TEVA PHARMACEUTICAL INDUSTRIES LTD - Quarter Report: 2023 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

10-Q

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 June 30, 2023

☐	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.

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 June 30, 2023, the registrant had 1,120,650,146 ordinary shares outstanding.

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

INDEX


PART I.	Financial Statements (unaudited)

Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income (loss)	4
	Consolidated Statements of Comprehensive Income (loss)	5
	Consolidated statements of changes in equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	72
Item 4.	Controls and Procedures	72

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74
	Signatures	75

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “ADS(s)” are to Teva’s American Depositary Share(s). References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA, a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “R&D” are to Research and Development, references to “IPR&D” are to

in-process

R&D, references to “S&M” are to Selling and Marketing and references to “G&A” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts. This report on Form

10-Q

contains many of the trademarks and trade names used by Teva in the United States and internationally to distinguish its products and services. Any third-party trademarks mentioned in this report are the property of their respective owners.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form

10-Q,

and the reports and documents incorporated by reference in this Quarterly Report on Form

10-Q,

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

•

our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; concentration of our customer base and commercial alliances among our customers; delays in launches of new generic products; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; our ability to develop and commercialize biopharmaceutical products; competition for our innovative medicines, including AUSTEDO

, AJOVY

and COPAXONE

; our ability to achieve expected results from investments in our product pipeline; our ability to develop and commercialize additional pharmaceutical products; our ability to successfully launch and execute our new strategy, including to expand our innovative and biosimilar medicines pipeline and profitably commercialize the innovative medicines and biosimilar portfolio, whether organically or through business development, and to sustain and focus our portfolio of generics medicines; and the effectiveness of our patents and other measures to protect our intellectual property rights;

•

our substantial indebtedness, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us;

•

our business and operations in general, including: the impact of global economic conditions and other macroeconomic developments and the governmental and societal responses thereto; the widespread outbreak of an illness or any other communicable disease, or any other public health crisis; effectiveness of our optimization efforts; our ability to attract, hire, integrate and retain highly skilled personnel; manufacturing or quality control problems; interruptions in our supply chain; disruptions of information technology systems; breaches of our data security; variations in intellectual property laws; challenges associated with conducting business globally, including political or economic instability, major hostilities or terrorism; costs and delays resulting from the extensive pharmaceutical regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; significant sales to a limited number of customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; and our prospects and opportunities for growth if we sell assets;

•

compliance, regulatory and litigation matters, including: failure to comply with complex legal and regulatory environments; increased legal and regulatory action in connection with public concern over the abuse of opioid medications; our ability to timely make payments required under our nationwide opioids settlement agreement and provide our generic version of Narcan

(naloxone hydrochloride nasal spray) in the amounts and at the times required under the terms of such agreement; scrutiny from competition and pricing authorities around the world, including our ability to successfully defend against the U.S. Department of Justice (“DOJ”) criminal charges of Sherman Act violations; potential liability for intellectual property right infringement; product liability claims; failure to comply with complex Medicare and Medicaid reporting and payment obligations; compliance with anti-corruption, sanctions and trade control laws; environmental risks; and the impact of Environmental, Social and Governance (“ESG”) issues;

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

•

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our long-lived assets; the impact of geopolitical conflicts including the ongoing conflict between Russia and Ukraine; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

and other factors discussed in this Quarterly Report on Form

10-Q

and in our Annual Report on Form

10-K

for the year ended December 31, 2022, including in the sections captioned “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements.

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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)


	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,669		$	2,801
Accounts receivables, net of allowance for credit losses of $87 million and $91 million as of June 30, 2023 and December 31, 2022		3,539			3,696
Inventories		4,109			3,833
Prepaid expenses		1,228			1,162
Other current assets		486			549
Assets held for sale		56			10

Total current assets		12,088			12,051
Deferred income taxes		1,578			1,453
Other non-current assets		443			441
Property, plant and equipment, net		5,712			5,739
Operating lease right-of-use assets, net		418			419
Identifiable intangible assets, net		5,738			6,270
Goodwill		17,118			17,633

Total assets	$	43,095		$	44,006

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,980		$	2,109
Sales reserves and allowances		3,433			3,750
Accounts payables		2,508			1,887
Employee-related obligations		451			566
Accrued expenses		2,498			2,151
Other current liabilities		973			1,005

Total current liabilities		11,843			11,469
Long-term liabilities:
Deferred income taxes		534			548
Other taxes and long-term liabilities		3,973			3,847
Senior notes and loans		18,698			19,103
Operating lease liabilities		338			349

Total long-term liabilities		23,543			23,846

Commitments and contingencies , see note 10
Total liabilities		35,387			35,315

Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; June 30, 2023 and December 31, 2022: authorized 2,495 million shares; issued 1,227 million shares and 1,217 million shares, respectively.		57			57
Additional paid-in capital		27,748			27,688
Accumulated deficit		(13,950	)		(12,882	)
Accumulated other comprehensive loss		(2,677	)		(2,838	)
Treasury shares as of June 30, 2023 and December 31, 2022: 106 million ordinary shares		(4,128	)		(4,128	)

		7,052			7,897

Non-controlling interests		656			794

Total equity		7,708			8,691

Total liabilities and equity	$	43,095		$	44,006

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Net revenues	$	3,878		$	3,786		$	7,539		$	7,447
Cost of sales		2,082			1,992			4,161			3,913

Gross profit		1,796			1,794			3,378			3,534
Research and development expenses		240			228			473			453
Selling and marketing expenses		603			594			1,149			1,178
General and administrative expenses		307			313			602			609
Intangible assets impairments		63			51			241			199
Goodwill impairment		700			745			700			745
Other assets impairments, restructuring and other items		100			118			195			246
Legal settlements and loss contingencies		462			729			695			1,854
Other income		(33	)		(34	)		(34	)		(87	)

Operating income (loss)		(646	)		(949	)		(644	)		(1,662	)
Financial expenses, net		268			211			528			468

Income (loss) before income taxes		(914	)		(1,160	)		(1,172	)		(2,131	)
Income taxes (benefit)		(16	)		(900	)		(35	)		(899	)
Share in (profits) losses of associated companies, net		(1	)		—			(1	)		(21	)

Net income (loss)		(898	)		(259	)		(1,136	)		(1,211	)
Net income (loss) attributable to non-controlling interests		(35	)		(27	)		(68	)		(24	)

Net income (loss) attributable to Teva		(863	)		(232	)		(1,068	)		(1,187	)

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(0.77	)	$	(0.21	)	$	(0.96	)	$	(1.07	)

Diluted	$	(0.77	)	$	(0.21	)	$	(0.96	)	$	(1.07	)

Weighted average number of shares (in millions):
Basic		1,120			1,110			1,118			1,109

Diluted		1,120			1,110			1,118			1,109

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Net income (loss)	$	(898	)	$	(259	)	$	(1,136	)	$	(1,211	)
Other comprehensive income (loss), net of tax:
Currency translation adjustment		(39	)		(219	)		81			(282	)
Unrealized gain (loss) from derivative financial instruments, net		4			7			12			14
Unrealized loss on defined benefit plans		—			—			(1	)		—

Total other comprehensive income (loss)		(35	)		(212	)		92			(268	)

Total comprehensive income (loss)		(933	)		(471	)		(1,044	)		(1,479	)
Comprehensive income (loss) attributable to non-controlling interests		(95	)		(125	)		(137	)		(174	)

Comprehensive income (loss) attributable to Teva	$	(838	)	$	(346	)	$	(907	)	$	(1,305	)

Amounts may not add up due to rounding.

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

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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 March 31, 2023		1,226		57		27,719		(13,086	)		(2,701	)		(4,128	)		7,860			751			8,612
Net Income (loss)								(863	)								(863	)		(35	)		(898	)
Other comprehensive income (loss)											25						25			(60	)		(35	)
Issuance of Shares		1		*		*											*						*
Stock-based compensation expense						30											30						30

Balance at June 30, 2023		1,227	$	57	$	27,748	$	(13,950	)	$	(2,677	)	$	(4,128)		$	7,052		$	656		$	7,708

*	Represents an amount less than $0.5 million.


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive (loss)			Treasury shares			Total Teva shareholders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at March 31, 2022		1,216		57		27,587		(11,484	)		(2,687	)		(4,128	)		9,344			916			10,260
Net Income (loss)								(232	)								(232	)		(27	)		(259	)
Other comprehensive income (loss)											(114	)					(114	)		(98	)		(212	)
Issuance of Shares		*		*													*						*
Stock-based compensation expense						39											39						39

Balance at June 30, 2022		1,216	$	57	$	27,625	$	(11,716	)	$	(2,801	)	$	(4,128	)	$	9,037		$	791		$	9,828

*	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, 2022		1,217		57		27,688		(12,882	)		(2,838	)		(4,128	)		7,897			794			8,691
Net Income (loss)								(1,068	)								(1,068	)		(68	)		(1,136	)
Other comprehensive income (loss)											161						161			(69	)		92
Issuance of Shares		10		*		*											*						*
Stock-based compensation expense						62											62						62

Balance at June 30, 2023		1,227	$	57	$	27,748	$	(13,950	)	$	(2,677	)	$	(4,128	)	$	7,052		$	656		$	7,708

*	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.

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	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)								(1,187	)								(1,187	)		(24	)		(1,211	)
Other comprehensive income (loss)											(118	)					(118	)		(150	)		(268	)
Issuance of shares		7		*		1											1						1
Stock-based compensation expense						63											63						63

Balance at June 30, 2022		1,216	$	57	$	27,625	$	(11,716	)	$	(2,801	)	$	(4,128	)	$	9,037		$	791		$	9,828

*	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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Operating activities:
Net income (loss)	$	(898	)		(259	)	$	(1,136	)		(1,211	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		300			358			604			681
Impairment of goodwill, long-lived assets and assets held for sale		774			810			962			975
Net change in operating assets and liabilities		204			354			(160	)		913
Deferred income taxes – net and uncertain tax positions		(44	)		(1,083	)		(150	)		(1,258	)
Stock-based compensation		30			39			62			63
Other items		(12	)		(107	)		23			(77	)
Net loss (gain) from investments and from sale of long lived assets		(30	)		11			(26	)		(12	)

Net cash provided by (used in) operating activities		324			123			179			74

Investing activities:
Beneficial interest collected in exchange for securitized trade receivables		371			287			694			592
Purchases of property, plant and equipment		(119	)		(127	)		(258	)		(284	)
Proceeds from sale of business and long lived assets		56			18			58			43
Acquisition of businesses, net of cash acquired		—			—			—			(7	)
Purchases of investments and other assets		(2	)		—			(6	)		(4	)
Proceeds from sale of investments		—			3			—			3
Other investing activities		(4	)		(2	)		(5	)		(2	)

Net cash provided by (used in) investing activities		302			179			483			341

Financing activities:
Repayment of senior notes and loans and other long term liabilities		—			(296	)		(3,152	)		(296	)
Proceeds from senior notes, net of issuance costs		—			—			2,451			—
Other financing activities		(55	)		(42	)		(60	)		(40	)

Net cash provided by (used in) financing activities		(55	)		(338	)		(761	)		(336	)

Translation adjustment on cash and cash equivalents		(77	)		(123	)		(65	)		(185	)

Net change in cash, cash equivalents and restricted cash		494			(159	)		(164	)		(107	)
Balance of cash, cash equivalents and restricted cash at beginning of period		2,176			2,250			2,834			2,198

Balance of cash, cash equivalents and restricted cash at end of period	$	2,670			2,091			2,670			2,091

Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
Cash and cash equivalents		2,669			2,058			2,669			2,058
Restricted cash included in other current assets		1			33			1			33

Total cash, cash equivalents and restricted cash shown in the statement of cash flows		2,670			2,091			2,670			2,091

Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized accounts receivables	$	380			291			714			590

Amounts may not add up due to rounding

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of presentation:

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form

10-Q

should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”). The

year-end

balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included.

In preparing the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity and disclosure of contingent liabilities and assets at the dates of the financial statements and the reported amounts of revenues and expenses during the reported years. Actual results could differ from those estimates.

In preparing the Company’s consolidated financial statements, management also considered the economic implications of inflation expectations on its critical and significant accounting estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to determining the valuation and recoverability of IPR&D assets, marketed product rights and goodwill, assessing sales reserves and allowances in the United States, uncertain tax positions, valuation allowances and contingencies. These estimates could be impacted by higher costs and the ability to pass on such higher costs to customers, which is highly uncertain. Government actions taken to address macroeconomic developments, as well as their economic impact on Teva’s third-party manufacturers and suppliers, customers and markets, could also impact such estimates and may change in future periods.

Teva’s results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.

Significant accounting policies

Recently adopted accounting pronouncements

In September 2022, the FASB issued ASU

2022-04

“Liabilities — Supplier Finance Programs: Disclosure of Supplier Finance Program Obligations (Subtopic

405-50)”.

This guidance is intended to address requests from stakeholders for information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity and cash flows. The guidance is effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information requirement, which is effective for the fiscal years beginning after December 15, 2023. For further information see note 8g.

In October 2021, the FASB issued ASU

2021-08

“Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The Company adopted the new accounting standard effective January 1, 2023 and the guidance is applied prospectively to all business combinations with an acquisition date occurring on or after January 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Recently issued accounting pronouncements, not yet adopted

None.

NOTE 2 – Certain transactions:

The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.

MODAG

In October 2021, Teva announced a license agreement with MODAG GmbH (“Modag”) that will provide Teva an exclusive global license to develop, manufacture and commercialize Modag’s lead compound

(TEV-56286)

and a related compound

(TEV-56287).

TEV-56286

was initially developed for the treatment of Multiple System Atrophy (“MSA”) and Parkinson’s disease, and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease.

A phase 1b clinical trial for

TEV-56286

was completed and Teva and Modag will seek to discuss further developments with the FDA.

n the fourth quarter of 2021,

Teva made an upfront payment of $10 million to Modag that was recorded as an R&D expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to $30 million, as well as future commercial milestones and royalties.

Alvotech

In August 2020, Teva entered into an agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this collaboration contains biosimilar candidates addressing multiple therapeutic areas, including proposed biosimilars to Humira

(adalimumab) and Stelara

(ustekinumab). 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. In July 2023, Alvotech and Teva expanded their collaboration agreement, adding two new biosimilar candidates as well as line extensions of two current biosimilar candidates to their partnership. Teva made an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021, which were recorded as R&D expenses. Teva also made a milestone payment in January 2023, which was recorded as an

R&D expense in the fourth quarter of 2022. Additional development and commercial milestone payments of up to approximately $

400

million, royalty payments, and milestone payments related to the expansion of the collaboration agreement from July 2023, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. Pursuant to a settlement agreement entered into in March 2022, regarding certain IP and trade secrets claims filed by Abbvie against

Alvotech in relation to Alvotech’s proposed biosimilar to Humira

, Alvotech and Teva may sell the proposed biosimilar to Humira

in the U.S

. beginning July 1, 2023, once U.S. regulatory approval is obtained. Alvotech announced they received complete response letters (“CRLs”) from the FDA with respect to the proposed biosimilar to Humira

in September

2022, December 2022, April 2023 and June 2023. The CRLs from April and June 2023 stated that the application could not be approved at this time based on deficiencies associated with Alvotech’s manufacturing facility. Alvotech is currently addressing the deficiencies identified in the most recent FDA inspection and CRLs. The expansion of the collaboration agreement in July 2023 includes increased involvement by Teva regarding manufacturing and quality at Alvotech’s manufacturing facility and Teva agreed to acquire, subject to certain conditions, subordinated convertible bonds to be issued by Alvotech pursuant to a convertible bond instrument, dated December 20, 2022, for $

40 million. In January 2023, the FDA accepted for review the Biologics License

Application (“BLA”) for the proposed biosimilar to Stelara

. On June 12, 2023, Alvotech and Teva reached a settlement and license agreement

with Johnson & Johnson concerning the proposed biosimilar to Stelara

, granting it a license entry date in the U.S. no later than

February 21, 2025,

provided that U.S. regulatory approval is obtained by that date.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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 revenue in the second quarter of 2022. The license agreement stipulates additional milestone payments to Teva of up to $519 million with respect to this product candidate, as well as future royalties.

MedinCell

In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable (“LAI”) products. Teva leads the clinical development and regulatory process and is responsible for commercialization of these products. The lead product is risperidone LAI (formerly known as

TV-46000).

On April 28, 2023, the FDA approved UZEDY

(risperidone) extended-release injectable suspension for the treatment of schizophrenia in adults, which was launched in the U.S. in May 2023. MedinCell may be eligible for future sales-based

milestones of up to $

105

million in respect of UZEDY. Teva will also pay MedinCell royalties on net sales.

The second selected product candidate is olanzapine LAI

(TEV-44749)

for the treatment of schizophrenia. In the third quarter of 2022, Teva decided to progress development of the product to phase 3, and as a result a $3 million milestone payment was paid to MedinCell which was recognized as R&D expenses. MedinCell may become eligible for further milestones and royalties on sales of olanzapine LAI

(TEV-44749).

Assets and Liabilities Held for Sale:

General

Assets and liabilities held for sale as of June 30, 2023 included certain manufacturing assets and a business that are expected to be sold within the next year. Assets held for sale as of December 31, 2022 included certain manufacturing assets that were sold during the second quarter of 2023 or are expected to be sold in the second half of 2023. The table below summarizes all of Teva’s assets and liabilities included as held for sale as of June 30, 2023 and December 31, 2022:


	June 30,			December 31,
	2023			2022
	(U.S. $ in millions)
Inventories		9			2
Property, plant and equipment, net and others		36			18
Goodwill		19			—
Adjustments of assets held for sale to fair value		(8	)		(10	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	56		$	10

Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets, recorded under other current liabilities	$	(12	)	$	—

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 3 – Revenue from contracts with customers:

Disaggregation of revenue

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


	Three months ended June 30, 2023
	North America			Europe			International Markets		Other activities		Total
	(U.S.$ in millions)
Sale of goods		1,579			1,153			448		151		3,331
Licensing arrangements		21			11			5		2		38
Distribution		392				§		10		—		402
Other		(1	)		(1	)		16		92		106

	$	1,991		$	1,163		$	479	$	245	$	3,878

§	Represents an amount less than $0.5 million.


	Three months ended June 30, 2022
	North America		Europe			International Markets			Other activities		Total
	(U.S.$ in millions)
Sale of goods		1,538		1,127			448			176		3,289
Licensing arrangements		54		13			4			1		72
Distribution		308			§		10			—		318
Other		3		31			(9	)		81		106

	$	1,904	$	1,171		$	454		$	257	$	3,786

§	Represents an amount less than $0.5 million.


	Six months ended June 30, 2023
	North America			Europe			International Markets		Other activities		Total
	(U.S.$ in millions)
Sale of goods		2,898			2,329			912		282		6,421
Licensing arrangements		44			25			10		2		81
Distribution		816				§		19		—		836
Other			§		(7	)		29		179		201

	$	3,757		$	2,347		$	971	$	464	$	7,539

§ Represents an amount less than $0.5 million.

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TEVA

PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Six months ended June 30, 2022
	North America		Europe			International Markets		Other activities		Total
	(U.S.$ in millions)
Sale of goods		2,915		2,261			894		356		6,425
Licensing arrangements		74		26			8		2		110
Distribution		650			§		26		—		677
Other		1		39			19		175		234

	$	3,641	$	2,327		$	946	$	532	$	7,447

§	Represents an amount less than $0.5 million.

