10-Q 1 d312501d10q.htm 10-Q 10-Q
falseQ1TEVA PHARMACEUTICAL INDUSTRIES LTD0000818686--12-3100-0000000IL2026-04-30Represents an amount less than $0.5 million.Accumulated goodwill impairment as of March 31, 2022 and December 31, 2021 was approximately $25.6 billion.Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.In April 2022, Teva repaid $302 million of its 3.25% senior notes at maturity.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 8d.Includes adjustments for foreign currency translation.Including impairments related to exit and disposal activitiesIf 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.Amounts do not include a $53 million loss from foreign currency translation adjustments attributable to non-controlling interests.Amounts do not include a $67 million loss from foreign currency translation adjustments attributable to non-controlling interests.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, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies to protect its projected operating results for 2021 and 2022. 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 2022, the positive impact from these derivatives recognized under revenues was[ $31] 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. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. 0000818686 2022-01-01 2022-03-31 0000818686 2021-01-01 2021-03-31 0000818686 2022-03-31 0000818686 2021-12-31 0000818686 2019-08-31 0000818686 2021-01-01 2021-12-31 0000818686 2017-08-21 2021-08-21 0000818686 2008-07-31 0000818686 2005-02-28 0000818686 2013-09-01 2013-09-30 0000818686 2013-04-01 2013-04-30 0000818686 2012-08-01 2012-08-31 0000818686 2010-12-01 2010-12-31 0000818686 2021-03-31 0000818686 2019-01-01 2019-12-31 0000818686 2014-01-01 2014-12-31 0000818686 2021-08-05 2021-08-05 0000818686 2021-06-30 0000818686 2022-01-27 2022-01-27 0000818686 2021-07-08 0000818686 2022-02-04 2022-02-04 0000818686 2020-12-31 0000818686 us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2021-12-31 0000818686 us-gaap:MoneyMarketFundsMember 2021-12-31 0000818686 us-gaap:FairValueInputsLevel1Member us-gaap:DemandDepositsMember 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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, 2022
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, 2022, the registrant had 1,110,352,397 ordinary shares outstanding.
 
 
 

INDEX
 
PART I.
    
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      42  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk      64  
Item 4.
  Controls and Procedures      64  
PART II.
    
Item 1.
  Legal Proceedings      65  
Item 1A.
  Risk Factors      65  
Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds      65  
Item 3.
  Defaults Upon Senior Securities      65  
Item 4.
  Mine Safety Disclosures      65  
Item 5.
  Other Information      65  
Item 6.
  Exhibits      66  
  Signatures      67  
 
2

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; consolidation 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 specialty products, 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: uncertainty regarding the
COVID-19
pandemic and the governmental and societal responses thereto; our ability to successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the
COVID-19
pandemic and associated costs therewith; effectiveness of our optimization efforts; our ability to attract, hire 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 or delays in governmental processing time due to travel and work restrictions caused by the
COVID-19
pandemic; 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 our ability to reach a final resolution of the remaining opioid-related litigation; 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 patent 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 intangible assets; potential significant increases in tax liabilities (including as a result of potential tax reform in the United States); 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

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, 2021, 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

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,
 
 
  
2022
 
 
2021
 
ASSETS
  
     
 
     
Current assets:
  
     
 
     
Cash and cash equivalents
   $ 2,175     $ 2,165  
Accounts receivables, net of allowance for credit losses of $91 million and $90 million as of March 31, 2022 and December 31, 2021
     4,253       4,529  
Inventories
     4,012       3,818  
Prepaid expenses
     1,064       1,075  
Other current assets
     933       965  
Assets held for sale
     13       19  
    
 
 
   
 
 
 
Total current assets
     12,451       12,573  
Deferred income taxes
     637       596  
Other
non-current
assets
     472       515  
Property, plant and equipment, net
     5,932       5,982  
Operating lease
right-of-use
assets
     464       495  
Identifiable intangible assets, net
     7,116       7,466  
Goodwill
     19,986       20,040  
    
