline in COPAXONE revenues due to generic competition and a higher proportion of Anda revenues, partially offset by higher revenues from AUSTEDO and AJOVY, higher gross margin in our U.S. generics business and higher API sales.
Comparison of 2018 to 2017.
Gross profit in 2018 was $8,296 million, a decrease of 22% compared to 2017. Gross profit as a percentage of revenues was 45.4% in 2018, compared to 48.6% in 2017. The decrease in gross profit as a percentage of revenues was mainly due to lower profitability in North America resulting from a decline in COPAXONE revenues due to generic competition and a decline in revenues in our U.S. generics business, higher accelerated depreciation and higher divestment expenses, partially offset by lower amortization expenses and higher profitability in Europe.
Research and Development (R&D) Expenses
Net R&D expenses for 2019 were $1,010 million, a decrease of 17% compared to 2018.
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Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.
Our R&D activities for specialty products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) life cycle management and post-approval studies for marketed products; and (v) indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects, such as the costs of internal administration, infrastructure and personnel.
In 2019, our R&D expenses were primarily related to specialty product candidates in the pain, migraine, headache and respiratory therapeutic areas, with additional activities in selected other areas and generic products in our North America segment.
Our lower R&D expenses in 2019, as compared to 2018, resulted primarily from pipeline optimization and efficiencies realized as part of our restructuring plan.
R&D expenses as a percentage of revenues were 6.0% in 2019, compared to 6.6% in 2018.
Comparison of 2018 to 2017
. In 2018, R&D expenses were $1,213 million, a decrease of 32% compared to 2017. R&D expenses as a percentage of revenues were 6.6% in 2018, compared to 8.1% in 2017.
Selling and Marketing (S&M) Expenses
S&M expenses in 2019 were $2,614 million, a decrease of 10% compared to 2018. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment—S&M Expenses,” “—Europe Segment—S&M Expenses” and “—International Markets Segment—S&M Expenses.”
S&M expenses as a percentage of revenues were 15.5% in 2019, compared to 16.0% in 2018.
Comparison of 2018 to 2017.
S&M expenses in 2018 were $2,916 million, a decrease of 14% compared to 2017. S&M expenses as a percentage of revenues were 16.0% in 2018, compared to 15.5% in 2017.
General and Administrative (G&A) Expenses
G&A expenses in 2019 were $1,192 million, a decrease of 8% compared to 2018. Our G&A expenses were primarily the result of the factors discussed above under “—North America Segment—G&A Expenses,” “—Europe Segment—G&A Expenses” and “—International Markets Segment—G&A Expenses,” as well as cost reductions in certain corporate functions as part of the restructuring plan.
G&A expenses as a percentage of revenues were 7.1% in 2019, flat compared to 2018.
Comparison of 2018 to 2017.
G&A expenses in 2018 were $1,298 million, a decrease of 11% compared to 2017. G&A expenses as a percentage of revenues were 7.1% in 2018, compared to 6.6% in 2017.
Identifiable Intangible Asset Impairments
We recorded expenses of $1,639 million for identifiable intangible asset impairments in 2019, compared to expenses of $1,991 million in 2018. See note 6 to our consolidated financial statements.
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Comparison of 2018 to 2017.
Identifiable intangible asset impairments in 2018 were $1,991 million, compared to $3,238 million in 2017.
Goodwill Impairment
No goodwill impairments were recorded in 2019, compared to a goodwill impairment of $3,027 million in 2018. The goodwill impairment in 2018 was mainly attributable to goodwill associated with our International Markets reporting unit and Medis reporting unit. See note 7 to our consolidated financial statements.
Comparison of 2018 to 2017.
Goodwill impairments in 2018 were $3,027 million, compared to $17,100 million in 2017. The goodwill impairment in 2017 was mainly in connection with our U.S. generics reporting unit.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $423 million for other asset impairments, restructuring and other items in 2019, compared to expenses of $987 million in 2018. See note 15 to our consolidated financial statements.
Comparison of 2018 to 2017
. We recorded expenses of $987 million for other asset impairments, restructuring and other items in 2018, compared to $1,836 million in 2017.
Significant regulatory events
In July 2018, the FDA completed an inspection of our manufacturing plant in Davie, Florida in the United States, and issued a Form
FDA-483
to the site. In October 2018, the FDA notified us that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, we received a warning letter from the FDA that 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. If we are unable to remediate the findings to the FDA’s satisfaction, we may face additional consequences. These would potentially include delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. We expect to generate approximately $230 million in revenues from this site in 2020, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility or prevent approvals of new products from the site.
In July 2018, we announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied to us by Zhejiang Huahai Pharmaceutical (“Huahai”). Since July 2018, we have been actively engaged with regulatory agencies around the world in reviewing our sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, we have initiated additional voluntary recalls. The aggregate direct impact of this recall on our 2018 and 2019 financial statements was $54 million, primarily related to inventory write-downs and returns. As a result of this loss, we initiated negotiations with Huahai and in December 2019, we reached a settlement with Huahai resolving our claims related to certain sartan API supplied by Huahai to Teva. Under the settlement agreement, Huahai agreed to compensate Teva for some of the direct losses suffered by Teva and provide Teva 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. We expect additional expenses and loss of revenues and profits in connection with this matter going forward. 
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Restructuring
In 2019, we recorded $199 million of restructuring expenses, compared to $488 million in 2018. The expenses in 2019 were primarily related to headcount reductions across all functions, as part of our restructuring plan announced in 2017.
The
two-year
restructuring plan announced in 2017 reduced our total cost base by $3 billion by the end of 2019.
Since the announcement, we reduced our global headcount by approximately 13,000 full-time-equivalent employees.
Comparison of 2018 to 2017.
Restructuring expenses in 2018 were $488 million, compared to $535 million in 2017.
Legal Settlements and Loss Contingencies
In 2019, we recorded an expense of $1,178 million in legal settlements and loss contingencies, compared to an income of $1,208 million in 2018. The expense in 2019 was mainly related to an estimated settlement provision recorded in connection with the remaining opioid cases. The income in 2018 primarily consisted of the working capital adjustment with Allergan, the Rimsa settlement and reversal of the reserve recorded in the second quarter of 2017 with respect to the carvedilol patent litigation.
Comparison of 2018 to 2017.
Legal settlements and loss contingencies in 2018 amounted to an income of $1,208 million, compared to an expense of $500 million in 2017. See note 11
to our consolidated financial statements.
Other Income
Other income in 2019 was $76 million, compared to $291 million in 2018. Other income in 2019 was mainly related to the sale of activities in our International Markets segment. See note 16 to our consolidated financial statements.
Comparison of 2018 to 2017
. Other income in 2018
was $291 million, compared to $1,199 million in 2017. Other income in 2017 was mainly related to the sale of our women’s health business
.
Operating Income (Loss)
Operating loss was $443 million in 2019, compared to an operating loss of $1,637 million in 2018.
Operating loss as a percentage of revenues was 2.6% in 2019, compared to 9.0% in 2018. The decrease in operating loss was mainly due to higher impairment charges recorded in 2018, partially offset by higher provisions in connection with legal settlements and loss contingencies in 2019, as well as lower profit in our North America segment.
Comparison of 2018 to 2017.
Operating loss in 2018 was $1,637 million, compared to operating loss of $17,484 million in 2017. Operating loss as a percentage of revenues was 9.0% in 2018, compared to 80.0% in 2017.
Financial Expenses, Net
Financial expenses were $822 million in 2019, compared to $959 million in 2018.
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Financial expenses in 2019 were mainly comprised of interest expenses of $881 million. Financial expenses in 2018 were mainly comprised of interest expenses of $920 million.
Comparison of 2018 to 2017.
In 2018, financial expenses were $959 million, compared to $895 million in 2017.
The following table presents a reconciliation of our segment profits to Teva’s consolidated operating income (loss) and to consolidated income (loss) before income taxes for the past three years:
             
