Table of Contents
falseQ10000818686--12-3100-0000000ILContingent consideration represents liabilities recorded at fair value in connection with acquisitions.If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.125%-0.375% per annum, from and including May 9, 2026. Interest rate adjustments and a potential one-time premium payment related to the sustainability-linked bonds are treated as bifurcated embedded derivatives. See note 8c. In March 2023, Teva repaid $646 million of its 1.25% senior notes at maturity. If Teva fails to achieve certain sustainability performance targets, a one-time premium payment of 0.15%-0.45% out of the principal amount will be paid at maturity or upon earlier redemption, if such redemption is on or after May 9, 2026. In March 2023, Teva consummated a cash tender offer and extinguished $630 million aggregate principal amount of its 1,000 million euro 6% senior notes due in 2025; $432 million aggregate principal amount of its 900 million euro 4.5% senior notes due in 2025; $573 million aggregate principal amount of its $1,000 million 7.13% senior notes due in 2025; $453 million aggregate principal amount of its $3,000 million 2.8% senior notes due in 2023; $293 million aggregate principal amount of its $1,250 million 6% senior notes due in 2024 and $122 million aggregate principal amount of its $3,500 million 3.15% senior notes due in 2026. In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 800 million euro bearing 7.38% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.100%-0.300% per annum, from and including September 15, 2026. In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 500 million euro bearing 7.88% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.100%-0.300% per annum, from and including September 15, 2026. In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $600 million bearing 7.88% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.100%-0.300% per annum, from and including September 15, 2026. In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $500 million bearing 8.13% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.100%-0.300% per annum, from and including September 15, 2026. Debt issuance costs as of March 31, 2023 include $26 million in connection with the issuance of the sustainability-linked senior notes in March 2023, partially offset by $6 million acceleration of issuance costs related to the cash tender offer. Including impairments related to exit and disposal activities.Includes adjustments for foreign currency translation.Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses, net. Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty and several other currencies to protect its projected operating results for 2023. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. In the first quarter of 2023, the negative impact from these derivatives recognized under revenues was $6 million. In the first quarter of 2022, the positive impact from these derivatives recognized under revenues was $19 million. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. Cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. Amounts do not include a $53 million loss from foreign currency translation adjustments attributable to non-controlling interests.Amounts do not include a $9 million loss from foreign currency translation adjustments attributable to non-controlling interests.Amounts exclude attorneys’ fees and costs, except New York.Not including cash payment and attorneys’ fees allocated under the nationwide settlement.On March 31, 2023, Teva entered into a cross currency interest rate swap agreement, designated as cash flow hedge for accounting purposes with respect to an intercompany loan due October 2026, denominated in Japanese yen. 0000818686 2023-01-01 2023-03-31 0000818686 2022-01-01 2022-03-31 0000818686 2022-12-31 0000818686 2023-03-31 0000818686 2019-08-31 0000818686 2018-08-21 2022-08-21 0000818686 2005-02-28 0000818686 2008-07-31 0000818686 2013-04-01 2013-04-30 0000818686 2013-09-01 2013-09-30 0000818686 2010-12-01 2010-12-31 0000818686 2012-08-01 2012-08-31 0000818686 2022-11-30 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
 
10-Q
 
 
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
 
001-16174
 
 
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Exact name of registrant as specified in its charter)
 
 
 
Israel
 
Not Applicable
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
124 Dvora HaNevi’a St., Tel Aviv, ISRAEL
 
6944020
(Address of principal executive offices)
 
(Zip code)
+972 (3)
 914-8213
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
American Depositary Shares, each representing one Ordinary Share
 
TEVA
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
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 Act).    Yes  ☐    No  ☒
As of March 31, 2023, the registrant had 1,120,405,816 ordinary shares outstanding.
 
 
 

Table of Contents

For an accessible version of this Quarterly Report on Form 10-Q, please visit www.tevapharm.com

INDEX

 

PART I.

    Financial Statements (unaudited)   

Item 1.

   

Financial Statements (unaudited)

   
  

Consolidated Balance Sheets

      5  
  

Consolidated Statements of Income (loss)

      6  
  

Consolidated Statements of Comprehensive Income (loss)

      7  
  

Consolidated statements of changes in equity

      8  
  

Consolidated Statements of Cash Flows

      9  
  

Notes to Consolidated Financial Statements

      10  

Item 2.

   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

      43  

Item 3.

   

Quantitative and Qualitative Disclosures about Market Risk

      61  

Item 4.

   

Controls and Procedures

      61  

PART II.

    OTHER INFORMATION   

Item 1.

   

Legal Proceedings

      62  

Item 1A.

   

Risk Factors

      62  

Item 2.

   

Unregistered Sales of Equity Securities and Use of Proceeds

      62  

Item 3.

   

Defaults Upon Senior Securities

      62  

Item 4.

   

Mine Safety Disclosures

      62  

Item 5.

   

Other Information

      62  

Item 6.

   

Exhibits

      63  
  

Signatures

      64  

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “ADS(s)” are to Teva’s American Depositary Share(s). References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA, a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “R&D” are to Research and Development, references to “IPR&D” are to in-process R&D, references to “S&M” are to Selling and Marketing and references to “G&A” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts. This report on Form 10-Q contains many of the trademarks and trade names used by Teva in the United States and internationally to distinguish its products and services. Any third-party trademarks mentioned in this report are the property of their respective owners.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q, and the reports and documents incorporated by reference in this Quarterly Report on Form 10-Q, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:

 

  •  

our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; concentration of our customer base and commercial alliances among our customers; delays in launches of new generic products; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; our ability to develop and commercialize biopharmaceutical products; competition for our innovative medicines, including AUSTEDO®, AJOVY® and COPAXONE®; our ability to achieve expected results from investments in our product pipeline; our ability to develop and commercialize additional pharmaceutical products; 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: the impact of global economic conditions and other macroeconomic developments and the governmental and societal responses thereto; the widespread outbreak of an illness or any other communicable disease, or any other public health crisis; effectiveness of our optimization efforts; our ability to attract, hire, integrate and retain highly skilled personnel; 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 political or economic instability, major hostilities or terrorism; costs and delays resulting from the extensive pharmaceutical regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; 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; and our prospects and opportunities for growth if we sell assets;

 

  •  

compliance, regulatory and litigation matters, including: failure to comply with complex legal and regulatory environments; increased legal and regulatory action in connection with public concern over the abuse of opioid medications and any delay in our ability to obtain sufficient participation of plaintiffs for the nationwide settlement of our opioid-related litigation in the United States; scrutiny from competition and pricing authorities around the world, including our ability to successfully defend against the U.S. Department of Justice (“DOJ”) criminal charges of Sherman Act violations; potential liability for intellectual property right infringement; product liability claims; failure to comply with complex Medicare and Medicaid reporting and payment obligations; compliance with anti-corruption, sanctions and trade control laws; environmental risks; and the impact of Environmental, Social and Governance (“ESG”) issues;

 

  •  

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our long-lived assets; the impact of geopolitical conflicts including the ongoing conflict between Russia and Ukraine; 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;

 

3

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

 

and other factors discussed in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022, 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.

 

4

Table of Contents
http://fasb.org/us-gaap/2022#IncomeLossFromContinuingOperationsBeforeIncomeTaxesMinorityInterestAndIncomeLossFromEquityMethodInvestments00http://fasb.org/us-gaap/2022#IncomeLossFromContinuingOperationsBeforeIncomeTaxesMinorityInterestAndIncomeLossFromEquityMethodInvestments2026-04-3000http://fasb.org/us-gaap/2022#LiabilitiesCurrenthttp://fasb.org/us-gaap/2022#OperatingIncomeLosshttp://fasb.org/us-gaap/2022#OtherAssetsCurrenthttp://fasb.org/us-gaap/2022#OtherAssetsCurrenthttp://fasb.org/us-gaap/2022#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2022#OtherLiabilitiesCurrent
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions, except for share data)
(Unaudited)
 
    
March 31,
    
December 31,
  
    
2023
    
2022
  
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
    $ 2,143     $ 2,801  
Accounts receivables, net of allowance for credit losses of $88 million and $91 million as of March 31, 2023 and December 31, 2022
      3,435       3,696  
Inventories
      4,118       3,833  
Prepaid expenses
      1,253       1,162  
Other current assets
      542       549  
Assets held for sale
      10       10  
    
 
 
    
 
 
  
Total current assets
      11,501       12,051  
Deferred income taxes
      1,572       1,453  
Other
non-current
assets
      450       441  
Property, plant and equipment, net
      5,751       5,739  
Operating lease
right-of-use
assets
      420       419  
Identifiable intangible assets, net
      5,964       6,270  
Goodwill
      17,799       17,633  
    
 
 
    
 
 
  
Total assets
    $ 43,456     $ 44,006  
    
 
 
    
 
 
  
LIABILITIES AND EQUITY
                 
Current liabilities:
                 
Short-term debt
    $ 1,023     $ 2,109  
Sales reserves and allowances
      3,309       3,750  
Accounts payables
      2,381       1,887  
Employee-related obligations
      432       566  
Accrued expenses
      2,267       2,151  
Other current liabilities
      1,000       1,005  
    
 
 
    
 
 
  
Total current liabilities
      10,411       11,469  
Long-term liabilities:
                 
Deferred income taxes
      550       548  
Other taxes and long-term liabilities
      3,869       3,847  
Senior notes and loans
      19,668       19,103  
Operating lease liabilities
      345       349  
    
 
 
    
 
 
  
Total long-term liabilities
      24,433       23,846  
    
 
 
    
 
 
  
Commitments and contingencies
, see note 10
                 
Total liabilities
      34,844       35,315  
    
 
 
    
 
 
  
Equity:
                 
Teva shareholders’ equity:
                 
Ordinary shares of NIS 0.10 par value per share; March 31, 2023 and December 31, 2022: authorized 2,495 million shares; issued 1,226 million shares and 1,217 million shares, respectively
      57       57  
Additional
paid-in
capital
      27,719       27,688  
Accumulated deficit
      (13,086 )      (12,882 ) 
Accumulated other comprehensive loss
      (2,701 )      (2,838 ) 
Treasury shares as of March 31, 2023 and December 31, 2022: 106 million ordinary shares
      (4,128 )      (4,128 ) 
    
 
 
    
 
 
  
       7,860       7,897  
    
 
 
    
 
 
  
Non-controlling
interests
      751       794  
    
 
 
    
 
 
  
Total equity
      8,612       8,691  
    
 
 
    
 
 
  
Total liabilities and equity
    $ 43,456     $ 44,006  
    
 
 
    
 
 
  
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
5
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. dollars in millions, except share and per share data)
(Unaudited)
 
    
Three months ended
  
    
March 31,
  
    
2023
    
2022
  
Net revenues
    $ 3,661     $ 3,661  
Cost of sales
      2,079       1,921  
    
 
 
    
 
 
  
Gross profit
      1,582       1,740  
Research and development expenses
      234       225  
Selling and marketing expenses
      546       584  
General and administrative expenses
      296       296  
Intangible assets impairments
      178       149  
Other assets impairments, restructuring and other items
      96       128  
Legal settlements and loss contingencies
      233       1,124  
Other income
      (2 )      (52 ) 
    
 
 
    
 
 
  
Operating income (loss)
      2       (713 ) 
Financial expenses, net
      260       258  
    
 
 
    
 
 
  
Income (loss) before income taxes
      (258 )      (971 ) 
Income taxes (benefit)
      (19 )      2  
Share in (profits) losses of associated companies, net
      §       (21 ) 
    
 
 
    
 
 
  
Net income (loss)
      (238 )      (952 ) 
Net income (loss) attributable to
non-controlling
interests
      (33 )      3  
    
 
 
    
 
 
  
Net income (loss) attributable to Teva
      (205 )      (955 ) 
    
 
 
    
 
 
  
Earnings (loss) per share attributable to ordinary shareholders:
                 
Basic
    $ (0.18 )    $ (0.86 ) 
    
 
 
    
 
 
  
Diluted
    $ (0.18 )    $ (0.86 ) 
    
 
 
    
 
 
  
Weighted average number of shares (in millions):
                 
Basic
      1,115       1,107  
    
 
 
    
 
 
  
Diluted
      1,115       1,107  
    
 
 
    
 
 
  
 
§
Represents an amount less than $0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
6
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in millions)
(Unaudited)
 
    
Three months ended

March 31,
  
    
2023
    
2022
  
Net income (loss)
    $ (238 )    $ (952 ) 
Other comprehensive income (loss), net of tax:
                 
Currency translation adjustment
      120       (64 ) 
Unrealized gain (loss) from derivative financial instruments, net
      8       7  
Unrealized loss on defined benefit plans
      (1 )      —    
    
 
 
    
 
 
  
Total other comprehensive income (loss)
      127       (57 ) 
    
 
 
    
 
 
  
Total comprehensive income (loss)
      (111 )      (1,009 ) 
Comprehensive income (loss) attributable to
non-controlling
interests
      (42 )      (50 ) 
    
 
 
    
 
 
  
Comprehensive income (loss) attributable to Teva
    $ (69 )    $ (959 ) 
    
 
 
    
 
 
  
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
7
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
    
Teva shareholders’ equity
              
    
Ordinary shares
                                              
    
Number of
shares (in
millions)
     
Stated
value
     
Additional
paid-in

capital
     
Retained
earnings
(accumulated
deficit)
    
Accumulated
other
comprehensive
(loss)
    
Treasury
shares
    
Total Teva
shareholders’
equity
    
Non-

controlling

interests
    
Total
equity
  
                                                           
    
(U.S. dollars in millions)
  
Balance at December 31, 2022
      1,217        57        27,688        (12,882 )      (2,838 )      (4,128 )      7,897       794       8,691  
Net Income (loss)
                                 (205 )                      (205 )      (33 )      (238 ) 
Other comprehensive income (loss)
                                         136               136       (9 )      127  
Issuance of Shares
      9        *        *                                *               *  
Stock-based compensation expense
                        32                                32               32  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at March 31, 2023
      1,226      $ 57      $ 27,719      $ (13,086 )    $ (2,701 )    $ (4,128 )    $ 7,860     $ 751     $ 8,612  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Represents an amount less than $0.5 million.
 