 
 
   
 
 
 
Total assets
  
$
47,059    
$
47,666  
    
 
 
   
 
 
 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Short-term debt
   $ 2,077     $ 1,426  
Sales reserves and allowances
     3,807       4,241  
Accounts payables
     1,750       1,686  
Employee-related obligations
     481       563  
Accrued expenses
     2,597       2,208  
Other current liabilities
     900       903  
    
 
 
   
 
 
 
Total current liabilities
     11,613       11,027  
Long-term liabilities:
                
Deferred income taxes
     666       784  
Other taxes and long-term liabilities
     3,288       2,578  
Senior notes and loans
     20,840       21,617  
Operating lease liabilities
     393       416  
    
 
 
   
 
 
 
Total long-term liabilities
  
 
25,186
 
 
 
25,395
 
    
 
 
   
 
 
 
Commitments and contingencies
, see note 10
  

 
 
 
 
Total liabilities
  
 
36,799
 
 
 
36,422
 
    
 
 
   
 
 
 
Equity:
                
Teva shareholders’ equity:
                
Ordinary shares of NIS 0.10 par value per share; March 31, 2022 and December 31, 2021: authorized 2,495 million shares; issued 1,216 million shares and 1,209 million shares, respectively.
     57       57  
Additional
paid-in
capital
     27,587       27,561  
Accumulated deficit
     (11,484     (10,529
Accumulated other comprehensive loss
     (2,687     (2,683
Treasury shares as of March 31, 2022 and December 31, 2021: 
106 million ordinary shares
     (4,128 )     (4,128
    
 
 
   
 
 
 
       9,344       10,278  
    
 
 
   
 
 
 
Non-controlling
interests
     916       966  
    
 
 
   
 
 
 
Total equity
     10,260       11,244  
    
 
 
   
 
 
 
Total liabilities and equity
  
$
47,059
 
 
$
47,666  
    
 
 
   
 
 
 
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,
 
 
  
2022
 
 
2021
 
Net revenues
  
$
3,661    
$
3,982  
Cost of sales
     1,921       2,104  
    
 
 
   
 
 
 
Gross profit
     1,740       1,878  
Research and development expenses
     225       254  
Selling and marketing expenses
     584       585  
General and administrative expenses
     296       290  
Intangible assets impairments
     149       79  
Other assets impairments, restructuring and other items
     128       137  
Legal settlements and loss contingencies
     1,124       104  
Other income
     (52     (5
    
 
 
   
 
 
 
Operating income (loss)
     (713 )     434  
Financial expenses, net
     258       290  
    
 
 
   
 
 
 
Income (loss) before income taxes
     (971 )     144  
Income taxes (benefit)
     2     62  
Share in (profits) losses of associated companies, net
     (21     (3
    
 
 
   
 
 
 
Net income (loss)
     (952 )     84  
Net income (loss) attributable to
non-controlling
interests
     3       7  
    
 
 
   
 
 
 
Net income (loss) attributable to Teva
     (955 )     77  
    
 
 
   
 
 
 
Earnings (loss) per share attributable to ordinary shareholders:
                
Basic
   $ (0.86 )   $ 0.07  
    
 
 
   
 
 
 
Diluted
   $ (0.86 )   $ 0.07  
    
 
 
   
 
 
 
Weighted average number of shares (in millions):
                
Basic
     1,107       1,099  
    
 
 
   
 
 
 
Diluted
     1,107       1,107  
    
 
 
   
 
 
 
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,
 
 
  
2022
 
 
2021
 
Net income (loss)
  
$
(952
)
 
$
84  
Other comprehensive income (loss), net of tax:
                
Currency translation adjustment
     (64     (208
Unrealized gain (loss) from derivative financial instruments, net
     7       7  
    
 
 
   
 
 
 
Total other comprehensive income (loss)
     (57     (201
    
 
 
   
 
 
 
Total comprehensive income (loss)
     (1,009 )     (117
Comprehensive income (loss) attributable to
non-controlling
interests
     (50     (60
    
 
 
   
 
 
 
Comprehensive income (loss) attributable to Teva
  
$
(959
)
 
$
(57
    
 
 
   
 
 
 
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, 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.
 
