TEVA PHARMACEUTICAL INDUSTRIES LTD
10-Ks,20-Fs and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-16174
(Exact name of registrant as specified in its charter)
e | ||
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) | |
(Address of principal executive offices) |
(Zip code) | |
(3) (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 | ||
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 Yes ☒ No ☐
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). 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. | ☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Act). Yes ☐ No As of March 31, 2022, the registrant had 1,110,352,397 ordinary shares outstanding.
INDEX
| PART I. |
||||||
| Item 1. |
Financial Statements (unaudited) | |||||
| Consolidated Balance Sheets | 5 | |||||
| Consolidated Statements of Income (loss) | 6 | |||||
| Consolidated Statements of Comprehensive Income (loss) | 7 | |||||
| Consolidated statements of changes in equity | 8 | |||||
| Consolidated Statements of Cash Flows | 9 | |||||
| Notes to Consolidated Financial Statements | 10 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 64 | ||||
| Item 4. |
Controls and Procedures | 64 | ||||
| PART II. |
||||||
| Item 1. |
Legal Proceedings | 65 | ||||
| Item 1A. |
Risk Factors | 65 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 65 | ||||
| Item 3. |
Defaults Upon Senior Securities | 65 | ||||
| Item 4. |
Mine Safety Disclosures | 65 | ||||
| Item 5. |
Other Information | 65 | ||||
| Item 6. |
Exhibits | 66 | ||||
| Signatures | 67 | |||||
2
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
INTRODUCTION AND USE OF CERTAIN TERMS
Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “ADS(s)” are to Teva’s American Depositary Share(s). References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA, a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “RD” are to Research and Development, references to “IPRD” are to
in-process
RD, references to “SM” are to Selling and Marketing and references to “GA” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts. This report on Form 10-Q
contains many of the trademarks and trade names used by Teva in the United States and internationally to distinguish its products and services. Any third-party trademarks mentioned in this report are the property of their respective owners. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form
10-Q,
and the reports and documents incorporated by reference in this Quarterly Report on Form 10-Q,
may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to: | • | our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; consolidation of our customer base and commercial alliances among our customers; delays in launches of new generic products; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; our ability to develop and commercialize biopharmaceutical products; competition for our specialty products, including AUSTEDO ® , AJOVY® and COPAXONE® ; our ability to achieve expected results from investments in our product pipeline; our ability to develop and commercialize additional pharmaceutical products; and the effectiveness of our patents and other measures to protect our intellectual property rights; |
| • | our substantial indebtedness, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us; |
| • | our business and operations in general, including: uncertainty regarding the COVID-19 pandemic and the governmental and societal responses thereto; our ability to successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the COVID-19 pandemic and associated costs therewith; effectiveness of our optimization efforts; our ability to attract, hire and retain highly skilled personnel; manufacturing or quality control problems; interruptions in our supply chain; disruptions of information technology systems; breaches of our data security; variations in intellectual property laws; challenges associated with conducting business globally, including political or economic instability, major hostilities or terrorism; costs and delays resulting from the extensive pharmaceutical regulation to which we are subject or delays in governmental processing time due to travel and work restrictions caused by the COVID-19 pandemic; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; significant sales to a limited number of customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; and our prospects and opportunities for growth if we sell assets; |
| • | compliance, regulatory and litigation matters, including: failure to comply with complex legal and regulatory environments; increased legal and regulatory action in connection with public concern over the abuse of opioid medications and our ability to reach a final resolution of the remaining opioid-related litigation; scrutiny from competition and pricing authorities around the world, including our ability to successfully defend against the U.S. Department of Justice (“DOJ”) criminal charges of Sherman Act violations; potential liability for patent infringement; product liability claims; failure to comply with complex Medicare and Medicaid reporting and payment obligations; compliance with anti-corruption sanctions and trade control laws; environmental risks; and the impact of Environmental, Social and Governance (“ESG”) issues; |
| • | other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities (including as a result of potential tax reform in the United States); and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business; |
3
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
and other factors discussed in this Quarterly Report on Form
10-Q
and in our Annual Report on Form 10-K
for the year ended December 31, 2021, including in the sections captioned “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements. 4
PART I — FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions, except for share data)
(Unaudited)
March 31, |
December 31, |
|||||||
2022 |
2021 |
|||||||
| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivables, net of allowance for credit losses of $ |
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| Inventories |
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| Prepaid expenses |
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| Other current assets |
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| Assets held for sale |
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| Total current assets |
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| Deferred income taxes |
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| Other non-current assets |
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| Property, plant and equipment, net |
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| Operating lease right-of-use |
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| Identifiable intangible assets, net |
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| Goodwill |
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| Total assets |
$ |
$ |
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| LIABILITIES AND EQUITY |
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| Current liabilities: |
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| Short-term debt |
$ | $ | ||||||
| Sales reserves and allowances |
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| Accounts payables |
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| Employee-related obligations |
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| Accrued expenses |
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| Other current liabilities |
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| Total current liabilities |
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| Long-term liabilities: |
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| Deferred income taxes |
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| Other taxes and long-term liabilities |
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| Senior notes and loans |
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| Operating lease liabilities |
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| Total long-term liabilities |
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| Commitments and contingencies |
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| Total liabilities |
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| Equity: |
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| Teva shareholders’ equity: |
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| Ordinary shares of NIS |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Treasury shares as of March 31, 2022 and December 31, 2021: |
( |
) | ( |
) | ||||
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| Non-controlling interests |
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| Total equity |
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| Total liabilities and equity |
$ |
$ |
||||||
| |
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|
|||||
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
5
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. dollars in millions, except share and per share data)
(Unaudited)
Three months ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
| Net revenues |
$ |
$ |
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| Cost of sales |
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| Gross profit |
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| Research and development expenses |
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| Selling and marketing expenses |
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| General and administrative expenses |
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| Intangible assets impairments |
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| Other assets impairments, restructuring and other items |
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| Legal settlements and loss contingencies |
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| Other income |
( |
) | ( |
) | ||||
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| Operating income (loss) |
( |
) | ||||||
| Financial expenses, net |
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| Income (loss) before income taxes |
( |
) | ||||||
| Income taxes (benefit) |
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| Share in (profits) losses of associated companies, net |
( |
) | ( |
) | ||||
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| Net income (loss) |
( |
) | ||||||
| Net income (loss) attributable to non-controlling interests |
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| Net income (loss) attributable to Teva |
( |
) | ||||||
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| Earnings (loss) per share attributable to ordinary shareholders: |
||||||||
| Basic |
$ | ( |
) | $ | ||||
| |
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| Diluted |
$ | ( |
) | $ | ||||
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| Weighted average number of shares (in millions): |
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| Basic |
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| Diluted |
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Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
6
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in millions)
(Unaudited)
Three months ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
| Net income (loss) |
$ |
( |
) |
$ |
||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Currency translation adjustment |
( |
) | ( |
) | ||||
| Unrealized gain (loss) from derivative financial instruments, net |
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| Total other comprehensive income (loss) |
( |
) | ( |
) | ||||
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| Total comprehensive income (loss) |
( |
) | ( |
) | ||||
| Comprehensive income (loss) attributable to non-controlling interests |
( |
) | ( |
) | ||||
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| Comprehensive income (loss) attributable to Teva |
$ |
( |
) |
$ |
( |
) | ||
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Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
7
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Teva shareholders’ equity |
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Ordinary shares |
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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 |
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(U.S. dollars in millions) |
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| Balance at December 31, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Issuance of Shares |
* |
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| Stock-based compensation expense |
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| Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||
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| * | Represents an amount less than $ |
Teva shareholders’ equity |
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Ordinary shares |
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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 |
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(U.S. dollars in millions) |
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| Balance at December 31, 2020 |
( |
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) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (loss) |
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| Other comprehensive income (loss) |
( |
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) | ( |
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| Issuance of shares |
* | * | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
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| Balance at March 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||
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| * | Represents an amount less than $ |
Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
8
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
Three months ended |
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March 31, |
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2022 |
2021 |
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| Operating activities: |
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| Net income (loss) |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operations: |
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| Depreciation and amortization |
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| Impairment of long-lived assets and assets held for sale |
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| Net change in operating assets and liabilities |
( |
) | ||||||
| Deferred income taxes – net and uncertain tax positions |
( |
) | ( |
) | ||||
| Stock-based compensation |
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| Other items |
( |
) | ||||||
| Net loss (gain) from investments and from sale of long lived assets |
( |
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| Net cash provided by (used in) operating activities |
( |
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| Investing activities: |
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| Beneficial interest collected in exchange for securitized trade receivables |
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| Proceeds from sale of business and long lived assets |
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| Acquisition of businesses, net of cash acquired |
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( |
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| Purchases of property, plant and equipment |
( |
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| Purchases of investments and other assets . |
( |
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| Proceeds from sale of investments |
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| Other investing activities |
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( |
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| Net cash provided by (used in) investing activities |
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| Financing activities: |
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| Redemption of convertible senior notes |
( |
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| Other financing activities |
( |
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| Net cash provided by (used in) financing activities |
( |
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| Translation adjustment on cash and cash equivalents |
( |
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| Net change in cash, cash equivalents and restricted cash |
( |
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| Balance of cash, cash equivalents and restricted cash at beginning of period |
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| Balance of cash, cash equivalents and restricted cash at en of periodd |
$ | $ | ||||||
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| Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets: |
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| Cash and cash equivalents |
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| Restricted cash included in other current assets |
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| Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
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| Non-cash financing and investing activities: |
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| Beneficial interest obtained in exchange for securitized accounts receivables |
$ | $ | ||||||
Amounts may not add up due to rounding
The accompanying notes are an integral part of the financial statements.