Variable consideration

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

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

SR&A to U.S. customers comprised approximately 67%

of the Company’s total SR&A as of June 30, 2023, with the remaining balance primarily related to customers in Canada and Germany. The changes in SR&A for third-party sales for the six months ended June

, 2023 and 2022 were as follows:


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in Sales Reserves and Allowances			Total
	(U.S.$ in millions)
Balance at January 1, 2023	$	67		$	1,575		$	663		$	991		$	455		$	66		$	3,750		$	3,817
Provisions related to sales made in current year period		175			2,037			319			3,788			141			56			6,341			6,516
Provisions related to sales made in prior periods		—			(17	)		(26	)		(17	)		16			(3	)		(47	)		(47	)
Credits and payments		(178	)		(2,068	)		(431	)		(3,908	)		(181	)		(38	)		(6,626	)		(6,804	)
Translation differences		—			11			2			2			2			(2	)		15			15

Balance at June 30, 2023	$	64		$	1,538		$	527		$	856		$	433		$	79		$	3,433		$	3,497


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in Sales Reserves and Allowances			Total
	(U.S.$ in millions)
Balance at January 1, 2022	$	68		$	1,655		$	854		$	1,085		$	535		$	112		$	4,241		$	4,309
Provisions related to sales made in current year period		181			1,889			446			3,836			147			152			6,470			6,651
Provisions related to sales made in prior periods		—			(102	)		20			(8	)		(16	)		(2	)		(108	)		(108	)
Credits and payments		(185	)		(1,901	)		(497	)		(3,922	)		(211	)		(145	)		(6,676	)		(6,861	)
Translation differences		—			(33	)		(6	)		(7	)		(4	)		3			(47	)		(47	)

Balance at June 30, 2022	$	64		$	1,508		$	817		$	984		$	451		$	120		$	3,880		$	3,944

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Pledged accounts receivables

Accounts receivables, net of allowance for credit losses, include $851 million and $436

million as of

June

30, 2023

and

December 31, 2022, respectively, which are pledged to PNC Bank, National Association in connection with the U.S. securitization program entered into in November 2022. See note 8f to the consolidated financial statements on this Form 10-Q and note 10f to the consolidated financial

statements

for the year ended December 31, 2022 included in Teva’s Annual Report on Form 10-K.

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:


	June 30,		December 31,
	2023		2022
	(U.S. $ in millions)
Finished products	$	2,136	$	1,987
Raw and packaging materials		1,188		1,059
Products in process		580		555
Materials in transit and payments on account		204		232

	$	4,109	$	3,833

NOTE 5 – Identifiable intangible assets:

Identifiable intangible assets consisted of the following:


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
	(U.S. $ in millions)
Product rights	$	17,937	$	18,067	$	12,958	$	12,630	$	4,979	$	5,437
Trade names		582		577		250		231		332		346
In process research and development		427		487		—		—		427		487

Total	$	18,946	$	19,131	$	13,208	$	12,861	$	5,738	$	6,270

Product rights and trade names

Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products in various therapeutic categories from various acquisitions with a weighted average life period of approximately

years.

Amortization of intangible assets was $162 million and $212 million in the three months ended June 30, 2023 and 2022, respectively.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Amortization of intangible assets was $

326

million and $

412

million in the six months ended June 30, 2023 and 2022, respectively.

IPR&D

Teva’s IPR&D are assets that have not yet been approved in its major markets. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.

Intangible assets impairments

Impairments of long-lived intangible assets for the three months ended June 30, 2023 and 2022 were $63 million and $51 million, respectively.

Impairments in the second quarter of 2023 consisted of:

(a)

Identifiable product rights of $28 million, mainly related to updated market assumptions regarding price and volume of products; and

(b)

IPR&D assets of $35 million, related to generic pipeline products resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape and launch date).

Impairments in the second quarter of 2022 consisted of:

(a)

Identifiable product rights of $32 million related to updated market assumptions regarding price and volume of products acquired from Actavis

Generics;

and

(b)

IPR&D assets of $19 million due to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States.

Impairments of long-lived intangible assets for the six months ended June 30, 2023 and 2022 were $241 million and $199 million, respectively.

Impairments in the first six months of 2023 consisted of:

(a)

Identifiable product rights of $188 million due to: (i) $112 million in Japan, mainly related to regulatory pricing reductions; and (ii) $76 million related to updated market assumptions regarding price and volume of products; and

(b)

IPR&D assets of $53 million, mainly related to generic pipeline products resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape and launch date).

Impairments in the first six months of 2022 consisted mainly of:

(a)

Identifiable product rights of $161 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics, and

(b)

IPR&D assets of $21 million due to generic pipeline products acquired from Actavis Generics resulting from development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date) in the United States.

The fair value measurement of the impaired intangible assets in the first six months of 2023 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 8.5% to 10%. A probability of success factor ranging from 20% to 90% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPR&D.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 6 – Goodwill:

Changes in the carrying amount of goodwill for the period ended June 30, 2023 were as follows:


	North America		Europe		International Markets			Other				Total
	North America		Europe		International Markets			Teva’s API		Medis		Total
	(U.S. $ in millions)
Balance as of December 31, 2022 (1)	$	6,450	$	8,302	$	1,339		$	1,293	$	249	$	17,633
Changes during the period:
Goodwill impairment		—		—		(700	)		—		—		(700	)
Goodwill reclassified as assets held for sale		—		—		(19	)		—		—		(19	)
Translation differences		9		95		82			10		9		205

Balance as of June 30, 2023 (1)	$	6,459	$	8,397	$	702		$	1,303	$	258	$	17,118

(1)	Cumulative goodwill impairment as of June 30, 2023 and December 31, 2022 was approximately $28.3 billion and $27.6 billion , respectively.

Teva operates its business through three reporting segments: North America, Europe and International Markets. Each of these business segments is a reporting unit. Additional reporting units include Teva’s production and sale of APIs to third parties (“Teva API”) and an

out-licensing

platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. Teva’s API and Medis reporting units are included under “Other” in the table

above

. See note 15 for additional segment information.

Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva begins with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva may record an impairment of goodwill allocated to these reporting units in the future.

First Quarter Developments

During the first quarter of 2023, management evaluated whether there were any developments that occurred during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount as of March 31, 2023. Management concluded that no triggering event had occurred and, therefore, no quantitative assessment was performed.

Following the goodwill impairment charges recorded in the fourth quarter of 2022 in relation to Teva’s International Markets and Teva’s API reporting units, the carrying values of those reporting units equaled their fair value as of December 31, 2022. Additionally, as part of the quantitative analysis Teva conducted as part of its annual goodwill impairment test in the second quarter of 2022, it concluded that the estimated fair value of Teva’s Europe reporting unit exceeded its estimated carrying amount by 9%.

Second Quarter Developments

Pursuant to Company policy, Teva conducted the annual goodwill impairment test for all reporting units during the second quarter of 2023. Management considered all information available, including information gathered from its latest long-range planning (“LRP”) process and annual operating plan (“AOP”), which are parts of Teva’s internal financial planning and budgeting processes, as well as Teva’s newly launched “Pivot to Growth” strategy (“Teva’s Strategy”). The LRP, the AOP and Teva’s Strategy were discussed and reviewed by Teva’s management and its board of directors.

Additionally, Teva conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test with the assistance of an independent valuation expert.

Based on this quantitative analysis, in the second quarter of 2023, Teva recorded a goodwill impairment charge of $700 million related to its International Markets reporting unit, mainly due to an increase in the discount rate due to higher risk associated with country-specific characteristics of several countries.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Following the goodwill impairment charge recorded in relation to Teva’s International Markets reporting unit, the carrying value of this reporting unit equaled its fair value as of June 30, 2023. Therefore, if business conditions or expectations were to change materially, it may be necessary to record further impairment charges to Teva’s International Markets reporting unit in the future.

The excess of the estimated fair value of Teva’s

API

reporting unit over its estimated carrying amount as of June 30, 2023, was negligible. Therefore, if business conditions or expectations were to change materially, it may be necessary to record impairment charges to Teva’s API reporting unit in the future.

The estimated fair value of Teva’s Europe reporting

unit exceeds its estimated carrying amount by

% based on a terminal growth rate of

1.56

% and a discount rate of

9.96

%. If Teva holds all other assumptions constant, a reduction in the terminal growth rate of

0.25

% to

1.31

% or an increase in the discount rate of

0.25

% to

10.21

% would

result in a reduction of the

excess of fair value over carrying amount with respect to Teva’s

Europe

reporting unit

to 1%

Teva’s North America and Medis reporting units have fair values in excess

10% over their

respective

book values as of June 30, 2023.

Teva noted its market capitalization has been below management’s assessment of the aggregated fair value of the Company’s reporting units. However, as of June 30, 2023, the Company’s market capitalization plus a reasonable control premium exceeded its book value.

NOTE 7 – Debt obligations:

a.	Short-term debt:

						June 30,		December 31,
	Interest rate as of June 30, 2023			Maturity		2023		2022

						(U.S. $ in millions)
Convertible senior debentures		0.25	%		2026		23		23
Current maturities of long-term liabilities							1,957		2,086

Total short-term debt						$	1,980	$	2,109

Convertible senior debentures

The principal amount of Teva’s 0.25% convertible senior debentures due 2026 was $23 million as of June 30, 2023 and

as of

December 31, 2022. These convertible senior debentures include a “net share settlement” feature according to which the principal amount will be paid in cash and in case of conversion, only the residual conversion value above the principal amount will be paid in Teva shares. Due to the “net share settlement” feature, exercisable at any time, these convertible senior debentures are classified in the Balance Sheet under

‘

short-term

debt’

b.	Long-term debt:


	Interest rate as of June 30, 2023			Maturity		June 30, 2023		December 31, 2022
						(U.S. $ in millions)
Senior notes EUR 1,500 million		1.13	%		2024		680		670
Sustainability-linked senior notes EUR 1,500 million (6)(*)		4.38	%		2030		1,630		1,606
Senior notes EUR 1,300 million (9)		1.25	%		2023		—		633
Sustainability-linked senior notes EUR 1,100 million (7)(*)		3.75	%		2027		1,196		1,177
Senior notes EUR 1,000 million (5)		6.00	%		2025		447		1,070
Senior notes EUR 900 million (5)		4.50	%		2025		539		963
Sustainability-linked senior notes EUR 800 million (1)(*)		7.38	%		2029		870		—
Senior notes EUR 750 million		1.63	%		2028		812		800
Senior notes EUR 700 million		1.88	%		2027		759		748
Sustainability-linked senior notes EUR 500 million (2)(*)		7.88	%		2031		544		—
Senior notes USD 3,500 million (5)		3.15	%		2026		3,374		3,496

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


Senior notes USD 3,000 million (5)(10)	2.80	%	2023		1,000			1,453
Senior notes USD 2,000 million	4.10	%	2046		1,986			1,986
Senior notes USD 1,250 million (5)	6.00	%	2024		957			1,250
Senior notes USD 1,250 million	6.75	%	2028		1,250			1,250
Senior notes USD 1,000 million (5)	7.13	%	2025		427			1,000
Sustainability-linked senior notes USD 1,000 million (7)(*)	4.75	%	2027		1,000			1,000
Sustainability-linked senior notes USD 1,000 million (6)(*)	5.13	%	2029		1,000			1,000
Senior notes USD 789 million	6.15	%	2036		783			783
Sustainability-linked senior notes USD 600 million (3)(*)	7.88	%	2029		600			—
Sustainability-linked senior notes USD 500 million (4)(*)	8.13	%	2031		500			—
Senior notes CHF 350 million	1.00	%	2025		389			382

Total senior notes					20,743			21,266
Other long-term debt					1			1
Less current maturities					(1,957	)		(2,086	)
Less debt issuance costs (8)					(89	)		(78	)

Total senior notes and loans				$	18,698		$	19,103

(1)

In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 800 million euro bearing 7.38% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by

0.100%-0.300%

per annum, from and including September 15, 2026.

(2)

In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of 500 million euro bearing 7.88% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by

0.100%-0.300%

per annum, from and including September 15, 2026.

(3)

In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $600 million bearing 7.88% annual interest and due September 2029. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by

0.100%-0.300%

per annum, from and including September 15, 2026.

(4)

In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $500 million bearing 8.13% annual interest and due September 2031. If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by

0.100%-0.300%

per annum, from and including September 15, 2026.

(5)

In March 2023, Teva consummated a cash tender offer and extinguished $

631

million aggregate principal amount of its 1,000 million euro 6% senior notes due in 2025; $432 million aggregate principal amount of its 900 million euro 4.5% senior notes due in 2025; $574 million aggregate principal amount of its $1,000 million 7.13% senior notes due in 2025; $454 million aggregate principal amount of its $3,000 million 2.8% senior notes due in 2023; $293 million aggregate principal amount of its $1,250 million 6% senior notes due in 2024 and $122 million aggregate principal amount of its $3,500 million 3.15% senior notes due in 2026.

(6)	If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by 0.125%-0.375% per annum, from and including May 9, 2026.

(7)	If Teva fails to achieve certain sustainability performance targets, a one-time premium payment of 0.15%-0.45% out of the principal amount will be paid at maturity or upon earlier redemption, if such redemption is on or after May 9, 2026.

(8)	Debt issuance costs as of June 30, 2023 include $26 million in connection with the issuance of the sustainability-linked senior notes in March 2023, partially offset by $6 million acceleration of issuance costs related to the cash tender offer.

(9)	In March 2023, Teva repaid $646 million of its 1.25% senior notes at maturity.

(10)	In July 2023, Teva repaid $1,000 million of its 2.8% senior notes at maturity.

(*)	Interest rate adjustments and a potential one-time premium payment related to the sustainability-linked bonds are treated as bifurcated embedded derivatives. See note 8c.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term debt was issued by several indirect wholly-owned subsidiaries of the Company and is fully and unconditionally guaranteed by the Company as to payment of all principal, interest, discount and additional amounts, if any. The long-term debt outlined in the above table is generally redeemable at any time at varying redemption prices plus accrued and unpaid interest.

Teva’s debt as of June 30, 2023 was effectively denominated in the following currencies: 62% in U.S. dollars, 36% in euro and 2% in Swiss franc.

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $1.8 billion unsecured syndicated sustainability-linked revolving credit facility entered into in April 2022,

amended in February 2023 (“RCF”).

The RCF has a maturity date of April 2026, with two

one-year

extension options. The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including a maximum leverage ratio, which becomes more restrictive over time. In addition, the RCF is linked to two sustainability performance targets: (i) the Company’s S&P ESG Score and (ii) number of new regulatory submissions in low and middle-income countries. The RCF margin may increase or decrease depending on the Company’s sustainability performance.

On February 6, 2023, the terms of the RCF were amended to update the Company’s maximum leverage ratio under the RCF for certain periods. Under the terms of the RCF, as amended, the Company’s leverage ratio shall not exceed 4.25x in the second and third quarters of 2023, 4.00x in the fourth quarter of 2023, 4.00x in the first, second and third quarters of 2024, and 3.50x in the fourth quarter of 2024 and onwards.

The RCF can be used for general corporate purposes, including repaying existing debt. As of June 30, 2023, no amounts were outstanding under the RCF.

July 2023,

a total amount of

$700 million was

withdrawn

under the RCF and is outstanding as of the date of this Quarterly Report on Form

10-Q.

Based on current and forecasted results, the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.

Under specified circumstances, including

non-compliance

with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, the Company will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes and sustainability-linked senior notes is outstanding, could lead to an event of default under the Company’s senior notes and sustainability-linked senior notes due to cross-acceleration provisions.

Teva expects that it will continue to have sufficient cash resources to support its debt service payments and all other financial obligations within one year from the date that the financial statements are issued.

NOTE 8 – Derivative instruments and hedging activities:

a.	Foreign exchange risk management:

In the

first six months

of 2023, approximately 48% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks.

The Company enters into forward exchange contracts and purchases and writes options in order to hedge the currency exposure on balance sheet items, revenues and expenses. In addition, the Company takes measures to reduce its exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the subsidiaries within Teva. The currency hedged items are usually denominated in the following main currencies: euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty, new Israeli shekel, Indian rupee and other currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.

The Company may choose to hedge against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and has in the past entered into cross-currency swaps and forward-contracts in order to hedge such an exposure.

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Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.

b.	Interest risk management:

The Company raises capital through various debt instruments, including senior notes, sustainability-linked senior notes, bank loans, convertible debentures and syndicated revolving credit facility that bear a fixed or variable interest rate. In some cases, the Company has swapped from a fixed to a variable interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.

c.	Bifurcated embedded derivatives:

Upon the issuance of its sustainability-linked senior notes, Teva recognized embedded derivatives related to interest rate adjustments and a potential

one-time

premium payment upon failure to achieve certain sustainability performance targets, such as access to medicines in

low-to-middle-income

countries and reduction of absolute greenhouse gas emissions, which were bifurcated and are accounted for separately as derivative financial instruments. As of June 30, 2023, the fair value of these derivative instruments is negligible.

d.	Derivative instruments outstanding:

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


	June 30, 2023		December 31, 2022
	(U.S. $ in millions)
Cross-currency swap—cash flow hedge (1)	$	169	$	—

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


	Fair value
	Designated as hedging instruments				Not designated as hedging instruments
	June 30, 2023		December 31, 2022		June 30, 2023			December 31, 2022
Reported under	(U.S. $ in millions)				(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—	$	—	$	37		$	29
Other non-current assets:
Cross-currency swap-cash flow hedge (1)		9		—		—			—
Liability derivatives:
Other current liabilities:
Option and forward contracts		—		—		(47	)		(101	)

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Notes to Consolidated Financial Statements

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The table below provides information regarding the location and amount of

pre-tax

(gains) losses from derivatives designated in cash flow hedging relationships:



	Financial expenses, net					Other comprehensive income (loss)
	Three months ended,					Three months ended,
	June 30, 2023			June 30, 2022		June 30, 2023			June 30, 2022

Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	268		$	211	$	(35	)	$	(212	)
Cross-currency swaps—cash flow hedge (1)		(14	)		—		(3	)		—

	Financial expenses, net					Other comprehensive income (loss)
	Six months ended,					Six months ended,
	June 30, 2023			June 30, 2022		June 30, 2023			June 30, 2022

Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	528		$	468	$	92		$	(268	)
Cross-currency swaps—cash flow hedge (1)		(15	)		—		(5	)		—

The table below provides information regarding the location and amount of

pre-tax

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



	Financial expenses, net						Net revenues
	Three months ended,						Three months ended,
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	268		$	211		$	(3,878	)	$	(3,786	)
Option and forward contracts (2)		(36	)		(38	)		—			—
Option and forward contracts economic hedge (3)		—			—			(4	)		(16	)

	Financial expenses, net						Net revenues
	Six months ended,						Six months ended,
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	528		$	468		$	(7,539	)	$	(7,447	)
Option and forward contracts (2)		(50	)		(43	)		—			—
Option and forward contracts economic hedge (3)		—			—			2			(35	)

(1)	On March 31, 2023, Teva entered into a cross-currency interest rate swap agreement, designated as cash flow hedge for accounting purposes with respect to an intercompany loan due October 2026, denominated in Japanese yen.

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Notes to Consolidated Financial Statements

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(2)

Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses, net.

(3)

Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty and several other currencies to protect its projected operating results for 2023. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. For the three months ended June 30, 2023, the positive impact from these derivatives recognized under revenues was $

million. For the three months ended June 30, 2022, the positive impact from these derivatives recognized under revenues was $

million. In the first six months of 2023, the negative impact from these derivatives recognized under revenues was $2 million. In the first six months of 2022, the positive impact from these derivatives recognized under revenues was $35 million. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. Cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.

e.	Amortizations due to terminated derivative instruments:

Forward-starting interest rate swaps and treasury lock agreements

In 2015, Teva entered into forward-starting interest rate swaps and treasury lock agreements to protect the Company from interest rate fluctuations in connection with a future debt issuance the Company was planning. These forward-starting interest rate swaps and treasury lock agreements were terminated in July 2016 upon the debt issuance. Termination of these transactions resulted in a loss position of $493 million, which was recorded as other comprehensive income (loss) and is amortized under financial expenses, net over the life of the debt.

With respect to these forward-starting interest rate swaps and treasury lock agreements, losses of $7 million were recognized under financial expenses, net, for each of the three months ended June 30, 2023 and 2022, and losses of $18 million and $15 million were recognized under financial expenses, net for each of the six months ended June 30, 2023 and 2022, respectively.

f.	Securitization:

U.S. securitization program

On November 7, 2022, Teva and a bankruptcy-remote special purpose vehicle (“SPV”) entered into an accounts receivable securitization facility (“AR Facility”) with PNC Bank, National Association (“PNC”) with a

three-year

term. The AR Facility provided for purchases of accounts receivable by PNC in an amount of up to $

billion through November 2023, and up to $

500

million from November 2023 through November 2025. On June 30, 2023, the AR Facility agreement was amended to include an additional receivables purchaser under the agreement, in an amount of up to $

250

million through November 2025. As a result, the total commitment of PNC was reduced to an amount of up to $

750

million, effective June 30, 2023. Under the terms of the AR facility agreement, the total commitment of PNC is expected to further reduce to an amount of up to $

500 million from November 2023 through November 2025, at which time the total commitment size for the AR facility

will be

$750 million. The SPV may amend the agreement and increase the commitment amount up to $1

billion in November 2023 if additional purchasers participate in the AR facility.