    
Teva shareholders’ equity
              
    
Ordinary shares
                                              
    
Number of
shares (in
millions)
     
Stated
value
     
Additional
paid-in

capital
     
Retained
earnings
(accumulated
deficit)
    
Accumulated
other
comprehensive
(loss)
    
Treasury
shares
    
Total Teva
shareholders’
equity
    
Non-

controlling

interests
    
Total
equity
  
                                                           
    
(U.S. dollars in millions)
  
Balance at December 31, 2021
      1,209        57        27,561        (10,529 )      (2,683 )      (4,128 )      10,278       966       11,244  
Net Income (loss)
                                 (955 )                      (955 )      3       (952 ) 
Other comprehensive income (loss)
                                         (4 )              (4 )      (53 )      (57 ) 
Issuance of shares
      7        *        1                                1               1  
Stock-based compensation expense
                        24                                24               24  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at March 31, 2022
      1,216      $ 57      $ 27,587      $ (11,484 )    $ (2,687 )    $ (4,128 )    $ 9,344     $ 916     $ 10,260  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Represents an amount less than $0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
8
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
 
    
Three months ended
  
    
March 31,
  
    
2023
    
2022
  
Operating activities:
                 
Net income (loss)
    $ (238 )    $ (952 ) 
Adjustments to reconcile net income (loss) to net cash provided by operations:
                 
Depreciation and amortization
      304       323  
Impairment of long-lived assets and assets held for sale
      189       165  
Net change in operating assets and liabilities
      (364 )      559  
Deferred income taxes – net and uncertain tax positions
      (106 )      (175 ) 
Stock-based compensation
      32       24  
Other items
      34       30  
Net loss (gain) from investments and from sale of long lived assets
      4       (23 ) 
    
 
 
    
 
 
  
Net cash provided by (used in) operating activities
      (145 )      (49 ) 
    
 
 
    
 
 
  
Investing activities:
                 
Beneficial interest collected in exchange for securitized trade receivables
      323       305  
Purchases of property, plant and equipment
      (139 )      (157 ) 
Proceeds from sale of business and long lived assets
      2       25  
Acquisition of businesses, net of cash acquired
      —         (7 ) 
Purchases of investments and other assets
      (4 )      (4 ) 
Other investing activities
      (1 )      (1 ) 
    
 
 
    
 
 
  
Net cash provided by (used in) investing activities
      181       161  
    
 
 
    
 
 
  
Financing activities:
                 
Repayment of senior notes and loans and other long term liabilities
      (3,152 )      —    
Proceeds from senior notes, net of issuance costs
      2,451       —    
Other financing activities
      (5 )      2  
    
 
 
    
 
 
  
Net cash provided by (used in) financing activities
      (706 )      2  
    
 
 
    
 
 
  
Translation adjustment on cash and cash equivalents
      12       (62 ) 
    
 
 
    
 
 
  
Net change in cash, cash equivalents and restricted cash
      (658 )      52  
Balance of cash, cash equivalents and restricted cash at beginning of period
      2,834       2,198  
    
 
 
    
 
 
  
Balance of cash, cash equivalents and restricted cash at end of period
    $ 2,176     $ 2,250  
    
 
 
    
 
 
  
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
                 
Cash and cash equivalents
      2,143       2,175  
Restricted cash included in other current assets
      33       75  
    
 
 
    
 
 
  
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
      2,176       2,250  
    
 
 
    
 
 
  
Non-cash
financing and investing activities:
                 
Beneficial interest obtained in exchange for securitized accounts receivables
    $ 334     $ 299  
Amounts may not add up due to rounding
The accompanying notes are an integral part of the financial statements.
 
9
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of presentation:
a. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form
10-Q
should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”). The
year-end
balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included.
In preparing the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity and disclosure of contingent liabilities and assets at the dates of the financial statements and the reported amounts of revenues and expenses during the reported years. Actual results could differ from those estimates.
In preparing the Company’s consolidated financial statements, management also considered the economic implications of inflation expectations on its critical and significant accounting estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to determining the valuation and recoverability of IPR&D assets, marketed product rights and goodwill, assessing sales reserves and allowances in the United States, uncertain tax positions, valuation allowances and contingencies. These estimates could
be
impacted by higher costs and the ability to pass on such higher costs to customers, which is highly uncertain. Government actions taken to address macroeconomic developments, as well as their economic impact on Teva’s third-party manufacturers and suppliers, customers and markets, could also impact such estimates and may change in future periods.
In February 2022, Russia launched an invasion of Ukraine. As of the date of this Quarterly Report on Form
10-Q,
sustained conflict and disruption in the region is ongoing. Russia and Ukraine markets are included in Teva’s International Markets segment results. Teva has no manufacturing or R&D facilities in these markets. During the three months ended March 31, 2023, the impact of this conflict on Teva’s results
of
operation and financial condition was immaterial.
Teva’s results of operations for the three months ended March 31, 2023 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.
b. Significant accounting policies
Recently adopted accounting pronouncements
In September 2022, the FASB issued ASU
2022-04
“Liabilities — Supplier Finance Programs: Disclosure of Supplier Finance Program Obligations (Subtopic
405-50)”.
This guidance is intended to address requests from stakeholders for information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity and cash flows. The guidance is effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information requirement, which is effective for the fiscal years beginning after December 15, 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The Company adopted the new accounting standard effective January 1, 2023 and the guidance is applied prospectively to all business combinations with an acquisition date occurring on or after January 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. 
Recently issued accounting pronouncements, not yet adopted
None.
 
10
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 2 – Certain transactions:
The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.
MODAG
In October 2021, Teva announced a license agreement with MODAG GmbH (“Modag”) that will provide Teva an exclusive global license to develop, manufacture and commercialize Modag’s lead compound
(TEV-56286)
and a related compound
(TEV-56287).
TEV-56286
was initially developed for the treatment of Multiple System Atrophy (“MSA”) and Parkinson’s disease, and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease. A phase 1b clinical trial for
TEV-56286
was completed and the results are being assessed. In the fourth quarter of 2021, Teva made an upfront payment of $10 million to Modag that was recorded as an R&D expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to $30 million, as well as future commercial milestones and royalties.
Alvotech
In August 2020, Teva entered into an agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this collaboration contains biosimilar candidates addressing multiple therapeutic areas, including proposed biosimilars to Humira
®
and Stelara
®
. Under the terms of the agreement, Alvotech is responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. Teva made an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021, which were recorded as R&D expenses. Teva also made a milestone payment in January 2023, which was recorded as an R&D expense in the fourth quarter of 2022. Additional development and commercial milestone payments of up to approximately $400
 
million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. Pursuant to a settlement agreement entered into in March 2022, regarding certain IP and trade secrets claims filed by Abbvie against Alvotech in relation to Alvotech’s proposed biosimilar to Humira
®
(adalimumab), Alvotech and Teva may sell the proposed biosimilar to Humira
®
in the United States beginning on July 1, 2023, provided that U.S. regulatory approval is obtained by that date. Alvotech announced they received complete response letters (“CRL”) from the FDA with respect to Alvotech’s proposed biosimilar to Humira
®
in September 2022, December 2022 and April 2023. The CRL from April 2023 stated that the application could not be approved at this time based on deficiencies associated with Alvotech’s manufacturing facility. The details following the most recent FDA’s inspection and CRL are being further assessed to determine next steps.
In January 2023, the FDA accepted for review the Biologics License Application (“BLA”) for Alvotech’s proposed biosimilar to Stelara
®
.
 
11
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Otsuka
On May 12, 2017, Teva entered into a license and collaboration agreement with Otsuka Pharmaceutical Co. Ltd. (“Otsuka”) providing Otsuka with an exclusive license to develop and commercialize AJOVY in Japan. Otsuka paid Teva an upfront payment of $50 million in consideration for the transaction. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 million, which was recognized as revenue in the third quarter of 2020. AJOVY was approved in Japan in June 2021 and launched on August 30, 2021. As a result of the launch, Otsuka paid Teva a milestone payment of $35 million, which was recognized as revenue in the third quarter of 2021. Teva may receive additional milestone payments upon achievement of certain revenue targets. Otsuka also pays Teva royalties on AJOVY sales in Japan.
Takeda
In December 2016, Teva entered into a license agreement with a subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”), for the research, development, manufacture and commercialization of ATTENUKINE
TM
technology. Teva received a $30 million upfront payment and a milestone payment of $20 million in 2017. During the second quarter of 2022, Takeda initiated its phase 2 study of modakafusp alfa (formerly TAK 573 or TEV 48573) and as a result paid Teva a milestone payment of $25 million, which was recognized as revenue in the second quarter of 2022. The license agreement stipulates additional milestone payments to Teva of up to $519 million with respect to this product candidate, as well as future
royalties.
MedinCell
In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable (“LAI”) products. Teva leads the clinical development and regulatory process and is responsible for commercialization of these products. The lead product
is
risperidone LAI (formerly known as
TV-46000).
On April 28, 2023, the FDA approved UZEDY
TM
(risperidone) extended-release injectable suspension for the treatment of schizophrenia in adults. UZEDY is expected to be available in the U.S. in the coming weeks. MedinCell may be eligible for future sales-based milestones of up to $105 million in respect of UZEDY. Teva will also pay MedinCell royalties on net sales.
The second selected product candidate is olanzapine LAI
(TEV-44749)
for the treatment of schizophrenia. In the third quarter of 2022, Teva decided to progress development of the product to phase 3, and as a result a $3 million milestone payment was paid to MedinCell which was recognized as R&D expenses. MedinCell may become eligible for further milestones and royalties on sales of olanzapine LAI
(TEV-44749).
Assets Held for Sale:
General
Assets held for sale as of March 31, 2023 and December 31, 2022 included certain manufacturing assets that were sold in the second quarter of 2023. The table below summarizes all of Teva’s assets included as held for sale as of March 31, 2023 and December 31, 2022:
 
    
March 31,
     
December 31,
  
    
2023
     
2022
  
    
(U.S. $ in millions)
  
Inventories
      2        2  
Property, plant and equipment, net and others
      18        18  
Adjustments of assets held for sale to fair value
      (10 )       (10 ) 
    
 
 
     
 
 
  
Total assets of the disposal group classified as held for sale in the consolidated balance sheets
    $ 10      $ 10  
    
 
 
     
 
 
  
 
12
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 3 – Revenue from contracts with customers:
Disaggregation of revenue
The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues, see note 15.
 
    
Three months ended March 31, 2023
  
    
North
America
     
Europe
    
International
Markets
     
Other
activities
     
Total
  
                                   
    
(U.S. $ in millions)
  
Sale of goods
      1,319        1,176       464        131        3,090  
Licensing arrangements
      23        14       5        1        43  
Distribution
      424        §       10        —          434  
Other
      §        (6 )      13        87        95  
    
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
     $ 1,766        1,184       492        219        3,661  
    
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
 
§
Represents an amount less than $0.5 million.
 
    
Three months ended March 31, 2022
  
    
North
America
    
Europe
     
International
Markets
     
Other
activities
     
Total
  
                                   
    
(U.S. $ in millions)
  
Sale of goods
      1,377       1,134        445        180        3,136  
Licensing arrangements
      21       12        4        1        38  
Distribution
      342       §        16        —          358  
Other
      (2 )      9        27        95        129  
    
 
 
    
 
 
     
 
 
     
 
 
     
 
 
  
     $ 1,737     $ 1,156      $ 492      $ 275      $ 3,661  
    
 
 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
§
Represents an amount less than $0.5 million.
Variable consideration
Variable consideration mainly includes sales reserves and allowances (“SR&A”), comprised of rebates (including Medicaid and other governmental program discounts), chargebacks, returns and other promotional (including shelf stock adjustments) items. Provisions for prompt payment discounts are netted against accounts receivables.
The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions.
 