 
 
Teva shareholders’ equity
 
 
 
 
 
 
 
 
 
Ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
shares (in
millions)
 
 
Stated
value
 
 
Additional
paid-in

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

interests
 
 
Total
equity
 
 
 
(U.S. dollars in millions)
 
Balance at December 31, 2020
    1,202       57       27,443       (10,946     (2,399     (4,128     10,026       1,035       11,061  
Net Income (loss)
                            77                       77       7       84  
Other comprehensive income (loss)
                                    (134             (134     (67     (201
Issuance of shares
    6       *                                                       *  
Stock-based compensation expense
                    31                               31               31  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
    1,208     $ 57     $ 27,474     $ (10,869   $ (2,534   $ (4,128   $ 10,000     $ 975     $ 10,975  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
Represents an amount less than $0.5 million.
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
 
8

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
 
 
  
Three months ended
 
 
  
March 31,
 
 
  
2022
 
 
2021
 
Operating activities:
  
 
Net income (loss)
   $ (952 )   $ 84  
Adjustments to reconcile net income (loss) to net cash provided by operations:
                
Depreciation and amortization
     323       376  
Impairment of long-lived assets and assets held for sale
     165       127  
Net change in operating assets and liabilities
     559       (1,076
Deferred income taxes – net and uncertain tax positions
     (175     (11
Stock-based compensation
     24       31  
Other items
     30       (10
Net loss (gain) from investments and from sale of long lived assets
     (23     74  
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     (49 )     (405
    
 
 
   
 
 
 
Investing activities:
                
     
Beneficial interest collected in exchange for securitized trade receivables
     305       476  
Proceeds from sale of business and long lived assets
     25       138  
Acquisition of businesses, net of cash acquired
  
 
(7
 
 
  
 
     
Purchases of property, plant and equipment 
     (157     (150
Purchases of investments and other assets .
     (4     (2 )
Proceeds from sale of investments
              46  
Other investing activities
  
 
(1
 
 
 
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     161       508  
    
 
 
   
 
 
 
Financing activities:
                
Redemption of convertible senior notes
              (491
Other financing activities
     2       (2
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     2       (493
 
  
 
 
   
 
 
 
Translation adjustment on cash and cash equivalents
     (62     (44
 
  
 
 
   
 
 
 
Net change in cash, cash equivalents and restricted cash
     52       (434
Balance of cash, cash equivalents and restricted cash at beginning of period
     2,198       2,177  
 
  
 
 
   
 
 
 
Balance of cash, cash equivalents and restricted cash at
en
d
of period
   $ 2,250     $ 1,743  
 
  
 
 
   
 
 
 
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
                
Cash and cash equivalents
     2,175       1,743  
Restricted cash included in other current assets 
     75           
    
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
     2,250       1,743  
    
 
 
   
 
 
 
Non-cash
financing and investing activities:
                