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Notes to Consolidated Financial Statements

(Unaudited)

g.	Supplier Finance Program Obligation

Teva maintains supply chain finance agreements with participating financial institutions. Under these agreements, participating suppliers may voluntarily elect to sell their accounts receivable with Teva to these financial institutions. Teva’s suppliers negotiate their financing agreements directly with the respective financial institutions and Teva is not a party to these agreements. Teva has no economic interest in its suppliers’

decisions

to participate in the program and Teva pays the financial institutions the stated amount of confirmed invoices on the maturity dates, which is generally within

120

days from the

date the

invoice

was received

. The agreements with the financial institutions do not require Teva to provide assets pledged as security or other forms of guarantees for the supplier finance program. All outstanding amounts related to suppliers participating in the supplier finance program are recorded

under

accounts payables in Teva’s consolidated balance sheets. As of June 30, 2023 and December 31, 2022, respectively,

$84

million and

$34

million of accounts payables to suppliers participating in

these

supplier finance

programs were

outstanding.

NOTE 9 – Legal settlements and loss contingencies:

In the second quarter of 2023, Teva recorded expenses of $462 million in legal settlements and loss contingencies, compared to $729 million in the second quarter of 2022. Expenses in the second quarter of 2023 were mainly related to

a provision in connection with

the U.S. DOJ criminal

antitrust charges on the marketing and pricing of certain Teva USA generic products, an update to the estimated settlement provision related to some of the remaining opioid cases including an agreement in principle on private hospital cases, and an update to the provision related to the settlement in the reverse-payment antitrust litigation over certain HIV medicines. Expenses in the second quarter of 2022 were mainly related to an update of the estimated settlement provision recorded in connection with the remaining opioid cases. See note 10.

In the first six months of 2023, Teva recorded

expenses

of $695 million in legal settlements and loss contingencies, compared to $1,854 million in the first six months of 2022.

Expenses

in the first six months of 2023

were

mainly related to an update to the estimated settlement provision related to the remaining opioid cases, the

provision relating to the

U.S. DOJ criminal antitrust charges on the marketing and pricing of certain Teva USA generic products, an update to the estimated provision

related to

the DOJ patient assistance program litigation and the provision related to the settlement of the reverse-payment antitrust litigation over certain HIV medicines.

Expenses

in the first six months of 2022

were

mainly related to an update of the estimated settlement provision recorded in connection with the remaining opioid cases.

As of June 30, 2023 and December 31, 2022, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses and other taxes and long-term liabilities was $4,704 million and $4,186 million, respectively.

NOTE 10 – Commitments and contingencies:

General

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

Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is reasonably estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and substantial damages or other relief may be awarded. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters where the exposures were fully resolved in the prior year, or determined to no longer meet the materiality threshold for disclosure, or were substantially resolved.

If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.

Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA data.

Intellectual Property Litigation

From time to time, Teva seeks to develop generic and biosimilar versions of patent-protected pharmaceuticals and biopharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. For many biosimilar products that are covered by patents, Teva participates in the “patent dance” procedures of the Biologics Price Competition and Innovation Act (“BPCIA”), which allow for the challenge to originator patents prior to obtaining biosimilar product approval. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.

Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic or biosimilar version of the product even though litigation is still pending. To the extent Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva, which could be material to its results of operations and cash flows in a given period.

Teva could also be sued for patent infringement outside of the context of the Hatch-Waxman Act or BPCIA. For example, Teva could be sued for patent infringement after commencing sales of a product. This type of litigation can involve any of Teva’s pharmaceutical products, not just its generic and biosimilar products.

The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty and it may also be able, in certain circumstances, to be compensated for its lost profits. The amount of a reasonable royalty award would generally be calculated based on the sales of Teva’s product. The amount of lost profits would generally be based on the lost sales of the patentee’s product. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.

Teva is also involved in litigation regarding patents in other countries where it does business, particularly in Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.

In July 2014, GlaxoSmithKline (“GSK”) filed claims against Teva in the U.S. District Court for the District of Delaware for infringement of a patent directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva began selling its carvedilol tablets (the generic version of GSK’s Coreg

) in September 2007. A jury returned a verdict in GSK’s favor finding Teva liable for induced

infringement, including willful infringement, and assessing damages of $235.5 million, not including

pre-

or post-judgment interest or a multiplier for

willfulness. Thereafter, the court overturned the jury verdict, finding no induced infringement by Teva and that Teva did not owe any damages.

Subsequently, the Court of Appeals for the Federal Circuit issued a series of decisions reinstating the $235.5 million verdict, finding Teva liable for

patent infringement and denying rehearing. Teva then appealed this decision to the U.S. Supreme Court, which was denied. The case has been remanded to the district court for further proceedings on Teva’s other legal and equitable defenses that have not yet been considered by the district court. In the first quarter of 2021, Teva recognized a provision based on its offer to settle the matter.

In January 2021, Teva initiated a patent invalidity action against the compound patent and Supplementary Protection Certificate (“SPC”) asserted to cover Bristol-Myers Squibb Company’s (“BMS”) Eliquis

(apixaban). In May 2022, the UK High Court held that the compound patent and SPC are invalid and Teva began selling its generic version of Eliquis

(apixaban). In May 2023, the UK Court of Appeal upheld the first instance decision that the compound

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

patent and SPC are invalid and also denied BMS’s request to appeal to the UK Supreme Court. In June 2023, BMS applied directly to the UK Supreme Court asking for permission to appeal. If BMS’s appeal succeeds, Teva may owe monetary damages for patent infringement and may be enjoined from making further sales of its generic version of Eliquis

(apixaban) until the patent and SPC expire in May 2026.

Product Liability Litigation

Teva’s business inherently exposes it to potential product liability claims. Teva maintains a program of insurance, which may include commercial insurance, self-insurance (including direct risk retention), or a combination of both types of insurance, in amounts and on terms that it believes are reasonable and prudent in light of its business and related risks. However, Teva sells, and will continue to sell, pharmaceuticals that are not covered by its product liability insurance; in addition, it may be subject to claims for which insurance coverage is denied as well as claims that exceed its policy limits. Product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, Teva may not be able to obtain the type and amount of insurance it desires, or any insurance on reasonable terms, in certain or all of its markets.

Teva and its subsidiaries are parties to litigation relating to previously unknown nitrosamine impurities discovered in certain products. The discovery led to a global recall of single and combination valsartan medicines around the world starting in July 2018 and to subsequent recalls on other products. The nitrosamine impurities in valsartan are allegedly found in the active pharmaceutical ingredient (“API”) supplied to Teva by multiple API manufacturers, including by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls.

In addition, multiple lawsuits have been filed in connection with this matter. Teva’s products allegedly at issue in the various nitrosamine-related litigations pending in the United States include valsartan, losartan, metformin and ranitidine. There are currently two Multi-District Litigations (“MDL”) pending in the United States District Courts against Teva and numerous other manufacturers. One MDL is pending in the United States District Court for the District of New Jersey for valsartan, losartan and irbesartan. Teva is not named in complaints with respect to irbesartan. The second MDL is pending in the United States District Court for the Southern District of Florida for ranitidine. The lawsuits against Teva in the MDLs consist of individual personal injury and/or product liability claims and economic damages claims brought by consumers and end payors on behalf of purported classes of other consumers and end payors as well as medical monitoring class claims. The judge in the valsartan MDL ordered that the first trial, likely commencing in late 2023 or early 2024, will involve third-party payor economic loss claims via a class representative on behalf of several subclasses of payors against Teva and two other defendants. On February 8, 2023, the district court in the valsartan MDL entered an order that certified a series of subclasses on plaintiffs’ economic loss claims and granted in part and denied in part the certification of a medical monitoring class. In the ranitidine MDL, the generic manufacturers’ motions to dismiss have been granted, although certain plaintiffs have appeals pending. In addition, on December 6, 2022, the court in the ranitidine MDL granted the brand defendants’ motions to exclude all of plaintiffs’ general causation experts and granted summary judgment to the brand defendants on that ground. Teva, as well as other generic manufacturers, is also named in several state court actions asserting allegations similar to those in the ranitidine MDL and the valsartan and losartan MDL. State court valsartan and losartan actions are pending in New Jersey and Delaware and are currently stayed, with the exception of a single-plaintiff case originally filed in the MDL alleging

non-cancer

injuries, which is in the very initial stages of discovery. State court ranitidine cases naming Teva are pending in coordinated proceedings in California, Illinois, Pennsylvania and New York, with motions to dismiss pending in Illinois and New York on preemption and other grounds. Teva’s and the other generic manufacturer defendants’ preliminary objections filed in Pennsylvania based on preemption and other grounds, were largely sustained and dismissed most of the claims arising under Pennsylvania law. In addition to the valsartan and ranitidine MDLs and coordinated state court proceedings, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic manufacturers’ metformin products. The parties are now engaged in discovery related to the surviving metformin claims. Similar lawsuits are pending in Canada and Germany.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Competition Matters

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

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

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

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

In November 2020, the European Commission issued a final decision in its proceedings against both Cephalon and Teva, finding that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil, and imposed fines totaling euro 60.5 million on Teva and Cephalon. Teva and Cephalon filed an appeal against the decision in February 2021. A provision for this matter was included in the financial statements. Teva has provided the European Commission with a bank guarantee in the amount of the imposed fines. The hearing for the appeal took place in December 2022 and a decision is pending.

In December 2011, three groups of plaintiffs filed claims against Wyeth and Teva for alleged violations of the antitrust laws in connection with their November 2005 settlement of patent litigation involving extended release venlafaxine (generic Effexor XR

). The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the U.S. District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In March 2020, the district court temporarily stayed discovery and referred the case to mediation, and discovery remains stayed. Annual sales of Effexor XR

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

in July 2010.

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

) entered into in February 2005. The plaintiffs claimed that the settlement agreement unlawfully delayed generic entry and sought unspecified damages. On April 9, 2021, the district court, which had previously granted an initial motion for class certification by the direct purchaser plaintiffs but was reversed on that ruling by the Third Circuit in April 2020, denied the direct purchaser plaintiffs’ renewed motion for class certification. Plaintiffs filed a further renewed motion for class certification on May 20, 2022, which was denied on February 1, 2023. On February 2, 2023, February 7, 2023, and February 27, 2023, a number of direct purchasers, who would otherwise have been members of the proposed class had it been certified, filed suit as individual plaintiffs in Pennsylvania’s federal court. On May 30, 2023, Defendants’ motion to transfer the action to the District of New Jersey, where the original case is pending, was granted. Annual sales of Lamictal

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

in July 2008.

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

(extended release niacin) filed claims against Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005 to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual direct-purchaser

opt-out

plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ class. The court denied the indirect purchasers’ motion for class certification with prejudice, and on April 24, 2023, the denial was affirmed by the Court of Appeals for the Third Circuit. On June 5, 2023, the Court of Appeals for the Third Circuit denied the indirect purchasers’ petition for

re-hearing.

In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, alleging violations of state law and seeking restitution and civil penalties. Annual sales of Niaspan

were approximately $416 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic version of Niaspan

in September 2013.

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

end-payers

for, and direct-purchasers of, Actos

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

end-payers’

lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. On October 8, 2019, the district court dismissed, with prejudice, the direct purchasers’ claims against the generic manufacturers (including Teva, Actavis, and Watson Pharmaceuticals, Inc. (“Watson”). At the time of Teva’s settlement, annual sales of Actos

and Actoplus Met were approximately $3.7 billion and approximately $500 million, respectively. At the time Teva launched its authorized generic version of Actos

and Actoplus Met in August 2012, annual sales of Actos

and Actoplus Met were approximately $2.8 billion and approximately $430 million, respectively.

Putative classes of direct-purchaser and

end-payer

plaintiffs have filed antitrust lawsuits (which have since been coordinated in federal court in Delaware) against Amgen and Teva alleging that the January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar

), violated the antitrust laws. In June 2023, the U.S. Court of Appeals for the Third Circuit granted Teva’s petition for interlocutory appellate review of the trial court’s partial denial of Teva’s motion to dismiss, and the appeal remains pending. Annual sales of Sensipar

in the United States were approximately $1.4 billion at the time Teva launched its generic version of Sensipar

in December 2018, and at the time of the January 2, 2019 settlement.

In August 2019, certain direct-purchaser plaintiffs filed claims in federal court in Philadelphia naming Teva and its affiliates as defendants alleging that certain patent litigation settlement agreements relating to AndroGel

1% (testosterone gel) violate the antitrust laws, specifically the September 2006 patent litigation settlement between Watson, from which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Solvay”), and a December 2011 settlement between Teva and AbbVie. Those claims remain pending. Annual sales of AndroGel

1% were approximately $350 million at the time of the earlier Watson/Solvay settlement and approximately $140 million at the time Actavis launched its generic version of AndroGel

1% in November 2015. A provision for these matters and related litigations in Georgia that have since been settled was included in the financial statements.

Between September 1, 2020 and December 20, 2020, separate plaintiffs purporting to represent putative classes of direct and indirect purchasers and

opt-out

retailer purchasers of Bystolic

(nebivolol hydrochloride) filed separate complaints in the U.S. District Court for the Southern District of New York against several generic manufacturers, including Teva, Actavis, and Watson, alleging, among other things, that the settlement agreements these generic manufacturers entered into with Forest Laboratories, Inc., the innovator, to resolve patent litigation over Bystolic

violated the antitrust laws. The cases were coordinated and on January 24, 2022, the court dismissed plaintiffs’ amended complaints without prejudice. Plaintiffs subsequently filed second amended complaints, and on February 21, 2023, the court granted defendants’ motion to dismiss and dismissed all claims with prejudice. Plaintiffs have filed an appeal in the Court of Appeals for the Second Circuit, and the appeal is ongoing. Annual sales of Bystolic

in the United States were approximately $700 million at the time of Watson’s 2013 settlement with Forest.

In February 2021, the State of New Mexico filed a lawsuit against Teva and certain other defendants related to various medicines used to treat HIV (the “New Mexico litigation”). Between September and April 2022, several private plaintiffs including retailers and health insurance providers filed similar claims in various courts, which were all removed and/or consolidated into the Northern District of California (the “California litigation”). As they relate to Teva, the lawsuits challenge settlement agreements Teva entered into with Gilead in 2013 and/or 2014 to resolve patent litigation relating to Teva’s generic versions of Viread

and/or Truvada

and Atripla

, although plaintiffs in the California litigation

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abandoned any claim for damages relating to the Viread

settlement. In the California litigation, in May 2023, Teva and Gilead reached an agreement to settle with the retailer plaintiffs. In the second quarter of 2023, Teva updated the provision recognized for this matter based on the settlement that was reached. A trial was held against the remaining plaintiffs in the California litigation, and on June 30, 2023, the jury issued a verdict in favor of Teva and Gilead, rejecting all of the remaining plaintiffs’ claims. In October 2022 in the New Mexico litigation, the New Mexico Supreme Court granted Teva’s petition for a writ of

certiorari

regarding Teva’s motion to dismiss the complaint, which motion was previously denied by the trial court. On July 6, 2023, the New Mexico Supreme Court remanded the litigation to the trial court for limited discovery and for further proceedings on the issue of whether the trial court may exercise specific personal jurisdiction over Teva. Annual sales in the United States at the time of the settlement of Viread

, Truvada

and Atripla

were approximately $582 million, $2.4 billion, and $2.9 billion, respectively. Annual sales in the United States at the time Teva launched its generic version of Viread

in 2017, Truvada

in 2020 and Atripla

in 2020 were approximately $728 million, $2.1 billion and $444 million, respectively.

In March 2021, following the 2019 European Commission’s inspection of Teva and subsequent request for information, the European Commission opened a formal antitrust investigation to assess whether Teva may have abused a dominant position by delaying the market entry and uptake of medicines that compete with COPAXONE. On October 10, 2022, the European Commission issued a Statement of Objections, which sets forth its preliminary allegations that Teva had engaged in anti-competitive practices. Teva responded in writing to the Statement of Objections on February 8, 2023 and orally at a hearing on March 23, 2023. The European Commission issued a Request for Information by Decision in May 2023, to which Teva is responding. Annual sales of COPAXONE in the European Economic Area in 2021 were approximately $373 million.

On July 15, 2021, the U.K. Competition and Markets Authority (“CMA”) issued a decision imposing fines for breaches of U.K. competition law by Allergan, Actavis UK and Auden Mckenzie and a number of other companies in connection with the supply of 10mg and 20mg hydrocortisone tablets in the U.K. The decision combines the CMA’s three prior investigations into the supply of hydrocortisone tablets in the U.K., as well as the CMA’s subsequent investigation relating to an anti-competitive agreement with Waymade. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, in connection with which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court against Actavis UK in relation to two of the three statements of objection from the CMA (dated December 16, 2016 and March 3, 2017), and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter in the event of any such fines or damages. On October 6, 2021, Accord UK and Auden Mckenzie appealed the CMA’s decision. A provision for the estimated exposure for Teva related to the fines and/or damages has been recorded in the financial statements. The hearing for the appeal concluded in the first quarter of 2023, and a decision remains pending.

In August 2021, a plaintiff filed a putative class action suit in the United States District Court for the Eastern District of Pennsylvania against Takeda and several generic manufacturers, including Watson and Teva, alleging violations of the antitrust laws in connection with their settlement of patent litigation involving colchicine tablets (generic Colcrys

), entered into in January 2016. Plaintiff claims that the settlement was part of a conspiracy among Takeda and the generic manufacturers to unlawfully restrict output of colchicine by delaying generic entry. On November 23, 2022, the court denied plaintiffs’ motion for class certification without prejudice and on March 1, 2023, the Court denied plaintiff’s renewed motion for class certification. On April 10, 2023, plaintiff filed a motion for leave to amend its complaint to add 18 previously absent class members as plaintiffs, which the Court granted. On May 24, 2023, the Court denied defendants’ motion for summary judgment, and plaintiffs’ motion for partial summary judgment. Trial is currently scheduled to commence in September 2023. Annual sales of Colcrys

in the United States were approximately $187

million at the time of the settlement, and plaintiffs are seeking more than $500 million in damages, which damages would be automatically trebled in the event of an adverse

judgment

In November 2022, two complaints, one brought by Walgreen Co. and Kroger Specialty Pharmacy, Inc. and another by Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund and Jacksonville Police Officers and Fire Fighters Health Insurance Trust (collectively the “Walgreen and EPP complaints”), were filed in the United States District Court for the District of New Jersey against Teva and its marketing partner, Natco Pharma Limited (“Natco”), alleging violations of the antitrust laws in connection with their December 2015 settlement of patent litigation with Celgene Corporation (which was subsequently acquired by BMS) involving the drug Revlimid

(lenalidomide). The Walgreen and EPP complaints also name Celgene and BMS as defendants. On January 24, 2023, the Walgreen and EPP complaints were consolidated for

pre-trial

purposes only with an earlier-filed, already consolidated Insurer

Opt-Out

Action filed against BMS and Celgene,

In Re Revlimid

& Thalomid Purchaser Antitrust Litigation

, Case No.

2:19-cv-7532-ES-MAH.

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(Unaudited)

February 16, 2023, the Walgreen and EPP plaintiffs filed amended complaints adding additional plaintiffs. On May 16, 2023, Teva and Natco, along with Celgene, moved to dismiss the complaints against them, and those motions remain pending while discovery is ongoing. Annual sales of Revlimid

in the United States were approximately $3.5 billion at the time of the settlement.