 
Year ended December 31,
 
 
2019
  
2018
  
2017
 
 
(U.S. $ in millions)
 
North America profit
 $
2,252
  $
2,837
  $
4,624
 
Europe profit
  
1,318
   
1,273
   
1,029
 
International Markets profit
  
464
   
498
   
426
 
             
Total reportable segments profit
  
4,034
   
4,608
   
6,079
 
Profit (loss) of other activities
  
108
   
115
   
(6
)
             
Total segments profit
  
4,142
   
4,723
   
6,073
 
Amounts not allocated to segments:
         
Amortization
  
1,113
   
1,166
   
1,444
 
Other asset impairments, restructuring and other items
  
423
   
987
   
1,836
 
Goodwill impairment
  
—  
   
3,027
   
17,100
 
Intangible asset impairments
  
1,639
   
1,991
   
3,238
 
Gain on divestitures, net of divestitures related costs
  
(50
)  
(66
)  
(1,083
)
Inventory Step-up
  
—  
   
—  
   
67
 
Other R&D expenses
  
(15
)  
83
   
221
 
Costs related to regulatory actions taken in facilities
  
45
   
14
   
47
 
Legal settlements and loss contingencies
  
1,178
   
(1,208
)  
500
 
Other unallocated amounts
  
252
   
366
   
187
 
             
Consolidated operating income (loss)
  
(443
)  
(1,637
)  
(17,484
)
             
Financial expenses, net
  
822
   
959
   
895
 
             
Consolidated income (loss) before income taxes
 $
(1,265
) $
(2,596
) $
(18,379
)
             
 
 