13
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
SR&A to U.S. customers comprised approximately 68% of the Company’s total SR&A as of March 31, 2023, with
the
remaining balance primarily related to customers in Canada and Germany. The changes in SR&A for third-party sales for the three months ended March 31, 2023 and 2022 were as follows:
 
    
Sales Reserves and Allowances
  
    
Reserves
included in
Accounts
Receivable, net
    
Rebates
    
Medicaid and
other
governmental
allowances
    
Chargebacks
    
Returns
    
Other
    
Total reserves
included in
Sales Reserves
and Allowances
    
Total
  
                                                  
    
(U.S. $ in millions)
  
Balance at January 1, 2023
    $ 67     $ 1,575     $ 663     $ 991     $ 455     $ 66     $ 3,750     $ 3,817  
Provisions related to sales made in current year period
      80       1,003       142       1,855       73       25       3,098       3,178  
Provisions related to sales made in prior periods
      —         (7 )      (36 )      (9 )      6       (1 )      (47 )      (47 ) 
Credits and payments
      (84 )      (1,127 )      (289 )      (1,973 )      (95 )      (21 )      (3,505 )      (3,589 ) 
Translation differences
      —         8       2       2       1       §
 
     13       13  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at March 31, 2023
    $ 63     $ 1,452     $ 482     $ 866     $ 440     $ 69     $ 3,309     $ 3,372  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
Sales Reserves and Allowances
  
    
Reserves
included in
Accounts
Receivable, net
    
Rebates
    
Medicaid and
other
governmental
allowances
    
Chargebacks
    
Returns
    
Other
    
Total reserves
included in
Sales Reserves
and Allowances
    
Total
  
                                                  
    
(U.S. $ in millions)
  
Balance at January 1, 2022
    $ 68     $ 1,655     $ 854     $ 1,085     $ 535     $ 112     $ 4,241     $ 4,309  
Provisions related to sales made in current year period
      82       928       198       1,814       58       90       3,088       3,170  
Provisions related to sales made in prior periods
      —         (90 )      26       (8 )      (14 )      (1 )      (87 )      (87 ) 
Credits and payments
      (88 )      (1,037 )      (270 )      (1,940 )      (110 )      (73 )      (3,430 )      (3,518 ) 
Translation differences
      —         (3 )      (1 )      —         —         (1 )      (5 )      (5 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at March 31, 2022
    $ 62     $ 1,453     $ 807     $ 951     $ 469     $ 127     $ 3,807     $ 3,869  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
§
Represents an amount less than $0.5 million.
Pledged accounts receivables
Accounts receivables, net of allowance for credit losses, include $434 million and $436
 
million as of March 31, 2023 and December 31, 2022, respectively, which are pledged to PNC Bank, National Association in connection with the U.S. securitization program entered into in November 2022. For further information on our securitization facilities, see note 10f to the consolidated financial statements for the year ended December 31, 2022, included in Teva’s Annual Report on Form 10-K. 
 
14
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 4 – Inventories:
Inventories, net of reserves, consisted of the following:
 
    
March 31,
     
December 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Finished products
    $ 2,110      $ 1,987  
Raw and packaging materials
      1,205        1,059  
Products in process
      620        555  
Materials in transit and payments on account
      183        232  
    
 
 
     
 
 
  
     $ 4,118      $ 3,833  
    
 
 
     
 
 
  
NOTE 5 – Identifiable intangible assets:
Identifiable intangible assets consisted of the following:
 
    
Gross carrying amount net of
impairment
     
Accumulated amortization
     
Net carrying amount
  
    
March 31,
     
December 31,
     
March 31,
     
December 31,
     
March 31,
     
December 31,
  
    
2023
     
2022
     
2023
     
2022
     
2023
     
2022
  
                                           
    
(U.S. $ in millions)
  
Product rights
    $ 18,094      $ 18,067      $ 12,934      $ 12,630      $ 5,160      $ 5,437  
Trade names
      583        577        241        231        342        346  
In process research and development
      462        487        —          —          462        487  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 19,139      $ 19,131      $ 13,175      $ 12,861      $ 5,964      $ 6,270  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Product rights and trade names
Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products in various therapeutic categories from various acquisitions with a weighted average life period of approximately 9 years.
Amortization of intangible assets was $165 million and $200 million in the three months ended March 31, 2023 and 2022, respectively.
IPR&D
Teva’s IPR&D are assets that have not yet been approved in its major markets. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
Intangible assets impairments
Impairments of long-lived intangible assets for the three months ended March 31, 2023 and 2022 were $178 million and $149 million, respectively.
Impairments in the first quarter of 2023 consisted of:
 
  (a)
Identifiable product rights of $159 million due to: (i) $112 million in Japan, mainly related to regulatory pricing reductions; and (ii) $47 million related to updated market assumptions regarding price and volume of products; and
 
  (b)
IPR&D assets of $19 million, related to generic pipeline products resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape and launch date).
 
15
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Impairments in the first quarter of 2022 consisted primarily of identifiable product rights of $129 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics.
The fair value measurement of the impaired intangible assets in the first quarter of 2023 is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value
h
ierarchy. The discount rate applied ranged from 8.5% to 10%. A probability of success factor ranging from 20% to 90% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.
NOTE 6 – Goodwill:
Changes in the carrying amount of goodwill for the period ended March 31, 2023 were as follows:
 
    
North
America
     
Europe
     
International
Markets
     
Other
     
Total
  
    
Teva’s
API
     
Medis
  
                                           
    
(U.S. $ in millions)
         
Balance as of December 31, 2022 (1)
    $ 6,450      $ 8,302      $ 1,339      $ 1,293      $ 249      $ 17,633  
Changes during the period:
                                                      
Translation differences
      1        82        61        12        10        166  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Balance as of March 31, 2023 (1)
    $ 6,451      $ 8,384      $ 1,400      $ 1,305      $ 259      $ 17,799  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
 
(1)
Accumulated goodwill impairment as of March 31, 2023 and December 31, 2022 was approximately $27.6 billion.
Teva operates its business through three reporting segments: North America, Europe and International Markets. Each of these business segments is a reporting unit. Additional reporting units include Teva’s production and sale of APIs to third parties (“Teva API”) and an
out-licensing
platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. Teva’s API and Medis reporting units are included under “Other” in the above table. See note 15 for additional segment information.
Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva begins with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva may record an impairment of goodwill allocated to these reporting units in the future.
First Quarter Deve
lo
pments
During the first quarter of 2023, management evaluated whether there were any developments that occurred during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount as of March 31, 2023. Management concluded that no triggering event had occurred and, therefore, no quantitative assessment was performed.
Following the goodwill impairment charges recorded in the fourth quarter of 2022 in relation to Teva’s International Markets and Teva’s API reporting units, the carrying values of those reporting units equaled their fair value as of December 31, 2022. Additionally, as part of the quantitative analysis Teva conducted as part of its annual goodwill impairment test in the second quarter of 2022, it concluded that the estimated fair value of Teva’s Europe reporting unit exceeded its estimated carrying amount by 9%. Therefore, if business conditions or expectations were to change materially, it may be necessary to record further impairment charges to Teva’s International Markets, Teva’s Europe or Teva’s API reporting units in the future.
 
16
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 7 – Debt obligations:
 
a.
Short-term debt:
 
                 
March 31,
     
December 31,
  
    
Interest rate as of

March 31, 2023
    
Maturity
     
2023
     
2022
  
                            
                 
(U.S. $ in millions)
  
Convertible senior debentures
      0.25 %      2026        23        23  
Current maturities of long-term liabilities
                       1,000        2,086  
                     
 
 
     
 
 
  
Total short-term debt
                     $ 1,023      $ 2,109  
                     
 
 
     
 
 
  
Convertible senior debentures
The principal amount of Teva’s 0.25% convertible senior debentures due 2026 was $23 million as of March 31, 2023 and December 31, 2022. These convertible senior debentures include a “net share settlement” feature according to which the principal amount will be paid in cash and in case of conversion, only the residual conversion value above the principal amount will be paid in Teva shares. Due to the “net share settlement” feature, exercisable at any time, these convertible senior debentures are classified in the Balance Sheet under short-term debt.
 
b.
Long-term debt:
 
    
Interest rate as of

March 31, 2023
    
Maturity
     
March 31,
2023
     
December 31,
2022
  
                            
                 
(U.S. $ in millions)
  
Senior notes EUR 1,500 million
      1.13 %      2024        683        670  
Sustainability-linked senior notes EUR 1,500 million (6)(*)
      4.38 %      2030        1,635        1,606  
Senior notes EUR 1,300 million (9)
      1.25 %      2023        —          633  
Sustainability-linked senior notes EUR 1,100 million (7)(*)
      3.75 %      2027        1,199        1,177  
Senior notes EUR 1,000 million (5)
      6.00 %      2025        449        1,070  
Senior notes EUR 900 million (5)
      4.50 %      2025        541        963  
Sustainability-linked senior notes EUR 800 million (1)(*)
      7.38 %      2029        872        —    
Senior notes EUR 750 million
      1.63 %      2028        814        800  
Senior notes EUR 700 million
      1.88 %      2027        762        748  
Sustainability-linked senior notes EUR 500 million (2)(*)
      7.88 %      2031        545        —    
Senior notes USD 3,500 million (5)
      3.15 %      2026        3,374        3,496  
Senior notes USD 3,000 million (5)
      2.80 %      2023        1,000        1,453  
Senior notes USD 2,000 million
      4.10 %      2046        1,986        1,986  
Senior notes USD 1,250 million (5)
      6.00 %      2024        957        1,250  
Senior notes USD 1,250 million
      6.75 %      2028        1,250        1,250  
Senior notes USD 1,000 million (5)
      7.13 %      2025        427        1,000  
Sustainability-linked senior notes USD 1,000 million (7)(*)
      4.75 %      2027        1,000        1,000  
Sustainability-linked senior notes USD 1,000 million (6)(*)
      5.13 %      2029        1,000        1,000  
Senior notes USD 789 million
      6.15 %      2036        783        783  
Sustainability-linked senior notes USD 600 million (3)(*)
      7.88 %      2029        600        —    
Sustainability-linked senior notes USD 500 million (4)(*)
      8.13 %      2031        500        —    
Senior notes CHF 350 million
      1.00 %      2025        384        382  
                     
 
 
     
 
 
  
Total senior notes
 
      20,761        21,266  
Other long-term debt
                       1        1  
Less current maturities
                       (1,000 )       (2,086 ) 
Less debt issuance costs (8)
                       (94 )       (78 ) 
                     
 
 
     
 
 
  
Total senior notes and loans
                     $ 19,668      $ 19,103  
                     
 
 
     
 
 
  
 
17
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
 
(1)
In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 800 million euro bearing 7.38% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by
0.100%-0.300%
per annum, from and including September 15, 2026.
(2)
In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 500 million euro bearing 7.88% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by
0.100%-0.300%
per annum, from and including September 15, 2026.
(3)
In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $600 million bearing 7.88% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by
0.100%-0.300%
per annum, from and including September 15, 2026.
(4)
In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $500 million bearing 8.13% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by
0.100%-0.300%
per annum, from and including September 15, 2026.
(5)
In March 2023, Teva consummated a cash tender offer and extinguished $631 million aggregate principal amount of its 1,000 million euro 6% senior notes due in 2025; $432 million aggregate principal amount of its 900 million euro 4.5% senior notes due in 2025; $574 million aggregate principal amount of its $1,000 million 7.13% senior notes due in 2025; $454 million aggregate principal amount of its $3,000 million 2.8% senior notes due in 2023; $293 million aggregate principal amount of its $1,250 million 6% senior notes due in 2024 and $122 million aggregate principal amount of its $3,500 million 3.15% senior notes due in 2026.
(6)
If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by
0.125%-0.375%
per annum, from and including May 9, 2026.
(7)
If Teva fails to achieve certain sustainability performance targets, a
one-time
premium payment of
0.15%-0.45%
out of the principal amount will be paid at maturity or upon earlier redemption, if such redemption is on or after May 9, 2026.
(8)
Debt issuance costs as of March 31, 2023 include $26 million in connection with the issuance of the sustainability-linked senior notes in March 2023, partially offset by $6 million acceleration of issuance costs related to the cash tender offer.
(9)
In March 2023, Teva repaid $646 million of its 1.25% senior notes at maturity.
(*)
Interest rate adjustments and a potential
one-time
premium payment related to the sustainability-linked bonds are treated as bifurcated embedded derivatives. See note 8c.
Long-term debt was issued by several indirect wholly-owned subsidiaries of the Company and is fully and unconditionally guaranteed by the Company as to payment of all principal, interest, discount and additional amounts, if any. The long-term debt outlined in the above table is generally redeemable at any time at varying redemption prices plus accrued and unpaid interest.
Teva’s debt as of March 31, 2023 was effectively denominated in the following currencies: 62% in U.S. dollars, 36% in euro and 2% in Swiss franc.
Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $1.8 billion unsecured syndicated sustainability-linked revolving credit facility entered into in April 2022, which was amended in February 2023 (“RCF”).
The RCF has a maturity date of April 2026, with two
one-year
extension options. The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including a maximum leverage ratio, which becomes more restrictive over time. In addition, the RCF is linked to two sustainability performance targets: (i) the Company’s S&P ESG Score and (ii) number of new regulatory submissions in low and middle-income countries. The RCF margin may increase or decrease depending on the Company’s sustainability performance.
On February 6, 2023, the terms of the RCF were amended to update the Company’s maximum leverage ratio under the RCF for certain periods. Under the terms of the RCF, as amended, the Company’s leverage ratio shall not exceed 4.25x in the first, second and third quarters of 2023, 4.00x in the fourth quarter of 2023, 4.00x in the first, second and third quarters of 2024, and 3.50x in the fourth quarter of 2024 and onwards.
 