On December 2, 2022, plaintiffs purporting to represent putative classes of indirect purchasers of EpiPen

(epinephrine injection) and Nuvigil

(armodafinil) filed a complaint in the United States District Court for the District of Kansas against Teva, Cephalon, and a former Teva executive. Teva owns the New Drug Application (“NDA”) for Nuvigil

and sold the brand product, for which generic entry occurred in 2016. Teva filed an ANDA to sell generic EpiPen

, which Teva launched in 2018, following receipt of FDA approval. The complaint alleges, among other things, that the defendants violated the federal antitrust laws, the Racketeer Influenced and Corrupt Organizations Act (“RICO Act”), and various state laws in connection with settlements resolving patent litigation relating to those products. Plaintiffs seek injunctive relief, compensatory and punitive damages, interest, attorneys’ fees and costs. On June 5, 2023, plaintiffs filed an amended complaint, which Teva moved to dismiss. Annual sales of Nuvigil

in the United States were approximately $300 million at the time Teva entered into the first settlement with an ANDA filer in 2012; annual sales of EpiPen

in the United States were approximately $600 million at the time Teva entered into its settlement agreement for that product in 2012.

In May 2023, certain

end-payor

plaintiffs filed putative class action complaints in the United States District Court for the District of Massachusetts against Teva and a number of its affiliates, alleging that Teva engaged in anticompetitive conduct to suppress generic competition to its branded QVAR

asthma inhalers in violation of state and federal antitrust laws and state consumer protection laws. Teva plans to move to dismiss these claims.

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States.

In 2015 and 2016, Actavis and Teva USA each respectively received subpoenas from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking documents and other information relating to the marketing and pricing of certain Teva USA generic products and communications with competitors about such products. On August 25, 2020, a federal grand jury in the Eastern District of Pennsylvania returned a three-count indictment charging Teva USA with criminal felony Sherman Act violations. See

No. 20-cr-200

(E.D. Pa.). The indictment alleged that Teva USA had participated in three separate conspiracies with certain other generic drug manufacturers to maintain and fix prices, allocate customers, and other alleged antitrust offenses concerning the sale of generic drugs.

The indictment identified the following generic drugs: Pravastatin, Carbamazepine, Clotrimazole, Etodolac (IR and ER), Fluocinonide (Cream E-Cream, Gel, and Ointment), Warfarin, Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. On December 14, 2022, the Court entered a scheduling order on the charges against Teva and its co-defendant Glenmark, which sets a May 2024 trial date. In the second quarter of 2023, Teva recognized a provision based on advanced discussions with DOJ to settle this matter on terms that would allow Teva to continue participating in U.S. federally funded health care programs. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business in the U.S., including monetary penalties and exclusion from participation in U.S. federally funded health care programs.

In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. An adverse resolution of this matter may include fines, penalties, financial forfeiture and compliance conditions.

In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. Subsequently, on December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law alleging price fixing of generic products in the United States. That complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019,

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most (though not all) of these attorneys general filed another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional products. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA, in a similar complaint relating to dermatological generics products. On September 9, 2021, the states’ attorneys general amended their third complaint to, among other things, add California as a plaintiff.

In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general November 1, 2019 amended complaint, referenced above, along with certain complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints. On February 9, 2021, Teva’s motion to reconsider that ruling was granted, and on May 7, 2021, the Court chose the attorneys’ general third complaint filed on June 10, 2020, as subsequently amended, to serve as a bellwether complaint in the Pennsylvania MDL, along with certain complaints filed by private plaintiffs. On December 9, 2021, the Court entered an order setting the schedule for the proceedings in the bellwether cases, which the Court later amended on October 13, 2022. This amended schedule does not include trial dates, but provides for the parties to complete briefing on motions for summary judgment in the third quarter of 2024. On June 7, 2022, the Court dismissed the attorneys’ general claims for monetary relief under federal law, concluding that the federal statute under which the attorneys general brought suit authorizes injunctive relief only. However, the attorneys general have pending claims for monetary relief under state law. On February 27, 2023, the Court largely denied defendants’ motions to dismiss the federal claims asserted by the attorneys general in their bellwether complaint. Another motion to dismiss, directed at that same complaint, and related to the state law claims asserted by the attorneys general, remains pending.

Teva has settled with the states of Mississippi (in June 2021), Louisiana (in March 2022), Georgia (in September 2022), Arkansas (in October 2022), Florida (in February 2023), and Kentucky (in June 2023). Teva paid each state an amount proportional to its share of the national population (approximately $1,000,000 for each 1% share of the national population), and the states have dismissed their claims against Actavis and Teva USA, as well as certain former employees of Actavis and Teva USA, pursuant to these settlements. The State of Alabama (in March 2022) and the territories of American Samoa (in July 2020) and Guam (in February 2023) have all voluntarily dismissed all of their claims in the litigation against Actavis and Teva USA. The dismissals by Alabama and Guam were with prejudice and the dismissal by American Samoa was without prejudice.

The most recent settlement with Kentucky follows the pattern reached in earlier settlements. Specifically, as mentioned above, Teva agreed to pay each state an amount proportional to its share of the national population. This, in addition to the status of ongoing negotiations with several other U.S. state attorneys general to settle on comparable terms, caused management to consider settlement of the claims filed by the remaining attorneys general to be probable, and management recorded an estimated provision in the third quarter of 2022, in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”

Beginning on March 2, 2016, and continuing through July 2023, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct and indirect purchaser

opt-out

plaintiffs, including most recently an

opt-out

complaint filed by approximately 150 hospitals and pharmacies on July 1, 2023. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva USA and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, pending as of that date, and on February 15, 2019, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims. On July 18, 2019, May 6, 2020 and October 8, 2021, certain individual plaintiffs commenced civil actions in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaints have been filed in the actions and each of the three cases have been placed in deferred status. Certain

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counties in New York and Texas have also commenced civil actions against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaints have been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic drug products to the detriment of a class of private payors. The action is in its early stages.

In March 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Subsequently, in August 2020, the U.S. Attorney’s office in Boston, Massachusetts brought a civil action in the U.S. District Court for the District of Massachusetts alleging causes of action under the federal False Claims Act and for unjust enrichment (the “DOJ PAP Complaint”). It is alleged that Teva’s donations to certain 501(c)(3) charities that provided financial assistance to multiple sclerosis patients violated the Anti-Kickback Statute. On September 10, 2021, the Court granted Teva’s motion to dismiss the unjust enrichment claim and denied the remainder of the motion. On April 24, 2023, both parties filed summary judgment motions, and on July 14, 2023 the court denied Teva’s motion and granted the DOJ’s motion, adopting the DOJ’s positions on materiality, causation, and damages. Under that ruling, if the DOJ can prove that any specific claim for reimbursement resulted from an illegal kickback, then the DOJ will be entitled to recover the full amount of that claim as damages. The DOJ is seeking a maximum of over $1 billion in damages, which would automatically be trebled in the event of an adverse verdict, and Teva would also be subject to mandatory statutory penalties for each false claim, the amount of which (potentially billions of U.S. dollars in additional penalties, at the high end) will be determined by the court within a statutory range. On July 27, 2023, Teva moved the district court to certify its summary judgement ruling for an immediate appeal, and that motion remains pending. Trial for this matter is currently scheduled for September 2023. In the first quarter of 2023, Teva recognized a provision based on its offer to settle this matter. Additionally, on January 8, 2021, Humana, Inc. (“Humana”) filed an action against Teva in the United States District Court for the Middle District of Florida based on the allegations raised in the DOJ PAP Complaint. On April 2, 2021, Teva filed a motion to dismiss Humana’s claims, which motion was denied as moot in May 2023 in light of the amended complaint filed by Humana in May 2023. In June 2023, Teva filed a joint motion to dismiss, together with

co-defendant

Advanced Care Scripts, Inc., on the grounds that Humana lacks standing to assert RICO claims and the claims are time-barred and/or insufficiently pled, and that motion has not yet been fully submitted to the Court. On November 17, 2022, United Healthcare also filed an action against Teva in the United States District Court for the District of New Jersey based on the conduct alleged in the DOJ PAP Complaint. On March 10, 2023, Teva moved to dismiss United Healthcare’s claims on the grounds that it is time-barred and lacks standing and sufficient particularity to assert RICO claims, and that motion remains pending.

In April 2021, a city and county in Washington filed claims against Teva in the United States District Court for the Western District of Washington for alleged violations of the Racketeer Influenced and Corrupt Organizations Act, Washington’s Consumer Protection Act, and unjust enrichment concerning Teva’s sale of COPAXONE. Plaintiffs purport to represent a nationwide class of health plans and a subclass of Washington-based health plans that purchased and/or reimbursed health plan members for COPAXONE. Plaintiffs allege that Teva engaged in several fraudulent schemes that resulted in plaintiffs and the putative class members purchasing and/or reimbursing plan members for additional prescriptions of COPAXONE and/or at inflated COPAXONE prices. Plaintiffs seek treble damages for the excess reimbursements and inflated costs, as well as injunctive relief. On September 28, 2021, plaintiffs filed an amended complaint. On November 17, 2021, Teva moved to dismiss the suit, on the grounds that plaintiffs’ claims are barred by the applicable statutes of limitations and the direct purchaser rule, suffer from jurisdictional defects, and fail to plausibly allege fraud or other elements of their claims. On March 9, 2023, the court held a hearing on the motion to dismiss, and a decision remains pending.

On June 29, 2021, Mylan Pharmaceuticals (“Mylan”) filed claims against Teva in the District Court for the District of New Jersey. On March 11, 2022 and March 15, 2022, FWK Holdings, LLC, KPH Healthcare Servs., Inc. d/b/a Kinney Drugs, Inc., Meijer Inc., Meijer Distribution, Inc., Labor-Management Healthcare Fund, the Mayor and City Council of Baltimore, and the New York State Teamsters Council Health and Hospital Fund filed claims against Teva in the District Court for the District of New Jersey on behalf of themselves and other similarly situated direct and indirect purchasers of COPAXONE. On August 22, 2022, Blue Cross Blue Shield of Vermont and the Vermont Health Plan sued Teva in the District Court for the District of Vermont on behalf of themselves and other similarly situated indirect purchasers of COPAXONE. The complaints assert claims for alleged violations of the Lanham Act, state and federal unfair competition and monopolization laws, tortious interference, trade libel, and a violation of the RICO Act. Additionally, plaintiffs claim Teva was involved in an unlawful scheme to delay and hinder generic competition concerning COPAXONE sales. Plaintiffs seek damages for lost profits and expenses, disgorgement, restitution, treble damages, attorneys’ fees and costs, and injunctive relief. Teva has moved to dismiss all of the complaints, and decisions remain pending.

On December 1, 2022, Teva received a civil subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting certain documents related to the sale and marketing of AUSTEDO and risperidone LAI. Teva is cooperating with the request for documents.

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Opioids Litigation

Since May 2014, more than 3,500 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of cities, counties, states, other governmental agencies, tribes and private plaintiffs (including various putative class actions of individuals) in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern District of Ohio (“MDL Opioid Proceeding”) and many of the cases filed in state court have been removed to federal court and consolidated into the MDL Opioid Proceeding. Two cases that were included in the MDL Opioid Proceeding were transferred back to federal district court for additional discovery,

pre-trial

proceedings and trial. Those cases are: City of Chicago v. Purdue Pharma L.P. et al.,

No. 14-cv-04361

(N.D. Ill.) and City and County of San Francisco v. Purdue Pharma L.P. et al.,

No. 18-cv-07591-CRB

(N.D. Cal.). Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas, Utah and West Virginia, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Complaints asserting claims under similar provisions of different state law generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ

and FENTORA

. The complaints also assert claims related to Teva’s generic opioid products. In addition, over 950 personal injury plaintiffs, including various putative class actions of individuals, have asserted personal injury and wrongful death claims in over 600 complaints, nearly all of which are consolidated in the MDL Opioid Proceeding. Furthermore, approximately 700

non-personal

injury complaints and approximately 100 personal injury complaints have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction and certain plaintiffs specify multiple billions of dollars in the aggregate as alleged damages. The individual personal injury plaintiffs further seek

non-economic

damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants.

On April 19, 2021, a bench trial in California (The People of the State of California, acting by and through Santa Clara County Counsel James R. Williams, et. al. v. Purdue Pharma L.P., et. al.) commenced against Teva and other defendants focused on the marketing of branded opioids. On December 14, 2021, the court issued its final judgment in favor of the defendants on all claims. Plaintiffs filed a notice of appeal of this judgment in February 2022. On June 29, 2021, a jury trial in New York (

In re Opioid Litigation

, Index No. 400000/2017) commenced against Teva and other defendants, focused on the marketing and distribution of opioids. The case was bifurcated between liability and damages. On December 30, 2021, the jury returned a liability verdict in favor of plaintiffs (the County of Suffolk, the County of Nassau and the State of New York) on the plaintiffs’ public nuisance claim. On November 3, 2022, Teva reached an agreement with the Attorney General of New York that settled the state’s and its subdivisions’ opioid-related claims.

On July 21, 2021, it was announced that four other defendants (not including Teva) reached nationwide settlements, subject to certain conditions, which include payment of up to approximately $26 billion spread over up to 18

years. In July 2022, Teva, the working group of States’ Attorneys General (the “Working Group”), the Multi-District Litigation Plaintiffs’ Executive Committee (“PEC”), and counsel for Native American tribes (“Tribes”) reached an agreement in principle on the financial terms of nationwide settlements similar in structure to the nationwide settlements of other defendants. During the third quarter of 2022, Teva and Allergan resolved their dispute with respect to Teva’s indemnification obligations. In November 2022, Teva, Allergan, the Working Group and PEC, and representatives for the Tribes, finalized the terms of their respective proposed opioids nationwide settlement agreements. In January 2023, Teva confirmed participation from all states except Nevada, and decided to move forward with the participation process of the subdivisions. In February 2023, Teva and the Tribes finalized their opioids settlement with participation from 100% of the Tribes.

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In June 2023, Teva finalized and fully resolved its nationwide settlement agreement with the states and 99% of litigating subdivisions. Under the financial terms of the nationwide settlement agreement with the states and subdivisions, Teva will pay up to $

4.25

billion (including the already settled cases), spread over

years. This total includes the supply of up to $

1.2

billion of Teva’s generic

version of Narcan

(naloxone

hydrochloride nasal spray), valued at wholesale acquisition cost, over

years or cash at

% of the wholesale acquisition cost ($

240

million) in lieu of product. In

June 2023

, Teva reached a separate settlement with the remaining state, Nevada. Under the terms of the Nevada settlement, Teva will pay Nevada $

193

million over

20 years

, including all fees and costs.

Teva has now settled with all 50 U.S. states and the Tribes. Teva’s estimated cash payments in 2023 for all opioids settlements are $457 million, out of which $124 million were paid as of June 30, 2023. These payments are subject to changes based on various factors including, but not limited to, timing of payments, most favored nations clauses associated with prior settlements, the states’ elections to take Teva’s generic version of Narcan

(naloxone hydrochloride nasal spray), etc. Additional payments will be paid between 2024 and 2043.

Various Teva affiliates, along with several other pharmaceutical companies, have been named as defendants in opioids cases initiated by approximately 500 U.S. hospitals and other healthcare providers asserting opioid-related claims, including public nuisance. Specifically, the lawsuits brought by the hospitals allege that they have incurred financial harm in the form of what they claimed to be increased operating costs for treating patients whose underlying illnesses are purportedly exacerbated or complicated by opioid addiction. In July 2023, Teva and the representatives for acute care hospitals reached an agreement in principle on the financial terms of a national settlement. Under the financial terms of the proposed national settlement agreement, Teva will pay up to $

126 million in cash, spread over 18 years, and supply up to $49 million of Teva’s generic version of Narcan

(naloxone hydrochloride nasal spray), valued at wholesale acquisition cost, over 7

years. Teva’s proposed settlement agreement with the acute care hospitals and health systems is contingent upon Teva’s, in the exercise of its sole discretion, satisfaction with the level of participation by acute care hospitals and health care systems in the proposed settlement agreement.

In light of the nationwide settlement agreement between Teva and the States’ Attorneys General and their subdivisions, Teva’s indemnification obligations arising from Teva’s acquisition of the Actavis Generics business for opioid-related claims, prior settlements reached with Louisiana, Texas, Rhode Island, Florida, San Francisco, West Virginia, New York, the Tribes and Nevada, the agreement in principle with the hospitals discussed above, as well as an estimate for a number of items including, but not limited to, costs associated with administering injunctive terms, and most favored nations clauses associated with prior settlements, the Company has recorded a provision. The provision is a reasonable estimate of the ultimate costs for Teva’s opioids settlements, after discounting payments to their net present value. Opioid-related lawsuits brought against Teva by dozens of third-party payors, such as unions and welfare funds, remain pending. A reasonable upper end of a range of loss cannot be determined for the entirety of the remaining opioid-related cases. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and

non-monetary

relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows.

In addition, Teva, certain of its subsidiaries and other defendants, are defending claims and putative class action lawsuits in Canada related to the manufacture, sale, marketing and distribution of opioid medications. The lawsuits include a claim by the Province of British Columbia on behalf of itself and a putative class of other federal and provincial governments, and claims of municipalities, First Nations, and persons who used opioids on behalf of themselves and putative classes. These cases are in early stages with the preliminary motions brought by the Province of British Columbia expected to be heard in late 2023.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former officers and directors. Those lawsuits subsequently were consolidated and transferred to the U.S. District Court for the District of Connecticut (the “Ontario Teachers Securities Litigation”). On December 13, 2019, the lead plaintiff filed an amended complaint, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and May 10, 2019, asserting that Teva and certain of its current and former officers and directors violated federal securities and common laws in connection with Teva’s alleged failure to disclose pricing strategies for various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering materials. From July 2017 to June 2019, other putative securities class actions were filed in other federal courts based on similar allegations and claims, and were transferred to the U.S. District Court for the District of Connecticut. Between August 2017 and January 2022, twenty-three complaints were filed against Teva and certain of its current and former officers and directors on behalf of plaintiffs in various forums across the country, but many of those plaintiffs

“opted-out”

of the Ontario Teachers Securities Litigation. On March 10, 2020, the Court consolidated the Ontario Teachers Securities Litigation with all of the above-referenced putative class actions for all purposes and the

“opt-out”

cases for pretrial purposes. On January 18, 2022, Teva entered into a settlement in the Ontario Teachers Securities Litigation for $420 million, which received final approval from the court on June 2, 2022. The vast majority of the total settlement amount was covered by the Company’s insurance carriers, with a small portion contributed by Teva. Additionally, as part of the settlement, Teva admitted no liability and denied all allegations of wrongdoing. On January 22, 2021, the Court dismissed the

“opt-out”

plaintiffs’ claims arising from statements made prior to the five-year statute of repose, but denied Teva’s motion to dismiss their claims under Israeli laws. On May 24, 2021, Teva moved to dismiss a majority of the

“opt-out”

complaints on various other grounds, and on May 1, 2023, the Court granted in part and denied in part Teva’s motions. Teva has settled several

“opt-out”

claims, but a number of

opt-out

cases remain outstanding. In addition, Teva reached a settlement agreement of Israeli shareholder motions to certify class action on similar allegations to those raised in the Ontario Teachers Securities Litigation. The settlement agreement is awaiting court approval.

On September 23, 2020, a putative securities class action was filed in the U.S. District Court for the Eastern District of Pennsylvania against Teva and certain of its former officers. On August 10, 2021, the lead plaintiff filed a corrected amended class action complaint, purportedly on behalf of persons who purchased or otherwise acquired Teva securities between October 29, 2015 and August 18, 2020. The corrected amended complaint alleges that Teva and certain of its current and former officers violated federal securities laws by allegedly making false and misleading statements regarding the commercial performance of COPAXONE, namely, by failing to disclose that Teva had allegedly caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients, which allegedly impacted COPAXONE’s commercial success and the sustainability of its revenues and resulted in the DOJ PAP Complaint filed by the DOJ. The corrected amended complaint seeks unspecified damages and legal fees. On March 25, 2022, the court granted in part and denied in part Teva’s and the individual defendants’ motion to dismiss the corrected amended complaint and dismissed all claims against one of the individual defendants. On August 2, 2022, the court stayed all proceedings other than class certification proceedings pending the resolution of the DOJ PAP Complaint filed by the DOJ. On September 13, 2022, the plaintiff moved for class certification, which remains pending. A motion to approve a securities class action was also filed in the Central District Court in Israel, which has been stayed pending the U.S. litigation, with similar allegations to those made in the above complaint filed in the U.S. District Court for the Eastern District of Pennsylvania.