 
Tax Rate
In 2019, we recognized a tax benefit of $278 million, or 22%, on a
pre-tax
loss of $1,265 million.
In 2018, we recognized a tax benefit of $195 million, or 8%, on a
pre-tax
loss of $2,596 million. Our tax rate for 2018 was lower than in 2019 due to
one-time
legal settlements and divestments that had a low corresponding tax effect.
In 2017, we recognized a tax benefit of $1,933 million, or 11%, on
pre-tax
loss of $18,379 million. Our tax rate for 2017 was low due to a
one-time
effect resulting from the remeasurement of our deferred taxes and imposition of a deemed repatriation tax following the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States, as well as a
one-time
tax benefit associated with the utilization of Actavis Generics’ historical capital losses. In addition, in 2017 we recorded goodwill impairments that did not have a corresponding tax effect.
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The statutory Israeli corporate tax rate was 23% in 2019. Our tax rate differs from the Israeli statutory tax rate mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.
Share In (Profits) Losses of Associated Companies—Net
Share in losses of associated companies, net in 2019 was $13 million, compared to $71 million in 2018.
Comparison of 2018 to 2017
. Share in losses of associated companies, net in 2018 was $71 million, compared to a profit of $3 million in 2017.
Net Income (Loss)
Net loss attributable to Teva was $999 million in 2019, compared to a net loss of $2,150 million in 2018.
Net loss attributable to ordinary shareholders was $999 million in 2019, compared to a net loss of $2,399 million in 2018.
Comparison of 2018 to 2017
. Net loss attributable to Teva was $2,150 million in 2018, compared to a net loss of $16,265 million in 2017.
Net loss attributable to ordinary shareholders was $2,399 million in 2018, compared to a net loss of $16,525 million in 2017.
Diluted Shares Outstanding and Earnings (Loss) Per Share
The weighted average diluted shares outstanding used for the fully diluted share calculation for 2019, 2018 and 2017 were 1,091 million, 1,021 million and 1,016 million shares, respectively.
In computing loss per share for the twelve months ended December 31, 2019 and 2018, no account was taken of the potential dilution by the assumed exercise of employee stock options and
non-vested
RSUs granted under employee stock compensation plans and convertible senior debentures, since they had an anti-dilutive effect on loss per share.
Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 74 million shares (including shares that were issued due to unpaid dividends until that date) for the period between January 1, 2018 and December 17, 2018, since they had an anti-dilutive effect on loss per share.
On December 17, 2018, the mandatory convertible preferred shares automatically converted into ordinary shares at a ratio of 1 mandatory convertible preferred share to 16 ADSs, and all of the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs, at a ratio of 3.0262 ADSs per mandatory convertible preferred share, all in accordance with the conversion mechanism set forth in the terms of the mandatory convertible preferred shares. As a result of this conversion, we issued 70.6 million ADSs.
Diluted loss per share was $0.91 for the year ended December 31, 2019, compared to loss per share of $2.35 for the year ended December 31, 2018.
Share Count for Market Capitalization
We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and performance share units (“PSUs”) and the conversion of our convertible senior debentures, in each case, at period end.
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As of December 31, 2019 and 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,108 million and 1,100 million, respectively.
Impact of Currency Fluctuations on Results of Operations
In 2019, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange 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, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results.
During 2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on an annual average compared to annual average basis): the Argentinian peso by 44%, the Turkish lira by 17%, the euro by 5% and the British pound by 4%. The following main currencies relevant to our operations increased in value against the U.S. dollar: the Japanese yen by 1% and the Israeli shekel by 1%.
As a result, exchange rate movements during 2019, in comparison with 2018, negatively impacted overall revenues by $402 million and negatively impacted our operating income by $135 million.
Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a
3-year
period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.
Liquidity and Capital Resources
Total balance sheet assets were $57,470 million as of December 31, 2019, compared to $60,683 million as of December 31, 2018.
Our working capital balance, which includes trade receivables net of SR&A, inventories, prepaid expenses and other current assets, trade payables, employee-related obligations, accrued expenses and other current liabilities, was $74 million as of December 31, 2019, compared to negative $186 million as of December 31, 2018.
Investment in property, plant and equipment in 2019 was $525 million, compared to $651 million in 2018. Depreciation was $609 million in 2019, compared to $676 million in 2018.
Cash and cash equivalents and short-term and long-term investments, as of December 31, 2019, were $2,033 million, compared to $1,846 million as of December 31, 2018. This increase was mainly due to cash flow generated during the year and proceeds from issuance of senior notes in November 2019, partially offset by debt repayments and prepayments as discussed below.
Our cash on hand that is not used for ongoing operations is generally invested in bank deposits, as well as liquid securities that bear fixed and floating rates.
Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion revolving credit facility (“RCF”).
In April 2019, we entered into a $2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion revolving credit facility. 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 was 6.25x through December 31, 2019, gradually declines to 5.75x in the third and fourth quarters of 2020, and continues to gradually decline over the remaining term of the RCF.
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The RCF can be used for general corporate purposes, including repaying existing debt. As of December 31, 2019, no amounts were outstanding under the RCF. Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.
Under specified circumstances, including
non-compliance
with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under our senior notes due to cross acceleration provisions.
We expect that we will continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that the financial statements are issued.
2019 Debt Balance and Movements
As of December 31, 2019, our debt was $26,908 million, compared to $28,916 million as of December 31, 2018.
This decrease was mainly due to senior notes repaid at maturity or prepaid with cash generated during the year.
During the first quarter of 2019, we repurchased and canceled approximately $126 million principal amount of our $1,700 million 1.7% senior notes due July 2019.
During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our $1,574 million 1.7% senior notes due July 2019.
In July 2019, we repaid at maturity our $1,556 million 1.7% senior notes.
During the third quarter of 2019, we borrowed $500 million under the RCF, which was fully repaid by the fourth quarter of 2019. As of the date of this Annual Report on Form
10-K,
no amounts were outstanding under the RCF.
In November 2019, we completed debt issuances for an aggregate principal amount of $2,102 million, comprised of $1,000 million principal amount of 7.125% senior notes due 2025, and
1,000 million principal amount of 6.0% senior notes due 2025. See note 9 to our consolidated financial statements.
In November 2019, we completed a debt tender offer, which resulted in a debt decrease of $1,525 million from our 2.2% $3,000 million senior notes due in July 2021.
In December 2019, we partially redeemed
650 million of our 0.375%
1,660 million senior notes due in July 2020.
Our debt as of December 31, 2019 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 December 31, 2019 was 9%, compared to 8% as of December 31, 2018, due to a decrease in our total debt.
Our financial leverage was 64% as of December 31, 2019, compared to 65% as of December 31, 2018.
Our average debt maturity was approximately 6.4 years as of December 31, 2019, compared to 6.8 years as of December 31, 2018.
78