9
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of presentation:
a. |
Basis of presentation |
The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form
10-Q
should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”). The year-end
balance sheet data was derived from the audited consolidated financial statements as of December 31, 2021, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included. In the process of preparing the consolidated financial statements, management makes estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The inputs into Teva’s judgments and estimates also consider the economic implications of the
COVID-19
pandemic on its critical and significant accounting estimates, most significantly in relation to sales, reserves and allowances, IPRD assets, marketed product rights and goodwill, all of which will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the COVID-19
pandemic and the actions taken to contain or treat it, as well as the economic impact on Teva’s employees, third-party manufacturers and suppliers, customers and markets. All estimates made by Teva related to the impact of the COVID-19
pandemic within its financial statements may change in future periods. Actual results could differ from those estimates.In February 2022, Russia launched an invasion of Ukraine. As of the date of this Quarterly Report on Form
10-Q,
sustained conflict and disruption in the region is ongoing. Russia and Ukraine markets are included in Teva’s International Markets segment results. Teva has no manufacturing or RD facilities in these markets. During the first quarter of 2022, the impact of this conflict on Teva’s results of operations and financial condition was immaterial. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.
b. |
Significant accounting policies |
Recently adopted accounting pronouncements
In August 2020, the FASB issued ASU
2020-06
“Debt – Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU
2020-04
“Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. There was no material impact to the Company’s consolidated financial statements for the period ended March 31, 2022 as a result of adopting this standard update. The Company has completed negotiations to transform the facility base rate of its securitization program and is continuing to evaluate the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities. However, it is not expected to have a material impact on the consolidated financial results of operations, financial position or cash flows. Recently issued accounting pronouncements, not yet adopted
In November 2021, the FASB issued ASU
2021-10
“Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of 10
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In October 2021, the FASB issued ASU
2021-08
“Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements. NOTE 2 – Certain transactions:
The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.
MODAG
In October 2021, Teva announced a license agreement with MODAG GmbH (“Modag”) that will provide Teva an exclusive global license to develop, manufacture and commercialize Modag’s lead compound
(TEV-56286)
and a related compound (TEV-56287).
TEV-56286
was initially developed for the treatment of Multiple System Atrophy (MSA) and Parkinson’s disease, and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease. A phase 1b clinical trial is currently being completed for TEV-56286.
In the fourth quarter of 2021, Teva made an upfront payment of $10 70
million to Modag that was recorded as RD expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to
$million, as well as future commercial milestones and royalties.
Alvotech
In August 2020, Teva entered into an agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this collaboration contains biosimilar candidates addressing multiple therapeutic areas, including a proposed biosimilar to Humira455
®
. Under this agreement, Alvotech is responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. Teva paid an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as RD expenses. Additional development and commercial milestone payments of up to $million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. In March 2021,
Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira in the United States beginning on July 1, 2023, provided that U.S. regulatory approval is obtained by that date. On March 28, 2022, the ITC officially terminated the investigation requested by Abbvie.
®
. In October 2021, the claim was dismissed for lack of jurisdiction. Abbvie has appealed this decision to the U.S. Court of Appeals. In addition, there is pending patent litigation between Abbvie and Alvotech related to Alvotech’s proposed biosimilar to Humira®
. In December 2021, Abbvie also filed a complaint with the U.S. International Trade Commission (“ITC”) against both Alvotech and Teva seeking to prevent Teva and Alvotech from importing Alvotech’s proposed biosimilar to Humira®
into the United States. On January 26, 2022, the ITC issued a decision to initiate an investigation into Alvotech’s proposed biosimilar product. On March 8, 2022, Abbvie and Alvotech settled all the above pending IP matters relating to Alvotech’s proposed biosimilar to Humira®
. Pursuant to that settlement, Alvotech and Teva may sell Alvotech’s proposed biosimilar to Humira®
Eli Lilly and Alder BioPharmaceuticals
In December 2018, Teva entered into an agreement with Eli Lilly Co. (“Lilly”) resolving the European Patent Office opposition they had filed against Teva’s AJOVY
®
patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom. 11
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
On January 8, 2018, Teva signed a global license agreement with Alder BioPharmaceuticals (“Alder”). The agreement validates Teva’s intellectual property and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder received a 25 million upfront payment that was recognized as revenue during the first quarter of 2018, and a $25 million milestone payment in March 2020 that was recognized as revenue in the first quarter of 2020. The agreement stipulates additional development and commercial milestone payments to Teva of up to $150 million, as well as future royalties.
non-exclusive
license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the United States and worldwide, excluding Japan. Teva received a $Otsuka
On May 12, 2017, Teva entered into a license and collaboration agreement with Otsuka Pharmaceutical Co. Ltd. (“Otsuka”) providing
Otsuka with an exclusive license to develop and commercialize AJOVY in Japan. Otsuka paid Teva an upfront payment of $50 million in consideration for the transaction. In the third quarter of 2020, Otsuka submitted an application to obtain manufacturing and marketing approval for AJOVY in Japan and, as a result, paid Teva a milestone payment of $15 million, which was recognized as revenue in the third quarter of 2020. AJOVY was approved in Japan in June 2021 and launched on August 30, 2021. As a result of the launch, Otsuka paid Teva a milestone payment of $35
million, which was recognized as revenue in the third quarter of 2021. Teva may receive additional milestone payments upon achievement of certain revenue targets. Otsuka also pays Teva royalties on AJOVY sales in Japan.
Regeneron
In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated RD costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 2,230 million, as well as future royalties. Currently, all
non-essential
activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA. MedinCell
In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable products. The lead product candidate selected was risperidone LAI 112 million in respect of risperidone LAI. Teva will also pay MedinCell royalties on net sales. In April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for risperidone LAI. Teva is reviewing its next steps based on the CRL and will work closely with
(TV-46000)
suspension for subcutaneous use for the treatment of schizophrenia. In August 2021, the FDA accepted the new drug application (“NDA”) for risperidone LAI, based on phase 3 data from two pivotal studies. Teva leads the clinical development and regulatory process and is responsible for commercialization of this product candidate. MedinCell may be eligible for development milestones, and future commercial milestones of up to $the
FDA to address their recommendations.
Assets and Liabilities Held For Sale:
General
Assets and liabilities held for sale as of March 31, 2022 included certain manufacturing assets that are expected to be sold within the next year. Assets and liabilities held for sale as of December 31, 2021 included certain manufacturing assets sold during the first quarter of 2022, and certain assets that are expected to be sold during 2022. The table below summarizes all Teva assets and liabilities included as held for sale as of March 31, 2022 and December 31, 2021:
12
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
March 31, |
December 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Inventories |
$ |
$ |
||||||
Property, plant and equipment, net and others |
||||||||
Goodwill |
||||||||
Adjustments of assets held for sale to fair value |
( |
) | ( |
) | ||||
Total assets of the disposal group classified as held for sale in the consolidated balance sheets |
$ | $ | ||||||
Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets, recorded under accrued expenses and other long-term liabilities |
$ | ( |
) | $ | ( |
) | ||
NOTE 3 – Revenue from contracts with customers:
Disaggregation of revenue
The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues, see note 15.
Three months ended March 31, 2022 |
||||||||||||||||||||
North America |
Europe |
International Markets |
Other activities |
Total |
||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||
Sale of goods |
||||||||||||||||||||
Licensing arrangements |
||||||||||||||||||||
Distribution |
§ |
|||||||||||||||||||
Other |
( |
) | ||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
§ Represents an amount less than $0.5 million.
Three months ended March 31, 2021 |
||||||||||||||||||||
North America |
Europe |
International Markets |
Other activities |
Total |
||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||
Sale of goods |
||||||||||||||||||||
Licensing arrangements |
||||||||||||||||||||
Distribution |
§ |
|||||||||||||||||||
Other |
§ |
|||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
§ Represents an amount less than $0.5 million.
13
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Variable consideration
Variable consideration mainly includes sales reserves and allowances (“SRA”), 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.
