10-Q 1 d403730d10q.htm 10-Q 10-Q
falseQ30000818686--12-3100-0000000IL2026-04-30Represents an amount less than $0.5 million.Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.Accumulated goodwill impairment as of September 30, 2022 and December 31, 2021 was approximately $26.3 billion and $25.6 billion, respectively.In April 2022, Teva repaid $296 million of its 3.25% 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.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.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.In July 2022, Teva repaid $365 million of its 0.50% senior notes at maturity. Including impairments related to exit and disposal activities.Includes adjustments for foreign currency translation.Amounts do not include a $193 million loss from foreign currency translation adjustments attributable to non-controlling interests.Amounts do not include a $81 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, Swiss franc, Japanese yen, British pound, Canadian dollar, Polish zloty and some other currencies to protect its projected operating results for 2022 and 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 nine months of 2022, the positive impact from these derivatives recognized under revenues was $69 million. In the first nine months of 2021, the positive impact from these derivatives recognized under revenues was $29 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 2022-09-30 0000818686 2022-07-01 2022-09-30 0000818686 2021-07-01 2021-09-30 0000818686 2021-01-01 2021-09-30 0000818686 2022-09-30 0000818686 2021-12-31 0000818686 2019-08-31 0000818686 2020-09-01 0000818686 2021-01-01 2021-12-31 0000818686 2017-08-21 2021-08-21 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 2021-09-30 0000818686 2019-01-01 2019-12-31 0000818686 2022-01-01 2022-06-30 0000818686 2014-01-01 2014-12-31 0000818686 2021-08-05 2021-08-05 0000818686 2022-06-02 2022-06-02 0000818686 2021-07-08 0000818686 2022-02-04 2022-02-04 0000818686 2022-04-01 2022-06-30 0000818686 2022-07-31 0000818686 2022-06-30 0000818686 2020-12-31 0000818686 2021-06-30 0000818686 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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 September 30, 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
(3914-8213
(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 September 30, 2022, the registrant had 1,110,644,809 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      10  
   Notes to Consolidated Financial Statements      11  
Item 2.
   Management’s Discussion and Analysis of Financial Condition and Results of Operations      47  
Item 3.
   Quantitative and Qualitative Disclosures about Market Risk      74  
Item 4.
   Controls and Procedures      74  
PART II.
     
Item 1.
   Legal Proceedings      75  
Item 1A.
   Risk Factors      75  
Item 2.
   Unregistered Sales of Equity Securities and Use of Proceeds      75  
Item 3.
   Defaults Upon Senior Securities      75  
Item 4.
   Mine Safety Disclosures      75  
Item 5.
   Other Information      75  
Item 6.
   Exhibits      76  
   Signatures      77  

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, including to finalize settlement documentation and obtain sufficient participation of plaintiffs for the proposed nationwide settlement to take effect; 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; the impact of other macroeconomic developments such as rising inflation and geopolitical conflicts including the ongoing conflict between Russia and Ukraine; 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)
 
 
  
September 30,
 
 
December 31,
 
 
  
2022
 
 
2021
 
ASSETS
  
 
Current assets:
  
 
Cash and cash equivalents
  
$
2,225
 
 
$
2,165
 
Accounts receivables, net of allowance for credit losses of $94 million and $90 million as of September 30, 2022 and December 31, 2021
  
 
3,730
 
 
 
4,529
 
Inventories
  
 
3,859
 
 
 
3,818
 
Prepaid expenses
  
 
1,045
 
 
 
1,075
 
Other current assets
  
 
579
 
 
 
965
 
Assets held for sale
  
 
16
 
 
 
19
 
    
 
 
   
 
 
 
Total current assets
  
 
11,453
 
 
 
12,573
 
Deferred income taxes
  
 
1,546
 
 
 
596
 
Other
non-current
assets
  
 
438
 
 
 
515
 
Property, plant and equipment, net
  
 
5,568
 
 
 
5,982
 
Operating lease
right-of-use
assets
  
 
422
 
 
 