2018 Debt Balance and Movements
In January 2018, we prepaid in full $15 million of our U.S. dollar debentures.
During the first quarter of 2018, we prepaid in full $2.3 billion of our
3-year
and
5-year
U.S. dollar term loans, as well as JPY 156.8 billion of our term loans.
In March 2018, we completed debt issuances for an aggregate principal amount of $4.4 billion, consisting of senior notes with aggregate principal amounts of $2.5 billion and
1.6 billion with maturities ranging from four to ten years. The effective average interest rate of the notes issued is 5.3% per annum.
In March 2018, we redeemed in full our $1.5 billion 1.4% senior notes due in July 2018 and our
1.0 billion 2.875% senior notes due in April 2019.
In July 2018, we repaid at maturity our CHF 300 million 0.13% senior notes.
In September 2018, we completed a debt tender offer, which resulted in a debt decrease of $405 million, comprised of:
 $300 million of our $2.0 billion 1.7% senior notes due in July 2019
 
 
 
 
 
90 million of our
1.75 billion 0.38% senior notes due in July 2020
 
 
 
 
In October 2018, we repaid at maturity our CHF 450 million 1.5% senior notes.
Total Equity
Total equity was $15,063 million as of December 31, 2019, compared to $15,794 million as of December 31, 2018. This decrease was mainly due to a net loss of $1,000 million, partially offset by $119 million stock-based compensation expenses, $84 million in unrealized profit associated with hedging activities and a positive impact of foreign exchange fluctuation of $97 million.
Exchange rate fluctuations affected our balance sheet, as approximately 35% of our net assets (including both
non-monetary
and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2018, changes in currency rates had a positive impact of $97 million on our equity as of December 31, 2019, mainly due to the change in value against the U.S. dollar of: the euro by 2%, the Russian ruble by 4%, the Polish zloty by 5%, the Canadian dollar by 1%, the Japanese yen by 1%, the Chilean peso by 4%, the Mexican peso by 4% and the British pound by 6%. All comparisons are on a
year-end
to
year-end
basis.
Cash Flow
Cash flow generated from operating activities in 2019 was $748 million, a decrease of $1,698 million, or 69%, compared to 2018. This decrease was mainly due to the working capital adjustment with Allergan and the Rimsa settlement in 2018, and lower profit in our North America segment during 2019.
During 2019, we generated free cash flow of $2,053 million, which we define as comprising $748 million in cash flow generated from operating activities, $1,487 million in beneficial interest collected in exchange for securitized trade receivables and $343 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $525 million in cash used for capital investments. During 2018, we generated free cash flow of $3,679 million, comprised of $2,446 million in cash flow generated from operating activities, $1,735 million in beneficial interest collected in exchange for securitized trade receivables and $149 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $651 million in cash used for capital investments. The decrease in 2019 resulted mainly from the lower cash flow generated from operating activities.
79

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 September 2016, we entered into an agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. We paid Regeneron $250 million upfront and will share equally with Regeneron in the global commercial benefits of this product, as well as ongoing associated R&D costs of approximately $1.0 billion. Milestone payments of $25 million, $35 million and $60 million were paid in the second quarter of 2017, the first quarter of 2018 and the fourth quarter of 2018, respectively.
In October 2016, we entered into an exclusive partnership with Celltrion to commercialize two of Celltrion’s biosimilar products in development for the U.S. and Canadian markets. We paid Celltrion $160 million, of which up to $60 million is refundable or creditable under certain circumstances. We will share the profit from the commercialization of these products with Celltrion. These two products, TRUXIMA and HERZUMA, were approved by the FDA in November and December 2018, respectively. We launched TRUXIMA in the United States in November 2019. HERZUMA is expected to be available in the United States in the first quarter of 2020.
In September 2017, we entered into a partnership agreement with Nuvelution for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. Nuvelution is funding and managing clinical development, driving all operational aspects of the phase 3 program, and we are leading the regulatory process and are responsible for commercialization. If FDA approval is obtained for AUSTEDO for Tourette syndrome, we will pay Nuvelution a
pre-agreed
return. In February 2020, we received results for these clinical trials, which found that the clinical trials failed to meet their primary endpoints. No new safety signals were identified in these studies. See note 23 to our consolidated financial statements.
We are committed to pay royalties to owners of
know-how,
partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.
In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.
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
 
 
 
 
80

 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;
 
 expenses related to our equity compensation;
 
 significant
one-time
financing costs and devaluation losses;
 
 deconsolidation charges;
 
 material tax and other awards or settlement amounts, both paid and 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.
 