18
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
The RCF can be used for general corporate purposes, including repaying existing debt. As of March 31, 2023 and as of the date of this Quarterly Report on Form 10-Q, no amounts were outstanding under the RCF. Based on current and forecasted results, the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date 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, the Company will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes and sustainability-linked senior notes is outstanding, could lead to an event of default under the Company’s senior notes and sustainability-linked senior notes due to cross-acceleration provisions.
Teva expects that it will continue to have sufficient cash resources to support its debt service payments and all other financial obligations within one year from the date that the financial statements are issued.
NOTE 8 – Derivative instruments and hedging activities:
 
a.
Foreign exchange risk management:
In the first
quarter
of 2023, approximately 50% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks.
The Company enters into forward exchange contracts and purchases and writes options in order to hedge the currency exposure on balance sheet items, revenues and expenses. In addition, the Company takes measures to reduce its exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the subsidiaries within Teva. The currency hedged items are usually denominated in the following main currencies: euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty, new Israeli shekel, Indian rupee and other currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.
The Company may choose to hedge against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and has in the past entered into cross-currency swaps and forward-contracts in order to hedge such an exposure.
Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.
 
b.
Interest risk management:
The Company raises capital through various debt instruments, including senior notes, sustainability-linked senior notes, bank loans, convertible debentures and syndicated revolving credit facility that bear a fixed or variable interest rate. In some cases, the Company has swapped from a fixed to a variable interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.
 
c.
Bifurcated embedded derivatives:
Upon the issuance of its sustainability-linked senior notes, Teva recognized embedded derivatives related to interest rate adjustments and a potential
one-time
premium payment upon failure to achieve certain sustainability performance targets, such as access to medicines in
low-to-middle-income
countries and reduction of absolute greenhouse gas emissions, which were bifurcated and are accounted for separately as derivative financial instruments. As of March 31, 2023, the fair value of these derivative instruments is negligible.
 
19
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
d.
Derivative instruments outstanding:
The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
 
    
March 31,
     
December 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Cross-currency swap - cash flow hedge (1)
    $ 169      $ —    
    
 
 
     
 
 
  
The following table summarizes the classification and fair values
of
derivative instruments:
 
    
Fair value
  
    
Designated as hedging

instruments
     
Not designated as hedging

instruments
  
    
March 31,

2023
     
December 31,

2022
     
March 31,

2023
     
December 31,

2022
  
                             
Reported under
   
(U.S. $ in millions)
     
(U.S. $ in millions)
  
Asset derivatives:
                                    
Other current assets:
                                    
Option and forward contracts
    $ —        $ —        $ 45      $ 29  
Other
non-current
assets:
                                    
Cross-currency swap-cash flow hedge (1)
      §        —          —          —    
Liability derivatives:
                                    
Other current liabilities:
                                    
Option and forward contracts
      —          —          (63 )       (101 ) 
 
§
Represents an amount less than $0.5 million.
The table below provides information regarding the location and amount of
pre-tax
(gains) losses from derivatives designated in cash flow hedging relationships:
 
    
Financial expenses, net
     
Other comprehensive income (loss)
  
    
Three months ended,
     
Three months ended,
  
    
March 31,

2023
     
March 31,
2022
     
March 31,

2023
     
March 31,
2022
  
                             
Reported under
   
(U.S. $ in millions)
  
Line items in which effects of hedges are recorded
    $ 260      $ 258      $ 127      $ (57 ) 
Cross-currency swaps - cash flow hedge (1)
      1        —          (2 )       —    
 
20
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
The table below provides information regarding the location and amount of
pre-tax
(gains) losses from derivatives not designated as hedging instruments:
 
    
Financial expenses, net
     
Net revenues
  
    
Three months ended,
     
Three months ended,
  
    
March 31,
2023
     
March 31,
2022
     
March 31,
2023
     
March 31,
2022
  
                             
Reported under
   
(U.S. $ in millions)
  
Line items in which effects of hedges are recorded
    $ 260      $ 258      $ (3,661 )     $ (3,661 ) 
Option and forward contracts (2)
      (13 )       (5 )       —          —    
Option and forward contracts economic hedge (3)
      —          —          6        (19 ) 
 
(1)
On March 31, 2023, Teva entered into a cross currency interest rate swap agreement, designated as cash flow hedge for accounting purposes with respect to an intercompany loan due October 2026, denominated in Japanese yen.
(2)
Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses, net.
(3)
Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty and several other currencies to protect its projected operating results for 2023. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. In the first quarter of 2023, the negative impact from these derivatives recognized under revenues was $6 million. In the first quarter of 2022, the positive impact from these derivatives recognized under revenues was $19 million. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. Cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.
 
e.
Amortizations due to terminated derivative instruments:
Forward-starting interest rate swaps and treasury lock agreements
In 2015, Teva entered into forward-starting interest rate swaps and treasury lock agreements to protect the Company from interest rate fluctuations in connection with a future debt issuance the Company was planning. These forward-starting interest rate swaps and treasury lock agreements were terminated in July 2016 upon the debt issuance. Termination of these transactions resulted in a loss position of $493 million, which was recorded as other comprehensive income (loss) and is amortized under financial expenses, net over the life of the debt.
With respect to these forward-starting interest rate swaps and treasury lock agreements, losses of $11 million and $7 million were recognized under financial expenses, net, for each of the three months ended March 31, 2023 and 2022, respectively.
NOTE 9 – Legal settlements and loss contingencies:
In the first quarter of 2023, Teva recorded expenses of $233 million in legal settlements and loss contingencies, compared to $1,124 million in the first quarter of 2022. Expenses in the first quarter of 2023 were mainly related to estimated provision
s
recorded in connection with the DOJ patient assistance program litigation and the reverse-payment antitrust litigation over certain HIV medicines, as well as an update to the estimated settlement provision related to the remaining opioid cases (mainly related to the effect that the passage of time had on the net present value of the discounted payments). Expenses in the first quarter of 2022 were mainly related to an update of the estimated settlement provision recorded in connection with the remaining opioid cases. See note 10.
As of March 31, 2023 and December 31, 2022, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses and other taxes and long-term liabilities was $4,299 million and $4,186 million, respectively.
NOTE 10 – Commitments and contingencies:
General
From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, as described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva generally believes that it has meritorious defenses to the actions brought against it and vigorously pursues the defense or settlement of each such action.
 
21
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is reasonably estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters where the exposures were fully resolved in the prior year, or determined to no longer meet the materiality threshold for disclosure, or were substantially resolved.
If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.
In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.
Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA data.
Intellectual Property Litigation
From time to time, Teva seeks to develop generic and biosimilar versions of patent-protected pharmaceuticals and biopharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. For many biosimilar products that are covered by patents, Teva participates in the “patent dance” procedures of the Biologics Price Competition and Innovation Act (“BPCIA”), which allow for the challenge to originator patents prior to obtaining biosimilar product approval. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.
Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic or biosimilar version of the product even though litigation is still pending. To the extent Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva, which could be material to its results of operations and cash flows in a given period.
Teva could also be sued for patent infringement outside of the context of the Hatch-Waxman Act or BPCIA. For example, Teva could be sued for patent infringement after commencing sales of a product. This type of litigation can involve any of Teva’s pharmaceutical products, not just its generic and biosimilar products.
The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty and it may also be able, in certain circumstances, to be compensated for its lost profits. The amount of a reasonable royalty award would generally be calculated based on the sales of Teva’s product. The amount of lost profits would generally be based on the lost sales of the patentee’s product. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.
Teva is also involved in litigation regarding patents in other countries where it does business, particularly in Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.
 
22
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In July 2014, GlaxoSmithKline (“GSK”) filed claims against Teva in the U.S. District Court for the District of Delaware for infringement of a patent directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of GSK’s Coreg®) in September 2007. A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of $
235.5
 
million, not including pre- or post-judgment interest or a multiplier for willfulness. Thereafter, the court overturned the jury verdict, finding no induced infringement by Teva and that Teva did not owe any damages. On August 5, 2021, the Court of Appeals for the Federal Circuit issued a two-to-one decision reinstating the $
235.5
 
million verdict and finding Teva liable for patent infringement. On February 11, 2022, the Court of Appeals for the Federal Circuit denied rehearing. Teva appealed this decision to the U.S. Supreme Court on July 11, 2022. In response to Teva’s
certiorari
petition, on October 3, 2022, the U.S. Supreme Court issued an order seeking the views of the U.S. Solicitor General as to whether to review this case. On March 29, 2023, the U.S. Solicitor General filed a brief recommending that the U.S. Supreme Court grant Teva’s request and reverse the judgment of the Court of Appeals for the Federal Circuit. In addition to the pending U.S. Supreme Court proceedings, the case has been remanded to the district court for further proceedings on Teva’s other legal and equitable defenses that have not yet been considered by the district court. In the first quarter of 2021, Teva recognized a provision based on its offer to settle such matter.
Product Liability Litigation
Teva’s business inherently exposes it to potential product liability claims. Teva maintains a program of insurance, which may include commercial insurance, self-insurance (including direct risk retention), or a combination of both types of insurance, in amounts and on terms that it believes are reasonable and prudent in light of its business and related risks. However, Teva sells, and will continue to sell, pharmaceuticals that are not covered by its product liability insurance; in addition, it may be subject to claims for which insurance coverage is denied as well as claims that exceed its policy limits. Product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, Teva may not be able to obtain the type and amount of insurance it desires, or any insurance on reasonable terms, in certain or all of its markets.
Teva and its subsidiaries are parties to litigation relating to previously unknown nitrosamine impurities discovered in certain products. The discovery led to a global recall of single and combination valsartan medicines around the world starting in July 2018 and to subsequent recalls on other products. The nitrosamine impurities in valsartan are allegedly found in the active pharmaceutical ingredient (“API”) supplied to Teva by multiple API manufacturers, including by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls. In December 2019, Teva reached a settlement with Huahai resolving Teva’s claims related to certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses Teva may incur as a result of third party personal injury or product liability claims relating to the sartan API at issue, as discussed below.
In addition, multiple lawsuits have been filed in connection with this matter. Teva’s products allegedly at issue in the various nitrosamine-related litigations pending in the United States include valsartan, losartan, metformin and ranitidine. There are currently two Multi-District Litigations (“MDL”) pending in the United States District Courts against Teva and numerous other manufacturers. One MDL is pending in the United States District Court for the District of New Jersey for valsartan, losartan and irbesartan. Teva is not named in complaints with respect to irbesartan. The second MDL is pending in the United States District Court for the Southern District of Florida for ranitidine. The lawsuits against Teva in the MDLs consist of individual personal injury and/or product liability claims and economic damages claims brought by consumers and end payors on behalf of purported classes of other consumers and end payors as well as medical monitoring class claims. The judge in the valsartan MDL ordered that the first trial, likely commencing in late 2023 or early 2024, will involve third-party payor economic loss claims via a class representative on behalf of several subclasses of payors against Teva and two other defendants. On February 8, 2023, the district court in the valsartan MDL entered an order that certified a series of subclasses on plaintiffs’ economic loss claims and granted in part and denied in part the certification of a medical monitoring class. Defendants sought permission for appellate review of that decision, which was denied. In the ranitidine MDL, the generic manufacturers’ motions to dismiss have been granted, although certain plaintiffs have appeals pending. In addition, on December 6, 2022, the court in the ranitidine MDL granted the brand defendants’ motions to exclude all of plaintiffs’ general causation experts and granted summary judgment to the brand defendants on that ground. Teva, as well as other
 