495
 
Identifiable intangible assets, net
  
 
6,393
 
 
 
7,466
 
Goodwill
  
 
18,433
 
 
 
20,040
 
    
 
 
   
 
 
 
Total assets
  
$
44,252
 
 
$
47,666
 
    
 
 
   
 
 
 
LIABILITIES AND EQUITY
  
 
Current liabilities:
  
 
Short-term debt
  
$
2,769
 
 
$
1,426
 
Sales reserves and allowances
  
 
3,648
 
 
 
4,241
 
Accounts payables
  
 
1,635
 
 
 
1,686
 
Employee-related obligations
  
 
496
 
 
 
563
 
Accrued expenses
  
 
2,041
 
 
 
2,208
 
Other current liabilities
  
 
945
 
 
 
903
 
    
 
 
   
 
 
 
Total current liabilities
  
 
11,534
 
 
 
11,027
 
Long-term liabilities:
  
 
 
 
 
 
 
 
Deferred income taxes
  
 
503
 
 
 
784
 
Other taxes and long-term liabilities
  
 
3,846
 
 
 
2,578
 
Senior notes and loans
  
 
18,497
 
 
 
21,617
 
Operating lease liabilities
  
 
354
 
 
 
416
 
    
 
 
   
 
 
 
Total long-term liabilities
  
 
23,200
 
 
 
25,395
 
    
 
 
   
 
 
 
Commitments and contingencies
, see note 10
  
 
 
 
 
 
Total liabilities
  
 
34,734
 
 
 
36,422
 
    
 
 
   
 
 
 
Equity:
  
 
Teva shareholders’ equity:
  
 
Ordinary shares of NIS 0.10 par value per share; September 30, 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
  
 
27,652
 
 
 
27,561
 
Accumulated deficit
  
 
(11,660
 
 
(10,529
Accumulated other comprehensive loss
  
 
(3,153
 
 
(2,683
Treasury shares as of September 30, 2022 and December 31, 2021: 106 million ordinary shares
  
 
(4,128
 
 
(4,128
    
 
 
   
 
 
 
 
  
 
8,767
 
 
 
10,278
 
    
 
 
   
 
 
 
Non-controlling
interests
  
 
751
 
 
 
966
 
    
 
 
   
 
 
 
Total equity
  
 
9,519
 
 
 
11,244
 
    
 
 
   
 
 
 
Total liabilities and equity
  
$
44,252
 
 
$
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
 
 
Nine months ended
 
 
  
September 30,
 
 
September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Net revenues
  
$
3,595    
$
3,887    
$
11,041    
$
11,778  
Cost of sales
     1,926       2,093       5,839       6,234  
    
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     1,669       1,794       5,203       5,544  
Research and development expenses
     175       222       628       723  
Selling and marketing expenses
     539       597       1,716       1,798  
General and administrative expenses
     283       291       892       822  
Intangible assets impairments
     24       21       223       295  
Goodwill impairment
                       745           
Other assets impairments, restructuring and other items
     36       62       282       227  
Legal settlements and loss contingencies
     195       3       2,048       113  
Other income
     (2     (25     (88     (73
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating income (loss)
     419       623       (1,244     1,638  
Financial expenses, net
     252       241       721       805  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) before income taxes
     166       382       (1,964     833  
Income taxes (benefit)
     107       76       (792     235  
Share in (profits) losses of associated companies, net
     1       5       (20     (9
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
     58       302       (1,152     608  
Net income (loss) attributable to
non-controlling
interests
     3       11       (21     32  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) attributable to Teva
     56       292       (1,132     576  
    
 
 
   
 
 
   
 
 
   
 
 
 
Earnings (loss) per share attributable to ordinary shareholders:
                                
Basic
   $ 0.05     $ 0.26     $ (1.02   $ 0.52  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   $ 0.05     $ 0.26     $ (1.02   $ 0.52  
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average number of shares (in millions):
                                