SRA to U.S. customers comprised approximately 73 % of the Company’s total SRA as of March 31, 2022, with the remaining balance primarily in Canada and Germany. The changes in SRA for third-party sales for the three months ended March 31, 2022 and 2021 were as follows:
Sales Reserves and Allowances |
||||||||||||||||||||||||||||||||
Reserves included in Accounts Receivable, net |
Rebates |
Medicaid and other governmental allowances |
Chargebacks |
Returns |
Other |
Total reserves included in SRA |
Total |
|||||||||||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Provisions related to sales made in current year |
||||||||||||||||||||||||||||||||
Provisions related to sales made in prior periods |
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||
Credits and payments |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Translation differences |
— |
( |
) |
( |
) |
— |
— |
( |
) |
( |
) |
( |
) | |||||||||||||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||||||
Reserves included in Accounts Receivable, net |
Rebates |
Medicaid and other governmental allowances |
Chargebacks |
Returns |
Other |
Total reserves included in SRA |
Total |
|||||||||||||||||||||||||
(U.S.$ in millions) |
||||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Provisions related to sales made in current year |
||||||||||||||||||||||||||||||||
Provisions related to sales made in prior periods |
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||
Credits and payments |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Translation differences |
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
14
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 – Inventories:
Inventories, net of reserves, consisted of the following:
March 31, |
December 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Finished products |
$ | $ | ||||||
Raw and packaging materials |
||||||||
Products in process |
||||||||
Materials in transit and payments on account |
||||||||
Total |
$ | $ | ||||||
NOTE 5 – Identifiable intangible assets:
Identifiable intangible assets consisted of the following:
Gross carrying amount net of impairment |
Accumulated amortization |
Net carrying amount |
||||||||||||||||||||||
March 31, |
December 31, |
March 31, |
December 31, |
March 31, |
December 31, |
|||||||||||||||||||
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|||||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||||||
Product rights |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Trade names |
||||||||||||||||||||||||
In process research and development |
— | — | ||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Product rights and trade names
Product rights and trade names are assets presented at amortized cost. Product rights and trade names represent a portfolio of pharmaceutical products from various therapeutic categories from various acquisitions with a weighted average life of approximately 10 years.
Amortization of intangible assets was $200 million and $242 million in the three months ended March 31, 2022 and 2021, respectively.
IPRD
Teva’s IPRD are assets that have not yet been approved in major markets. Teva’s IPRD is comprised mainly of various generic products from the Actavis Generics acquisition of $542 million. IPRD carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.
Intangible assets impairments
Impairments of long-lived intangible assets for the three months ended March 31, 2022 and 2021, were $149 million and $79 million, respectively.
Impairments in the first quarter of 2022 consisted primarily of identifiable product rights of $129 million related to updated market assumptions regarding price and volume of products acquired from Actavis Generics.
Impairments in the first quarter of 2021 consisted of:
| (a) | IPRD assets of $ |
| (b) | Identifiable product rights of $ |
15
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
The fair
value measurement of the impaired i
ntangible assets in the first
three months of
2022 is based on significant unobservable inputs in the market and thus represents a Level
3 measurement within the fair value hierarchy. The discount rate applied ranged from
% to
%. A probability of success factor ranging from
% to
% was used in the fair value calculation to reflect inherent regulatory and commercial risk of IPRD.
NOTE 6 – Goodwill:
The changes in the carrying amount of goodwill for the period ended March 31, 2022 were as follows:
North America |
Europe |
International Markets |
Other |
Total |
||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||
Balance as of December 31, 2021 (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Changes during the period: |
||||||||||||||||||||
Goodwill acquired |
||||||||||||||||||||
Translation differences |
( |
) | ( |
) | ( |
) | ||||||||||||||
Balance as of March 31, 2022 (1) |
$ | $ | $ | $ | $ | |||||||||||||||
| (1) | Accumulated goodwill impairment as of March 31, 2022 and December 31, 2021 was approximately $ |
Teva determines the fair value of its reporting units using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. Teva starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (WACC), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva may record an impairment of goodwill allocated to these reporting units in the future. The current projections related to AUSTEDO and the resolution of the opioid and price fixing litigation in North America are significant assumptions in Teva’s future projections. Additionally, certain parts of its business volumes, particularly in Europe, were impacted by the
COVID-19
pandemic. Management continues to analyze the expected pace of recovery of volumes and the related impact of the COVID-19
pandemic on Teva’s business. During the first quarter of 2022, management assessed developments that occurred during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount.
Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, 2022 and, therefore, no quantitative assessment was performed. Changes to Teva’s current assessment regarding the impact of the COVID-19 pandemic on its projections and its long-term forecast related to AUSTEDO could result in future impairments.
NOTE 7 – Debt obligations:
a. Short-term debt:
March 31, |
December 31, |
|||||||||||||||
Weighted average interest rate as of March 31, 2022 |
Maturity |
2022 |
2021 |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Convertible senior debentures |
% | |||||||||||||||
Current maturities of long-term liabilities (1) |
||||||||||||||||
Total short-term debt |
$ | $ | ||||||||||||||
(1) |
In April 2022, Teva repaid $ |
16
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Convertible senior debentures
The principal amount of Teva’s 0.25 % convertible senior debentures due 2026 was $23
b. Long-term debt:
Weighted average interest rate as of March 31, 2022 |
Maturity |
March 31, 2022 |
December 31, 2021 |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Sustainability-linked senior notes EUR million (1)(*) |
% | |||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Sustainability-linked senior notes EUR million (2)(*) |
% | |||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Senior notes EUR million (3) |
% | |||||||||||||||
Senior notes EUR |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Sustainability-linked senior notes USD million (2)(*) |
% | |||||||||||||||
Sustainability-linked senior notes USD million (1)(*) |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes USD |
% | |||||||||||||||
Senior notes CHF |
% | |||||||||||||||
Senior notes CHF |
% | |||||||||||||||
Total senior notes |
||||||||||||||||
Other long-term debt |
||||||||||||||||
Less current maturities |
( |
) | ( |
) | ||||||||||||
Less debt issuance costs |
( |
) | ( |
) | ||||||||||||
Total senior notes and loans |
$ | $ | ||||||||||||||
(1) |
If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by |
(2) |
If Teva fails to achieve certain sustainability performance targets, a one-time premium payment of |
(3) |
In April 2022, Teva repaid $ |
17
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
* |
Interest rate adjustments and a potential one-time premium payment related to the sustainability-linked bonds are treated as bifurcated embedded derivatives. See note 8d. |
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.
Long-term debt as of March 31, 2022 is effectively denominated in the following currencies: 63 % in U.S. dollar, 35 % 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
, as of March 31, 2022,
its $2.3
billion unsecured syndicated revolving credit facility entered into in April 2019, which was replaced in April 2022 (“RCF”).
In April 2022, Teva entered into an unsecured syndicated sustainability-linked revolving credit facility of $1.8 billion with a maturity date of , 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 SP 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.
Under the terms of the RCF, the leverage ratio shall not exceed 4.50 4.25 x in the fourth quarter of 2022, 4.00 3.75 x in the fourth quarter of 2023 and 3.50 x in 2024 and onwards.
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 three months of 2022, 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, 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 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: the euro, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar, the Polish zloty, the Indian rupee and other European and Latin American currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.
18
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
The Company may choose to hedge against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and entered into cross currency swaps and forward contracts in the past in order to hedge such an exposure.
Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.
b. Interest risk management:
The Company raises capital through various debt instruments, including senior notes, sustainability-linked senior notes, bank loans, convertible debentures and syndicated revolving credit facility that bear a fixed or variable interest rate. In some cases, the Company has swapped from a fixed to a variable interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.
c. Bifurcated embedded derivatives:
Upon issuance of sustainability-linked senior notes, Teva recognized embedded derivatives related to interest rate adjustments and a potential countries and absolute greenhouse gas emissions reduction, which were bifurcated and are accounted for separately as derivative financial instruments. As of March 31, 2022 the fair value of these derivative instruments is negligible.
one-time
premium payment upon failure to achieve certain sustainability performance targets, such as access to medicines in low-to-middle-income
d. Derivative instruments outstanding:
The following table summarizes the classification and fair values of derivative instruments:
Fair value |
||||||||
Not designated as hedging instruments |
||||||||
March 31, 2022 |
December 31, 2021 |
|||||||
Reported under |
(U.S. $ in millions) |
|||||||
Asset derivatives: |
||||||||
Other current assets: |
||||||||
Option and forward contracts |
$ | $ | ||||||
Liability derivatives: |
||||||||
Other current liabilities: |
||||||||
Option and forward contracts |
( |
) | ( |
) | ||||
The table below provides information regarding the location and amount of
pre-tax
(gains) losses from derivatives not designated as hedging instruments: Financial expenses, net |
Net revenues |
|||||||||||||||
Three months ended, |
Three months ended, |
|||||||||||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2022 |
March 31, 2021 |
|||||||||||||
Reported under |
(U.S. $ in millions) |
|||||||||||||||
Line items in which effects of hedges are recorded |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
Option and forward contracts (1) |
( |
) | ( |
) | ||||||||||||
Option and forward contracts economic hedge (2) |
( |
) | ( |
) | ||||||||||||
19
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
| (1) | 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. |
(2) |
Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, the Swiss franc, the Japanese yen, the British pound, the Russian ruble, the Canadian dollar and some other currencies to protect its projected operating results for 2021 and 2022. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. In the first quarter of 2022, the positive impact from these derivatives recognized under revenues was $ |
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. The termination of these transactions resulted in a loss position of $493 million, which was recorded in 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 and $8 million were recognized under financial expenses, net for each of the three months ended March 31, 2022 and 2021, respectively.