Environmental Matters

Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Although liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the allocation of

clean-up

and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent factors. Teva’s potential liability varies greatly at each of the sites; for some sites the costs of the investigation,

clean-up

and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other sites, Teva has taken an active role in identifying those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of

clean-up

costs from insurers, indemnitors, former site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged violations of federal, state, commonwealth or local requirements at some of Teva’s facilities may result in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of operations) and the recovery of certain costs and natural resource damages, and may require that corrective actions and enhanced compliance measures be implemented.

Item 103 of Regulation

S-K

promulgated by the SEC requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless the Company reasonably believes that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less

than

$300,000. The following matter is disclosed in accordance with that requirement. On July 8, 2021, the National Green Tribunal Principal Bench, New Delhi, issued an order against Teva’s subsidiary in India, Teva API India Private Limited, finding

non-compliance

with environmental laws and assessed a penalty of $1.4 million. The Company disputed certain of the findings and the amount of the penalty and filed an appeal before the Supreme Court of India. On August 5, 2021, the Supreme Court of India admitted the appeal for hearing and granted an interim unconditional stay on the National Green Tribunal’s order. The Company does not believe that the eventual outcome of such matter will have a material effect on its business.

Other Matters

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

(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). On December 28, 2018, following defendants’ motion to dismiss the complaint, the court granted the motion in part and dismissed all of plaintiffs’ claims, except for their claim against Cephalon for breach of contract. In November 2021, plaintiffs moved to amend their complaint to, among other things, reassert claims against the Company and Teva USA. However, on July 12, 2022, plaintiffs filed a new amended complaint that includes claims against Teva USA but not the Company, in exchange for Teva USA’s agreement to guarantee any judgment entered against Cephalon in the litigation. A bench trial for this matter was held in September 2022, and a ruling is expected in 2023 or 2024, following closing arguments.

On March 15, 2022, The Scripps Research Institute (“Scripps”) filed claims against Teva’s subsidiary, Teva Pharmaceuticals International GmbH (“TPIG”) in the United States District Court for the Southern District of California for alleged breach of a sublicense agreement between Scripps and Ivax Corporation (“Ivax”) dated November 2000 (“Sublicense Agreement”). After Teva’s acquisition of Ivax, TPIG became the

successor-in-interest

to Ivax under the Sublicense Agreement, pursuant to which Scripps licensed to Ivax certain rights to the drug cladribine. Scripps alleges that TPIG breached the Sublicense Agreement by failing to pay royalties on sales of cladribine in certain countries, and is seeking breach of contract damages for royalties allegedly due but not paid, as well as a declaratory judgment related to royalties due in the future. On November 17, 2022, the Court dismissed Scripps’ claim for breach of the implied covenant of good faith and fair dealing but denied TPIG’s motion to dismiss Scripps’ breach of contract and declaratory judgment claims. TPIG answered the first amended complaint on December 16, 2022, and discovery is ongoing. In the second quarter of 2023, Teva recognized a provision based on its offer to settle the matter.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Gain Contingencies

From time to time, Teva may directly or indirectly pursue claims against certain parties, including but not limited to patent infringement lawsuits against other pharmaceutical companies to protect its patent rights, as well as derivative actions brought on behalf of Teva. Teva recognizes gain contingencies from the defendants in such lawsuits when they are realized or when all related contingencies have been resolved. No gain has been recognized regarding the matters disclosed below, unless mentioned otherwise.

In October 2017, Teva filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents, including three method of treatment patents and six composition of matter patents. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine Teva patents. The PTAB issued decisions upholding the three method of treatment patents but finding the six composition of matter patents invalid, which decisions were affirmed by the Court of Appeals for the Federal Circuit on August 16, 2021. A jury trial regarding the three method of treatment patents began on October 18, 2022, and on November 9, 2022, the jury issued a verdict in Teva’s favor, finding the three method of treatment patents valid and infringed by Lilly and awarding Teva $176.5 million in damages. On January 28, 2023, Lilly filed a motion requesting that the District Court overturn the jury’s verdict. Once the motion is decided, the losing party may appeal the decision to the Court of Appeals for the Federal Circuit. On June 8, 2021, Teva filed another lawsuit in the U.S. District Court for the District of Massachusetts alleging that Lilly’s marketing and sale of galcanezumab product infringes two patents related to the treatment of refractory migraine. Lilly’s IPR petitions challenging the patentability of these two patents as well as a third patent also related to the treatment of refractory migraine were instituted by the PTAB. Oral argument in these IPR proceedings was heard on July 19, 2023, and

the PTAB’s decisions are expected in the second half of 2023. The litigation in the District of Massachusetts was stayed during the pendency of these IPR proceedings. Teva intends to continue to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents.

Motions to approve derivative actions seeking monetary damages against certain past and present directors and officers have been filed in Israeli Courts alleging negligence and recklessness, as well as motions for document disclosure prior to initiating derivative actions. Motions were filed with respect to several U.S. and EU settlement agreements, opioids, allegations related to the DOJ’s complaint regarding COPAXONE patient assistance program in the U.S., and with respect to the COPAXONE European Commission’s inspection.

NOTE 11 – Income taxes:

In the second quarter of 2023, Teva recognized a tax benefit of $16 million, on

pre-tax

loss of $914 million. In the second quarter of 2022, Teva recognized a tax benefit of $900 million, on

pre-tax

loss of $1,160 million. Teva’s tax rate for the second quarter of 2023 was mainly affected by

impairments,

legal settlements, amortization, and interest expense disallowances.

In the second quarter of 2022, one of Teva’s U.S. subsidiaries was determined to be insolvent for tax purposes (i.e., its liabilities exceeded the fair market value of its assets), mainly in light of its accumulated operational losses. Consequently, Teva will recognize on its 2022 tax return, a worthless stock deduction of approximately $4.2 billion, with related tax benefit of approximately $850 million.

In the first six months of 2023, Teva recognized a tax benefit of $35 million, on

pre-tax

loss of $1,172 million. In the first six months of 2022, Teva recognized a tax benefit of $899 million, on

pre-tax

loss of $2,131 million. Teva’s tax rate for the first six months of 2023 was mainly affected by

impairments,

legal settlements, amortization, and interest expense disallowances.

The statutory Israeli corporate tax rate is 23% in 2023. Teva’s tax rate differs from the Israeli statutory tax rate, mainly due to generation of profits in various jurisdictions in which tax rates are different than the Israeli tax rate, interest expense disallowances, tax benefits in Israel and other countries, as well as infrequent or

non-recurring

items.

Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. A trial for this case is currently ongoing. A final and binding decision against Teva in this case may lead to a charge of $128 million.

The Israeli tax authorities (“ITA”) issued tax assessment decrees for 2008-2011, 2012 and 2013-2016, challenging the Company’s positions on several issues. Teva has protested the 2008-2011, 2012 and 2013-2016 decrees before the Central District Court in Israel. On April 17, 2023, the ITA issued a tax assessment for 2017-2020 challenging the Company’s positions on several issues. The Company intends to challenge the tax assessment for 2017-2020 as well.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In October 2021, the Central District Court in Israel held in favor of the ITA with respect to the 2008-2011 decrees. The case with respect to the 2012-2016 decrees remains pending with similar legal and

othe

r claims. Teva appealed this decision to the Israeli Supreme Court and expects the appeal hearing to begin in March 2024. The tax liability resulting from the October 2021 Central District Court decision, with respect to the decrees for 2008-

2011 and the similar legal claims in the related following years, was approximately $350 million, of which a portion has been

paid in 2022 and 2023

and will continue to be paid during 202

and 202

The Company believes it has adequately provided for all of its uncertain tax positions, including those items currently under dispute, however, adverse results could be

material.

NOTE 12 – Other assets impairments, restructuring and other items:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(U.S. $ in millions)				(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	11	$	14	$	21	$	30
Contingent consideration		70		61		90		94
Restructuring		10		35		66		92
Other		9		8		19		30

Total	$	100	$	118	$	195	$	246

(1)	Including impairments related to exit and disposal activities.

Impairments

Impairments of tangible assets for the

ree mo

nths

ended June 30, 2023 and 2022 were $11 million and $14 million, respectively.

Impairments of tangible assets for the six months ended June 30, 2023 and 2022 were $21 million and $30 million, respectively. The

impairments

for the six months ended June 30, 2023

were

mainly related to certain assets in North America and Europe. The

impairments

for the six months ended June 30, 2022

were

mainly related to certain assets in North America.

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

ongoing

network consolidation activities.

Contingent consideration

In the three months ended June 30, 2023, Teva recorded an expense of $70 million for contingent consideration, compared to an expense of $61 million in the three months ended June 30, 2022. The expense in the second quarter of 2023 and 2022 was mainly related to a change in the estimated future royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid

In the six months ended June 30, 2023, Teva recorded an expense of $90 million for contingent consideration, compared to an expense of $94 million in the six months ended June 30, 2022. The expense in the first six months of 2023 was mainly related to a change in the estimated future royalty payments to Eagle in connection with expected future bendamustine sales and a change in the estimated future royalty payments to Allergan in

connection with lenalidomide (generic equivalent of Revlimid

). The expense in the first six months of 2022 was mainly related to a change in the estimated future royalty payments to Allergan in connection with lenalidomide (generic equivalent of Revlimid

Restructuring

In the three months ended June 30, 2023, Teva recorded $10 million of restructuring expenses, compared to $35 million in the three months ended June 30, 2022. The expenses for the three months ended June 30, 2023 and

2022 were primarily related to network consolidation activities.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In the six months ended June 30, 2023, Teva recorded $66 million of restructuring expenses, compared to $92 million in the six months ended June 30, 2022. The expenses for the six months ended June 30, 2023 and 2022 were primarily related to network consolidation activities.

The following tables provide the components of the Company’s restructuring costs:



	Three months ended June 30,
	2023		2022

	(U.S. $ in millions)
Restructuring
Employee termination	$	1	$	11
Other		9		24

Total	$	10	$	35


	Six months ended June 30,
	2023		2022

	(U.S. $ in millions)
Restructuring
Employee termination	$	24	$	63
Other		42		29

Total	$	66	$	92

The following table provides the components of and changes in the Company’s restructuring accruals:


	Employee termination costs			Other			Total
	(U.S. $ in millions)
Balance as of January 1, 2023	$	(112	)	$	(7	)	$	(119	)
Provision		(24	)		(42	)		(66	)
Utilization and other*		60			42			102

Balance as of June 30, 2023	$	(76	)	$	(7	)	$	(83	)


	Employee termination costs			Other			Total

	(U.S. $ in millions)
Balance as of January 1, 2022	$	(131	)	$	(7	)	$	(138	)
Provision		(63	)		(29	)		(92	)
Utilization and other*		74			29			103

Balance as of June 30, 2022	$	(120	)	$	(7	)	$	(127	)

*	Includes adjustments for foreign currency translation.

NOTE 13 – Earnings (Loss) per share:

Basic earnings and loss per share are computed by dividing net income (loss) attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding, including fully vested restricted share units (“RSUs”) and performance share units (“PSUs”) during the period, net of treasury shares.

In computing diluted loss per share for the three months ended June 30, 2023 and 2022, no account was taken of the potential dilution that could occur upon the exercise of options and

non-vested

RSUs and PSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In computing diluted loss per share for the six months ended June 30, 2023 and 2022, no account was taken of the potential dilution that could occur upon the exercise of options and

non-vested

RSUs and PSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

The weighted average diluted shares outstanding used for the fully diluted share calculations for the three months ended June 30, 2023 and 2022 were 1,120 million and 1,110 million shares, respectively.

The weighted average diluted shares outstanding used for the fully diluted share calculations for the six months ended June 30, 2023 and 2022 were 1,118 million and 1,109 million shares, respectively.

Basic and diluted loss per share was $0.77 for the three months ended June 30, 2023, compared to basic and diluted loss per share of $0.21 for the three months ended June 30, 2022.

Basic and diluted loss per share was $0.96 for the six months ended June 30, 2023, compared to basic and diluted loss per share of $1.07 for the six months ended June 30, 2022.

NOTE 14 – Accumulated other comprehensive income (loss):

The components of, and changes within, accumulated other comprehensive income (loss) attributable to Teva are presented in the table below:


	Net Unrealized Gains (Losses)						Benefit Plans
	Foreign currency translation adjustments			Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)
Balance as of December 31, 2022, net of taxes	$	(2,514	)	$	(295	)	$	(28	)	$	(2,838	)

Other comprehensive income (loss) before reclassifications		159			(5	)		—			154
Amounts reclassified to the statements of income		—			17			(1	)		16

Net other comprehensive income (loss) before tax		159			12			(1	)		170

Corresponding income tax		(9	)		—			—			(9	)

Net other comprehensive income (loss) after tax*		150			12			(1	)		161

Balance as of June 30, 2023, net of taxes	$	(2,364	)	$	(283	)	$	(29	)	$	(2,677	)

*	Amounts do not include a $69 million loss from foreign currency translation adjustments attributable to non-controlling interests.


	Net Unrealized Gains (Losses)						Benefit Plans
	Foreign currency translation adjustments			Derivative financial instruments			Actuarial gains (losses) and prior service (costs) credits			Total
	(U.S. $ in millions)
Balance as of December 31, 2021, net of taxes	$	(2,274	)	$	(324	)	$	(85	)	$	(2,683	)

Other comprehensive income (loss) before reclassifications		(127	)					—			(127	)
Amounts reclassified to the statements of income		—			14			—			14

Net other comprehensive income (loss) before tax		(127	)		14			—			(113	)

Corresponding income tax		(5	)		—			—			(5	)

Net other comprehensive income (loss) after tax*		(132	)		14			—			(118	)

Balance as of June 30, 2022, net of taxes	$	(2,406	)	$	(310	)	$	(85	)	$	(2,801	)

*	Amounts do not include a $150 million loss from foreign currency translation adjustments attributable to non-controlling interests.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 15 – Segments:

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

(a)

North America segment, which includes the United States and Canada.

(b)

Europe segment, which includes the European Union, the United Kingdom and certain other European countries.

(c)

International Markets segment, which includes all countries other than those in the North America and Europe segments.

In addition to these three segments, Teva has other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an

out-licensing

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

Teva’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the three identified reportable segments, namely North America, Europe and International Markets, to make decisions about resources to be allocated to the segments and assess their performance.

Segment profit is comprised of gross profit for the segment less R&D expenses, S&M expenses, G&A expenses and other income related to the segment. Segment profit does not include amortization and certain other items.

Teva manages its assets on a company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review asset information by reportable segment and, therefore, Teva does not report asset information by reportable segment.

Teva’s CEO may review its strategy and organizational structure from time to time, and based on such review, in May 2023 Teva launched its new Pivot to Growth strategy. Any additional changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 3 and note 6.

a. Segment information:


	Three months ended June 30,
	2023
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	1,991		$	1,163		$	479
Gross profit		1,046			640			254
R&D expenses		159			53			21
S&M expenses		264			194			110
G&A expenses		106			61			29
Other income		(4	)		(1	)		(28	)

Segment profit	$	520		$	334		$	124

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended June 30,
	2022
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	1,904		$	1,171		$	454
Gross profit		1,010			703			242
R&D expenses		147			56			19
S&M expenses		256			196			99
G&A expenses		127			63			30
Other income		(1	)		(1	)		(1	)

Segment profit	$	481		$	389		$	95


	Six months ended June 30,
	2023
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	3,757		$	2,347		$	971
Gross profit		1,857			1,294			517
R&D expenses		315			106			40
S&M expenses		487			381			208
G&A expenses		208			130			60
Other income		(5	)		(1	)		(29	)

Segment profit	$	852		$	679		$	237


	Six months ended June 30,
	2022
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	3,641		$	2,327		$	946
Gross profit		1,899			1,397			528
R&D expenses		289			114			39
S&M expenses		501			393			196
G&A expenses		239			122			60
Other income		(12	)		(1	)		(41	)

Segment profit	$	883		$	769		$	274

The following table presents a reconciliation of Teva’s segment profits to its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three and six months ended June 30, 2023 and 2022:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(U.S. $ in millions)				(U.S. $ in millions)
North America profit	$	520	$	481	$	852	$	883
Europe profit		334		389		679		769
International Markets profit		124		95		237		274

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


Total reportable segments profit		977			964			1,769			1,926

Profit (loss) of other activities		33			55			27			107

Total segments profit		1,011			1,019			1,796			2,032
Amounts not allocated to segments:
Amortization		162			212			326			412
Other assets impairments, restructuring and other items		100			118			195			246
Goodwill impairment		700			745			700			745
Intangible assets impairments		63			51			241			199
Legal settlements and loss contingencies		462			729			695			1,854
Other unallocated amounts		170			113			282			240

Consolidated operating income (loss)		(646	)		(949	)		(644	)		(1,662	)

Financial expenses, net		268			211			528			468

Consolidated income (loss) before income taxes	$	(914	)	$	(1,160	)	$	(1,172	)	$	(2,131	)

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three and six months ended June 30, 2023 and 2022:


North America	Three months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	969	$	1,026
AJOVY		57		49
AUSTEDO		308		204
BENDEKA ® and TREANDA ®		69		83
COPAXONE		64		94
Anda		392		308
Other		133		139

Total	$	1,991	$	1,904


North America	Six months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	1,793	$	1,925
AJOVY		107		86
AUSTEDO		478		358
BENDEKA and TREANDA		131		165
COPAXONE		139		180
Anda		816		650
Other		293		278

Total	$	3,757	$	3,641

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


Europe	Three months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	909	$	873
AJOVY		39		29
COPAXONE		60		72
Respiratory products		66		65
Other		89		131

Total	$	1,163	$	1,171


Europe	Six months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	1,841	$	1,749
AJOVY		74		60
COPAXONE		119		144
Respiratory products		134		137
Other		178		238

Total	$	2,347	$	2,327


International markets	Three months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	394	$	394
AJOVY		9		10
COPAXONE		10		9
Other		67		40

Total	$	479	$	454


International markets	Six months ended June 30,
	2023		2022
	(U.S. $ in millions)
Generic products	$	793	$	782
AJOVY		19		16
COPAXONE		22		20
Other		137		128

Total	$	971	$	946

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 16 – Fair value measurement:

Financial items carried at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 are classified in the tables below in one of the three categories of fair value levels:


	June 30, 2023
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	1,080	$	—		$	—		$	1,080
Cash, deposits and other		1,589		—			—			1,589
Investment in securities:
Equity securities		8		—			—			8
Other		4		—			1			5
Restricted cash		1		—			—			1
Derivatives:
Asset derivatives:
Options and forward contracts		—		37			—			37
Cross currency interest rate swaps		—		9						9
Liability derivatives:
Options and forward contracts		—		(47	)		—			(47	)
Bifurcated embedded derivatives		—		—				§		—
Contingent consideration*		—		—			(143	)		(143	)

Total	$	2,682	$	(1	)	$	(142	)	$	2,539


	December 31, 2022
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	1,222	$	—		$	—		$	1,222
Cash, deposits and other		1,579		—			—			1,579
Investment in securities:
Equity securities		9		—			—			9
Other		5		—			1			6
Restricted cash		33		—			—			33
Derivatives:
Asset derivatives—options and forward contracts		—		29			—			29
Liability derivatives:
Options and forward contracts		—		(101	)		—			(101	)
Bifurcated embedded derivatives		—		—				§		—
Contingent consideration*	$	—		—			(153	)		(153	)

Total		2,848	$	(73	)	$	(152	)	$	2,624

§	Represents an amount less than $0.5 million.

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

Teva determined the fair value of the liabilities for contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of contingent consideration is based on several factors, such as cash flows projected from the success of unapproved product candidates; probability of success of product candidates, including risks associated with uncertainty regarding achievement and payment of milestone events; time and resources required to complete the development and approval of product candidates; life of the potential

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

commercialized products and associated risks with obtaining regulatory approvals in the United States and Europe, and

the risk adjusted discount rate for fair value measurement. A probability of success factor of 100% was used in the fair value calculation to reflect inherent regulatory and commercial risks of the contingent payments. The discount rate applied ranged from 8.5% to 11%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was 8.97%. Contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in the consolidated statements of income. Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liabilities.