Basic
     1,111       1,103       1,109       1,102  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
     1,119       1,109       1,109       1,109  
    
 
 
   
 
 
   
 
 
   
 
 
 
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
 
 
Nine
 
months
 
ended
 
 
  
September 30,
 
 
September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Net income (loss)
  
$
58
 
 
$
302    
$
(1,152
 
$
608  
Other comprehensive income (loss), net of tax:
                                
Currency translation adjustment
     (402     (195     (684     (325
Unrealized gain (loss) from derivative financial instruments, net
     7       7       21       21  
Unrealized loss on defined benefit plans
              1                2  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other comprehensive income (loss)
     (395     (187     (663     (302
    
 
 
   
 
 
   
 
 
   
 
 
 
Total comprehensive income (loss)
     (337     115       (1,815     306  
Comprehensive income (loss) attributable to
non-controlling
interests
     (40     (3     (214     (49
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income (loss) attributable to Teva
  
$
(297
 
$
118
 
 
$
(1,601
 
$
355  
    
 
 
   
 
 
   
 
 
   
 
 
 
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 June 30, 2022
     1,216       57       27,625        (11,716     (2,801     (4,128     9,037       791       9,828  
Net Income (loss)
                              56                       56       3       58  
Other comprehensive income (loss)
                                      (352             (352     (43     (395
Issuance of Shares
  
 
*
 
 
 
*
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
*
 
 
 
 
 
 
 
 
*
 
Stock-based compensation expense
                     26                                26               26  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2022
     1,216     $ 57     $ 27,652      $ (11,660   $ (3,153   $ (4,128   $ 8,767     $ 751     $ 9,519  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 

*
Represents an amount less than $0.5 million.
 
 
 
Teva shareholders’ equity
 
 
 
 
 
 
 
 
 
Ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
shares (in
millions)
 
 
Stated
value
 
 
Additional
paid-in

capital
 
 
Retained
earnings
(accumulated
deficit)
 
 
Accumulated

other

comprehensive
(loss)
 
 
Treasury
shares
 
 
Total Teva
shareholders’
equity
 
 
Non-

controlling

interests
 
 
Total

equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(U.S. dollars in millions)
 
Balance at June 30, 2021
     1,209        57       27,503        (10,662     (2,446     (4,128     10,324       987       11,311  
Net Income (loss)
                               292                       292       11       302  
Other comprehensive income (loss)
                                       (174             (174     (13     (187
Issuance of Shares
  
 
 
 
*
 
  
 
*

                                      
*

             
*

 
Stock-based compensation expense
                      26                                26               26  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2021
     1,209      $ 57     $ 27,529      $ (10,370   $ (2,620   $ (4,128   $ 10,467     $ 984     $ 11,451  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 

*
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)
                               (1,132                     (1,132     (21     (1,152
Other comprehensive income (loss)
                                       (470             (470     (193     (663
Issuance of Shares
  
 
7
 
 
 
 *
 
  
 
1
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
 
 
 
 
 
 
1
 
Stock-based compensation expense
                      88                                88               88  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2022
     1,216     $ 57      $ 27,652      $ (11,660   $ (3,153   $ (4,128   $ 8,767     $ 751     $ 9,519  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
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 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)
                               576                       576       32       608  
Other comprehensive income (loss)
                                       (221             (221     (81     (302
Issuance of shares
     7      
*
                                       
*


           
*

 
Stock-based compensation expense
                      86                                86               86  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2021
     1,209     $ 57      $ 27,529      $ (10,370   $ (2,620   $ (4,128   $ 10,467     $ 984     $ 11,451  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
*
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.
 