Fair value hedge
In the third quarter of 2016, Teva terminated interest rate swap agreements designated as a fair value hedge relating to its 2.95 % senior notes due 2022 with respect to $844 million notional amount and its 3.65 % senior notes due 2021 with respect to $450 million notional amount. Settlement of these transactions resulted in a gain position of $41 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt as additional interest expense.
In the third quarter of 2019, Teva terminated $500 million interest rate swap agreements designated as a fair value hedge relating to its 2.8 % senior notes due 2023 with respect to $3,000 million notional amount. Settlement of these transactions resulted in cash proceeds of $10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt.
Cash flow hedge
In the fourth quarter of 2019, Teva terminated $588 million cross-currency swap agreements against its outstanding 3.65 % senior notes maturing in November 2021. Settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses, net over the life of the debt.
With respect to the interest rate swap and cross-currency swap agreements, 1 million loss was recognized under financial expenses, net for the three months ended March 31, 2022. No gains or losses were recognized for the three months ended March 31, 2021.
a
$20
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 – Legal settlements and loss contingencies:
In the first quarter of 2022, Teva recorded expenses of $1,124 million in legal settlements and loss contingencies, compared to $104 million in the first quarter of 2021. The expenses in the first quarter of 2022 were mainly related to an update of the estimated settlement provision recorded in connection with the remaining opioid cases. The expenses in the first quarter of 2021 were mainly due to the provision for the carvedilol patent litigation.
As of March 31, 2022 and December 31, 2021, Teva’s provision for legal settlements and loss contingencies recorded under accrued expenses and other taxes and long-term liabilities was $3,762 million and $2,710 million, respectively. In connection with Teva’s provision for legal settlements and loss contingencies as of March 31, 2022 and December 31, 2021, related to the Ontario Teachers Securities Litigation, Teva also recognized an insurance receivable.
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 estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters where the exposures were fully resolved in the prior year, or determined to no longer meet the materiality threshold for disclosure, or were substantially resolved.
If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.
In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.
Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA data.
Intellectual Property Litigation
From time to time, Teva seeks to develop generic and biosimilar versions of patent-protected pharmaceuticals and biopharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. For many biosimilar products that are covered by patents, Teva participates in the “patent dance” procedures of the Biologics Price Competition and Innovation Act (BPCIA), which allow for the challenge to originator patents prior to 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 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.
21
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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”) sued Teva in the District Court for the District of Delaware for infringement of a patent directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of GSK’s Coreg235.5 million, not including decision reinstating the $235.5 million verdict and finding Teva liable for patent infringement. On February 11, 2022, the Court of Appeals for the Federal Circuit denied rehearing. Teva plans to appeal this decision to the U.S. Supreme Court. While that appeal is pending, the case is remanded to the district court for proceedings on Teva’s other legal and equitable defenses that have not yet been considered by the district court. In the first quarter of 2021, Teva recognized a provision based on its offer to settle such matter.
®
) in September 2007. A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of $pre-
or post-judgment interest or a multiplier for willfulness. Thereafter, the judge overturned the jury verdict, finding no induced infringement by Teva and that Teva did not owe any damages. On August 5, 2021, the Court of Appeals for the Federal Circuit issued a two-to-one
In October 2016, Adapt and Emergent Biosciences Inc. (“EBSI”) sued Teva in the District Court for the District of New Jersey, asserting infringement of its patents expiring in 2035, as a result of Teva’s filing of its Abbreviated New Drug Application (“ANDA”) seeking to market a generic version of Narcan434 million at the time Teva launched its generic version in December 2021.
®
nasal spray. In June 2020, the court issued a decision finding all of EBSI’s patents expiring in 2035, to be invalid. On February 10, 2022, the Court of Appeals for the Federal Circuit affirmed the lower court decision finding that EBSI’s patents are invalid. EBSI filed a request for rehearing by the Federal Circuit. On December 22, 2021, Teva launched its generic version of Narcan®
nasal spray. If Teva ultimately loses the case, Teva may be ordered to cease commercial sales or donations of its generic product and/or pay damages to EBSI. Annual sales of Narcan®
in the U.S. were approximately $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 approaches, 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 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 by multiple API manufacturers. Teva’s products allegedly at issue in the various nitrosamine-related litigations pending in the United States include valsartan, losartan, metformin
22
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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. Defendants’ motions to dismiss in the valsartan, losartan and irbesartan MDL were denied in part and granted in part and plaintiffs have filed amended complaints. In the ranitidine MDL, the generics manufacturers’ motions to dismiss have been granted, although certain plaintiffs have appeals pending. 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. The state court valsartan and losartan actions are pending in New Jersey and Delaware and are currently stayed. The state court ranitidine cases naming Teva are pending in California, Illinois and Pennsylvania. One ranitidine case pending in Madison County, Illinois currently has a trial date scheduled for August 2022. In addition to these MDLs, Teva has also been named in a consolidated proceeding pending in the United States District Court for the District of New Jersey brought by individuals and end payors seeking economic damages on behalf of purported classes of consumers and end payors who purchased Teva’s, as well as other generic manufacturers’ metformin products. Defendants’ motion to dismiss the plaintiffs’ amended metformin complaint from June 2021, was granted without prejudice with respect to the consumer economic loss plaintiffs and granted in part and denied in part with respect to the end payor plaintiffs. Plaintiffs were granted leave to file a second amended complaint. In June 2021, Teva was named in one personal injury metformin case seeking monetary damages, which has been removed to federal court in Florida. Teva’s motion to dismiss the Florida plaintiff’s amended complaint was granted and the Florida plaintiff was granted leave to file a second amended complaint. Similar lawsuits are pending in Canada and Germany.
Competition Matters
As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva obtained a license to market a generic version of the drug, often years before the patents expire.
Teva and its subsidiaries have been named as defendants in cases that allege antitrust violations arising from such settlement agreements. The plaintiffs in these cases are usually direct and indirect purchasers of pharmaceutical products, some of whom assert claims on behalf of classes of all direct and indirect purchasers, and they typically allege that (i) Teva received something of value from the innovator in exchange for an agreement to delay generic entry, and (ii) significant savings could have been realized if there had been no settlement agreement and generic competition had commenced earlier. These plaintiffs seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the generic price allegedly would have been and disgorgement of profits, which are often automatically tripled under the relevant statutes, plus attorneys’ fees and costs. The alleged damages generally depend on the size of the branded market and the length of the alleged delay, and can be substantial—potentially measured in multiples of the annual brand sales—particularly where the alleged delays are lengthy or branded drugs with annual sales in the billions of dollars are involved.
Teva believes that its settlement agreements are lawful and serve to increase competition, and has defended them vigorously. In Teva’s experience to date, these cases have typically settled for a fraction of the high end of the damages sought, although there can be no assurance that such outcomes will continue.
In June 2013, the U.S. Supreme Court held, in Federal Trade Commission (“FTC”) v. Actavis, Inc. (the “AndroGel case”), 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 new 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 May 2015, Cephalon Inc., a Teva subsidiary (“Cephalon”), entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed antitrust claims against Cephalon related to certain finished modafinil products (marketed as PROVIGIL
®
) in exchange for Cephalon and Teva agreeing to, among other things, abide 23
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
by certain restrictions and limitations, for a period of ten years, when entering into settlement agreements to resolve patent litigation in the United States. Those restrictions and limitations were further refined in connection with the settlement of other unrelated FTC antitrust lawsuits and the term of the Modafinil Consent Decree was extended until 2029.
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.