The following table summarizes the activity for the financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:


	Six months ended June 30, 2023			Six months ended June 30, 2022
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(152	)		(175	)
Bifurcated embedded derivatives			§			§
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(64	)		(92	)
Eagle transaction		(24	)		(2	)
Novetide transaction		(1	)		—
Settlement of contingent consideration:
Actavis Generics transaction		57			30
Eagle transaction		40			46
Novetide transaction		2			—
Additional contingent consideration resulting from Novetide acquisition*		—			(11	)

Fair value at the end of the period	$	(142	)	$	(204	)

§	Represents an amount less than $0.5 million.

In January 2022, Teva acquired 100% ownership of Novetide Ltd. (“Novetide”), which was previously accounted for as “investment in associated companies.” This transaction was accounted for as a business combination. Total consideration for the transaction included cash and certain contingent royalty payments through 2034. As part of the transaction, Teva recognized a gain under “Share in (profits) losses of associated companies, net,” reflecting the difference between the book value of its investment in Novetide and its fair value as of the date Teva completed its acquisition.

Financial instruments not measured at fair value

Financial instruments measured on a basis other than fair value mostly consist of senior notes and convertible senior debentures (see note 7) and are presented in the table below in terms of fair value (level 1 inputs):


	Estimated fair value*
	June 30, 2023		December 31, 2022
	(U.S. $ in millions)
Senior notes and sustainability-linked senior notes included under senior notes and loans	$	16,895	$	16,694
Senior notes and convertible senior debentures included under short-term debt		1,971		2,075

Total	$	18,866	$	18,769

*	The fair value was estimated based on quoted market prices.

ITEM 2.

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

Business Overview

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

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

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

Our Business Segments

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

In addition to these three segments, we have other activities, primarily the sale of API to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis.

Pivot to Growth Strategy

In May 2023, we introduced our new “Pivot to Growth” strategy, which is based on four key pillars: (i) delivering on our growth engines, mainly AUSTEDO, UZEDY and our late-stage pipeline of biosimilars; (ii) stepping up innovation through delivering on our late-stage innovative pipeline assets as well as building up our early-stage pipeline organically and potentially through business development activities; (iii) sustaining our generics medicines powerhouse with a global commercial footprint, focused portfolio, pipeline and manufacturing footprint; and (iv) focusing our business by optimizing our portfolio and global manufacturing footprint to enable strategic capital deployment to accelerate our near and long-term growth engines and reorganizing certain of our business units to a more optimal structure, while also reorganizing key business units to enhance operational efficiency.

Macroeconomic Environment

In recent months, the global economy has been impacted by fluctuating foreign exchange rates. Approximately 46% of our revenues in the second quarter of 2023 were denominated in currencies other than the U.S. dollar. The strengthening of the U.S. dollar versus other currencies in which we operate, negatively impacts our revenues, results of operations, profits and cash flows. We also manufacture largely outside of the United States, which may to varying degrees result in lower expenses. Additionally, high levels of inflation have recently resulted in significant economic volatility and monetary tightening by central banks. The global economy has also been impacted by the ongoing conflict between Russia and Ukraine, which has caused disruptions to the global and the Company’s internal supply chain. Supply chain disruptions could continue to result in delays in our production and distribution processes, R&D initiatives and our ability to timely respond to consumer demand. See also discussion under “—International Markets segment” below.

We have implemented certain measures in response to such macroeconomic pressures and are continually considering various initiatives, including price adjustments where we are not restricted contractually or regulatorily, enhanced inventory management and alternative sourcing strategies for our raw material supply, to allow us to partially mitigate and offset the impact of these macroeconomic factors. However, although inflationary and other macroeconomic pressures may ease, the higher costs we have experienced during the recent periods have already impacted our operations and will likely continue to have an effect on our financial results.

Highlights

Significant highlights in the second quarter of 2023 included:

•

Revenues in the second quarter of 2023 were $3,878 million, an increase of 2% compared to the second quarter of 2022. In local currency terms, revenues increased by 4%, mainly due to higher revenues from AUSTEDO and Anda in our North America segment and from generic products in our International Markets segment, partially offset by lower revenues from generic products and from COPAXONE in our North America segment as well as from API sales to third parties.

•

Our North America segment generated revenues of $1,991 million and segment profit of $520 million in the second quarter of 2023. Revenues increased by 5% and segment profit increased by 8% compared to the second quarter of 2022.

•

Our Europe segment generated revenues of $1,163 million and segment profit of $334 million in the second quarter of 2023. Revenues decreased by 1% in U.S. dollars, or flat in local currency terms, compared to the second quarter of 2022. Segment profit decreased by 14% compared to the second quarter of 2022.

•

Our International Markets segment generated revenues of $479 million and segment profit of $124 million in the second quarter of 2023. Revenues increased by 5% in U.S. dollars, or 13% in local currency terms, compared to the second quarter of 2022. Segment profit increased by 30% compared to the second quarter of 2022.

•

Our revenues from other activities in the second quarter of 2023 were $245 million, a decrease of 5% in both U.S. dollars and local currency terms, compared to the second quarter of 2022.

•

Exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted revenues by $51 million compared to the second quarter of 2022. See note 8d to our consolidated financial statements.

•

Impairments of identifiable intangible assets were $63 million in the second quarter of 2023, compared to $51 million in the second quarter of 2022. See note 5 to our consolidated financial statements.

•

We recorded a goodwill impairment charge of $700 million related to our International Markets reporting unit in the second quarter of 2023, compared to a goodwill impairment charge of $745 million in the second quarter of 2022, of which $479 million was related to our International Markets reporting unit and $266 million was related to Teva’s API reporting unit. See note 6 to our consolidated financial statements.

•

We recorded expenses of $100 million for other asset impairments, restructuring and other items in the second quarter of 2023, compared to expenses of $118 million in the second quarter of 2022. See note 12 to our consolidated financial statements.

•

Legal settlements and loss contingencies expenses were $462 million in the second quarter of 2023, compared to $729 million in the second quarter of 2022. See note 9 to our consolidated financial statements.

•

Operating loss was $646 million in the second quarter of 2023, compared to an operating loss of $949 million in the second quarter of 2022.

•

Financial expenses were $268 million in the second quarter of 2023, compared to $211 million in the second quarter of 2022.

•

In the second quarter of 2023, we recognized a tax benefit of $16 million, on a pre-tax loss of $914 million. In the second quarter of 2022, we recognized a tax benefit of $900 million, on a pre-tax loss of $1,160 million. See note 11 to our consolidated financial statements.

•

As of June 30, 2023, our debt was $20,678 million, compared to $21,212 million as of December 31, 2022. In July 2023, we repaid $1,000 million of our 2.8% senior notes at maturity. Additionally, in July 2023, a total amount of $700 million was withdrawn under the RCF and is outstanding as of the date of this Quarterly Report on Form 10-Q. See note 7 to our consolidated financial statements.

•

favorable vendor payment terms that went into effect in the second quarter of 2023 and higher inventory purchases, as well as by an increase in provisions for legal settlements and loss contingencies, partially offset by an increase in inventory levels, in accounts receivables, net of SR&A, in prepaid expenses, and a decrease in employee-related obligations.

•

Cash flow generated from operating activities during the second quarter of 2023 was $324 million, compared to $123 million in the second quarter of 2022. The higher cash flow generated in the second quarter of 2023 resulted mainly from changes in working capital items, including a positive impact from accounts receivables, net of SR&A, and from inventory levels, partially offset by a negative impact from accounts payables.

•

During the second quarter of 2023, we generated free cash flow of $632 million, which we define as comprising: $324 million in cash flow generated from operating activities, $371 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $56 million in proceeds from divestitures of businesses and other assets, partially offset by $119 million in cash used for capital investment. During the second quarter of 2022, we generated free cash flow of $301 million. The increase in the second quarter of 2023 resulted mainly from higher cash flow generated from operating activities, as well as higher proceeds from sale of business and long-lived assets.

Results of Operations

Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,
	2023					2022
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,991		100	%	$	1,904		100	%
Gross profit		1,046		52.5	%		1,010		53.0	%
R&D expenses		159		8.0	%		147		7.7	%
S&M expenses		264		13.3	%		256		13.4	%
G&A expenses		106		5.3	%		127		6.7	%
Other income		(4	)		§		(1	)		§

Segment profit*	$	520		26.1	%	$	481		25.3	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the second quarter of 2023 were $1,991 million, an increase of $87 million, or 5%, compared to the second quarter of 2022. This increase was mainly due to higher revenues from certain innovative products, primarily AUSTEDO and AJOVY, as well as Anda, partially offset by lower revenues from generic products, COPAXONE and BENDEKA and TREANDA.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,				Percentage Change 2023-2022
	2023		2022		Percentage Change 2023-2022
	(U.S. $ in millions)
Generic products	$	969	$	1,026		(6	%)
AJOVY		57		49		16	%
AUSTEDO		308		204		51	%
BENDEKA and TREANDA		69		83		(17	%)
COPAXONE		64		94		(33	%)
Anda		392		308		27	%
Other		133		139		(4	%)

Total	$	1,991	$	1,904		5	%

Generic products revenues in our North America segment (including biosimilars) in the second quarter of 2023 were $969 million, a decrease of 6% compared to the second quarter of 2022, mainly due to increased competition to parts of our portfolio.

Among the most significant generic products we sold in North America in the second quarter of 2023 were lenalidomide capsules (the generic version of Revlimid^®), epinephrine injectable solution (the generic equivalent of EpiPen^® and EpiPen Jr^®), Truxima^® (the biosimilar to Rituxan^®),and albuterol sulfate inhalation aerosol (our ProAir^® authorized generic).

In the second quarter of 2023, our total prescriptions were approximately 319 million (based on trailing twelve months), representing 8.4% of total U.S. generic prescriptions, compared to approximately 302 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions in the second quarter of 2022, all according to IQVIA data.

AJOVY revenues in our North America segment in the second quarter of 2023 increased by 16% to $57 million, compared to the second quarter of 2022, mainly due to growth in volume. In the second quarter of 2023, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 25.1% compared to 24.4% in the second quarter of 2022.

AJOVY is indicated for the preventive treatment of migraine in adults. AJOVY was launched in the U.S. in 2018, and was approved in Canada in April 2020. Our auto-injector device for AJOVY became commercially available in the U.S. in April 2020 and in Canada in April 2021. AJOVY is the only anti-CGRP subcutaneous product indicated for quarterly treatment.

AJOVY is protected worldwide by patents expiring in 2026 at the earliest; extensions have been granted in several countries, including the United States and Europe, until 2031. Additional patents relating to the use of AJOVY in the treatment of migraine have also been issued in the United States and will expire between 2035 and 2039. Such patents are also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States (obtained in September 2018) and 10 years from marketing approval in Europe (obtained in April 2019). We filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents, including three method of treatment patents and six composition of matter patents. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine Teva patents. The PTAB issued decisions upholding the three method of treatment patents but finding the asserted claims of the six composition of matter patents invalid, which decisions were affirmed by the Court of Appeals for the Federal Circuit on August 16, 2021. A jury trial regarding the three method of treatment patents began on October 18, 2022, and on November 9, 2022, the jury issued a verdict in Teva’s favor, finding the three method of treatment patents valid and infringed by Lilly and awarding Teva $176.5 million in damages. On January 28, 2023, Lilly filed a motion requesting that the District Court overturn the jury’s verdict. Once the motion is decided, the losing party may appeal the decision to the Court of Appeals for the Federal Circuit.

On June 8, 2021, we filed another lawsuit against Lilly in the U.S. District Court for the District of Massachusetts alleging that Lilly’s marketing and sale of galcanezumab product infringes two patents related to the treatment of refractory migraine. Lilly’s IPR petitions challenging the patentability of these two patents as well as a third patent also related to the treatment of refractory migraine were instituted by the PTAB. Oral argument in these IPR proceedings was

heard on July 19, 2023, and the PTAB’s decisions are expected in the second half of 2023. The litigation in the District of Massachusetts was stayed during the pendency of these IPR proceedings. In addition, in 2018 we entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO revenues in our North America segment in the second quarter of 2023 increased by 51%, to $308 million, compared to $204 million in the second quarter of 2022, mainly due to growth in volume and the launch of AUSTEDO XR in May 2023.

AUSTEDO was launched in the U.S. in 2017. It is indicated for the treatment of chorea associated with Huntington disease and for the treatment of tardive dyskinesia in adults.

AUSTEDO is protected in the United States by ten Orange Book patents expiring between 2031 and 2038 and in Europe by two patents expiring in 2029. We received notice letters from two ANDA filers regarding the filing of their ANDAs with paragraph (IV) certifications for certain of the patents listed in the Orange Book for AUSTEDO. On July 1, 2021, we filed claims against two generic ANDA filers, Aurobindo and Lupin, in the U.S. District Court for the District of New Jersey. In addition, Apotex filed a petition for IPR by the PTAB of the patent covering the deutetrabenazine compound that expires in 2031. On March 9, 2022, the U.S. Patent and Trademark Office denied Apotex’s petition and declined to institute a review of the deutetrabenazine patent. On April 29, 2022 and June 8, 2022, we reached agreements with Lupin and Aurobindo, respectively, to sell their generic products beginning April 2033, or earlier under certain circumstances. There are no further patent litigations pending regarding AUSTEDO.

AUSTEDO XR (deutetrabenazine) extended-release tablets was approved by the FDA on February 17, 2023, and became commercially available in the U.S. in May 2023. AUSTEDO XR is a new once-daily formulation indicated in adults for tardive dyskinesia and chorea associated with Huntington’s disease, additional to the currently marketed twice-daily AUSTEDO. AUSTEDO XR is protected by eight Orange Book patents expiring between 2031 and 2041.

UZEDY (risperidone) extended-release injectable suspension was approved by the FDA on April 28, 2023 for the treatment of schizophrenia in adults, and was launched in the U.S. in May 2023. UZEDY is the first subcutaneous, long-acting formulation of risperidone that controls the steady release of risperidone. UZEDY is protected by nine Orange Book patents expiring between 2025 and 2033.

BENDEKA and TREANDA combined revenues in our North America segment in the second quarter of 2023 decreased by 17% to $69 million, compared to the second quarter of 2022, mainly due to generic bendamustine product entry into the market. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022.

In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increased the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.

There are 16 patents listed in the U.S. Orange Book for BENDEKA with expiry dates in 2026 and 2031. In September 2019, a patent infringement action against four of six ANDA filers for generic versions of BENDEKA was tried in the U.S. District Court for the District of Delaware. On April 27, 2020, the district court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe at least one of the patents. Three of the four ANDA filers appealed the district court decision. Teva settled with one of the three ANDA filers, and on August 13, 2021, the Federal Circuit issued a Rule 36 affirmance of the district court decision. Litigation against the fifth ANDA filer was dismissed after the withdrawal of its patent challenge, and the case against a sixth ANDA filer was also settled.

Additionally, in July 2018, Teva and Eagle filed suit against Hospira, Inc. (“Hospira”) related to its 505(b)(2) NDA referencing BENDEKA in the U.S. District Court for the District of Delaware. On December 16, 2019, the district court dismissed the case against Hospira on all but one of the asserted patents, which expires in 2031. On April 18, 2022, Teva and Eagle settled this matter with Hospira. Teva had also filed suit against two other 505(b)(2) NDA filers, Doctor Reddy’s Laboratories (“DRL”) and Accord Healthcare (“Accord”). On December 10, 2022 and April 4, 2023, Teva and Eagle settled with Accord and DRL, respectively. Based on the settlement agreements, the three 505(b)(2) filers, Hospira, Accord and DRL can launch their products on November 17, 2027 or earlier under certain circumstances. On May 4, 2023, and June 9, 2023, Teva and Eagle also filed suit against BendaRx Corp. in the U.S. District Court for the District of Delaware, following its filing of a 505(b)(2) NDA for a bendamustine product. In addition, On June 16, 2023, Teva filed suit against BendaRx USA Corp. in the U.S. District Court for the District of Eastern Virginia.

In addition to the settlement with Eagle regarding its bendamustine 505(b)(2) NDA, between 2015 and 2020, we reached final settlements with 22 ANDA filers for generic versions of the lyophilized form of TREANDA and one 505(b)(2) NDA filer for a generic version of the liquid form of TREANDA, providing for the launch of generic versions of TREANDA prior to patent expiration. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022. There are now multiple generic TREANDA products on the market.

COPAXONE revenues in our North America segment in the second quarter of 2023 decreased by 33% to $64 million, compared to the second quarter of 2022, mainly due to generic competition in the United States and a decrease in glatiramer acetate market share due to availability of alternative therapies.

The market for MS treatments continues to develop, particularly with the approval of generic versions of COPAXONE. Oral treatments for MS, such as Tecfidera^®, Gilenya^® and Aubagio^®, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus^® and Kesimpta^®.

Anda revenues from third-party products in our North America segment in the second quarter of 2023 increased by 27% to $392 million, compared to $308 million in the second quarter of 2022, mainly due to higher demand. Anda, our distribution business in the United States, distributes generic and innovative medicines and OTC pharmaceutical products from Teva and various third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the distribution market by maintaining a broad portfolio of products, competitive pricing and delivery throughout the United States.

Product Launches and Pipeline

In the second quarter of 2023, we launched the generic version of the following branded products in North America:

Product Name

Brand Name

Launch
Date

Total Annual U.S.
Branded Sales at Time
of Launch
(U.S. $ in millions
(IQVIA))^*

Darunavir Tablets

Prezista^® tablets

June

308

Topiramate Extended-release Capsules 25 mg, 50 mg & 100 mg

Trokendi XR^®

May

244

Amlodipine Besylate Tablets, USP

Norvasc^® tablets

May

Gefitinib Tablets

Iressa^® tablets

June

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

Our generic products pipeline in the United States includes, as of June 30, 2023, 156 product applications awaiting FDA approval, including 69 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended March 31, 2023 of approximately $113 billion, according to IQVIA. Approximately 75% of pending applications include a paragraph IV patent challenge, and we believe we are first-to-file with respect to 69 of these products, or 96 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first-to-file opportunities represent over $75 billion in U.S. brand sales for the twelve months ended March 31, 2023, according to IQVIA.

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

In the second quarter of 2023, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a 30-month regulatory stay lapses or a 180-day exclusivity period awarded to another manufacturer either expires or is forfeited.


Generic Name	Brand Name	Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA))^*
Tofacitinib Tablets, 5 mg and 10 mg	Xeljanz PF^®	$	879
Thalidomide Capsules USP, 50 mg, 100 mg, and 200 mg	Thalomid^®	$	12
Treprostinil ER Tabs, 0.25 mg, 1 mg and 2.5 mg^**	Orenitram^®		No Data

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

^**	Marketed through Specialty Pharmacy that doesn’t report to IQVIA.

For information regarding our innovative and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

North America Gross Profit

Gross profit from our North America segment in the second quarter of 2023 was $1,046 million, an increase of 4%, compared to $1,010 million in the second quarter of 2022.

Gross profit margin for our North America segment in the second quarter of 2023 decreased to 52.5%, compared to 53.0% in the second quarter of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as well as an increase in revenues with lower profitability from Anda, partially offset by an increase in revenues with higher profitability from AUSTEDO.

North America R&D Expenses

R&D expenses relating to our North America segment in the second quarter of 2023 were $159 million, an increase of 8%, compared to $146 million in the second quarter of 2022.

For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

North America S&M Expenses

S&M expenses relating to our North America segment in the second quarter of 2023 were $264 million, an increase of 3%, compared to $256 million in the second quarter of 2022. This increase was mainly due to promotional activities related to AUSTEDO and UZEDY.

North America G&A Expenses

G&A expenses relating to our North America segment in the second quarter of 2023 were $106 million, a decrease of 16% compared to $127 million in the second quarter of 2022.