23
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
generic manufacturers, is also named in several state court actions asserting allegations similar to those in the ranitidine MDL and the valsartan and losartan MDL. State court valsartan and losartan actions are pending in New Jersey and Delaware and are currently stayed. State court ranitidine cases naming Teva are pending in coordinated proceedings in California, Illinois, Pennsylvania and New York, with motions to dismiss pending in Illinois, Pennsylvania and New York on preemption and other grounds. In addition to the valsartan and ranitidine MDLs and coordinated state court proceedings, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic manufacturers’ metformin products. Defendants’ motion to dismiss the plaintiffs’ amended metformin complaint from June 2021 was granted without prejudice with respect to the consumer economic loss plaintiffs, and granted in part and denied in part with respect to the end payor plaintiffs. Plaintiffs were granted leave to file a second amended complaint. Defendants’ motion to dismiss that complaint was granted in part and denied in part. Similar lawsuits are pending in Canada and Germany.
Competition Matters
As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva obtained a license to market a generic version of the drug, often years before the patents expire.
Teva and its subsidiaries have been named as defendants in cases that allege antitrust violations arising from such settlement agreements. The plaintiffs in these cases are usually direct and indirect purchasers of pharmaceutical products, some of whom assert claims on behalf of classes of all direct and indirect purchasers, and they typically allege that (i) Teva received something of value from the innovator in exchange for an agreement to delay generic entry, and (ii) significant savings could have been realized if there had been no settlement agreement and generic competition had commenced earlier. These plaintiffs seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the generic price allegedly would have been and disgorgement of profits, which are often automatically tripled under the relevant statutes, plus attorneys’ fees and costs. The alleged damages generally depend on the size of the branded market and the length of the alleged delay, and can be substantial—potentially measured in multiples of the annual brand sales—particularly where the alleged delays are lengthy or branded drugs with annual sales in the billions of dollars are involved.
Teva believes that its settlement agreements are lawful and serve to increase competition, and has defended them vigorously. In Teva’s experience to date, these cases have typically settled for a fraction of the high end of the damages sought, although there can be no assurance that such outcomes will continue.
In June 2013, the U.S. Supreme Court held, in Federal Trade Commission (“FTC”) v. Actavis, Inc., that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws. This test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.
In November 2020, the European Commission issued a final decision in its proceedings against both Cephalon and Teva, finding that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil, and imposed fines totaling euro 60.5 million on Teva and Cephalon. Teva and Cephalon filed an appeal against the decision in February 2021. A provision for this matter was included in the financial statements. Teva has provided the European Commission with a bank guarantee in the amount of the imposed fines. The hearing for the appeal took place in December 2022 and a decision is pending.
In December 2011, three groups of plaintiffs filed claims against Wyeth and Teva for alleged violations of the antitrust laws in connection with their November 2005 settlement of patent litigation involving extended release venlafaxine (generic Effexor XR
®
). The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the U.S. District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In March 2020, the district court temporarily stayed discovery and referred the case to mediation, and discovery remains stayed. Annual sales of Effexor XR
®
were approximately $2.6 billion at the time of settlement and at the time Teva launched its generic version of Effexor XR
®
in July 2010.
 
24
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In February 2012, two purported classes of direct-purchaser plaintiffs filed claims against GSK and Teva in New Jersey federal court for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving lamotrigine (generic Lamictal
®
) entered into in February 2005. The plaintiffs claimed that the settlement agreement unlawfully delayed generic entry and sought unspecified damages. On April 9, 2021, the district court, which had previously granted an initial motion for class certification by the direct purchaser plaintiffs but was reversed on that ruling by the Third Circuit in April 2020, denied the direct purchaser plaintiffs’ renewed motion for class certification. Plaintiffs filed a further renewed motion for class certification on May 20, 2022, which was denied on February 1, 2023. On February 2, 2023, February 7, 2023, and February 27, 2023, a number of direct purchasers, who would otherwise have been members of the proposed class had it been certified, filed suit as individual plaintiffs in Pennsylvania’s federal court. Annual sales of Lamictal
®
were approximately $950 million at the time of the settlement and approximately $2.3 billion at the time Teva launched its generic version of Lamictal
®
in July 2008.
In April 2013, purported classes of direct purchasers of, and end payers for, Niaspan® (extended release niacin) filed claims against Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005 to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual direct-purchaser opt-out plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ class. The court denied the indirect purchasers’ motion for class certification with prejudice, and on April 24, 2023, the denial was affirmed by the Court of Appeals for the Third Circuit. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, alleging violations of state law and seeking restitution and civil penalties. Annual sales of Niaspan® were approximately 
$416 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic version of Niaspan
®
in September 2013.
Since January 2014, numerous lawsuits have been filed in the U.S. District Court for the Southern District of New York by purported classes of
end-payers
for, and direct-purchasers of, Actos
®
and Actoplus Met (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers, including Teva, Actavis and Watson. The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers violated the antitrust laws. The court dismissed the
end-payers’
lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time following the Second Circuit’s decision, but on October 8, 2019, the district court dismissed, with prejudice, the direct purchasers’ claims against the generic manufacturers (including Teva, Actavis, and Watson). At the time of Teva’s settlement, annual sales of Actos
®
and Actoplus Met were approximately $3.7 billion and approximately $500 million, respectively. At the time Teva launched its authorized generic version of Actos
®
and Actoplus Met in August 2012, annual sales of Actos
®
and Actoplus Met were approximately $2.8 billion and approximately $430 million, respectively.
Putative classes of direct-purchaser and end-payer plaintiffs have filed antitrust lawsuits (which have since been coordinated in federal court in Delaware) against Amgen and Teva alleging that the January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar®), violated the antitrust laws. In March 2023, Teva moved for re-argument of its motion to certify the district court’s rulings denying Teva’s motion to dismiss in part for review by the U.S. Court of Appeals for the Third Circuit, and is awaiting the court’s decision. Annual sales of Sensipar® in the United States were approximately $
1.4
 billion at the time Teva launched its generic version of Sensipar® in December 2018, and at the time of the January 2, 2019 settlement. 
In August 2019, certain direct-purchaser plaintiffs filed claims in federal court in Philadelphia naming Teva and its affiliates as defendants alleging that certain patent litigation settlement agreements relating to AndroGel
®
1
% (testosterone gel) violate the antitrust laws, specifically the September 2006 patent litigation settlement between Watson Pharmaceuticals, Inc. (“Watson”), from which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”), and a December 2011 settlement between Teva and AbbVie. Those claims remain pending. Annual sales of AndroGel
®
1
% were approximately $350 million at the time of the earlier Watson/Solvay settlement and approximately $140 million at the time Actavis launched its generic version of AndroGel
®
1
% in November 2015. A provision for these matters and related litigations in Georgia that have since been settled was included in the financial statements.
 
25
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Between September 1, 2020 and December 20, 2020, separate plaintiffs purporting to represent putative classes of direct and indirect purchasers and
opt-out
retailer purchasers of Bystolic
®
(nebivolol hydrochloride) filed separate complaints in the U.S. District Court for the Southern District of New York against several generic manufacturers, including Teva, Actavis, and Watson, alleging, among other things, that the settlement agreements these generic manufacturers entered into with Forest Laboratories, Inc., the innovator, to resolve patent litigation over Bystolic
®
violated the antitrust laws. The cases were coordinated and on January 24, 2022, the court dismissed plaintiffs’ amended complaints without prejudice. Plaintiffs subsequently filed second amended complaints, and on February 21, 2023, the court granted defendants’ motion to dismiss and dismissed all claims with prejudice. Plaintiffs have filed notices of their intent to appeal. Annual sales of Bystolic
®
in the United States were approximately $700 million at the time of Watson’s 2013 settlement with Forest.
In February 2021, the State of New Mexico filed a lawsuit against Teva and certain other defendants related to various medicines used to treat HIV. Between September and December 2021, several private plaintiffs including retailers and health insurance providers filed similar claims in federal court in the Northern District of California and in the District of Minnesota. As they relate to Teva, the lawsuits challenge settlement agreements Teva entered into with Gilead in 2013 and/or 2014 to resolve patent litigation relating to Teva’s generic versions of Viread
®
 
and/or Truvada
®
 
and Atripla
®
. Plaintiffs allege that the settlement agreements contain improper reverse payments that delayed the availability of generic products, in violation of the federal antitrust laws and state law. On February 16, 2022, Teva moved to dismiss the claims by certain private plaintiffs but that motion was denied. However, Teva has successfully moved to limit the potential damages period as to certain private plaintiffs. Plaintiffs in the Northern District of California cases have abandoned any claim for damages relating to the Viread
®
 
settlement. On January 5, 2023, the court denied the parties’ motions for summary judgment. Trial is currently scheduled to commence in late May 2023. In the first quarter of 2023, Teva recognized a provision based on its offer to settle this matter.
In October 2022, the New Mexico Supreme Court granted Teva’s petition for a writ of
certiorari
and scheduled oral argument for late May 2023 for Teva’s motion to dismiss the complaint brought by the State of New Mexico, which motion was previously denied by the trial court. Annual sales in the United States at the time of the settlement of Viread
®
, Truvada
®
and Atripla
®
were approximately $582 million, $2.4 billion, and $2.9 billion, respectively. Annual sales in the United States at the time Teva launched its generic version of Viread
®
in 2017, Truvada
®
in 2020 and Atripla
®
in 2020 were approximately
 
$
728
 million, $
2.1
 billion and $
444
 million, respectively.
In March 2021, following the 2019 European Commission’s inspection of Teva and subsequent request for information, the European Commission opened a formal antitrust investigation to assess whether Teva may have abused a dominant position by delaying the market entry and uptake of medicines that compete with COPAXONE. On October 10, 2022, the European Commission issued a Statement of Objections, which sets forth its preliminary allegations that Teva had engaged in anti-competitive practices. Teva now has the opportunity to formally respond to the European Commission’s allegations. Annual sales of COPAXONE in the European Economic Area for 2021 were approximately $373 million.
On July 15, 2021, the U.K. Competition and Markets Authority (“CMA”) issued a decision imposing fines for breaches of U.K. competition law by Allergan, Actavis UK and Auden Mckenzie and a number of other companies in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. The decision combines the CMA’s three prior investigations into the supply of hydrocortisone tablets in the U.K., as well as the CMA’s subsequent investigation relating to an anti-competitive agreement with Waymade. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to two of the three statements of objection from the CMA (dated December 16, 2016 and March 3, 2017), and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. On October 6, 2021, Accord UK and Auden Mckenzie appealed the CMA’s decision. A provision for the estimated exposure for Teva related to the fines and/or damages has been recorded in the financial statements. The hearing for the appeal concluded in the first quarter of 2023, and a decision remains pending.
 
26
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In August 2021, a plaintiff filed a putative class action suit in the United States District Court for the Eastern District of Pennsylvania against Takeda and several generic manufacturers, including Watson and Teva, alleging violations of the antitrust laws in connection with their settlement of patent litigation involving colchicine tablets (generic Colcrys
®
), entered into in January 2016. Plaintiff claims that the settlement was part of a conspiracy among Takeda and the generic manufacturers to unlawfully restrict output of colchicine by delaying generic entry. On November 23, 2022, the court denied plaintiffs’ motion for class certification without prejudice and on March 1, 2023, the Court denied plaintiff’s renewed motion for class certification. On April 10, 2023, plaintiff filed a motion for leave to amend its complaint to add 18 previously absent class members as plaintiffs. Defendants’ motion for summary judgment, and plaintiffs’ motion for partial summary judgment remain pending. Trial is currently scheduled to commence in September 2023. Annual sales of Colcrys
®
in the United States were approximately $187 million at the time of the settlement.
In November 2022, two complaints, one brought by Walgreen Co. and Kroger Specialty Pharmacy, Inc. and another by Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund and Jacksonville Police Officers and Fire Fighters Health Insurance Trust (collectively the “Walgreen and EPP complaints”), were filed in the United States District Court for the District of New Jersey against Teva and its marketing partner, Natco Pharma Limited (“Natco”), alleging violations of the antitrust laws in connection with their December 2015 settlement of patent litigation with Celgene Corporation (which was subsequently acquired by Bristol-Myers Squibb Company (“BMS”)) involving the drug Revlimid
®
(lenalidomide). The Walgreen and EPP complaints also name Celgene and BMS as defendants. On January 24, 2023, the Walgreen and EPP complaints were consolidated for
pre-trial
purposes only with an earlier-filed, already consolidated Insurer
Opt-Out
Action filed against BMS and Celgene,
In Re Revlimid
 & Thalomid Purchaser Antitrust Litigation
, Case No.
2:19-cv-7532-ES-MAH.
On February 16, 2023, the Walgreen and EPP plaintiffs filed amended complaints adding additional plaintiffs. On March 21, 2023, Teva and Natco moved to dismiss the complaints against them, and briefing remains ongoing. Annual sales of Revlimid
®
in the United States were approximately $3.5 billion at the time of the settlement.
On December 2, 2022, plaintiffs purporting to represent putative classes of indirect purchasers of EpiPen® (epinephrine injection) and Nuvigil® (armodafinil) filed a complaint in the United States District Court for the District of Kansas against Teva, Cephalon, and a former Teva executive. Teva owns the New Drug Application (“NDA”) for Nuvigil® and sold the brand product, for which generic entry occurred in 2016. Teva filed an ANDA to sell generic EpiPen®, which Teva launched in 2018, following receipt of FDA approval. The complaint alleges, among other things, that the defendants violated the federal antitrust laws, the Racketeer Influenced and Corrupt Organizations Act (“RICO Act”), and various state laws in connection with settlements resolving patent litigation relating to those products. Plaintiffs seek injunctive relief, compensatory and punitive damages, interest, attorneys’ fees and costs. On March 8, 2023, Teva filed a motion to dismiss the complaint, which is pending. Annual sales of Nuvigil® in the United States were approximately $
300 million at the time Teva entered into the first settlement with an ANDA filer in 2012; annual sales of EpiPen
®
in the United States were approximately $600 million at the time Teva entered into its settlement agreement for that product in 2012.
Government Investigations and Litigation Relating to Pricing and Marketing
Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States.
In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. On August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three-count indictment charging Teva USA with criminal felony Sherman Act violations. See
No. 20-cr-200
(E.D. Pa.). The indictment alleges Teva USA participated in three separate conspiracies with certain other generic drug manufacturers to maintain and fix prices, allocate customers, and other alleged antitrust offenses concerning the sale of generic drugs. The indictment identified the following generic drugs: Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream
E-Cream,
Gel, and Ointment), Warfarin, Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. On December 14, 2022, the Court entered a scheduling order against Teva and its
co-defendant
Glenmark, which sets a May 2024 trial date. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business, including monetary penalties and debarment from federally funded health care programs.
 