81

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:
                                                     
 
Year Ended December 31, 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
  
Other
R&D
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
   
COGS
  
9,351
   
973
               
45
   
26
         
121
      
8,185
 
R&D
  
1,010
            
(15
)        
20
         
1
      
1,004
 
S&M
  
2,614
   
139
                  
35
         
1
      
2,438
 
G&A
  
1,192
                     
42
         
5
      
1,145
 
Other income
  
(76
)                          
(50
)        
(27
)
Legal settlements and loss contingencies
  
1,178
      
1,178
                              
—  
 
Other asset impairments, restructuring and other items
  
423
         
139
      
199
         
59
      
26
      
—  
 
Intangible assets impairment
  
1,639
         
1,639
                           
—  
 
Financial expenses
  
822
             ��                   
(3
)  
824
 
Corresponding tax effect
  
(278
)                                
(875
)  
597
 
Share in losses of associated companies – net
  
13
                                 
—  
   
13
 
Net income attributable to
non-controlling
interests
  
(2
)                                
(82
)  
80
 
                                                     
Total reconciled items
     
1,113
   
1,178
   
1,778
   
(15
)  
199
   
45
   
123
   
59
   
(50
)  
155
   
(959
)   
                                                     
EPS—Basic
  
(0.91
)                                
3.32
   
2.41
 
EPS—Diluted
  
(0.91
)                                
3.32
   
2.40
 
 
The
non-GAAP
diluted weighted average number of shares was 1,094 million for the year ended December 31, 2019.
82

                                                             
 
Year ended December 31, 2018
 
(U.S. $ and shares in millions, except per share amounts)
 
 
GAAP
  
Excluded for non GAAP measurement
  
Non
GAAP
 
   
Amortization
of purchased
intangible
assets
  
Goodwill
impairment
  
Legal
settlements
and loss
contingencies
  
Impairment
of long-
lived assets
  
Other
R&D
expenses
  
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
   
COGS*
  
9,975
   
1,004
                     
14
   
28
         
204
      
8,725
 
R&D
  
1,213
               
83
            
26
         
2
      
1,102
 
S&M
  
2,916
   
162
                        
43
         
(7
)     
2,718
 
G&A
  
1,298
                           
55
         
15
      
1,228
 
Other income
  
(291
)                                
(66
)        
(225
)
Legal settlements and loss contingencies
  
(1,208
)        
(1,208
)                                
—  
 
Other asset impairments, restructuring and other items
  
987
            
500
      
13
   
488
         
57
      
(71
)     
—  
 
Intangible assets impairment
  
1,991
            
1,991
                              
—  
 
Goodwill impairment
  
3,027
      
3,027
                                    
—  
 
Financial expenses
  
959
                                       
66
   
893
 
Corresponding tax effect
  
(195
)                                      
(714
)  
519
 
Share in losses of associated companies – net
  
71
                                       
103
   
(32
)
Net income attributable to
non-controlling
interests
  
(322
)                                      
(431
)  
109
 
                                                             
Total reconciled items
     
1,166
   
3,027
   
(1,208
)  
2,491
   
83
   
13
   
488
   
14
   
152
   
57
   
(66
)  
143
   
(976
)   
                                                             
EPS—Basic
  
(2.35
)                                      
5.27
   
2.92
 
EPS—Diluted
  
(2.35
)                                      
5.27
   
2.92
 
 
The
non-GAAP
diluted weighted average number of shares was 1,024 million for the year ended December 31, 2018.    
*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 1b to our consolidated financial statements for additional information.
 
83

                                                             
 
Year ended December 31, 2017
 
U.S. $ and shares in millions (except per share amounts)
 
 
GAAP
  
Excluded for non GAAP measurement
    
Non
GAAP
 
   
Amortization
of purchased
intangible
assets
  
Goodwill
impairment
  
Legal
settlements
and loss
contingencies
  
Impairment
of long-
lived assets
  
Other
R&D
expenses
  
Inventory
step-up
  
Acquisition,
integration
and related
expenses
  
Restructuring
costs
  
Costs
related to
regulatory
actions
taken in
facilities
  
Equity
compensation
  
Contingent
consideration
  
Other
non
GAAP
items
  
Other
items
   
COGS*
  
11,237
   
1,235
               
67
         
47
   
23
      
47
      
9,818
 
R&D
  
1,778
               
221
               
22
      
20
      
1,515
 
S&M
  
3,395
   
209
                           
38
      
(1
)     
3,149
 
G&A
  
1,451
                              
46
      
(8
)     
1,413
 
Other income
  
(1,199
)                                   
(1,083
)     
(116
)
Legal settlements and loss contingencies
  
500
         
500
                                 
—  
 
Other asset impairments, restructuring and other items
  
1,836
            
544
         
105
   
535
         
154
   
498
      
—  
 
Intangible assets impairment
  
3,238
            
3,238
                              
—  
 
Goodwill impairment
  
17,100
      
17,100
                                    
—  
 
Financial expenses
  
895
                                       
(13
)  
908
 
Corresponding tax effect
  
(1,933
)                                      
(2,721
)  
788
 
Share in losses of associated companies – net
  
3
                                       
47
   
(44
)
Net income attributable to
non-controlling
interests
  
(184
)                                      
(270
)  
86
 
                                                             
Total reconciled items
     
1,444
   
17,100
   
500
   
3,782
   
221
   
67
   
105
   
535
   
47
   
129
   
154
   
(527
)  
(2,957
)   
                                                             
EPS—Basic
  
(16.26
)                                      
20.27
   
4.01
 
EPS—Diluted
  
(16.26
)                                      
20.27
   
4.01
 
 
The
non-GAAP
diluted weighted average number of shares was 1,018 million for the year ended December 31, 2017.     
*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 1b to our consolidated financial statements for additional information.
 