North America Profit

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

Profit from our North America segment in the second quarter of 2023 was $520 million, an increase of 8% compared to $481 million in the second quarter of 2022. This increase was mainly due to higher revenues from certain innovative products, primarily AUSTEDO.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,
	2023					2022
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	1,163		100	%	$	1,171		100	%
Gross profit		640		55.0	%		703		60.0	%
R&D expenses		53		4.6	%		56		4.7	%
S&M expenses		194		16.7	%		196		16.8	%
G&A expenses		61		5.2	%		63		5.4	%
Other income		(1	)		§		(1	)		§

Segment profit*	$	334		28.7	%	$	389		33.2	%

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

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union, the United Kingdom and certain other European countries.

Revenues from our Europe segment in the second quarter of 2023 were $1,163 million, a decrease of 1%, or $8 million, compared to the second quarter of 2022. In local currency terms, revenues were flat compared to the second quarter of 2022.

Revenues in the second quarter of 2023 included $1 million from a negative hedging impact, which is included in “Other” in the table below. Revenues in the second quarter of 2022 included $31 million from a positive hedging impact, which is included in “Other” in the table below. See note 8d to our consolidated financial statements.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,				Percentage Change 2023-2022
	2023		2022		Percentage Change 2023-2022
	(U.S. $ in millions)
Generic products	$	909	$	873		4	%
AJOVY		39		29		32	%
COPAXONE		60		72		(17	%)
Respiratory products		66		65		2	%
Other		89		131		(32	%)

Total	$	1,163	$	1,171		(1	%)

Generic products revenues (including OTC and biosimilar products) in our Europe segment in the second quarter of 2023, increased by 4% to $909 million, compared to the second quarter of 2022. In local currency terms, revenues increased by 2%, mainly due to higher demand and price increases as well as from generic product launches.

AJOVY revenues in our Europe segment in the second quarter of 2023 increased by 32% in both U.S. dollars and local currency terms to $39 million, compared to $29 million in the second quarter of 2022. This increase was mainly due to growth in the European countries in which AJOVY had previously been launched.

For information about AJOVY patent protection, see “—North America Revenues—Revenues by Major Products and Activities” above.

COPAXONE revenues in our Europe segment in the second quarter of 2023 decreased by 17% to $60 million, compared to the second quarter of 2022. In local currency terms, revenues decreased by 21%, due to price reductions and a decline in volume resulting from competing glatiramer acetate products.

One European patent protecting COPAXONE 40 mg/mL was found invalid by the Board of Appeal of the European Patent Office in September 2020 and two additional patents expiring in 2030 were found invalid in December 2021. In certain countries, Teva remains in litigation against generic companies on an additional COPAXONE 40 mg/mL patent that expires in 2030.

Respiratory products revenues in our Europe segment in the second quarter of 2023 increased by 2% to $66 million compared to the second quarter of 2022. In local currency terms, revenues were flat compared to the second quarter of 2022.

Product Launches and Pipeline

As of June 30, 2023, our generic products pipeline in Europe included 235 generic approvals relating to 44 compounds in 83 formulations, with no European Medicines Agency (“EMA”) approvals received. In addition, approximately 1,110 marketing authorization applications are pending approval in 37 European countries, relating to 97 compounds in 202 formulations. One application is pending with the EMA relating to three strengths in 30 markets.

For information regarding our innovative medicines and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe Gross Profit

Gross profit from our Europe segment in the second quarter of 2023 was $640 million, a decrease of 9% compared to $703 million in the second quarter of 2022.

Gross profit margin for our Europe segment in the second quarter of 2023 decreased to 55.0%, compared to 60.0% in the second quarter of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as well as a favorable impact of hedging activities in the second quarter of 2022.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the second quarter of 2023 were $53 million, a decrease of 5% compared to $56 million in the second quarter of 2022.

For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the second quarter of 2023 were $194 million, a decrease of 1% compared to $196 million in the second quarter of 2022.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the second quarter of 2023 were $61 million, a decrease of 4% compared to $63 million in the second quarter of 2022.

Europe Profit

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

Profit from our Europe segment in the second quarter of 2023 was $334 million, a decrease of 14%, compared to $389 million in the second quarter of 2022. This decrease was mainly due to lower gross profit as described above.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,
	2023					2022

	(U.S. $ in millions /% of Segment Revenues)
Revenues	$	479		100	%	$	454		100	%
Gross profit		254		53.2	%		242		53.3	%
R&D expenses		21		4.3	%		19		4.2	%
S&M expenses		110		23.0	%		99		21.7	%
G&A expenses		29		6.0	%		30		6.7	%
Other income		(28	)	(5.9	%)		(1	)		§

Segment profit*	$	124		25.8	%	$	95		20.9	%

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

§	Represents an amount less than 0.5%.

International Markets Revenues

Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical market. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics-oriented markets, such as Russia and certain Latin America markets and hybrid markets, such as Japan.

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 our International Markets segment results. We have no manufacturing or R&D facilities in these markets. During the six months ended June 30, 2023, the impact of this conflict on our International Markets segment’s results of operations and financial condition was immaterial. Consistent with our foreign exchange risk management hedging programs, we entered into hedges to hedge our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. However, as of the end of the second quarter of 2023, we were unable to renew certain of our expiring hedging positions due to the liquidity situation in the market for Russian rubles and we currently hedge a small part of our projected net revenues for 2023. Prior to and since the escalation of the conflict, we have been taking measures to reduce our operational cash balances in Russia and Ukraine. We have been monitoring the solvency of our customers in Russia and Ukraine and have taken measures, where practicable, to mitigate our exposure to risks related to the conflict in the region. However, the duration, severity and global implications (including potential inflation and devaluation consequences) of the conflict cannot be predicted at this time and could have an effect on our business, including on our exchange rate exposure, supply chain, operational costs and commercial presence in these markets.

Revenues from our International Markets segment in the second quarter of 2023 were $479 million, an increase of 5% compared to the second quarter of 2022. In local currency terms, revenues increased by 13% compared to the second quarter of 2022, mainly due to higher revenues from generic products in most markets, partially offset by regulatory price reductions and generic competition to off-patented products in Japan.

In the second quarter of 2023, revenues were negatively impacted by exchange rate fluctuations of $35 million, net of hedging effects, compared to the second quarter of 2022. Revenues in the second quarter of 2023 included a positive hedging impact of $6 million, compared to a negative hedging impact of $17 million in the second quarter of 2022, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,				Percentage Change
	2023		2022		2023-2022
	(U.S. $ in millions)
Generic products	$	394	$	394			§
AJOVY		9		10		(18	%)
COPAXONE		10		9		1	%
Other		67		40		68	%

Total	$	479	$	454		5	%

§	Represents an amount less than 0.5%.

Generic products revenues (including OTC products) in our International Markets segment in the second quarter of 2023 were flat compared to the second quarter of 2022. In local currency terms, revenues increased by 13% compared to the second quarter of 2022, mainly due to higher revenues in most markets, largely driven by price increases largely as a result of rising costs due to inflationary pressure, partially offset by regulatory price reductions and generic competition to off-patented products in Japan.

AJOVY was launched in certain markets in our International Markets segment, including in Japan in August 2021. We are moving forward with plans to launch AJOVY in other markets. AJOVY revenues in our International Markets segment in the second quarter of 2023 were $9 million, compared to $10 million in the second quarter of 2022.

COPAXONE revenues in our International Markets segment in the second quarter of 2023 were $10 million compared to $9 million in the second quarter of 2022.

AUSTEDO was launched in China and Israel during 2021 and in Brazil in 2022, for the treatment of chorea associated with Huntington’s disease and for the treatment of tardive dyskinesia. We continue with additional submissions in various other markets.

International Markets Gross Profit

Gross profit from our International Markets segment in the second quarter of 2023 was $254 million, an increase of 5% compared to $242 million in the second quarter of 2022.

Gross profit margin for our International Markets segment in the second quarter of 2023 decreased to 53.2%, compared to 53.3% in the second quarter of 2022. This decrease was mainly due to regulatory price reductions and generic competition to off-patented products in Japan, as well as rising costs due to inflationary and other macroeconomic pressures, partially offset by price increases largely as a result of such inflationary pressures, and the negative hedging impact in the second quarter of 2022.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the second quarter of 2023 were $21 million, an increase of 7% compared to the second quarter of 2022.

For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the second quarter of 2023 were $110 million, an increase of 12% compared to the second quarter of 2022, mainly to support revenue growth.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the second quarter of 2023 were $29 million, a decrease of 5% compared to $30 million in the second quarter of 2022.

International Markets Other Income

Other income relating to our International Markets segment in the second quarter of 2023 was $28 million, compared to $1 million in the second quarter of 2022. Other income in the second quarter of 2023 included a capital gain from the sale of assets.

International Markets Profit

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

Profit from our International Markets segment in the second quarter of 2023 was $124 million, an increase of 30%, compared to $95 million in the second quarter of 2022. This increase was mainly due to higher other income and higher gross profit in the second quarter of 2023, partially offset by higher S&M expenses in the second quarter of 2023.

Other Activities

We have other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.

Our revenues from other activities in the second quarter of 2023 were $245 million, a decrease of 5% in both U.S. dollars and local currency terms compared to the second quarter of 2022.

API sales to third parties in the second quarter of 2023 were $152 million, a decrease of 14% in both U.S. dollars and local currency terms, compared to the second quarter of 2022.

Teva Consolidated Results

Revenues

Exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted revenues by $51 million, compared to the second quarter of 2022. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the second quarter of 2023 was $1,796 million, flat compared to the second quarter of 2022.

Gross profit margin was 46.3% in the second quarter of 2023, compared to 47.4% in the second quarter of 2022. This decrease was mainly driven by rising costs due to inflationary and other macroeconomic pressures, an increase in revenues with lower profitability from Anda in our North America segment and lower revenues from COPAXONE, partially offset by higher revenues from AUSTEDO.

Research and Development (R&D) Expenses

Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.

Our R&D activities for innovative medicines and biosimilar products in each of our segments include costs of discovery research, preclinical development, drug formulation, early- and late-stage clinical development and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) post-approval studies for marketed products; and (v) indirect expenses, such as costs of internal administration, infrastructure and personnel.

R&D expenses in the second quarter of 2023 were $240 million, an increase of 5% compared to $228 million in the second quarter of 2022.

In the second quarter of 2023, our R&D expenses related primarily to innovative product candidates in neuroscience (such as neuropsychiatry, including post-approval commitments), immunology and immuno-oncology and selected other areas, as well as generic products and biosimilars.

Our higher R&D expenses in the second quarter of 2023, compared to the second quarter of 2022, were mainly due to an increase in neuroscience (mainly neuropsychiatry), in immunology and immuno-oncology, as well as in various generics and biosimilar products.

R&D expenses as a percentage of revenues were 6.2% in the second quarter of 2023, compared to 6.0% in the second quarter of 2022.

Innovative Medicines Pipeline

Below is a description of key products in our innovative medicines pipeline as of August 2, 2023:


	Phase 2	Phase 3	Pre-Submission	Under Regulatory Review
Neuroscience		Olanzapine LAI Schizophrenia (September 2022)

Immunology	Anti- TL1A (TEV-48574) Inflammatory Bowel Disease	ICS/SABA (TEV-56248) Respiratory (February 2023)

Other			Digihaler^® (beclomethasone dipropionate HFA)(U.S.)	Digihaler^® (budesonide and formoterol fumarate dihydrate) (EU)⁽¹⁾

⁽¹⁾	Approved in the U.K.

Biosimilar Products Pipeline

We have additional biosimilar products in development internally and with our partners that are in various stages of clinical trials and regulatory review worldwide, including phase 3 clinical trials for biosimilars to Prolia^® (denosumab), Xolair^® (omalizumab), Eylea^® (afilbercept) and Simponi^® (golimumab), a biosimilar to Lucentis^® (ranibizumab) that was submitted in Canada, and biosimilars to Stelara^® (ustekinumab) and to Humira^®(adalimumab), each of which are currently under U.S. regulatory review.

Selling and Marketing (S&M) Expenses

S&M expenses in the second quarter of 2023 were $603 million, an increase of 2% compared to the second quarter of 2022. This increase was mainly a result of the factors discussed above under “—North America segment—S&M Expenses” and “—International Markets Segment—S&M Expenses.”

S&M expenses as a percentage of revenues were 15.5% in the second quarter of 2023, compared to 15.7% in the second quarter of 2022.

General and Administrative (G&A) Expenses

G&A expenses in the second quarter of 2023 were $307 million, a decrease of 2% compared to the second quarter of 2022.

G&A expenses as a percentage of revenues were 7.9% in the second quarter of 2023 compared to 8.3% in the second quarter of 2022.

Intangible Asset Impairments

We recorded expenses of $63 million for identifiable intangible asset impairments in the second quarter of 2023, compared to expenses of $51 million in the second quarter of 2022. See note 5 to our consolidated financial statements.

Goodwill Impairment

Other Asset Impairments, Restructuring and Other Items

Legal Settlements and Loss Contingencies

We recorded expenses of $462 million in legal settlements and loss contingencies in the second quarter of 2023, compared to expenses of $729 million in the second quarter of 2022. See note 9 to our consolidated financial statements.

Other Income

Other income in the second quarter of 2023 was $33 million, compared to $34 million in the second quarter of 2022.

Other income in the second quarter of 2023 included a capital gain from the sale of assets related to our International Markets segment. Other income in the second quarter of 2022 was mainly related to a capital gain related to the sale of an R&D site.

Operating Income (Loss)

Operating loss was $646 million in the second quarter of 2023, compared to an operating loss of $949 million in the second quarter of 2022. The lower operating loss in the second quarter of 2023 was mainly due to higher legal settlements and loss contingencies in the second quarter of 2022.

Operating loss as a percentage of revenues was 16.7% in the second quarter of 2023, compared to an operating loss as a percentage of revenues of 25.1% in the second quarter of 2022.

Financial Expenses, Net

In the second quarter of 2023, financial expenses were $268 million, mainly comprised of net-interest expenses of $240 million. In the second quarter of 2022, financial expenses were $211 million, mainly comprised of net-interest expenses of $229 million, partially offset by a positive exchange rate impact driven mainly from currencies which we were unable to hedge, such as the Russian ruble.

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended June 30, 2023 and 2022:


	Three months ended June 30,
	2023			2022
	(U.S. $ in millions)
North America profit	$	520		$	481
Europe profit		334			389
International Markets profit		124			95

Total reportable segments profit		977			964
Profit (loss) of other activities		33			55

Total segments profit		1,011			1,019
Amounts not allocated to segments:
Amortization		162			212
Other assets impairments, restructuring and other items		100			118
Goodwill impairment		700			745
Intangible assets impairments		63			51
Legal settlements and loss contingencies		462			729
Other unallocated amounts		170			113

Consolidated operating income (loss)		(646	)		(949	)

Financial expenses, net		268			211

Consolidated income (loss) before income taxes	$	(914	)	$	(1,160	)

Income Taxes

Share in (Profits) Losses of Associated Companies, Net

Share in profits of associated companies, net in the second quarter of 2023 was $1 million. We did not have any share in (profits) losses of associated companies, net in the second quarter of 2022.

Net Income (Loss) Attributable to Teva

Net loss was $863 million in the second quarter of 2023, compared to net loss of $232 million in the second quarter of 2022. The higher net loss in the second quarter of 2023 was mainly due to a lower tax benefit, partially offset by lower operating loss, as discussed above.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculations for the three months ended June 30, 2023 and 2022 was 1,120 million and 1,110 million shares, respectively.

Diluted loss per share was $0.77 in the second quarter of 2023, compared to diluted loss per share of $0.21 in the second quarter of 2022. See note 13 to our consolidated financial statements.

Share Count for Market Capitalization

We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and PSUs, and the conversion of our convertible senior debentures, in each case, at period end.

As of June 30, 2023 and 2022, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,157 million and 1,144 million shares, respectively.

Impact of Currency Fluctuations on Results of Operations

In the second quarter of 2023, approximately 46% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Canadian dollar, Russian ruble, Japanese yen, Swiss franc and new Israeli shekel) impact our results.

During the second quarter of 2023, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each compared on a quarterly average basis): Argentinian peso by 49%, Turkish lira by 24%, Ukrainian hryvna by 20%, Russian ruble by 17%, Israeli shekel by 8%, Swedish krona by 7% and the British pound by 1%. The following main currencies increased in value against the U.S. dollar: Mexican peso by 13%, Swiss franc by 7%, Hungarian forint by 6%, Chilean peso by 5% and the euro by 2%.

As a result, exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted overall revenues by $51 million and operating income by $38 million, compared to the second quarter of 2022.

In the second quarter of 2023, a positive hedging impact of $4 million was recognized under revenues, and a negative hedging impact of $2 million was recognized under cost of sales. In the second quarter of 2022, a positive hedging impact of $17 million was recognized under revenues and a negative hedging impact of $3 million was recognized under cost of sales.

Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

Commencing in the second quarter of 2022, the cumulative inflation in Turkey exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022

Unless specified otherwise, the factors used to explain quarterly changes on a year-over-year basis are also relevant for the comparison of the results for the six months ended June 30, 2023 and 2022. Where there are different factors affecting the six months comparison, we have described them below.

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
	2023					2022

	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	3,757		100	%	$	3,641		100	%
Gross profit		1,857		49.4	%		1,899		52.2	%
R&D expenses		315		8.4	%		289		7.9	%
S&M expenses		487		12.9	%		501		13.7	%
G&A expenses		208		5.5	%		239		6.6	%
Other income		(5	)		§		(12	)		§

Segment profit*	$	852		22.7	%	$	883		24.2	%

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

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first six months of 2023 were $3,757 million, an increase of 3% compared to $3,641 million in the first six months of 2022.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,				Percentage Change
	2023		2022		2023-2022
	(U.S. $ in millions)
Generic products	$	1,793	$	1,925		(7	%)
AJOVY		107		86		24	%
AUSTEDO		478		358		33	%
BENDEKA and TREANDA		131		165		(20	%)
COPAXONE		139		180		(23	%)
Anda		816		650		26	%
Other		293		278		5	%

Total	$	3,757	$	3,641		3	%

*	Other revenues in the first six months of 2023 increased mainly due to a reduction in estimated liabilities in connection with ProAir^® HFA following its discontinuation on October 1, 2022.

North America Gross Profit

Gross profit from our North America segment in the first six months of 2023 was $1,857 million, a decrease of 2%, compared to $1,899 million in the first six months of 2022.

Gross profit margin for our North America segment in the first six months of 2023 decreased to 49.4% compared to 52.2% in the first six months of 2022.

North America R&D Expenses

R&D expenses relating to our North America segment in the first six months of 2023 were $315 million, an increase of 9%, compared to $289 million in the first six months of 2022.

North America S&M Expenses

S&M expenses relating to our North America segment in the first six months of 2023 were $487 million, a decrease 3%, compared to $501 million in the first six months of 2022.

North America G&A Expenses

G&A expenses relating to our North America segment in the first six months of 2023 were $208 million, a decrease of 13%, compared to $239 million in the first six months of 2022.

North America Profit

Profit from our North America segment in the first six months of 2023 was $852 million, a decrease of 3%, compared to $883 million in the first six months of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as mentioned above, partially offset by higher revenues from AUSTEDO as well as lower operational expenses.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
	2023					2022

	(U.S. $ in millions /% of Segment Revenues)
Revenues	$	2,347		100	%	$	2,327		100	%
Gross profit		1,294		55.2	%		1,397		60.0	%
R&D expenses		106		4.5	%		114		4.9	%
S&M expenses		381		16.2	%		393		16.9	%
G&A expenses		130		5.5	%		122		5.2	%
Other (income) expense		(1	)		§		(1	)		§

Segment profit*	$	679		28.9	%	$	769		33.1	%

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

§	Represents an amount less than 0.5%, as applicable.

Europe Revenues

Our Europe segment includes the European Union, the United Kingdom, and certain other European countries.

Revenues from our Europe segment in the first six months of 2023 were $2,347 million, an increase of 1% or $20 million, compared to the first six months of 2022. In local currency terms, revenues increased by 5% compared to the first six months of 2022, mainly due to higher demand and price increases from generic products and growth in volume from AJOVY, partially offset by lower sales from COPAXONE.