27
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.
In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. Subsequently, on December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law alleging price fixing of generic products in the United States. That complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these attorneys general filed another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional products. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA, in a similar complaint relating to dermatological generics products. On September 9, 2021, the states’ attorneys general amended their third complaint to, among other things, add California as a plaintiff.
In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general November 1, 2019 amended complaint, referenced above, along with certain complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints. On February 9, 2021, Teva’s motion to reconsider that ruling was granted, and on May 7, 2021, the Court chose the attorneys’ general third complaint filed on June 10, 2020 and subsequently amended to serve as a bellwether complaint in the Pennsylvania MDL, along with certain complaints filed by private plaintiffs. On December 9, 2021, the Court entered an order setting the schedule for the proceedings in the bellwether cases, which the Court later amended on October 13, 2022. This amended schedule does not include trial dates, but provides for the parties to complete briefing on motions for summary judgment in the third quarter of 2024. On June 7, 2022, the Court dismissed the attorneys’ general claims for monetary relief under federal law, concluding that the federal statute under which the attorneys general brought suit authorizes injunctive relief only. However, the attorneys general have pending claims for monetary relief under state law. On February 27, 2023, the Court largely denied defendants’ motions to dismiss the federal claims asserted by the attorneys general in their bellwether complaint. Another motion to dismiss, directed at that same complaint, and related to the state law claims asserted by the attorneys general, remains pending.
Teva has settled with the states of Mississippi (in June 2021), Louisiana (in March 2022), Georgia (in September 2022), Arkansas (in October 2022) and Florida (in February 2023). Teva paid each state an amount proportional to its share of the national population (approximately $1,000,000 for each 1% share of the national population), and the states have dismissed their claims against Actavis and Teva USA, as well as certain former employees of Actavis and Teva USA, pursuant to these settlements. On March 30, 2022, the State of Alabama voluntarily dismissed all of its claims in the litigation, including its claims against Actavis and Teva USA, without prejudice. The territories of American Samoa and Guam have also voluntarily dismissed all of their claims in the litigation, including their claims against Actavis and Teva USA; American Samoa’s dismissal was without prejudice in July 2020, and Guam’s dismissal was with prejudice in February 2023. The most recent settlement with Florida follows the pattern reached in earlier settlements. Specifically, as mentioned above, Teva agreed to pay each state an amount proportional to its share of the national population. This, in addition to the status of ongoing negotiations with several other U.S. state attorneys general to settle on comparable terms, caused management to consider settlement of the claims filed by the remaining attorneys general to be probable, and management recorded an estimated provision in the third quarter of 2022, in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”
 
28
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Beginning on March 2, 2016, and continuing through December 2020, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct and indirect purchaser
opt-out
plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva USA and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, pending as of that date, and on February 15, 2019, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims. On July 18, 2019, May 6, 2020 and October 8, 2021, certain individual plaintiffs commenced civil actions in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaints have been filed in the actions and each of the three cases have been placed in deferred status. Certain counties in New York and Texas have also commenced civil actions against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaints have been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic drug products to the detriment of a class of private payors. The action is in its early stages.
In March 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Subsequently, in August 2020, the U.S. Attorney’s office in Boston, Massachusetts brought a civil action in the U.S. District Court for the District of Massachusetts alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law (the “DOJ PAP Complaint”). It is alleged that Teva caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients. An adverse judgment may involve damages, civil penalties and injunctive remedies. On September 10, 2021, the Court granted Teva’s motion to dismiss the unjust enrichment claim and denied the remainder of the motion. On October 15, 2021, Teva filed an answer to the DOJ PAP Complaint. Trial for this matter is currently scheduled for September 2023. On April 24, 2023, both parties filed summary judgment motions, which are currently pending. In the first quarter of 2023, Teva recognized a provision based on its offer to settle this matter. Additionally, on January 8, 2021, Humana, Inc. filed an action against Teva in the United States District Court for the Middle District of Florida based on the allegations raised in the DOJ PAP Complaint. On April 2, 2021, Teva filed a motion to dismiss Humana’s claims on the grounds that the claims are time-barred and/or insufficiently pled, and that motion remains pending. On April 11, 2023, the court granted Teva’s motion to stay the case pending the court’s decision on Teva’s motion to dismiss and/or Humana’s motion to amend the complaint. On November 17, 2022, United Healthcare also filed an action against Teva in the United States District Court for the District of New Jersey based on the conduct alleged in the DOJ PAP Complaint. On March 10, 2023, Teva moved to dismiss United Healthcare’s claims on the grounds that it is time-barred and lacks standing and sufficient particularity to assert RICO claims, and that motion remains pending.
In April 2021, a city and county in Washington filed claims against Teva in the United States District Court for the Western District of Washington for alleged violations of the Racketeer Influenced and Corrupt Organizations Act, Washington’s Consumer Protection Act, and unjust enrichment concerning Teva’s sale of COPAXONE. Plaintiffs purport to represent a nationwide class of health plans and a subclass of Washington-based health plans that purchased and/or reimbursed health plan members for COPAXONE. Plaintiffs allege that Teva engaged in several fraudulent schemes that resulted in plaintiffs and the putative class members purchasing and/or reimbursing plan members for additional prescriptions of COPAXONE and/or at inflated COPAXONE prices. Plaintiffs seek treble damages for the excess reimbursements and inflated costs, as well as injunctive relief. On September 28, 2021, plaintiffs filed an amended complaint. On November 17, 2021, Teva moved to dismiss the suit, on the grounds that plaintiffs’ claims are barred by the applicable statutes of limitations and the direct purchaser rule, suffer from jurisdictional defects, and fail to plausibly allege fraud or other elements of their claims. On March 9, 2023, the court held a hearing on the motion to dismiss, and a decision remains pending.
On June 29, 2021, Mylan Pharmaceuticals (“Mylan”) filed claims against Teva in the District Court for the District of New Jersey. On March 11, 2022 and March 15, 2022, FWK Holdings, LLC, KPH Healthcare Servs., Inc. d/b/a Kinney Drugs, Inc., Meijer Inc., Meijer Distribution, Inc., Labor-Management Healthcare Fund, the Mayor and City Council of Baltimore, and the New York State Teamsters Council Health and Hospital Fund filed claims against Teva in the District Court for the District of New Jersey on behalf of themselves and other similarly situated direct and indirect purchasers of COPAXONE. On August 22, 2022, Blue Cross Blue Shield of Vermont and the Vermont Health Plan sued Teva in the
 
29
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
District Court for the District of Vermont on behalf of themselves and other similarly situated indirect purchasers of COPAXONE. The complaints assert claims for alleged violations of the Lanham Act, state and federal unfair competition and monopolization laws, tortious interference, trade libel, and a violation of the RICO Act. Additionally, plaintiffs claim Teva was involved in an unlawful scheme to delay and hinder generic competition concerning COPAXONE sales. Plaintiffs seek damages for lost profits and expenses, disgorgement, restitution, treble damages, attorneys’ fees and costs, and injunctive relief. Teva has moved to dismiss the complaints filed by Mylan and the class plaintiffs in the District of New Jersey on the grounds, among others, that none of its challenged conduct, violates the law. Those motions are fully briefed and a decision remains pending. On November 21, 2022, the Vermont court denied Teva’s motion to transfer the complaint filed in Vermont. On December 21, 2022, Teva moved to dismiss the Vermont complaint on grounds similar to those asserted in its motions to dismiss the complaints in New Jersey. Those motions are fully briefed, and a decision remains pending.    
On December 1, 2022, Teva received a civil subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting certain documents related to the sale and marketing of AUSTEDO and risperidone LAI. Teva is cooperating with the request for documents.
Opioids Litigation
Since May 2014, more than 3,500 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of cities, counties, states, other governmental agencies, tribes and private plaintiffs (including various putative class actions of individuals) in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”) and many of the cases filed in state court have been removed to federal court and consolidated into the MDL Opioid Proceeding. Two cases that were included in the MDL Opioid Proceeding were transferred back to federal district court for additional discovery,
pre-trial
proceedings and trial. Those cases are: City of Chicago v. Purdue Pharma L.P. et al.,
No. 14-cv-04361
(N.D. Ill.) and City and County of San Francisco v. Purdue Pharma L.P. et al.,
No. 18-cv-07591-CRB
(N.D. Cal.). Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas, Utah and West Virginia, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Complaints asserting claims under similar provisions of different state law generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ
®
and FENTORA
®
. The complaints also assert claims related to Teva’s generic opioid products. In addition, over 950 personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death claims in over 600 complaints, nearly all of which are consolidated in the MDL Opioid Proceeding. Furthermore, approximately 700
non-personal
injury complaints and approximately 100 personal injury complaints have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify multiple billions of dollars in the aggregate as alleged damages. The individual personal injury plaintiffs further seek
non-economic
damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants.
On April 19, 2021, a bench trial in California (The People of the State of California, acting by and through Santa Clara County Counsel James R. Williams, et. al. v. Purdue Pharma L.P., et. al.) commenced against Teva and other defendants focused on the marketing of branded opioids. On December 14, 2021, the court issued its final judgment in favor of the defendants on all claims. Plaintiffs filed a notice of appeal of this judgment in February 2022. On June 29, 2021, a jury trial in New York (
In re Opioid Litigation
, Index No. 400000/2017) commenced against Teva and other defendants, focused on the marketing and distribution of opioids. The case was bifurcated between liability and damages. On December 30, 2021, the jury returned a liability verdict in favor of plaintiffs (the County of Suffolk, the County of Nassau and the State of New York) on the plaintiffs’ public nuisance claim. On November 3, 2022, Teva reached an agreement with the Attorney General of New York that settled the state’s and its subdivisions’ opioid-related claims, the details of which are included in the table below.
 
30
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
On July 21, 2021, it was announced that four other defendants (not including Teva) reached nationwide settlements, subject to certain conditions, which include payment of up to approximately $26 billion spread over up to 18 years. In July 2022, Teva, the working group of States’ Attorneys General (the “Working Group”), the Multi-District Litigation Plaintiffs’ Executive Committee (“PEC”), and counsel for Native American tribes (“Tribes”) reached an agreement in principle on the financial terms of nationwide settlements similar in structure to the nationwide settlements of other defendants. During the third quarter of 2022, Teva and Allergan resolved their dispute with respect to Teva’s indemnification obligations. In November 2022, Teva, Allergan, the Working Group and PEC, and representatives for the Tribes, finalized the terms of their respective proposed opioids nationwide settlement agreements. Under the financial terms of the proposed nationwide settlement agreement with the states and subdivisions, Teva will pay up to $4.25 billion (including the already settled cases), spread over 13 years. This total includes the supply of up to $1.2 billion of Teva’s generic version of Narcan
®
(naloxone hydrochloride nasal spray), valued at wholesale acquisition cost, over 10 years or cash at 20% of the wholesale acquisition cost ($240 million) in lieu of product. In January of 2023,
 Teva confirmed participation from all states except Nevada, and decided to move forward with the participation process of the subdivisions, and that process is ongoing. In February 2023, Teva and the Tribes finalized their opioids settlement with participation from 100% of the Tribes, the details of which are included in the table below. 
Teva’s proposed nationwide settlement agreement with the states and subdivisions is contingent upon sufficient participation by the subdivisions in Teva’s and Allergan’s respective nationwide opioids settlement agreements. Currently, more than
 
99
% of the litigating subdivisions have chosen to participate in Teva’s nationwide settlement, which represents
98
%
of the population of the participating states. Teva has until June 8, 2023 to determine whether or not to move forward with its proposed nationwide settlement. If these nationwide settlement agreements are not finalized or if Nevada or subdivisions choose not to participate, additional trials are expected to proceed. Trials in two opioids cases currently are scheduled to commence in the second half of 2023; one brought by the Nevada Attorney General, currently scheduled to commence in August 2023, and the other brought by eight hospitals against Teva, other manufacturers, distributors, and pharmacies, currently scheduled to commence in July 2023.
In addition to its pending nationwide opioids settlement, Teva previously reached settlements with individual states and subdivisions to settle opioids claims brought by those jurisdictions. The material details of those individual settlements and Teva’s settlement with the Tribes appear in the table below, which includes the cash payment to be made by Teva and the wholesale acquisition cost (“WAC”) of product to be provided by Teva, in each case to such states and subdivisions and the Tribes. If the nationwide settlement reaches sufficient participation by the subdivisions, Teva will finalize opioid settlements with a total of 49 of the 50 states.