84

Non-GAAP
Effective Tax Rate
Non-GAAP
income taxes for 2019 were $597 million on
non-GAAP
pre-tax
income of $3,317 million.
Non-GAAP
income taxes in 2018 were $519 million on
non-GAAP
pre-tax
income of $3,830 million.
Non-GAAP
income taxes in 2017 were $788 million on
non-GAAP
pre-tax
income of $5,165 million. The
non-GAAP
tax rate for 2019 was 18%, compared to 14% in 2018 and 15% in 2017. Our annual
non-GAAP
effective tax rate for 2019 was higher than our
non-GAAP
effective tax rate for 2017 and 2018 primarily due to a lower tax shield on finance expenses.
In the future, our
non-GAAP
effective tax rate is expected to remain similar to the 2019 rate.
Trend Information
The following factors are expected to have a significant effect on our 2020 results:
 Success of our specialty products AJOVY, AUSTEDO and our biosimiliar products;
 
 execution of our global operations optimization plan, which may affect our business and operations, and the risk of incurring additional restructuring expenses;
 
 ability to successfully execute key generic launches in a timely manner;
 
 our high debt levels and
non-investment
grade credit rating will have a negative effect on our ability to borrow additional funds and may increase the cost of any such borrowing;
 
 a decrease in sales of COPAXONE following the launches of generic versions to the product, and the possibility of additional generic competition in the future;
 
 a decrease in sales of other specialty products due to potential loss of exclusivity or generic competition;
 
 we expect continued competition for our generic products where multiple similar generic products have been launched, resulting in pricing pressure in the generics markets. We do, however, also see certain generic segments in which opportunities exist to grow our business, our portfolio of new drug applications and our portfolio of approved complex products; and
 
 continued impact of currency fluctuations on revenues and net income, as well as on various balance sheet line items.
 
For additional information, please see “Item 1—Business” and elsewhere in this Item 7.
Aggregated Contractual Obligations
The following table summarizes our material contractual obligations and commitments as of December 31, 2019:
                     
 
Payments Due by Period
 
 
Total
  
Less than
1 year
  
1-3
 years
  
3-5
 years
  
More than
5 years
 
 
(U.S. $ in millions)
 
Long-term debt obligations, including expected interest*
 $
34,043
  $
2,737
  $
6,310
  $
8,723
  $
16,274
 
Purchase obligations (including purchase orders)
  
1,876
   
1,624
   
248
   
4
   
—  
 
                     
Total
 $
35,919
  $
4,361
  $
6,558
  $
8,727
  $
16,274
 
                     
 
 
*Long-term debt obligations mainly include senior notes and convertible senior debentures as disclosed in note 9 to our consolidated financial statements.
 
85

The total gross amount of unrecognized tax benefits for uncertain tax positions was $1,223 million at December 31, 2019. Payment of these obligations would result from settlements with tax authorities. Due to the difficulty in determining the timing and magnitude of settlements, these obligations are not included in the table above. Correspondingly, it is difficult to ascertain whether we will pay any significant amount related to these obligations within the next year.
We have committed to make potential future milestone payments to third parties under various agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. As of December 31, 2019, if all milestones and targets, for compounds in phase 2 and more advanced stages of development, are achieved, the total contingent payments could reach an aggregate amount of up to $426 million.
We have committed to pay royalties to owners of
know-how,
partners in alliances and other certain arrangements and to parties that financed research and development, at a wide range of rates as a percentage of sales or of the gross margin of certain products, as defined in the underlying agreements.
Due to the uncertainty of the timing of these payments, these amounts, and the amounts described in the previous paragraph, are not included in the table above.
Off-Balance
Sheet Arrangements
Except for securitization transactions, which are disclosed in note 10 f to our consolidated financial statements, we do not have any material
off-balance
sheet arrangements.
Critical Accounting Policies
For a description of our significant accounting policies, see note 1 to our consolidated financial statements.
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. We base our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.
Of our policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements. We have applied our policies and critical accounting estimates consistently across our businesses.
The significant accounting estimates relate to the following:
 Revenue Recognition and SR&A
 Income Taxes
 Contingencies
 Inventories
 Goodwill
 Identifiable Intangible Assets
 Restructuring Costs
86

Revenue Recognition and SR&A
Our gross product revenues are subject to a variety of deductions which are generally estimated and recorded in the same period that the revenues are recognized, and primarily represent chargebacks, rebates and sales allowances to wholesalers, retailers and government agencies with respect to our pharmaceutical products. Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Historically, our changes of estimates reflecting actual results or updated expectations, have not been material to our overall business. Product-specific rebates, however, may have a significant impact on year-over-year individual product growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with governmental allowances, U.S. Medicaid and other performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.
Income Taxes
The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws.
Accounting for uncertainty in income taxes requires that it be more likely than not that the tax benefits recognized in the financial statements be sustained based on technical merits. The amount of benefits recorded for these positions is measured as the largest benefit more likely than not to be sustained. Significant judgment is required in making these determinations.
Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the determination of the appropriate valuation allowances, we have considered the most recent projections of future business results and prudent tax planning alternatives that may allow us to realize the deferred tax assets. Taxes which would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred taxes, as it is our intention to hold these investments rather than realize them.
Deferred taxes have not been provided for
tax-exempt
income, as the Company intends to permanently reinvest these profits and does not currently foresee a need to distribute dividends out of these earnings. Furthermore, we do not expect our
non-Israeli
subsidiaries to distribute taxable dividends in the foreseeable future, as their earnings and excess cash are used to pay down the group’s external liabilities, while we expect to have sufficient resources in the Israeli companies to fund our cash needs in Israel. In addition, the Company announced a suspension of dividend distribution on ordinary shares and ADSs in 2017. An assessment of the tax that would have been payable had the Company’s foreign subsidiaries distributed their income to the Company is not practicable because of the multiple levels of corporate ownership and multiple tax jurisdictions involved in each hypothetical dividend distribution.
For a discussion of the valuation allowance, deferred tax and valuation allowance estimates see notes 1 and 13 of our consolidated financial statements.
87