In August 2019, certain direct-purchaser plaintiffs filed claims in federal court in Philadelphia naming Teva and its affiliates as defendants alleging that certain patent litigation settlement agreements relating to AndroGel
®
1% (testosterone gel) violate the antitrust laws, specifically the September 2006 patent litigation settlement between Watson Pharmaceuticals, Inc. (“Watson”), from which Teva later acquired certain assets and liabilities, and Solvay Pharmaceuticals, Inc. (“Salvoy”), 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. In December 2011, three groups of plaintiffs sued 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 sued 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 claim that the settlement agreement unlawfully delayed generic entry and seek 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 thereafter sought leave to file a supplemental expert report in an effort to show that they could still meet the class certification standard on certain of their claims, but on January 21, 2022, the district court denied that request in full, and on April 21, 2022, the court entered a schedule for additional briefing on the remaining class certification issues. 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, Niaspan416 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic version of Niaspan
®
(extended release niacin) sued Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005, to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual direct-purchaser opt-out
plaintiffs filed complaints with allegations nearly identical to those of the direct purchasers’ class. In August 2019, the district court certified the direct-purchaser class, but in June 2020, the court denied the indirect purchasers’ motion for class certification without prejudice. On September 4, 2020, the indirect purchasers filed a renewed motion for class certification, which was subsequently denied with prejudice by the district court and is now on appeal before the Court of Appeals for the Third Circuit. In October 2016, the District Attorney for Orange County, California, filed a similar complaint in California state court, alleging violations of state law and seeking restitution and civil penalties. Annual sales of Niaspan®
were approximately $®
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 24
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
manufacturers violated the antitrust laws. The court dismissed the 3.7 billion and approximately $500 million, respectively. At the time Teva launched its authorized generic version of Actos2.8 billion and approximately $430 million, respectively.
end-payers’
lawsuits against all defendants in September 2015. On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time following the Second Circuit’s decision, but on October 8, 2019, the district court dismissed, with prejudice, the direct purchasers’ claims against the generic manufacturers (including Teva, Actavis, and Watson). At the time of Teva’s settlement, annual sales of Actos®
and Actoplus Met were approximately $®
and Actoplus Met in August 2012, annual sales of Actos®
and Actoplus Met were approximately $Putative classes of direct-purchaser and 1.4 billion at the time Teva launched its generic version of Sensipar
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. On November 30, 2020, the district court denied Teva’s motion to dismiss in part, and on February 16, 2021, plaintiffs filed amended complaints. On March 30, 2021, Teva again moved to dismiss those claims based on plaintiffs’ failure to allege both that the settlement violated the antitrust laws and that the settlement caused any actual injury to plaintiffs. On March 11, 2022, the district court denied Teva’s motion to dismiss in part. Teva intends to request that the district court certify its rulings for review by the United States Court of Appeals for the Third Circuit. Annual sales of Sensipar®
in the United States were approximately $®
in December 2018, and at the time of the January 2, 2019 settlement. 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. and encompasses those allegations which were subject to prior statements of objections (a provisional finding of breach of the Competition Act), in particular those under case
50277-1
(unfair pricing, originally subject to a statement of objections on December 16, 2016), case 50277-2
(anti-competitive agreement with AMCo, originally subject to a statement of objections on March 3, 2017) 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 the December 16, 2016 and March 3, 2017 statements of objections, 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. 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. Annual sales of COPAXONE in the European Economic Area for 2021 were approximately $373 million.
Between September 1, 2020 and December 20, 2020, separate plaintiffs purporting to represent putative classes of direct and indirect purchasers and 700 million at the time of Watson’s 2013 settlement with Forest.
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 March 15, 2021, plaintiffs filed amended complaints, which Teva, Actavis, and Watson moved to dismiss. On January 24, 2022, the court dismissed plaintiffs’ amended complaints without prejudice. Plaintiffs filed amended complaints on February 22, 2022, which defendants moved to dismiss on April 19, 2022 and those motions remain pending. Annual sales of Bystolic®
in the United States were approximately $In February 2021, the State of New Mexico filed a lawsuit against Teva and certain other defendants related to various medicines used to treat HIV. Between September and December 2021, several private plaintiffs including retailers and health insurance providers filed similar claims in federal court in the Northern District of California and in the District of Minnesota. As
25
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
they relate to Teva, the lawsuits challenge settlement agreements Teva entered into with Gilead in 2013 and 2014 to resolve patent litigation relating to Teva’s generic versions of Viread
®
, Truvada®
, and Atripla®
. Plaintiffs allege that the settlements contain improper reverse payments that delayed the availability of Teva’s generic products, in violation of the federal antitrust laws and state law. Several recently filed cases are in the process of being coordinated with the existing litigation in the Northern District of California, and any effect those cases may have on the overall case schedule remains unclear. On February 16, 2022, Teva moved to dismiss the claims by certain private plaintiffs but that motion was denied. However, Teva has successfully moved to limit the potential damages period as to certain private plaintiffs. On August 5, 2021, Teva moved to dismiss the complaint brought by the State of New Mexico, and on December 20, 2021, the trial court denied Teva’s motion. The trial court certified the decision as appropriate for interlocutory appeal, but on April 8, 2022, the appellate court in New Mexico declined to accept the appeal and remanded back to the trial court. Annual sales in the United States at the time of the settlement of Viread®
, Truvada®
and Atripla582 million, $2.4 billion, and $2.9 billion, respectively. Annual sales in the United States at the time Teva launched its generic version of Viread728 million, $2.1 billion and $444 million, respectively.
®
were approximately $®
in 2017, Truvada®
in 2020 and Atripla®
in 2020 were approximately $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 denial or, in the alternative, to certify that denial for immediate appellate review. However, that motion was denied on April 25, 2022. Annual sales of Colcrys
®
), entered into in January 2016. Plaintiff claims that the settlement was part of a horizontal conspiracy among Takeda and the generic manufacturers to unlawfully restrict output of colchicine by delaying generic entry. Defendants moved to dismiss the complaint for failure to state a claim. On December 28, 2021, the Court granted the defendants’ motion to dismiss, finding that plaintiff’s allegations were implausible, but granted plaintiff leave to amend, and on January 18, 2022, plaintiff filed its amended complaint, making substantively the same antitrust allegations as before, but with certain new allegations regarding the nature of the alleged conspiracy. On March 30, 2022, the Court granted in part and denied in part defendants’ motion to dismiss, dismissing the newly pled bilateral conspiracy claims but allowing the revised overarching conspiracy claim to proceed against all defendants. On April 8, 2022, Teva and Watson, along with their codefendant Amneal, moved the court to reconsider its partial motion-to-dismiss
®
in the United States were approximately $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 (E.D. Pa.). The indictment alleges Teva USA participated in a conspiracy 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
No. 20-cr-200
E-Cream,
Gel, and Ointment), Warfarin, Nadolol, Temozolomide, and Tobramycin. On September 8, 2020, Teva USA pled not guilty to all counts. A tentative trial date is yet to be scheduled. While the Company is unable to estimate a range of loss at this time, a conviction on these criminal charges could have a material adverse impact on the Company’s business, including monetary penalties and debarment from federally funded health care programs. 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.
26
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
In 2015 and 2016, Actavis and Teva USA each respectively received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. Subsequently, on December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law alleging price fixing of generic products in the United States. That complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these attorneys general filed another antitrust complaint against Actavis, Teva and other companies and individuals, alleging price-fixing and market allocation with respect to additional generic products. On November 1, 2019, the state attorneys general filed an amended complaint, bringing the total number of plaintiff states and territories to 54. The amended complaint alleges that Teva was at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional products. On June 10, 2020, most, but not all, of the same states, with the addition of the U.S. Virgin Islands, filed a third complaint in the District of Connecticut naming, among other defendants, Actavis, but not Teva USA, in a similar complaint relating to dermatological generics products. On September 9, 2021, the states’ attorneys general amended their third complaint to, among other things, add California as a plaintiff. In the various complaints described above, the states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. All such complaints have been transferred to the generic drug multidistrict litigation in the Eastern District of Pennsylvania (“Pennsylvania MDL”). On July 13, 2020, the court overseeing the Pennsylvania MDL chose the attorneys’ general November 1, 2019 amended complaint, referenced above, along with certain complaints filed by private plaintiffs, to proceed first in the litigation as bellwether complaints. Teva moved the court to reconsider that ruling. On February 9, 2021, Teva’s motion to reconsider that ruling was granted, and on May 7, 2021, the Court chose the attorneys’ general third complaint filed on June 10, 2020 and subsequently amended to serve as a bellwether complaint in the Pennsylvania MDL, along with certain complaints filed by private plaintiffs. Teva settled with the State of Mississippi for $925,000 in June 2021 and with the State of Louisiana for $1,450,000 in March 2022. Pursuant to these settlements, both states have dismissed their claims against Actavis and Teva USA, as well as certain former employees of Actavis and Teva USA. On December 9, 2021, the Court entered an order setting the schedule for the proceedings in the bellwether cases. The order did not include trial dates, but provides for the parties to complete briefing on motions for summary judgement in early 2024.