Beneficial interest obtained in exchange for securitized accounts receivables
   $ 299     $ 488  
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, 2021, 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, 2021, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included.
In the process of preparing the consolidated financial statements, management makes estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The inputs into Teva’s judgments and estimates also consider the economic implications of the
COVID-19
pandemic on its critical and significant accounting estimates, most significantly in relation to sales, reserves and allowances, IPR&D assets, marketed product rights and goodwill, all of which will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the
COVID-19
pandemic and the actions taken to contain or treat it, as well as the economic impact on Teva’s employees, third-party manufacturers and suppliers, customers and markets. All estimates made by Teva related to the impact of the
COVID-19
pandemic within its financial statements may change in future periods. Actual results could differ from those estimates.
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 first quarter of 2022, the impact of this conflict on Teva’s results of operations and financial condition was immaterial.
The results of operations for the three months ended March 31, 2022 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 August 2020, the FASB issued ASU
2020-06
“Debt – Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU
2020-04
“Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. There was no material impact to the Company’s consolidated financial statements for the period ended March 31, 2022 as a result of adopting this standard update. The Company has completed negotiations to transform the facility base rate of its securitization program and is continuing to evaluate the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities. However, it is not expected to have a material impact on the consolidated financial results of operations, financial position or cash flows.
Recently issued accounting pronouncements, not yet adopted
In November 2021, the FASB issued ASU
2021-10
“Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of
 
10

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to determine the impact it may have on its 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 guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

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 is currently being completed for
TEV-56286.
In the fourth quarter of 2021, Teva made an upfront payment
of $10 
million to Modag that was recorded as R&D expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to
$70 
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 a proposed biosimilar to Humira
®
. Under this 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 paid an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as R&D expenses. Additional development and commercial milestone payments of up to $455 
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. In March 2021,
Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira
®
. In October 2021, the claim was dismissed for lack of jurisdiction. Abbvie has appealed this decision to the U.S. Court of Appeals. In addition, there is pending patent litigation between Abbvie and Alvotech related to Alvotech’s proposed biosimilar to Humira
®
. In December 2021, Abbvie also filed a complaint with the U.S. International Trade Commission (“ITC”) against both Alvotech and Teva seeking to prevent Teva and Alvotech from importing Alvotech’s proposed biosimilar to Humira
®
into the United States. On January 26, 2022, the ITC issued a decision to initiate an investigation into Alvotech’s proposed biosimilar product. On March 8, 2022, Abbvie and Alvotech settled all the above pending IP matters relating to Alvotech’s proposed biosimilar to Humira
®
. Pursuant to that settlement, Alvotech and Teva may sell Alvotech’s proposed biosimilar to Humira
®
in the United States beginning on July 1, 2023, provided that U.S. regulatory approval is obtained by that date. On March 28, 2022, the ITC officially terminated the investigation requested by Abbvie.
Eli Lilly and Alder BioPharmaceuticals
In December 2018, Teva entered into an agreement with Eli Lilly & Co. (“Lilly”) resolving the European Patent Office opposition they had filed against Teva’s AJOVY
®
patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.
 
11

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
On January 8, 2018, Teva signed a global license agreement with Alder BioPharmaceuticals (“Alder”). The agreement validates Teva’s intellectual property and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder received a
non-exclusive
license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the United States and worldwide, excluding Japan. Teva received a $25 million upfront payment that was recognized as revenue during the first quarter of 2018, and a $25 million milestone payment in March 2020 that was recognized as revenue in the first quarter of 2020. The agreement stipulates additional development and commercial milestone payments to Teva of up to $150 million, as well as future royalties.
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.
Regeneron
In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of up to $2,230 million, as well as future royalties. Currently, all
non-essential
activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA.
MedinCell
In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable products. The lead product candidate selected was risperidone LAI
(TV-46000)
suspension for subcutaneous use for the treatment of schizophrenia. In August 2021, the FDA accepted the new drug application (“NDA”) for risperidone LAI, based on phase 3 data from two pivotal studies. Teva leads the clinical development and regulatory process and is responsible for commercialization of this product candidate. MedinCell may be eligible for development milestones, and future commercial milestones of up to $112 million in respect of risperidone LAI. Teva will also pay MedinCell royalties on net sales. In April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for risperidone LAI. Teva is reviewing its next steps based on the CRL and will work closely with
the
FDA to address their recommendations.
Assets and Liabilities Held For Sale:
General
Assets and liabilities held for sale as of March 31, 2022 included certain manufacturing assets that are expected to be sold within the next year. Assets and liabilities held for sale as of December 31, 2021 included certain manufacturing assets sold during the first quarter of 2022, and certain assets that are expected to be sold during 2022. The table below summarizes all Teva assets and liabilities included as held for sale as of March 31, 2022 and December 31, 2021:

 

12

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
   
March 31,
   
December 31,
 
   
2022
   
2021
 
   
(U.S. $ in millions)
 
Inventories
 
$
      
$
2  
Property, plant and equipment, net and others
    64       86  
Goodwill
             7  
Adjustments of assets held for sale to fair value
    (51     (76
   
 
 
   
 
 
 
Total assets of the disposal group classified as held for sale in the consolidated balance sheets
  $ 13     $ 19  
   
 
 
   
 
 
 
Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets, recorded under accrued expenses and other long-term liabilities
  $ (60   $ (43
   
 
 
   
 
 
 
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, 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.
 
    
Three months ended March 31, 2021
 
    
North
America
    
Europe
    
International
Markets
    
Other
activities
    
Total
 
    
(U.S. $ in millions)
 
Sale of goods
     1,668        1,178        440        177        3,463  
Licensing arrangements
     32        14        3        1        49  
Distribution
     289     
 
§
       19                  308  
Other
  
 
§
       22        28        111        162  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 1,989      $ 1,214      $ 490      $ 289      $ 3,982  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
§ Represents an amount less than $0.5 million.
 
13

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Variable consideration
Variable consideration mainly includes sales reserves and allowances (“SR&A”), comprised of rebates (including Medicaid and other governmental program discounts), chargebacks, returns and other promotional (including shelf stock adjustments) items. Provisions for prompt payment discounts are netted against accounts receivables.
The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions.
SR&A to U.S. customers comprised approximately 73% of the Company’s total SR&A as of March 31, 2022, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the three months ended March 31, 2022 and 2021 were as follows: 
 
 
  
Sales Reserves and Allowances
 
 
 
 
 
  
Reserves
included in
Accounts
Receivable, net
 
 
Rebates
 
 
Medicaid and
other
governmental
allowances
 
 
Chargebacks
 
 
Returns
 
 
Other
 
 
Total reserves
included in SR&A
 
 
Total
 
 
  
(U.S. $ in millions)
 
Balance at December 31, 2021
  
$
68
 
 
$
1,655
 
 
$
854
 
 
$
1,085
 
 
$
535
 
 
$
112
 
 
$
4,241
 
 
$
4,309
 
Provisions related to sales made in current year
  
 
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
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Reserves
included in
Accounts
Receivable, net
 
 
Rebates
 
 
Medicaid and
other
governmental
allowances
 
 
Chargebacks
 
 
Returns
 
 
Other
 
 
Total reserves
included in SR&A
 
 
Total
 
 
  
(U.S.$ in millions)
 
Balance at December 31, 2020
  
$
80
 
 
$
2,054
 
 
$
828
 
 
$
1,108
 
 
$
686
 
 
$
148
 
 
$
4,824
 
 
$
4,904
 
Provisions related to sales made in current year
  
 
100
 
 
 
1,126
 
 
 
164
 
 
 
2,043
 
 
 
76
 
 
 
23
 
 
 
3,432
 
 
 
3,532
 
Provisions related to sales made in prior periods
  
 
—  
 
 
 
(55
 
 
(11
 
 
6
 
 
 
(40
 
 
(17
 
 
(117
 
 
(117
Credits and payments
  
 
(102
 
 
(1,210
 
 
(188
 
 
(1,987
 
 
(101
 
 
(40
 
 
(3,526
 
 
(3,628
Translation differences
  
 
—  
 
 
 
(17
 
 
(4
 
 
(3
 
 
(3
 
 
(2
 
 
(29
 
 
(29
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2021
  
$
78
 
 
$
1,898
 
 
$
789
 
 
$
1,167
 
 
$
618
 
 
$
112
 
 
$
4,584
 
 
$
4,662
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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,
 