U.S. Tax Cuts and Jobs Act
We accounted for the tax effects of the Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in our 2017 consolidated financial statements. We completed our accounting analysis in the fourth quarter of 2018, within the one year measurement period from the enactment date. See Note 13 in the notes to the consolidated financial statements for additional information.
Contingencies
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, in large part as a result of the nature of its business, Teva is frequently subject to litigation, governmental investigations and other legal proceedings. Except for income tax contingencies or contingent consideration acquired in a business combination, 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. When accruing these costs, Teva will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, Teva accrues for the minimum amount within the range. Teva records anticipated recoveries under existing insurance contracts that are probable of occurring at the gross amount that is expected to be collected.
Teva reviews the adequacy of the accruals on a periodic basis and may determine to alter its provisions at any time in the future if it believes it would be appropriate to do so. As such accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined estimates, accruals may materially differ from actual verdicts, settlements or other agreements made with regards to such contingencies. Litigation outcomes and contingencies are unpredictable and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments concerning future events and often rely heavily on estimates and assumptions.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost of raw and packaging materials is determined mainly on a moving average basis. Cost of purchased products is determined mainly on a standard cost basis, approximating average costs. Cost of manufactured finished products and products in process is calculated assuming normal manufacturing capacity as follows: raw and packaging materials component is determined mainly on a moving average basis, while the capitalized production costs are determined either on an average basis over the production period, or on a standard cost basis, approximating average costs.
Our inventories generally have a limited shelf life and are subject to impairment as they approach their expiration dates. We regularly evaluate the carrying value of our inventories and when, in our opinion, factors indicate that impairment has occurred, we establish a reduction in the cost basis against the inventories’ carrying value. Our determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. Although we make every effort to ensure the accuracy of forecasts of future product demand, any significant unanticipated decreases in demand could have a material impact on the carrying value of our inventories and reported operating results.
Our policy is to capitalize saleable product for unapproved inventory items when economic benefits are probable. We evaluate expiry, legal risk and likelihood of regulatory approval on a regular basis. If at any time approval is deemed not to be probable, the inventory is written down to its net realizable value. To date, inventory allowance adjustments in the normal course of business have not been material. However, from time to time, due to a regulatory action or lack of approval or delay in approval of a product, we may experience a more significant impact.    
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Goodwill
Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any
non-controlling
interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least annually, in the fourth quarter of the fiscal year.
We perform an impairment test annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is necessary to perform the next goodwill impairment quantitative test.
Examples of events or circumstances that may be indicative of impairment include, but are not limited to: macroeconomic and industry conditions, overall financial performance and adverse changes in legal, regulatory, market share and other relevant entity specific events.
The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs. Key estimates include the revenue growth rates and operating margins taking into consideration industry and market conditions, terminal growth rate and the discount rate. The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics.
The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill, to those reporting units.
When necessary, we record charges for impairments of goodwill for the amount by which the carrying amount exceeds the fair value of these assets.
See note 7 and note 19 to our consolidated financial statements for further details on the goodwill impairments recognized in 2018 and 2017, and Teva’s operating and reporting segments.
Identifiable Intangible Assets
Identifiable intangible assets are comprised of definite life intangible assets and indefinite life intangible assets.
Definite life intangible assets consist mainly of acquired product rights and other rights relating to products for which marketing approval was received from the FDA or the equivalent agencies in other countries. These assets are amortized using mainly the straight-line method over their estimated period of useful life, or based on economic benefit models, if more appropriate, which is determined by identifying the period and manner in which substantially all of the cash flows are expected to be generated. Amortization of acquired developed products is recorded under cost of sales. Amortization of marketing and distribution rights is recorded under selling and marketing expenses when separable
Impairment of identifiable intangible assets amounted to $1,639 million, $1,991 million and $3,238 million in the years ended December 31, 2019, 2018 and 2017, respectively. See note 6 to our consolidated financial statements.
The fair value of acquired identifiable intangible assets is generally determined using an income approach. This method starts with a forecast of all expected future net cash flows associated with the asset and then adjusts the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.
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Whenever impairment indicators are identified for definite life intangible assets, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the asset’s or asset group’s cash flows and then calculates, if required, the discounted value of cash flow by applying an appropriate discount rate to the undiscounted cash flow streams. Teva then compares such value against the asset’s or asset group’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of carrying value over fair value based on the discounted cash flows.
Examples of events or circumstances that may be indicative of impairment include:
 A projection or forecast that indicates losses or reduced profits associated with an asset. This could result, for example, from a change in the competitive landscape modifying our assumptions about market share or pricing prospectively, a government reimbursement program that results in an inability to sustain projected product revenues and profitability, or lack of acceptance of a product by patients, physicians or payers limiting our projected growth.
 A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights by a competitor would likely result in generic competition earlier than expected. And conversely, a lost challenge of patent rights in connection with our generic file would likely result in delayed entry.
 A significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the FDA or other regulatory authorities could affect our ability to manufacture or sell a product.
 For IPR&D projects, this could result from, among other things, a change in outlook affecting assumptions around competition or timing of entry such as approval success or the related timing of approval, clinical trial data results, other delays in the projected launch dates or additional expenditures required to commercialize the product.
The more significant estimates and assumptions inherent in the estimate of the fair value of identifiable intangible assets include (i) assumptions associated with forecasting product profitability, including sales and cost to sell projections, (ii) tax rates which seek to incorporate the geographic diversity of the projected cash flows, (iii) expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk, R&D expenditure for ongoing support of product rights or continued development of IPR&D, and (iv) estimated useful lives and IPR&D expected launch dates. Additionally, for IPR&D assets the risk of failure has been factored into the fair value measure.
While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, in general, intangible assets other than goodwill that are most at risk of impairment include IPR&D assets and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, as R&D is an inherently risky activity. Consequently, IPR&D assets could be determined to be no longer commercially viable. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.
Restructuring Costs
Restructuring costs have been recorded in connection with Teva’s restructuring plan between the years 2017 and 2019. Following these actions and in anticipation of ongoing efficiency measures in our business, Teva’s management has made estimates and judgments regarding future plans, mainly related to employee termination benefit costs, potential closures or divestments of manufacturing plants, headquarters and other office locations. In connection with these actions, management also assesses the recoverability of long-lived assets employed in
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the business. In certain instances, asset lives have been shortened based on changes in the expected useful lives of the affected assets. Asset-related impairments and severance and other related costs are reflected within asset impairments, restructuring and others.
Recently Issued Accounting Pronouncements
See note 1 to our consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
The objective of our financial risk management measures is to minimize the impact of risks arising from foreign exchange and interest rate fluctuations. To reduce these risks, we take various operational measures in order to achieve a natural hedge and may enter, from time to time, into financial derivative instruments. Our derivative transactions are executed through global banks. We believe that due to our diversified derivatives portfolio, the credit risk associated with any of these banks is minimal. No derivative instruments are entered into for trading purposes.
Exchange Rate Risk Management
We operate our business worldwide and, as such, we are subject to foreign exchange risks on our results of operations, our monetary assets and liabilities and our foreign subsidiaries’ net assets. For further information on currencies in which we operate, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Currency Fluctuations on Results of Operations.”
We generally prefer to borrow in U.S. dollars; however, from time to time we borrow funds in other currencies, such as the euro, Swiss franc, Japanese yen and new Israeli shekel, in order to benefit from same currency revenues in relation to same currency costs and same currency assets in relation to same currency liabilities.
Cash Flow Exposure
Total revenues were $16,887 million in 2019. Of these revenues, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar, 20% in euros, 5% in Japanese yen and the rest in other currencies, none of which accounted for more than 4% of total revenues in 2019. In most currencies, we record corresponding expenses.
In certain currencies, primarily the euro, our revenues generally exceed our expenses. Conversely, in other currencies, primarily the new Israeli shekel and the Indian rupee, our expenses generally exceed our revenues.
For those currencies which do not have a sufficient natural hedge, we may choose to hedge in order to reduce the impact of foreign exchange fluctuations on our operating results.
As of December 31, 2019, we hedged part of our expected operating profit for 2020 in currencies other than the U.S. dollar.
In certain cases, we may hedge exposure arising from a specific transaction, executed in a currency other than the functional currency, by entering into forward contracts and/or by using plain-vanilla and exotic option strategies. We generally limit the term of hedging transactions to a maximum of fifteen months.
Balance Sheet Exposure
With respect to our monetary assets and liabilities, the exposure arises when the monetary assets and/or liabilities are denominated in currencies other than the functional currency of our subsidiaries. We strive to limit our exposure through natural hedging. Most of the remaining exposure is hedged by entering into financial derivative instruments. To the extent possible, the hedging activity is carried out on a consolidated level.
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The table below presents exposures exceeding $50 million in absolute values:
     