9

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
 
 
  
Nine months ended
 
 
  
September 30,
 
 
  
2022
 
 
2021
 
Operating activities:
  
 
Net income (loss)
  
$
(1,152
 
$
608  
Adjustments to reconcile net income (loss) to net cash provided by operations:
                
Depreciation and amortization
     1,002       1,010  
Impairment of goodwill, long-lived assets and assets held for sale
     1,002       401  
Net change in operating assets and liabilities
     1,007       (1,881
Deferred income taxes – net and uncertain tax positions
     (1,214     13  
Stock-based compensation
     88       86  
Other items
     (117     (4
Net loss (gain) from investments and from sale of long lived assets
     1       109  
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     617       342  
    
 
 
   
 
 
 
Investing activities:
                
Beneficial interest collected in exchange for securitized trade receivables
     854       1,278  
Purchases of property, plant and equipment
     (406     (409
Proceeds from sale of business and long lived assets
     45       269  
Acquisition of businesses, net of cash acquired
     (7         
Proceeds from sale of investments
     4       172  
Purchases of investments and other assets

 
 
(2

)
 
 
(36

)
Other investing activities
           3  
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     488       1,277  
    
 
 
   
 
 
 
Financing activities:
                
Redemption of convertible senior notes
              (491
Proceeds from short term debt
              500  
Repayment of short term debt
    
  
      (200
Repayment of senior notes and loans
     (661     (1,475
Other financing activities
     (115     (5
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     (776     (1,671
    
 
 
   
 
 
 
Translation adjustment on cash and cash equivalents
     (269     (80
    
 
 
   
 
 
 
Net change in cash, cash equivalents and restricted cash
     60       (132
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 end of period
  
$
2,258    
$
2,045  
    
 
 
   
 
 
 
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
                
Cash and cash equivalents
     2,225       2,045  
Restricted cash included in other current assets . .
     33           
    
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
     2,258       2,045  
    
 
 
   
 
 
 
Non-cash
financing and investing activities:
                
Beneficial interest obtained in exchange for securitized accounts receivables
  
$
883    
$
1,310  
Amounts may not add up due to rounding
The accompanying notes are an integral part of the financial statements.
 
10

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 inflation expectations on its critical and significant accounting estimates. The most significant estimates relate to sales, reserves and allowances, IPR&D assets, marketed product rights and goodwill. These estimates could be impacted by higher costs and the ability to pass on such higher costs to customers, which is highly uncertain. The actions taken to address macroeconomic developments, as well as the economic impact on Teva’s third-party manufacturers and suppliers, customers and markets could also impact such estimates and 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. As part of the Company’s annual goodwill analysis performed in the second quarter of 2022, it identified an increase in the discount rate, which led to a goodwill impairment charge in its International Markets and Teva’s API reporting units. This increase was a result of an increase in certain components of the discount rate that were partially attributed to higher risk associated with country-specific characteristics of several countries, such as Russia, that might be a consequence of the conflict. Other than its impact on the goodwill impairment charge, during the nine months ended September 30, 2022, the impact of this conflict on Teva’s results of operation and financial condition was immaterial. See also note 6.
Teva’s results of operations for the three and nine months ended September 30, 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 September 30, 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 evaluated the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities. The adoption of this guidance did not have a material impact on the Company’s consolidated financial results of operations, financial position or cash flows.
 
11


TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
Recently issued accounting pronouncements, not yet adopted
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 Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
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 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, but early adoption is permitted. The Company does not expect the adoption of the ASU to have a material impact on the Company’s consolidated financial statements and plans to apply the guidance prospectively to all in-scope transactions beginning fiscal year 2022.
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. Adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. The company will apply the guidance prospectively to acquisitions occurring on or after January 2023.
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 an 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 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 paid 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. Additional development and commercial milestone payments of up to
$400 
million, as well as
 

12

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
 
royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. Alvotech was previously involved in litigation involving certain IP and trade secrets claims filed by Abbvie in relation to Alvotech’s proposed biosimilar to Humira
®
, all of which were settled on March 8, 2022. 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. In September 2022, Alvotech announced they received a Complete Response Letter (“CRL”) from the FDA with respect to Alvotech’s proposed biosimilar to Humira
®
.
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.
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
.
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
®
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 revenues 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.
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. In October 2022, development of fasinumab for the treatment of osteoarthritic pain was
discontinued.
 
13

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)