Beginning on March 2, 2016, and continuing through December 2020, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct and indirect purchaser
opt-out
plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic products have been brought against various manufacturer defendants, including Teva USA and Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On October 16, 2018, the court denied certain of the defendants’ motions to dismiss as to certain federal claims, pending as of that date, and on February 15, 2019, the court granted in part and denied in part defendants’ motions to dismiss as to certain state law claims. On July 18, 2019, May 6, 2020 and October 8, 2021, certain individual plaintiffs commenced civil actions in the Pennsylvania Court of Common Pleas of Philadelphia County against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, but no complaints have been filed in the actions and each of the three of the cases have been placed in deferred status. Certain counties in New York and Texas have also commenced civil actions against many of the defendants in the Pennsylvania MDL, including Teva and Actavis, and the complaints have been transferred to the Pennsylvania MDL. There is also one similar complaint brought in Canada, which alleges that the defendants engaged in conspiracies to fix prices and/or allocate market share of generic drug products to the detriment of a class of private payors. The action is in its early stages. In March 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Subsequently, in August 2020, the U.S. Attorney’s office in Boston, Massachusetts brought a civil action in the U.S. District Court for the District of Massachusetts alleging violations of the federal Anti-Kickback Statute, and asserting causes of action under the federal False Claims Act and state law. It is alleged that Teva caused the submission of false claims to Medicare through Teva’s donations to bona fide independent charities that provide financial assistance to patients. An adverse judgment may involve damages, civil penalties and injunctive remedies. On October 19, 2020, Teva filed a motion to dismiss the complaint on the grounds that
27
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
it fails to state a claim. On September 10, 2021, the Court granted Teva’s motion to dismiss the unjust enrichment claim and denied the remainder of the motion. On October 15, 2021, Teva filed an answer to the complaint. The proceeding is in early stages. Additionally, on January 8, 2021, Humana, Inc. filed an action against Teva in the United States District Court for the Middle District of Florida based on the allegations raised in the August 2020 complaint filed by the U.S. Attorney’s Office in Boston. On April 2, 2021, Teva filed a motion to dismiss the claims on the grounds that the claims are time-barred and/or insufficiently pled, and that motion remains pending.
In April 2021, a city and county in Washington sued 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. That motion remains pending.
On June 29, 2021, Mylan Pharmaceuticals (“Mylan”) sued 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 sued Teva in the District Court for the District of New Jersey on behalf of themselves and others similarly situated direct and 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 Racketeer Influenced and Corrupt Organizations Act. Plaintiffs claim Teva was involved in an unlawful scheme to delay and hinder generic competition concerning COPAXONE sales. Plaintiffs seek damages for lost profits and expenses, disgorgement, restitution, treble damages, attorneys’ fees and costs, and injunctive relief. Teva has moved to dismiss the complaint filed by Mylan on the grounds, among others, that none of its challenged conduct violates the law. That motion remains pending, and Teva’s deadline to answer or move to dismiss the remaining complaints is June 15, 2022.
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, (N.D. Ill.) and City and County of San Francisco v. Purdue Pharma L.P. et al., (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
pre-trial
proceedings and trial. Those cases are: City of Chicago v. Purdue Pharma L.P. et al., No. 14-cv-04361
No. 18-cv-07591-CRB
®
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. 28
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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. Teva expects that the plaintiffs will appeal this judgment. On June 29, 2021, a jury trial in New York (, 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. It is anticipated that discovery with respect to the damages portion of the case will begin in 2022 followed by a damages trial. Teva intends to appeal and expects that both Teva and the plaintiffs will file post-trial motions with respect to the liability portion of the case. Absent resolutions, additional trials are expected to proceed in several states in 2022.
In re Opioid Litigation
In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for $85 million. The settlement did not include any admission of violation of law for any of the claims or allegations made. As the Company demonstrated a willingness to settle part of the litigation, for accounting purposes, management considered a portion of opioid-related cases as probable and, as such, recorded an estimated provision in the second quarter of 2019. Given the relatively early stage of the cases, management viewed no amount within the range to be the most likely outcome. Therefore, management recorded a provision for the reasonably estimable minimum amount in the assessed range for such opioid-related cases in accordance with Accounting Standards Codification 450 “Accounting for Contingencies.”
Additionally, on October 21, 2019, Teva reached a settlement with the two plaintiffs in the MDL Opioid Proceeding that was scheduled for trial for the Track One case, Cuyahoga and Summit Counties of Ohio. Under the terms of the settlement, Teva agreed to provide the two counties with opioid treatment medication, buprenorphine naloxone (sublingual tablets), known by the brand name Suboxone25 million at wholesale acquisition cost and distributed over three years to help in the care and treatment of people suffering from addiction, and a cash payment in the amount of $20 million, which has been paid.
®
, with a value of $Also on October 21, 2019, Teva and certain other defendants reached an agreement in principle with a group of Attorneys General for a nationwide settlement. This nationwide settlement was designed to provide a mechanism by which the Company attempts to seek resolution of remaining potential and pending opioid claims by both the U.S. states and political subdivisions (i.e., counties, tribes and other plaintiffs) thereof.
On July 21, 2021, it was announced that four other defendants (not including Teva) have reached a nationwide settlement, subject to certain conditions, which includes payment of up to approximately $26 billion spread over up to 18 years. During the passage of time since then, the Company has continued to negotiate the terms and conditions of a nationwide settlement. There remain many complex financial and legal issues still outstanding, including indemnification claims by Allergan against the Company, arising from the acquisition of the Actavis Generics business, which makes the timing of any outcome uncertain. In that regard, Allergan is also in settlement negotiations over various opioid matters and has asked Teva, pursuant to indemnification provisions in agreements between Teva and Allergan arising from Teva’s acquisition of the Actavis generics business, to contribute to those settlements. On December 8, 2021, Allergan reached a settlement in the New York opioids litigation. Allergan has indicated that it may seek indemnification from Teva for a significant portion of that New York settlement, and that it could initiate arbitration proceedings to resolve the dispute. Teva disputes that, under the circumstances, Teva is obligated to provide indemnification in connection with Allergan’s New York settlement.
On September 28, 2021, Teva reached an agreement with the Attorney General of Louisiana that settles the state’s opioid-related claims. The agreement was contingent that all political subdivisions of Louisiana will formally release Teva as part of the settlement, which Teva was advised has occurred by the Attorney General of Louisiana. Under the terms of the settlement, Teva will pay Louisiana $15 million over an 18 -year period and will provide buprenorphine naloxone (sublingual tablets) valued at $3 million (wholesale acquisition cost).
29
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
On February 4, 2022, the Company reached an agreement with the Attorney General of the State of Texas that settles Texas’ and its subdivisions opioid-related claims. On March 10, 2022, Texas confirmed that at least 96 % of the population of subdivisions will formally release Teva as part of the settlement. Under the terms of the settlement, Teva will pay Texas $150 million over a 15 -year time period and will provide its recently launched, lifesaving medicine generic Narcan75 million (wholesale acquisition cost) over
®
(naloxone hydrochloride nasal spray), valued at $10
years. On March 21, 2022, Teva reached an agreement with the Attorney General of Rhode Island that settles Rhode Island’s and its subdivisions’ opioid-related claims. Under the terms of the settlement, Teva will pay Rhode Island $21 million over 13 years, in addition to attorneys’ fees and costs, and will provide generic Narcan78.5 million (wholesale acquisition cost) over
®
(naloxone hydrochloride nasal spray) and a significant amount of buprenorphine naloxone sublingual tablets known by the brand name Suboxone®
, together valued at $10
years. On March 30, 2022, Teva reached an agreement with the Attorney General of Florida that settles Florida’s and its subdivisions’ opioid-related claims. Under the terms of the settlement, Teva will pay Florida $177 million over 15 -years in addition to attorneys’ fees, and will provide generic Narcan84 million (wholesale acquisition cost) over
,
and costs
®
(naloxone hydrochloride nasal spray) valued at $10
years. As a result of the settlements with Texas, Florida, Louisiana and Rhode Island, recent decisions in California, Oklahoma and New York, as well as continued nationwide settlement negotiation with state Attorneys General and plaintiffs, the Company has reconsidered the potential settlement outcome and revised its provision. The revised provision is a reasonable estimate of the ultimate costs if a nationwide settlement is finalized, after discounting payments to states to their net present value. However, if not finalized for the entirety of the remaining cases, a reasonable upper end of a range of loss cannot be determined. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and
non-monetary
relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows. In August 2019, Teva received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York for documents related to the Company’s anti-diversion policies and procedures and distribution of its opioid medications, in what the Company understands to be part of a broader investigation into manufacturers’ and distributors’ monitoring programs and reporting under the Controlled Substances Act. In September 2019, Teva received subpoenas from the New York State Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. This was followed by a Statement of Charges and Notice of Hearing filed by the NYDFS, although no merits hearing date is currently set. Currently, Teva cannot predict how a nationwide settlement (if finalized) will affect these investigations and administrative actions. In addition, a number of state attorneys general, including a coordinated multistate effort, have initiated investigations into sales and marketing practices of Teva and its affiliates with respect to opioids. Other states are conducting their own investigations outside of the multistate group. Teva is cooperating with these ongoing investigations and cannot predict their outcome at this time.
In addition, several jurisdictions and consumers in Canada have initiated litigation regarding opioids alleging similar claims as those in the United States. The cases in Canada are in their early stages.