Net exposure as of
December 31, 2019
 
Liability/Asset
 
(U.S. $ in millions)
 
GBP/EUR
  
610
 
USD/EUR
  
375
 
USD/CHF
  
360
 
USD/JPY
  
313
 
BGN/EUR
  
251
 
PLN/EUR
  
243
 
CAD/EUR
  
97
 
EUR/HRK
  
96
 
USD/MXN
  
75
 
INR/USD
  
72
 
EUR/RUB
  
85
 
USD/ILS
  
70
 
GBP/USD
  
63
 
 
 
 
 
 
 
 
 
Outstanding Foreign Exchange Hedging Transactions
As of December 31, 2019, we had long and short forwards and currency option contracts with a corresponding notional amount of approximately $2.7 billion and $1.1 billion, respectively. As of December 31, 2018, we had long and short forwards and currency option contracts with corresponding notional amounts of approximately $3.4 billion and $210 million, respectively.
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The table below presents financial derivatives entered into as of December 31, 2019 in order to reduce currency exposure arising from our cash flow and balance sheet exposures. The table below presents only currency paired with hedged net notional values exceeding $50 million.
                         
Currency (sold)
 
Cross
Currency
(bought)
  
Net Notional Value
  
Fair Value
  
2019 Weighted
Average Cross
Currency Prices or
Strike Prices
 
2019
  
2018
  
2019
  
2018
 
 
(U.S. $ in millions)
 
Forward:
                  
EUR
  
USD
   
503
   
147
   
(6
)  
2
   
1.12
 
EUR
  
GBP
   
445
   
416
   
12
   
(3
)  
0.88
 
CHF
  
USD
   
384
   
274
   
(5
)  
(1
)  
0.98
 
JPY
  
USD
   
302
   
283
   
2