Date
  
Jurisdiction
  
Settlement
Payment
*
  
Payment
Term
  
Settlement Product
  
Product WAC
Value and Term
June 7, 2019    Oklahoma    $72.3 million (paid)    1 year    N/A    N/A
December 27, 2019    Cuyahoga County, OH    $12.4 million (paid)    2.5 years   
buprenorphine naloxone
(generic Suboxone
®
)
    $15.5 million (3 years)
December 27, 2019    Summit County, OH    $7.6 million (paid)    2.5 years   
buprenorphine naloxone
(generic Suboxone
®
)
    $9.5 million (3 years)
January 18, 2022    Louisiana    $15 million    18 years   
buprenorphine naloxone
(generic Suboxone
®
)
    $3 million (1 year)
February 4, 2022    Texas    $131.5 million    15 years    naloxone hydrochloride (generic Narcan®)    $75 million (10 years)
March 21, 2022    Rhode Island    $21 million    13 years   
naloxone hydrochloride (generic Narcan
®
) and
buprenorphine naloxone (generic Suboxone
®
)
    $78.5 million (10 years)
March 30, 2022    Florida    $177.1 million    15 years    naloxone hydrochloride (generic Narcan®)    $84 million (10 years)
July 12, 2022    San Francisco    $19.5 million    13 years    naloxone hydrochloride (generic Narcan®)    $20 million (10 years)
September 19, 2022    West Virginia    $75.4 million    15 years    naloxone hydrochloride (generic Narcan®)    $27 million (10 years)
November 3, 2022    New York    $313.3 million
**
    18 years    N/A    N/A
February 24, 2023    Tribes    $108.3 million    13 years    naloxone hydrochloride (generic Narcan®)    $25 million (10 years)
 
*
 
Amounts exclude attorneys’ fees and costs, except New York.
**
 
Not including cash payment and attorneys’ fees allocated under the nationwide settlement.
 
31
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)

In light of the agreement on the proposed nationwide settlement between Teva and the States’ Attorneys General and their subdivisions, Teva’s indemnification obligations arising from Teva’s acquisition of the Actavis Generics business for opioid-related claims, prior settlements with Louisiana, Texas, Rhode Island, Florida, San Francisco, West Virginia, New York, and the Tribes, as well as an estimate for a number of items including, but not limited to, costs associated with administering injunctive terms, and most favored nations clauses associated with prior settlements, the Company has recorded a provision for the potential settlement. The provision is a reasonable estimate of the ultimate costs in the likely event that the nationwide settlement is finalized under its current proposed terms and conditions, after discounting payments to states to their net present value. However, if the nationwide settlement is not finalized for the entirety of the remaining cases, a reasonable upper end of a range of loss cannot be determined. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and
non-monetary
relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows.
In September 2019, Teva received subpoenas from the New York State Department of Financial Services (“NYDFS”) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. This was followed by a Statement of Charges and Notice of Hearing filed by the NYDFS. This matter has been resolved by Teva’s November 3, 2022 settlement with the Attorney General of New York that settled the state’s and its subdivisions’ opioid-related claims.
In addition, Teva, certain of its subsidiaries and other defendants, are defending claims and putative class action lawsuits in Canada related to the manufacture, sale, marketing and distribution of opioid medications. The lawsuits include a claim by the Province of British Columbia on behalf of itself and a putative class of other federal and provincial governments, and claims of municipalities, First Nations, and persons who used opioids on behalf of themselves and putative classes. These cases are in early stages with the preliminary motions brought by the Province of British Columbia expected to be heard in late 2023.
Shareholder Litigation
On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. Those lawsuits subsequently were consolidated and transferred to the U.S. District Court for the District of Connecticut (the “Ontario Teachers Securities Litigation”). On December 13, 2019, the lead plaintiff filed an amended complaint, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and May 10, 2019, asserting that Teva and certain of its current and former officers and directors violated federal securities and common laws in connection with Teva’s alleged failure to disclose pricing strategies for various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering materials. From July 2017 to June 2019, other putative securities class actions were filed in other federal courts based on similar allegations and claims, and were transferred to the U.S. District Court for the District of Connecticut. Between August 2017 and January 2022, twenty-three complaints were filed against Teva and certain of its current and former officers and directors on behalf of plaintiffs in various forums across the country, but many of those plaintiffs
“opted-out”
of the Ontario Teachers Securities Litigation. On March 10, 2020, the Court consolidated the Ontario Teachers Securities Litigation with all of the above-referenced putative class actions for all purposes and the
“opt-out”
cases for pretrial purposes. On January 18, 2022, Teva entered into a settlement in the Ontario Teachers Securities Litigation for $420 million, which received final approval from the court on June 2, 2022. The vast majority of the total settlement amount was covered by the Company’s insurance carriers, with a small portion contributed by Teva. Additionally, as part of the settlement, Teva admitted no liability and denied all allegations of wrongdoing. On January 22, 2021, the Court dismissed the
“opt-out”
plaintiffs’ claims arising from statements made prior to the five year statute of repose, but denied Teva’s motion to dismiss their claims under Israeli laws. On May 24, 2021, Teva moved to dismiss a majority of the
“opt-out”
complaints on various other grounds, and on May 1, 2023, the Court granted in part and denied in part Teva’s motions. Teva has settled several
“opt-out”
claims, but a number of
opt-out
cases remain outstanding. In addition, Teva reached a settlement agreement of Israeli shareholder motions to certify class action on similar allegations to those raised in the Ontario Teachers Securities Litigation. The settlement agreement is awaiting court approval.
 
32
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
On September 23, 2020, a putative securities class action was filed in the U.S. District Court for the Eastern District of Pennsylvania against Teva and certain of its former officers. On August 10, 2021, the lead plaintiff filed a corrected amended class action complaint, purportedly on behalf of persons who purchased or otherwise acquired Teva securities between October 29, 2015 and August 18, 2020. The corrected amended complaint alleges that Teva and certain of its current and former officers violated federal securities laws by allegedly making false and misleading statements regarding the commercial performance of COPAXONE, namely, by failing to disclose that Teva had allegedly caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients, which allegedly impacted COPAXONE’s commercial success and the sustainability of its revenues and resulted in the DOJ PAP Complaint filed by the DOJ. The corrected amended complaint seeks unspecified damages and legal fees. On March 25, 2022, the court granted in part and denied in part Teva’s and the individual defendants’ motion to dismiss the corrected amended complaint, (i) holding that the plaintiffs’ complaint failed to plead that certain public statements regarding Teva’s compliance with the law were misleading, (ii) holding that two alleged partial corrective disclosures did not establish loss causation and cannot serve as the basis for plaintiff’s claimed loss, (iii) dismissing all claims against one of the individual defendants, and (iv) otherwise denying the motion to dismiss. On August 2, 2022, the court stayed all proceedings other than class certification proceedings pending the resolution of the DOJ PAP Complaint filed by the DOJ. On September 13, 2022, the plaintiff moved for class certification, which remains pending. A motion to approve a securities class action was also filed in the Central District Court in Israel, which has been stayed pending the U.S. litigation, with similar allegations to those made in the above complaint filed in the U.S. District Court for the Eastern District of Pennsylvania.
Environmental Matters
Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.
Although liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the allocation of
clean-up
and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent factors. Teva’s potential liability varies greatly at each of the sites; for some sites the costs of the investigation,
clean-up
and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other sites, Teva has taken an active role in identifying those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of
clean-up
costs from insurers, indemnitors, former site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged violations of federal, state, commonwealth or local requirements at some of Teva’s facilities may result in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of operations) and the recovery of certain costs and natural resource damages, and may require that corrective actions and enhanced compliance measures be implemented.
Item 103 of Regulation
S-K
promulgated by the SEC requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless the Company reasonably believes that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $300,000. The following matter is disclosed in accordance with that requirement. On July 8, 2021, the National Green Tribunal Principal Bench, New Delhi, issued an order against Teva’s subsidiary in India, Teva API India Private Limited, finding
non-compliance
with environmental laws and assessed a penalty of $1.4 million. The Company disputed certain of the findings and the amount of the penalty and filed an appeal before the Supreme Court of India. On August 5, 2021, the Supreme Court of India admitted the appeal for hearing and granted an interim unconditional stay on the National Green Tribunal’s order. The Company does not believe that the eventual outcome of such matter will have a material effect on its business.
 
33
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Other Matters
On February 1, 2018, former shareholders of Ception Therapeutics, Inc., a company that was acquired by and merged into Cephalon in 2010, prior to Cephalon’s acquisition by Teva, filed breach of contract and other related claims against the Company, Teva USA and Cephalon in the Delaware Court of Chancery. Among other things, the plaintiffs allege that Cephalon breached the terms of the 2010 Ception-Cephalon merger agreement by failing to exercise commercially reasonable efforts to develop and commercialize CINQAIR
®
(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). On December 28, 2018, following defendants’ motion to dismiss the complaint, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract. In November 2021, plaintiffs moved to amend their complaint to, among other things, reassert claims against the Company and Teva USA. However, on July 12, 2022, plaintiffs filed a new amended complaint that includes claims against Teva USA but not the Company, in exchange for Teva USA’s agreement to guarantee any judgment entered against Cephalon in the litigation. A bench trial for this matter was held in September 2022, and a ruling is expected in 2023, following closing arguments.
On March 15, 2022, The Scripps Research Institute (“Scripps”) filed claims against Teva’s subsidiary, Teva Pharmaceuticals International GmbH (“TPIG”) in the United States District Court for the Southern District of California for alleged breach of a sublicense agreement between Scripps and Ivax Corporation (“Ivax”) dated November 2000 (“Sublicense Agreement”). After Teva’s acquisition of Ivax, TPIG became the successor-in-interest to Ivax under the Sublicense Agreement, pursuant to which Scripps licensed to Ivax certain rights to the drug cladribine. Scripps alleges that TPIG breached the Sublicense Agreement by failing to pay royalties on sales of cladribine in certain countries, and is seeking breach of contract damages for royalties allegedly due but not paid, as well as a declaratory judgment related to royalties due in the future. On November 17, 2022, the Court dismissed Scripps’ claim for breach of the implied covenant of good faith and fair dealing but denied TPIG’s motion to dismiss Scripps’ breach of contract and declaratory judgment claims. TPIG answered the first amended complaint on December 16, 2022, and discovery is ongoing.
Gain Contingencies
From time to time, Teva may directly or indirectly pursue claims against certain parties, including but not limited to patent infringement lawsuits against other pharmaceutical companies to protect its patent rights, as well as derivative actions brought on behalf of Teva. Teva recognizes gain contingencies from the defendants in such lawsuits when they are realized or when all related contingencies have been resolved. No gain has been recognized regarding the matters disclosed below, unless mentioned otherwise.
In October 2017, Teva 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, including three method of treatment patents and six composition of matter patents. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine Teva patents. The PTAB issued decisions upholding the three method of treatment patents but finding the six composition of matter patents invalid, which decisions were affirmed by the Court of Appeals for the Federal Circuit on August 16, 2021. A jury trial regarding the three method of treatment patents began on October 18, 2022, and on November 9, 2022, the jury issued a verdict in Teva’s favor, finding the three method of treatment patents valid and infringed by Lilly and awarding Teva $176.5 million in damages. On January 28, 2023, Lilly filed a motion requesting that the District Court overturn the jury’s verdict. Once the motion is decided, the losing party may appeal the decision to the Court of Appeals for the Federal Circuit. On June 8, 2021, Teva filed another lawsuit in the U.S. District Court for the District of Massachusetts alleging that Lilly’s marketing and sale of galcanezumab product infringes two patents related to the treatment of refractory migraine. Lilly’s IPR petitions challenging the patentability of these two patents as well as a third patent also related to the treatment of refractory migraine were instituted by the PTAB. The litigation in the District of Massachusetts was stayed during the pendency of these IPR proceedings. Teva intends to continue to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents.
Motions to approve derivative actions seeking monetary damages against certain past and present directors and officers have been filed in Israeli Courts alleging negligence and recklessness, as well as motions for document disclosure prior to initiating derivative actions. Motions were filed with respect to several U.S. and EU settlement agreements, opioids, allegations related to the DOJ’s complaint regarding COPAXONE patient assistance program in the U.S., and with respect to the COPAXONE European Commission’s inspection.
 