In the first six months of 2023, revenues were negatively impacted by exchange rate fluctuations of $87 million, net of hedging effects, compared to the first six months of 2022. Revenues in the first six months of 2023 included $7 million from a negative hedging impact, which are included in “Other” in the table below. Revenues in the first six months of 2022 included $39 million from a positive hedging impact. See note 8d to our consolidated financial statements.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,				Percentage Change
	2023		2022		2023-2022
	(U.S. $ in millions)
Generic products	$	1,841	$	1,749		5	%
AJOVY		74		60		25	%
COPAXONE		119		144		(17	%)
Respiratory products		134		137		(2	%)
Other		178		238		(25	%)

Total	$	2,347	$	2,327		1	%

Europe Gross Profit

Gross profit from our Europe segment in the first six months of 2023 was $1,294 million, a decrease of 7% compared to $1,397 million in the first six months of 2022.

Gross profit margin for our Europe segment in the first six months of 2023 decreased to 55.2% compared to 60.0% in the first six months of 2022.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first six months of 2023 were $106 million, a decrease of 7% compared to $114 million in the first six months of 2022.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first six months of 2023 were $381 million, a decrease of 3% compared to $393 million in the first six months of 2022.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first six months of 2023 were $130 million, an increase of 7% compared to $122 million in the first six months of 2022.

Europe Profit

Profit from our Europe segment in the first six months of 2023 was $679 million, a decrease of 12% compared to $769 million in the first six months of 2022.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
	2023					2022

	(U.S. $ in millions /% of Segment Revenues)
Revenues	$	971		100	%	$	946		100	%
Gross profit		517		53.2	%		528		55.8	%
R&D expenses		40		4.2	%		39		4.1	%
S&M expenses		208		21.4	%		196		20.7	%
G&A expenses		60		6.2	%		60		6.3	%
Other (income) expense		(29	)	(3.0	%)		(41	)	(4.3	%)

Segment profit*	$	237		24.5	%	$	274		29.0	%

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

International Markets Revenues

Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first six months of 2023 were $971 million, an increase of $25 million, or 3%, compared to the first six months of 2022. In local currency terms, revenues increased by 11%.

In the first six months of 2023, revenues were negatively impacted by exchange rate fluctuations of $77 million net of hedging effects, compared to the first six months of 2022. Revenues in the first six months of 2023 included a positive hedging impact of $7 million, compared to a negative hedging impact of $5 million which were included in “Other” in the table below. See note 8d to our consolidated financial statements.

Revenues by Major Products and Activities

The following table presents revenues for our International Markets segment by major products and activities for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
	2023		2022

	(U.S. $ in millions)
Generic products	$	793	$	782
AJOVY		19		16
COPAXONE		22		20
Other		137		128

Total	$	971	$	946

International Markets Gross Profit

Gross profit from our International Markets segment in the first six months of 2023 was $517 million, compared to $528 million in the first six months of 2022.

Gross profit margin for our International Markets segment in the first six months of 2023 was 53.2%, a decrease of 2.6% compared to the first six months of 2022.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the first six months of 2023 were $40 million, an increase of 3% compared to $39 million in the first six months of 2022.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the first six months of 2023 were $208 million, an increase of 6% compared to $196 million in the first six months of 2022.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the first six months of 2023 were $60 million flat compared to the first six months of 2022.

International Markets Other Income

Other income in the first six months of 2023 was $29 million, compared to $41 million in the first six months of 2022. Other income in the first six months of 2023 was included a capital gain from the sale of assets. Other income in the first six months of 2022 was mainly the result of settlement proceeds.

International Markets Profit

Profit from our International Markets segment in the first six months of 2023 was $237 million, a decrease of 13%, compared to $274 million in the first six months of 2022. This decrease was mainly due to lower gross profit, lower other income as well as higher S&M expenses in the first six months of 2023.

Other Activities

Our revenues from other activities in the first six months of 2023 decreased by 13% to $464 million, compared to the first six months of 2022. In local currency terms, revenues decreased by 12%.

API sales to third parties in the first six months of 2023 were $284 million, a decrease of 21% in both U.S. dollars and local currency terms, compared to the first six months of 2022.

Teva Consolidated Results

Revenues

Revenues in the first six months of 2023 were $7,539 million, an increase of 1% compared to the first six months of 2022. In local currency terms, revenues increased by 4%, compared to the first six months of 2022.

Exchange rate movements during the first six months of 2023, including hedging effects, negatively impacted revenues by $180 million, compared to the first six months of 2022. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the first six months of 2023 was $3,378 million, a decrease of 4% compared to the first six months of 2022.

Gross profit margin was 44.8% in the first six months of 2023, compared to 47.5% in the first six months of 2022.

Research and Development (R&D) Expenses

R&D expenses in the first six months of 2023 were $473 million, an increase of 5% compared to the first six months of 2022.

R&D expenses as a percentage of revenues were 6.3% in the first six months of 2023, compared to 6.1% in the first six months of 2022.

Selling and Marketing (S&M) Expenses

S&M expenses in the first six months of 2023 were $1,149 million, a decrease of 2% compared to the first six months of 2022, mainly due to exchange rate fluctuations in our Europe segment as well as cost efficiencies in our North America segment during the first quarter of 2023.

S&M expenses as a percentage of revenues were 15.2% in the first six months of 2023, compared to 15.8% in the first six months of 2022.

General and Administrative (G&A) Expenses

G&A expenses in the first six months of 2023 were $602 million, a decrease of 1% compared to the first six months of 2022.

G&A expenses as a percentage of revenues were 8.0% in the first six months of 2023, compared to 8.2% in the first six months of 2022.

Intangible Asset Impairments

We recorded expenses of $241 million for identifiable intangible asset impairments, in the first six months of 2023, compared to expenses of $199 million in the first six months of 2022. See note 5 to our consolidated financial statements.

Goodwill Impairment

We recorded a goodwill impairment charge of $700 million related to our International Markets reporting unit in the first six months of 2023, compared to a goodwill impairment charge of $745 million in the first six months of 2022, of which $479 million was related to our International Markets reporting unit and $266 million was related to Teva’s API reporting unit. See note 6 to our consolidated financial statements.

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $195 million for other asset impairments, restructuring and other items in the first six months of 2023, compared to expenses of $246 million in the first six months of 2022. See note 12 to our consolidated financial statements.

Legal Settlements and Loss Contingencies

We recorded expenses of $695 million in legal settlements and loss contingencies in the first six months of 2023, compared to expenses of $1,854 million in the first six months of 2022. See note 9 to our consolidated financial statements.

Other Income

Other income in the first six months of 2023 was $34 million, compared to $87 million in the first six months of 2022. Other income in the first six months of 2023 included a capital gain from the sale of assets related to our International Markets segment. Other income in the first six months of 2022 was mainly the result of settlement proceeds in our International Markets segment as well as a capital gain related to the sale of an R&D site.

Operating Income (Loss)

Operating loss was $644 million in the first six months of 2023, compared to an operating loss of $1,662 million in the first six months of 2022.

Operating loss as a percentage of revenues was 8.5% in the first six months of 2023, compared to an operating loss as a percentage of revenues of 22.3% in the first six months of 2022.

Financial Expenses, Net

In the first six months of 2023, financial expenses were $528 million, mainly comprised of net-interest expenses of $476 million. In the first six months of 2022, financial expenses were $468 million, mainly comprised of net-interest expenses of $469 million.

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the six months ended June 30, 2023 and 2022:


	Six months ended
	June 30,
	2023			2022

	(U.S. $ in millions)
North America profit	$	852		$	883
Europe profit		679			769
International Markets profit		237			274

Total reportable segments profit		1,769			1,926
Profit (loss) of other activities		27			107

Total segments profit		1,796			2,032
Amounts not allocated to segments:
Amortization		326			412
Other assets impairments, restructuring and other items		195			246
Goodwill impairment		700			745
Intangible asset impairments		241			199
Legal settlements and loss contingencies		695			1,854
Other unallocated amounts		282			240

Consolidated operating income (loss)		(644	)		(1,662	)

Financial expenses, net		528			468

Consolidated income (loss) before income taxes	$	(1,172	)	$	(2,131	)

Income Taxes

In the first six months of 2023, we recognized a tax benefit of $35 million, on pre-tax loss of $1,172 million. In the first six months of 2022, we recognized a tax benefit of $899 million, on pre-tax loss of $2,131 million. See note 11 to our consolidated financial statements.

Share in (Profits) Losses of Associated Companies, Net

Share in profits of associated companies, net in the first six months of 2023 was $1 million, compared to share in profits of $21 million in the first six months of 2022. Share in profits of associated companies, net in the first six months of 2022 was mainly related to the difference between the book value of our investment in Novetide and its fair value as of the date we completed its acquisition in January 2022.

Net Income (Loss) Attributable to Teva

Net loss was $1,068 million in the first six months of 2023, compared to net loss of $1,187 million in the first six months of 2022. The lower net loss in the first six months of 2023 was mainly due to lower legal settlements and loss contingencies partially offset by a lower tax benefit, as discussed above.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculations for the six months ended June 30, 2023 and 2022 was 1,118 million and 1,109 million shares, respectively.

Basic and diluted loss per share was $0.96 for the six months ended June 30, 2023, compared to basic and diluted loss per share of $1.07 for the six months ended June 30, 2022. See note 13 to our consolidated financial statements.

Impact of Currency Fluctuations on Results of Operations

In the first six months of 2023, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in markets in which we operate (primarily the euro, British pound, Canadian dollar, Russian ruble, Japanese yen, Swiss franc and new Israeli shekel) impact our results.

During the first six months of 2023, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinian peso by 47%, Turkish lira by 25%, Ukrainian hryvna by 21%, Japanese yen by 9%, new Israeli shekel by 9%, Swedish krona by 9%, British pound by 5% and the euro by 1% (all compared on a six-month average basis). The following main currencies relevant to our operations increased in value against the U.S. dollar: Mexican peso by 12%, Swiss franc by 3% and Chilean peso by 2%.

As a result, exchange rate movements during the first six months of 2023, including hedging effects, negatively impacted overall revenues by $180 million and our operating income by $70 million, in comparison to the first six months of 2022.

In the first six months of 2023, a negative hedging impact of $2 million was recognized under revenues, and a negative hedging impact of $1 million was recognized under cost of sales. In the first six months of 2022, a positive hedging impact of $35 million was recognized under revenues and a negative hedging impact of $4 million was recognized under cost of sales.

Liquidity and Capital Resources

Total balance sheet assets were $43,095 million as of June 30, 2023, compared to $44,006 million as of December 31, 2022.

Our working capital balance, which includes accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was negative $489 million as of June 30, 2023, compared to negative $119 million as of December 31, 2022. This decrease was mainly due to an increase in accounts payables, resulting primarily from more favorable vendor payment terms that went into effect in the second quarter of 2023 and higher inventory purchases, as well as by an increase in provisions for legal settlements and loss contingencies, partially offset by an increase in inventory levels, in accounts receivables, net of SR&A, in prepaid expenses, and a decrease in employee-related obligations.

Employee-related obligations, as of June 30, 2023 were $451 million, compared to $566 million as of December 31, 2022. The decrease in the first six months of 2023 was mainly due to performance incentive payments to employees for 2022, partially offset by an accrual for performance incentive payments to employees for 2023.

Cash investment in property, plant and equipment in the second quarter of 2023 was $119 million, compared to $127 million in the second quarter of 2022. Depreciation in the second quarter of 2023 was $138 million, compared to $146 million in the second quarter of 2022.

Cash and cash equivalents and short-term and long-term investments as of June 30, 2023 were $2,680 million, compared to $2,817 million as of December 31, 2022.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $1.8 billion unsecured syndicated sustainability-linked revolving credit facility, entered into in April 2022, as amended in February 2023 (“RCF”). See note 7 to our consolidated financial statements.

Debt Balance and Movements

As of June 30, 2023, our debt was $20,678 million, compared to $21,212 million as of December 31, 2022. This decrease was mainly due to $646 million senior notes repaid at maturity, partially offset by $156 million of exchange rate fluctuations. Additionally, during the first quarter of 2023, we repurchased $2,506 million aggregate principal amount of notes upon consummation of a cash tender offer, and issued $2,445 million of sustainability-linked senior notes net of issuance costs. For further information, see note 7 to our consolidated financial statements.

In July 2023, a total amount of $700 million was withdrawn under the RCF and is outstanding as of the date of this Quarterly Report on Form 10-Q.

In July 2023, we repaid $1,000 million of our 2.8% senior notes at maturity.

Our debt as of June 30, 2023 was effectively denominated in the following currencies: 62% in U.S. dollars, 36% in euros and 2% in Swiss francs.

The portion of total debt classified as short-term as of June 30, 2023 and as of December 31, 2022 was 10%.

Our financial leverage, which is the ratio between our debt and the sum of our debt and equity, was 73% as of June 30, 2023 and as of December 31, 2022.

Our average debt maturity was approximately 6.2 years as of June 30, 2023, compared to 5.8 years as of December 31, 2022.

Total Equity

Total equity was $7,708 million as of June 30, 2023, compared to $8,691 million as of December 31, 2022. This decrease was mainly due to a net loss of $1,136 million, partially offset by a positive impact of $81 million from exchange rate fluctuations.

Exchange rate fluctuations affected our balance sheet, as approximately 92% of our net assets as of June 30, 2023 (including both non-monetary and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2022, changes in currency rates as of June 30, 2023 had a positive impact of $81 million on our equity. The following main currencies increased in value against the U.S. dollar: Mexican peso by 12%, Polish zloty by 7%, Chilean peso by 5%, Peruvian sol by 4%, British pound by 4% and the euro by 2%. The following main currencies decreased in value against the U.S. dollar: Russian ruble by 18% and Japanese yen by 10%. All comparisons are on a year-to-date basis.

Cash Flow

We continually seek to improve the efficiency of our working capital management. Periodically, as part of our cash and commercial relationship management activities, we make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers, or deceleration of payments to vendors. This has the effect of increasing or decreasing cash from operations during any given period. Increased cash from operations has the effect of reducing our leverage ratio, which is measured net of cash and cash equivalents, as of the end of such period. In connection with strategic continual improvement, we obtained more favorable payment terms from many of our vendors which are expected to continue in future periods. In addition, in periods in which receivable payments from customers are delayed, we have and expect we may in the future extend the time to pay certain vendors, so as to balance our liquidity position. Such decisions may have a material impact on our annual operating cash flow measurement, as well as on our quarterly results.

During the second quarter of 2023, we generated free cash flow of $632 million, which we define as comprising $324 million in cash flow generated from operating activities, $371 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $56 million in proceeds from divestitures of businesses and other assets, partially offset by $119 million in cash used for capital investment. During the second quarter of 2022, we generated free cash flow of $301 million, which we define as comprising $123 million in cash flow generated from operating activities, $287 million in beneficial interest collected in exchange for securitized accounts receivables and $18 million in proceeds from divestitures of businesses and other assets, partially offset by $127 million in cash used for capital investment. The increase in the second quarter of 2023, resulted mainly from higher cash flow generated from operating activities, as well as higher proceeds from sale of business and long-lived assets.

Dividends

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

Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities. For further information on our agreements with Modag, Alvotech, Takeda and MedinCell, see note 2 to our consolidated financial statements.

We are committed to paying royalties to owners of know-how, partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

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

2023 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Non-GAAP Net Income and Non-GAAP EPS Data

We present non-GAAP net income and non-GAAP earnings per share (“EPS”) as management believes that such data provide useful information to investors because they are used by management and our Board of Directors, in conjunction with other performance metrics, to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets and ultimately to evaluate the performance of management, including annual compensation. While other qualitative factors and judgment also affect annual compensation, the principal quantitative element in the determination of such compensation are performance targets tied to the work plan, which are based on these non-GAAP measures.

Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. Investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry. Investors should consider non-GAAP net income and non-GAAP EPS in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In preparing our non-GAAP net income and non-GAAP EPS data, we exclude items that either have a non-recurring impact on our financial performance or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not excluded, potentially cause investors to extrapolate future performance from an improper base that is not reflective of our underlying business performance. Certain of these items are also excluded because of the difficulty in predicting their timing and scope. The items excluded from our non-GAAP net income and non-GAAP EPS include:

•

amortization of purchased intangible assets;

•

legal settlements and material litigation fees and/or loss contingencies, due to the difficulty in predicting their timing and scope;

•

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

•

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

•

acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees and inventory step-up;

•

expenses related to our equity compensation;

•

significant one-time financing costs, amortization of issuance costs and terminated derivative instruments, and marketable securities investment valuation gains/losses;

•

unusual tax items;

•

other awards or settlement amounts, either paid or received;

•

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

•

corresponding tax effects of the foregoing items.

The following tables present our non-GAAP net income and non-GAAP EPS for the three and six months ended June 30, 2023 and 2022, as well as reconciliations of each measure to their nearest GAAP equivalents:


	Three months ended						Six months ended
	June 30,						June 30,
($ in millions except per share amounts)	2023			2022			2023			2022
Net income (Loss) attributable to Teva		($) (863	)		(232	)		($) (1,068	)		(1,187	)
Increase (decrease) for excluded items:
Amortization of purchased intangible assets		162			212			326			412
Legal settlements and loss contingencies		462			729			695			1,854
Goodwill impairment		700			745			700			745
Impairment of long-lived assets		74			65			262			230
Restructuring costs		10			35			66			92
Costs related to regulatory actions taken in facilities		1			3			2			4
Equity compensation		30			39			62			63
Contingent consideration		70			61			90			94
Loss (Gain) on sale of business		1			(31	)		1			(31	)
Accelerated depreciation		24			32			49			33
Financial expenses		16			23			39			33
Share in profits (losses) of associated companies – net		—			0			—			(22	)
Items attributable to non-controlling interests		(49	)		(39	)		(90	)		(50	)
Other non-GAAP items*		123			80			186			201
Corresponding tax effects and unusual tax items		(131	)		(965	)		(235	)		(1,105	)
Non-GAAP net income attributable to Teva		($) 629			754			($) 1,085			1,363
Non-GAAP tax rate**		15.2	%		7.7	%		15.3	%		12.9	%
GAAP diluted earnings (loss) per share attributable to Teva		($) (0.77	)		(0.21	)		($) (0.96	)		(1.07	)
EPS difference***		1.33			0.89			1.92			2.29
Non-GAAP diluted EPS attributable to Teva***		($) 0.56			0.68			($) 0.96			1.22
Non-GAAP average number of shares (in millions)***		1,129			1,114			1,127			1,116

Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants, certain inventory write-offs, material litigation fees and other unusual events.

**	Non-GAAP tax rate is tax expenses (benefit) excluding the impact of non-GAAP tax adjustments presented above as a percentage of income (loss) before income taxes excluding the impact of non-GAAP adjustments presented above.

***	EPS difference and diluted non-GAAP EPS are calculated by dividing our non-GAAP net income attributable to Teva by our non-GAAP diluted weighted average number of shares.

Off-Balance Sheet Arrangements

Except for securitization transactions, which are disclosed in note 10f to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies

For a summary of our significant accounting policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2022. Additionally, see note 6 to our consolidated financial statements on this Form 10-Q for disclosure regarding reporting units at risk identified during our annual goodwill impairment test.

Recently Issued Accounting Pronouncements

See note 1 to our consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in our assessment of market risk as set forth in Item 7A to our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

After evaluating the effectiveness of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2023, there were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.

Table of Contents

PART II — OTHER

INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings. For a discussion of these matters, see “Commitments and Contingencies” included in note 10 to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form

10-Q.

ITEM 1A.

RISK FACTORS

There are no material changes to the risk factors previously disclosed in our Annual Report on Form

10-K

for the year ended December 31, 2022.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended June 30, 2023.

Repurchase of Shares

We did not repurchase any of our shares during the three months ended June 30, 2023 and currently cannot conduct share repurchases or pay dividends due to our accumulated deficit.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

During the quarter ended June 30, 2023, none of our directors or officers adopted or terminated a Rule

10b5-1

trading arrangement or

non-Rule

10b5-1

trading arrangement (as such terms are defined in Item 408 of Regulation

S-K).

ITEM 6.

EXHIBITS


10.1		Teva Global Opioids Settlement Agreement, effective on August 7, 2023, between Teva Pharmaceutical Industries Ltd. and the states, subdivisions and special districts named therein*

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS		Inline XBRL Taxonomy Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.