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 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 in that action filed an amended complaint, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and May 10, 2019. The amended complaint asserts 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. The amended complaint seeks unspecified damages, legal fees, interest, and costs. In July 2017, August 2017, and June 2019, other putative securities class actions were filed in other federal courts based on similar allegations, and those cases have been 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 seeking unspecified compensatory damages, legal fees, costs and expenses. The similar claims in these complaints have been brought on behalf of plaintiffs, in various forums across the country, who have indicated that they intend to
“opt-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. Pursuant to that consolidation order, 30
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
plaintiffs in several of the 420 million, which was preliminarily approved by the court on January 27, 2022. Pursuant to an agreement between the Company and its insurance carriers, the insurance carriers provided the vast majority of the total settlement amount, with a small portion contributed by Teva. Additionally, as part of the settlement, Teva admitted no liability and denied all allegations of wrongdoing. A number of
“opt-out”
cases filed amended complaints on May 28, 2020. 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. Those “opt-out”
plaintiffs moved for reconsideration, which was denied on March 30, 2021. On May 24, 2021, Teva moved to dismiss a majority of the “opt-out”
complaints on various other grounds. Those motions are still pending. The Ontario Teachers Securities Litigation plaintiffs’ Motion for Class Certification and Appointment of Class Representatives and Class Counsel was granted on March 9, 2021, to which Teva’s appeal was denied. On January 18, 2022, Teva entered into a settlement in the Ontario Teachers Securities Litigation for $“opt-out”
complaints still remain outstanding, and motions to approve securities class actions were also filed in the Tel Aviv District Court in Israel with similar allegations to those made in the Ontario Teachers Securities Litigation. 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 alleging, among other things, violations of Section 10(b) of the Securities and Exchange Act of 1934, as amended and SEC Rule
10b-5.
The complaint, purportedly filed on behalf of persons who purchased or otherwise acquired Teva securities between October 29, 2015 and August 18, 2020, alleges that Teva and certain of its 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 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 above referenced August 2020 False Claims Act complaint filed by the DOJ. On March 26, 2021, the Court appointed lead plaintiff and lead counsel. On May 25, 2021, lead plaintiff filed an amended class action complaint, which named four additional former and current officers as defendants. On August 10, 2021, lead plaintiff moved to strike certain allegations from its amended complaint and to file a corrected amended complaint, which the court granted that same day. The corrected amended complaint seeks unspecified damages and legal fees. On August 23, 2021, Teva and the individual defendants moved to dismiss the corrected amended complaint. On March 25, 2022, the court (i) held that the corrected amended complaint failed to plead that certain public statements regarding Teva’s compliance with law were misleading, (ii) held that two alleged partial corrective disclosures did not establish loss causation and cannot serve as the basis for plaintiff’s claimed loss, and (iii) dismissed all claims against one of the individual defendants. The court otherwise denied the motion to dismiss with respect to Teva and the remaining individual defendants. 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. 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. Motions for document disclosure prior to initiating derivative actions were filed with respect to several U.S. and EU settlement agreements, opioids, the U.S. price-fixing investigations and allegations related to the DOJ’s complaint regarding Copaxone patient assistance program in the U.S.
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.
31
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 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 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.
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 $non-compliance
with environmental laws and assessed a penalty of $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 CINQAIR200 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). Defendants moved to dismiss the complaint and on December 28, 2018, 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, which motion remains pending. Trial in this matter is currently scheduled for September 2022.
®
(reslizumab) for the treatment of eosinophilic esophagitis (“EE”). The plaintiffs claim damages of at least $NOTE 11 – Income taxes:
In the first quarter of 2022, Teva recognized a tax of $2 million, on of $971 million. In the first quarter of 2021, Teva recognized a tax expense of $62 million, on 144 million.
expense
pre-tax
loss
pre-tax
income of $Teva’s tax rate for the first quarter of 2022 was mainly affected by legal settlement charges
, adjustments to valuation allowances on deferred tax assets
and interest expense disallowances.
The statutory Israeli corporate tax rate is 23 % in 2022.
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. Trial in this case is scheduled to begin in July 2022. A final and binding decision against Teva in this case may lead to an impairment of $138 million.
The Israeli tax authorities issued tax assessment decrees for 2008-2012 and 2013-2016, challenging the Company’s positions on several issues. Teva has protested the 2008-2012 and 2013-2016 decrees before the Central District Court in Israel.
32
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
In October 2021, the Central District Court in Israel held in favor of the Israeli tax authorities with respect to 2008-2011 decrees. The case with respect to 2012-2016 remains pending with similar legal claims. The October 2021 Central District Court decision found that Teva has a tax liability to the Israeli government for 2008-2011 of approximately $350 million, of which a portion will be paid in cash during 2022 and 2023, and the remaining portion will be offset by carried forward losses that Teva would otherwise be entitled to. Teva appealed the decision to the Israeli Supreme Court and expects the appeal hearings to start in the second half of 2022.
The Company believes it has adequately provided for all of its uncertain tax positions, including those items currently under dispute, however, adverse results could be material.
NOTE 12 – Other assets impairments, restructuring and other items:
Three months ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Impairments of long-lived tangible assets (1) |
$ | $ | ||||||
Contingent consideration |
||||||||
Restructuring |
||||||||
Other |
||||||||
Total |
$ | $ | ||||||
| (1) | Including impairments related to exit and disposal activities . |
Impairments
Impairments of tangible assets for the three months ended March 31, 2022 and 2021 were $16 million and $48 million, respectively. The impairment for the three months ended March 31, 2022 was mainly related to certain assets in North America. The impairment for the three months ended March 31, 2021 was mainly related to certain assets in Europe.
Teva may record additional impairments in the future, to the extent it changes its plans on any given asset and/or the assumptions underlying such plans, as a result of its network consolidation activities.
Contingent consideration
In the three months ended March 31, 2022, Teva recorded an expense of $33 million for contingent consideration, compared to an expense of $3 million in the three months ended March 31, 2021. The expense in the first three months of 2022 was mainly related to a change in the estimated future royalty payments in connection with lenalidomide (generic equivalent of Revlimid
®
), which was part of the Actavis Generics acquisition. Restructuring
In the three months ended March 31, 2022, Teva recorded $57 million of restructuring expenses, compared to $81
million of restructuring expenses in the three months ended March 31, 2021. The expenses for the three months ended March 31, 2022 and March 31, 2021 were primarily related to network consolidation activities and residual expenses of the restructuring plan announced in 2017.
The following tables provide the components of restructuring costs:
Three months ended March 31, |
||||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Restructuring |
||||||||
Employee termination |
$ | $ | ||||||
Other |
||||||||
Total |
$ | $ | ||||||
33
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Provision |
( |
) | ( |
) | ( |
) | ||||||
Utilization and other* |
||||||||||||
Balance as of March 31, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Employee termination costs |
Other |
Total |
||||||||||
(U.S. $ in millions ) |
||||||||||||
Balance as of January 1, 2021 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Provision |
( |
) | ( |
) | ( |
) | ||||||
Utilization and other* |
||||||||||||
Balance as of March 31, 2021 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| * | Includes adjustments for foreign currency translation. |
Significant regulatory and other events
In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown nitrosamine impurity called NDMA found in valsartan API supplied by Zhejiang Huahai Pharmaceuticals Co. Ltd. (“Huahai”). Since July 2018, Teva has been actively engaged with global regulatory authorities in reviewing its sartan and other products to determine whether NDMA and/or other related nitrosamine impurities are present in specific products. Where necessary, Teva has initiated additional voluntary recalls. In December 2019, Teva reached a settlement with Huahai resolving Teva’s claims related to certain sartan API supplied by Huahai. Under the settlement agreement, Huahai agreed to compensate Teva for some of its direct losses and provide it with prospective cost reductions for API. The settlement does not release Huahai from liability for any losses Teva may incur as a result of third party personal injury or product liability claims relating to the sartan API at issue. In addition, multiple lawsuits have been filed in connection with this matter, which may lead to additional customer penalties, impairments and litigation costs.
In the second quarter of 2020, Teva’s operations in its manufacturing facilities in Goa, India were temporarily suspended due to a water supply issue. During the second half of 2020, Teva completed partial remediation of this issue and restarted limited supply from its Goa facilities. The site experienced some additional delays in the first quarter of 2021 due to labor related issues, but the situation stabilized during the second quarter of 2021. The water supply remediation is expected to be completed during the second quarter of 2022, and in the meantime the site is operating under an interim water solution without any material impact expected on compliance and supply capacity. The impact to Teva’s financial results for the three months ended March 31, 2022 was immaterial.
In June 2021, the Company temporarily paused manufacturing at its Irvine, California facility in the United States, and suspended release of product from the facility pending completion of an open manufacturing investigation. In July 2021, the FDA initiated an establishment inspection at the facility. On August 18, 2021, the Company issued field alert reports to the FDA for products manufactured at the Irvine facility and put Irvine manufactured products in Teva’s distribution center on hold. On August 20, 2021, the FDA completed its inspection and issued a Form
FDA-483
to the Irvine facility with ten observations and, on December 17, 2021, the FDA notified the Company that the inspection classification of this site is “official action indicated” (“OAI”). Teva began working diligently to address the FDA’s 34
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
concerns in a manner consistent with current good manufacturing practice (“CGMP”) requirements, and was in discussions with the FDA Drug Shortage Staff (DSS) and FDA Office of Manufacturing Quality (OMQ) to recommence distribution, release and manufacture of certain medically necessary products from the site under defined controls and protocols.