34
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
NOTE 11 – Income taxes:
In the first quarter of 2023, Teva recognized a tax benefit of $19 million, on
pre-tax
loss of $258 million. In the first quarter of 2022, Teva recognized a tax expense of $2 million, on
pre-tax
loss of $971 million. Teva’s tax rate for the first quarter of 2023 was mainly affected by legal settlements, impairments, amortization and interest expense disallowances.
The statutory Israeli corporate tax rate is 23%
 in 2023. Teva’s tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, interest expense disallowances, tax benefits in Israel and other countries, as well as infrequent or non-recurring items. 
Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. A trial for this case is currently scheduled to begin in July 2023. A final and binding decision against Teva in this case may lead to a charge of $
128 million.
The Israeli tax authorities (“ITA”) issued tax assessment decrees for 2008-2011, 2012 and 2013-2016, challenging the Company’s positions on several issues. Teva has protested the 2008-2011, 2012 and 2013-2016 decrees before the Central District Court in Israel. On April 17, 2023, the ITA issued a tax assessment for 2017-2020, challenging the Company’s positions on several issues. The Company intends to challenge the tax assessment for 2017-2020, as well.
In October 2021, the Central District Court in Israel held in favor of the ITA with respect to 2008-2011 decrees. The case with respect to 2012-2016 remains pending with similar legal and other claims. Teva appealed this decision to the Israeli Supreme Court and expects the appeal hearing to begin in the second half of 2023. The tax liability resulting from the October 2021 Central District Court decision, with respect to the decrees for 2008-2011 and with regard to the similar legal claims in the related following years, was approximately $350 million, of which a portion has been and will continue to be paid during 2022 and 2023.
The Company believes it has adequately provided for all of its uncertain tax positions, including those items currently under dispute, however, adverse results could be material.
NOTE 12 – Other assets impairments, restructuring and other items:
    
Three months ended

March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Impairments of long-lived tangible assets (1)
    $ 10      $ 16  
Contingent consideration
      20        33  
Restructuring
      56        57  
Other
      9        21  
    
 
 
     
 
 
  
Total
    $ 96      $ 128  
    
 
 
     
 
 
  
 
(1)
Including impairments related to exit and disposal activities.
Impairments
Impairments of tangible assets for the three months ended March 31, 2023 and 2022 were $10 million and $16 million, respectively.
Teva may record additional impairments in the future, to the extent it changes its plans on any given asset and/or the assumptions underlying such plans, as a result of its network consolidation activities.
Contingent consideration
In the three months ended March 31, 2023, Teva recorded an expense of $20 million for contingent consideration, compared to an expense of $33 million in the three months ended March 31, 2022. The expense in the first three months of 2023 was mainly related to a change in the estimated future royalty payments to Eagle in connection with expected future bendamustine sales and a change in the estimated future royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid
®
). The expense in the first three months of 2022 was mainly related to a change in the estimated future royalty payments in connection with lenalidomide (generic equivalent of Revlimid
®
).
 
35
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Restructuring
In the three months ended March 31, 2023, Teva recorded $56 million of restructuring expenses, compared to $57 million in the three months ended March 31, 2022. The expenses for the three months ended March 31, 2023 and March 31, 2022 were primarily related to network consolidation activities.
The following tables provide the components of restructuring costs:
 
    
Three months ended

March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Restructuring
                  
Employee termination
    $ 23      $ 52  
Other
      33        5  
    
 
 
     
 
 
  
Total
    $ 56      $ 57  
    
 
 
     
 
 
  
The following table provides the components of and changes in the Company’s restructuring accruals:
 
    
Employee termination
costs
     
Other
     
Total
  
                      
    
(U.S. $ in millions)
  
Balance as of January 1, 2023
    $ (112 )     $ (7 )     $ (119 ) 
Provision
      (23 )       (33 )       (56 ) 
Utilization and other*
      25        27        52  
    
 
 
     
 
 
     
 
 
  
Balance as of March 31, 2023
    $ (110 )     $ (13 )     $ (123 ) 
    
 
 
     
 
 
     
 
 
  
 
    
Employee termination
costs
     
Other
     
Total
  
                      
    
(U.S. $ in millions)
  
Balance as of January 1, 2022
    $ (131 )     $ (7 )     $ (138 ) 
Provision
      (52 )       (5 )       (57 ) 
Utilization and other*
      59        6        65  
    
 
 
     
 
 
     
 
 
  
Balance as of March 31, 2022
    $ (124 )     $ (6 )     $ (130 ) 
    
 
 
     
 
 
     
 
 
  
 
*
Includes adjustments for foreign currency translation.
NOTE 13 – Earnings (Loss) per share:
Basic earnings and loss per share are computed by dividing net income (loss) attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding, including fully vested restricted share units (“RSUs”) and performance share units (“PSUs”) during the period, net of treasury shares.
In computing diluted loss per share for the three months ended March 31, 2023 and 2022, no account was taken of the potential dilution that could occur upon the exercise of options and
non-vested
RSUs and PSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.
The weighted average diluted shares outstanding used for the fully diluted share calculations for the three months ended March 31, 2023 and 2022 were 1,115 million and 1,107 million shares, respectively.
 
36
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Basic and diluted loss per share was $0.18 for the three months ended March 31, 2023, compared to basic and diluted loss per share of $0.86 for the three months ended March 31, 2022.
NOTE 14 – Accumulated other comprehensive income (loss):
The components of, and changes within, accumulated other comprehensive income (loss) attributable to Teva are presented in the table below:
 
    
Net Unrealized Gains (Losses)
     
Benefit Plans
         
    
Foreign
currency
translation
adjustments
     
Derivative
financial
instruments
     
Actuarial gains
(losses) and
prior service
(costs) credits
     
Total
  
                             
    
(U.S. $ in millions)
  
Balance as of December 31, 2022, net of taxes
    $ (2,514 )     $ (295 )     $ (28 )     $ (2,838 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Other comprehensive income (loss) before reclassifications
      122        —          —          122  
Amounts reclassified to the statements of income
      —          8        (1 )       7  
    
 
 
     
 
 
     
 
 
     
 
 
  
Net other comprehensive income (loss) before tax
      122        8        (1 )       129  
    
 
 
     
 
 
     
 
 
     
 
 
  
Corresponding income tax
      7        —          —          7  
    
 
 
     
 
 
     
 
 
     
 
 
  
Net other comprehensive income (loss) after tax*
      129        8        (1 )       136  
    
 
 
     
 
 
     
 
 
     
 
 
  
Balance as of March 31, 2023, net of taxes
    $ (2,385 )     $ (287 )     $ (29 )     $ (2,701 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Amounts do not include a $9 million loss from foreign currency translation adjustments attributable to
non-controlling
interests.
 
    
Net Unrealized Gains (Losses)
     
Benefit Plans
         
    
Foreign
currency
translation
adjustments
     
Derivative
financial
instruments
     
Actuarial gains
(losses) and
prior service
(costs) credits
     
Total
  
                             
    
(U.S. $ in millions)
  
Balance as of December 31, 2021, net of taxes    $ (2,274 )     $ (324 )     $ (85 )     $ (2,683 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Other comprehensive income (loss) before reclassifications      (4 )                —          (4 ) 
Amounts reclassified to the statements of income      —          7        —          7  
    
 
 
     
 
 
     
 
 
     
 
 
  
Net other comprehensive income (loss) before tax      (4 )       7        —          3  
    
 
 
     
 
 
     
 
 
     
 
 
  
Corresponding income tax      (7 )       —          —          (7 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Net other comprehensive income (loss) after tax*      (11 )       7        —          (4 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Balance as of March 31, 2022, net of taxes    $ (2,285 )     $ (317 )     $ (85 )     $ (2,687 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Amounts do not include a $53 million loss from foreign currency translation adjustments attributable to
non-controlling
interests.
NOTE 15 – Segments:
Teva operates its business and reports its financial results in three segments:
 
  (a)
North America segment, which includes the United States and Canada.
 
  (b)
Europe segment, which includes the European Union, the United Kingdom and certain other European countries.
 
  (c)
International Markets segment, which includes all countries other than those in the North America and Europe segments.
 
37
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
In addition to these three segments, Teva has other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an
out-licensing
platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis.
Teva’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the three identified reportable segments, namely North America, Europe and International Markets, to make decisions about resources to be allocated to the segments and assess their performance.
Segment profit is comprised of gross profit for the segment less R&D expenses, S&M expenses, G&A expenses and other income related to the segment. Segment profit does not include amortization and certain other items.
Teva manages its assets on a company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review asset information by reportable segment and, therefore, Teva does not report asset information by reportable segment.
Teva’s CEO may review its strategy and organizational structure from time to time. Currently, Teva’s newly appointed CEO is reviewing its strategy and organizational structure. Any changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 3 and note 6.
a. Segment information:
 
    
Three months ended March 31,
  
    
2023
  
    
North America
     
Europe
     
International Markets
  
                      
    
(U.S. $ in millions)
  
Revenues
    $ 1,766      $ 1,184      $ 492  
Gross profit
      812        655        262  
R&D expenses
      156        53        20  
S&M expenses
      223        187        98  
G&A expenses
      102        70        31  
Other income
      (1 )       §        (1 ) 
    
 
 
     
 
 
     
 
 
  
Segment profit
    $ 332      $ 345      $ 114  
    
 
 
     
 
 
     
 
 
  
 
§
Represents an amount less than $0.5 million.
 
    
Three months ended March 31,
  
    
2022
  
    
North America
     
Europe
     
International Markets
  
                      
    
(U.S. $ in millions)
  
Revenues
    $ 1,737      $ 1,156      $ 492  
Gross profit
      890        694        286  
R&D expenses
      143        58        20  
S&M expenses
      245        196        97  
G&A expenses
      112        59        29  
Other income
      (11 )       §        (40 ) 
    
 
 
     
 
 
     
 
 
  
Segment profit
    $ 402      $ 381      $ 179  
    
 
 
     
 
 
     
 
 
  
 
§
Represents an amount less than $0.5 million.
 
38
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
The following table presents a reconciliation of Teva’s segment profits to its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended March 31, 2023 and 2022:
 
    
Three months ended
  
    
March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
North America profit
    $ 332      $ 402  
Europe profit
      345        381  
International Markets profit
      114        179  
    
 
 
     
 
 
  
Total reportable segments profit
      791        962  
Profit (loss) of other activities
      (6 )       52  
    
 
 
     
 
 
  
Total segments profit
      785        1,013  
Amounts not allocated to segments:
                  
Amortization
      165        200  
Other assets impairments, restructuring and other items
      96        128  
Intangible assets impairments
      178        149  
Legal settlements and loss contingencies
      233        1,124  
Other unallocated amounts
      112        127  
    
 
 
     
 
 
  
Consolidated operating income (loss)
      2        (713 ) 
    
 
 
     
 
 
  
Financial expenses, net
      260        258  
    
 
 
     
 
 
  
Consolidated income (loss) before income taxes
    $ (258 )     $ (971 ) 
    
 
 
     
 
 
  
b. Segment revenues by major products and activities:
The following tables present revenues by major products and activities for the three months ended March 31, 2023 and 2022:
 
North America   
Three months ended

March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Generic products
    $ 824      $ 899  
AJOVY
      49        36  
AUSTEDO
      170        154  
BENDEKA
®
and TREANDA
®
      63        82  
COPAXONE
      76        86  
Anda
      424        342  
Other
      160        139  
    
 
 
     
 
 
  
Total
    $ 1,766      $ 1,737  
    
 
 
     
 
 
  
 
39
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Europe   
Three months ended

March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Generic products
    $ 932      $ 876  
AJOVY
      36        30  
COPAXONE
      59        72  
Respiratory products
      68        71  
Other
      89        107  
    
 
 
     
 
 
  
Total
    $ 1,184      $ 1,156  
    
 
 
     
 
 
  
 
International markets   
Three months ended

March 31,
  
    
2023
     
2022
  
               
    
(U.S. $ in millions)
  
Generic products
    $ 400      $ 388  
AJOVY
      10        6  
COPAXONE
      12        10  
Other
      70        88  
    
 
 
     
 
 
  
Total
    $ 492      $ 492  
    
 
 
     
 
 
  
NOTE 16 – Fair value measurement:
Financial items carried at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are classified in the tables below in one of the three categories of fair value levels:
 
    
March 31, 2023
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
                                    
Money markets
    $ 702      $ —        $ —        $ 702  
Cash, deposits and other
      1,441        —          —          1,441  
Investment in securities:
                                    
Equity securities
      10        —          —          10  
Other
      6        —          1        7  
Restricted cash
      33        —          —          33  
Derivatives:
                                    
Asset derivatives:
                                    
Options and forward contracts
      —