 
  
2022
 
  
2021
 
 
  
(U.S. $ in millions)
 
Finished products
   $ 1,985      $ 1,932  
Raw and packaging materials
     1,256        1,136  
Products in process
     593        587  
Materials in transit and payments on account
     178        163  
    
 
 
    
 
 
 
Total
   $ 4,012      $ 3,818  
    
 
 
    
 
 
 
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,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
 
  
(U.S. $ in millions)
 
Product rights
   $ 18,544      $ 18,815      $ 12,383      $ 12,318      $ 6,161      $ 6,497  
Trade names
     588        590        206        198        382        392  
In process research and development
     573        577        —          —          573        577  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 19,705      $ 19,982      $ 12,589      $ 12,516      $ 7,116      $ 7,466  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Product rights and trade names
Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products from various therapeutic categories from various acquisitions with a weighted average life of approximately 10 years.
Amortization of intangible assets was $200 million and $242 million in the three months ended March 31, 2022 and 2021, respectively.
IPR&D
Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is comprised mainly of various generic products from the Actavis Generics acquisition of $542 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
Intangible assets impairments
Impairments of long-lived intangible assets for the three months ended March 31, 2022 and 2021, were $149 million and $79 million, respectively.
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.
 
Impairments in the first quarter of 2021 consisted of:
 
  (a)
IPR&D assets of $51 million related to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States; and
 
  (b)
Identifiable product rights of $28 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics that are primarily marketed in the United States.
 
15

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
The fair
 value measurement of the impaired i
ntan
gible assets in the first
three
months of
2022
is based on significant unobservable inputs in the market and thus represents a Level 
3
measurement within the fair value hierarchy. The discount rate applied ranged from
7.25
% to
10
%. A probability of success factor ranging from
20
% to
100
% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.
 
NOTE 6 – Goodwill:
The changes in the carrying amount of goodwill for the period ended March 31, 2022 were as follows:
 
    
North America
    
Europe
   
International
Markets
    
Other
   
Total
 
    
(U.S. $ in millions)
       
Balance as of December 31, 2021 (1)
   $ 6,474      $ 8,544     $ 2,328      $ 2,694     $ 20,040  
Changes during the period:
                                          
Goodwill acquired
                               12       12  
Translation differences
     9        (85     34        (24     (66
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Balance as of March 31, 2022 (1)
   $ 6,483      $ 8,459     $ 2,362      $ 2,682     $ 19,986  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
 
(1)
Accumulated goodwill impairment as of March 31, 2022 and December 31, 2021 was approximately $25.6 billion.
Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (WACC), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva may record an impairment of goodwill allocated to these reporting units in the future. The current projections related to AUSTEDO and the resolution of the opioid and price fixing litigation in North America are significant assumptions in Teva’s future projections. Additionally, certain parts of its business volumes, particularly in Europe, were impacted by the
COVID-19
pandemic. Management continues to analyze the expected pace of recovery of volumes and the related impact of the
COVID-19
pandemic on Teva’s business.
During the first quarter of 2022, management assessed 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.
Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, 2022 and, therefore, no quantitative assessment was performed. Changes to Teva’s current assessment regarding the impact of the COVID-19 pandemic on its projections and its long-term forecast related to AUSTEDO could result in future impairments.
NOTE 7 – Debt obligations:
a. Short-term debt: 
 
 
  
 
 
 
 
 
  
March 31,
 
  
December 31,
 
 
  
Weighted average interest
rate as of March 31, 2022
 
 
Maturity
 
  
2022
 
  
2021
 
 
  
 
 
 
 
 
  
(U.S. $ in millions)
 
Convertible senior debentures
     0.25     2026        23        23  
Current maturities of long-term liabilities (1)
                      2,054        1,403  
                     
 
 
    
 
 
 
Total short-term debt
                    $ 2,077      $ 1,426