On March 22, 2022, the Company announced its decision to permanently cease all manufacturing activities and to close the site, and to transfer certain products to other facilities. Teva will remain in contact with the FDA regarding the status of the Irvine, California site to ensure that the Company continues to comply with all relevant CGMP requirements, particularly those involved with product transfers to other sites within the Teva network.
If Teva is unable to address FDA inspection issues satisfactorily, it could be subject to additional regulatory actions. Teva has considered these developments and, as of March 31, 2022, recorded $54 million costs in its financial statements related to this matter. Teva will continue to assess potential financial implications, including loss of revenues, impairments, inventory write offs, customer penalties, costs of additional remediation and/or FDA enforcement actions.
NOTE 13 – Earnings (Loss) per share:
Basic earnings and loss per share are computed by dividing net income (loss) attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding (including fully vested restricted share units (“RSUs”) and performance share units (“PSUs”) during the period, net of treasury shares.
In computing diluted loss per share for the three months ended March 31, 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. In computing diluted earnings per share for the three months ended March 31, 2021, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and
. non-vested
RSUs and PSUs granted under employee stock compensation plansThe weighted average diluted shares outstanding used for the fully diluted share
calculations
for both
the
three months ended March 31, 2022 and 2021 were 1,107
Basic and diluted 0.86 for the three months ended March 31, 2022, compared to basic and diluted earnings per share of $0.07 for the three months ended March 31, 2021.
los
per share s
was
$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, 2021, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Other comprehensive income (loss) before reclassifications |
( |
) | — | — | ( |
) | ||||||||||
Amounts reclassified to the statements of income |
— | |||||||||||||||
Net other comprehensive income (loss) before tax |
( |
) | ||||||||||||||
Corresponding income tax |
( |
) | — | — | ( |
) | ||||||||||
Net other comprehensive income (loss) after tax* |
( |
) | ( |
) | ||||||||||||
Balance as of March 31, 2022, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| * | Amounts do not include a $ non-controlling interests. |
35
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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, 2020, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Other comprehensive income (loss) before reclassifications |
( |
) | — | ( |
) | |||||||||||
Amounts reclassified to the statements of income |
— | — | ||||||||||||||
Net other comprehensive income (loss) before tax |
( |
) | — | ( |
) | |||||||||||
Corresponding income tax |
( |
) | — | |||||||||||||
Net other comprehensive income (loss) after tax* |
( |
) | — | ( |
) | |||||||||||
Balance as of March 31, 2021, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| * | Amounts do not include a $ loss from foreign currency translation adjustments attributable to non-controlling interests. |
NOTE 15 – Segments:
Teva operates its business and reports its financial results in three segments:
| (a) | North America segment, which includes the United States and Canada. |
| (b) | Europe segment, which includes the European Union, the United Kingdom and certain other European countries. |
| (c) | International Markets segment, which includes all countries other than those in the North America and Europe segments. |
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 RD expenses, SM expenses, GA 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. Any changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 3 and note 6.
36
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
a. Segment information:
Three months ended March 31, |
||||||||||||
2022 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ | $ | $ | |||||||||
Gross profit |
||||||||||||
RD expenses |
||||||||||||
SM expenses |
||||||||||||
GA expenses |
||||||||||||
Other income |
( |
) | § |
( |
) | |||||||
Segment profit |
$ | $ | $ | |||||||||
§ Represents an amount less than $0.5 million.
Three months ended March 31, |
||||||||||||
2021 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ | $ | $ | |||||||||
Gross profit |
||||||||||||
RD expenses |
||||||||||||
SM expenses |
||||||||||||
GA expenses |
||||||||||||
Other income |
( |
) | § |
( |
) | |||||||
Segment profit |
$ | $ | $ | |||||||||
§ Represents an amount less than $0.5 million.
The following table presents a reconciliation of Teva’s segment profits to its consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended March 31, 2022 and 2021:
Three months ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
North America profit |
$ | $ | ||||||
Europe profit |
||||||||
International Markets profit |
||||||||
Total reportable segments profit |
||||||||
Profit of other activities |
||||||||
Total segments profit |
||||||||
Amounts not allocated to segments: |
||||||||
Amortization |
||||||||
37
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Other assets impairments, restructuring and other items |
||||||||
Intangible asset s impairments |
||||||||
Legal settlements and loss contingencies |
||||||||
Other unallocated amounts |
||||||||
Consolidated operating income (loss) |
( |
) | ||||||
Financial expenses, net |
||||||||
Consolidated income (loss) before income taxes |
$ |
( |
) |
$ |
||||
b. Segment revenues by major products and activities:
The following tables present revenues by major products and activities for the three months ended March 31, 2022 and 2021:
North America |
Three months ended March 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Generic products |
$ | $ | ||||||
AJOVY |
||||||||
AUSTEDO |
||||||||
BENDEKA ® /TREANDA® |
||||||||
COPAXONE |
||||||||
Anda |
||||||||
Other |
||||||||
Total |
$ | $ | ||||||
Europe |
Three months ended March 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Generic products |
$ | $ | ||||||
AJOVY |
||||||||
COPAXONE |
||||||||
Respiratory products |
||||||||
Other |
||||||||
Total |
$ | $ | ||||||
38
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
International markets |
Three months ended March 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
Generic products |
$ | $ | ||||||
AJOVY |
||||||||
COPAXONE |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
NOTE 16 – Fair value measurement:
Financial items carried at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are classified in the tables below in one of the three categories of fair value levels:
March 31, 2022 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||
| Money markets |
$ | $ | — | $ | — | $ | ||||||||||
| Cash, deposits and other |
— | — | ||||||||||||||
| Investment in securities: |
||||||||||||||||
| Equity securities |
— | — | ||||||||||||||
| Other |
— | |||||||||||||||
| Restricted cash |
— | — | ||||||||||||||
| Derivatives: |
||||||||||||||||
| Asset derivatives—options and forward contracts |
— | — | ||||||||||||||
| Liability derivatives: |
||||||||||||||||
| Options and forward contracts |
— | ( |
) | — | ( |
) | ||||||||||
| Bifurcated embedded derivatives |
— | — | § |
|||||||||||||
| Contingent consideration* |
— | — | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
December 31, 2021 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||
| Money markets |
$ | $ | — | $ | — | $ | ||||||||||
| Cash, deposits and other |
— | — | ||||||||||||||
| Investment in securities: |
||||||||||||||||
| Equity securities |
— | — | ||||||||||||||
| Other |
— | |||||||||||||||
| Restricted cash |
— | — | ||||||||||||||
| Derivatives: |
||||||||||||||||
| Asset derivatives—options and forward contracts |
— | — | ||||||||||||||
| Liability derivatives: |
||||||||||||||||
| Options and forward contracts |
— | ( |
) | — | ( |
) | ||||||||||
| Bifurcated embedded derivatives |
— | — | § |
|||||||||||||
| Contingent consideration* |
— | — | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
§ |
Represents an amount less than $0.5 million. |
* |
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions. |
39
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
Teva determined the fair value of the liabilities for the 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 the contingent consideration is based on several factors, such as: the cash flows projected from the success of unapproved product candidates; the probability of success of product candidates, including risks associated with uncertainty regarding achievement and payment of milestone events; the time and resources needed to complete the development and approval of product candidates; the life of the potential commercialized products and associated risks of 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 risk of the contingent
payments and IPRD. The discount rate applied ranged from 7.3 % to 10.7 %. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was 7.7 %. The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in 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 those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:
Three months ended March 31, 2022 |
Three months ended March 31, 2021 |
|||||||
(U.S. $ in millions) |
||||||||
| Fair value at the beginning of the period |
$ |
( |
) |
( |
) | |||
| Redemption of debt securities |
( |
) | ||||||
| Bifurcated embedded derivatives |
§ |
|||||||
| Adjustments to provisions for contingent consideration: |
||||||||
| Actavis Generics transaction |
( |
) |
( |
) | ||||
| Eagle transaction |
( |
) |
||||||
| Settlement of contingent consideration: |
||||||||
| Eagle transaction |
||||||||
| Additional contingent consideration resulting from Novetide acquisition* |
( |
) |
||||||
| |
|
|
|
|||||
| Fair value at the end of the period |
$ |
( |
) |
$ |
( |
) | ||
| |
|
|
|
|||||
§ |
Represents an amount less than $0.5 million. |
* |
In January 2022, Teva acquired |
40
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Unaudited)
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* |
||||||||
March 31, |
December 31, |
|||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
| Senior notes and sustainability-linked senior notes included under senior notes and loans |
$ | $ | ||||||
| Senior notes and convertible senior debentures included under short-term debt |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
| * | The fair value was estimated based on quoted market prices. |
41
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, specialty medicines and biopharmaceuticals, improving the lives of patients.
We operate worldwide, with headquarters in Israel and a significant presence in the United States, Europe and many other markets around the world. Our key strengths include our world-leading generic medicines expertise and portfolio, focused specialty medicines portfolio and global infrastructure and scale.
Teva was incorporated in Israel on February 13, 1944 and is the successor to a number of Israeli corporations, the oldest of which was established in 1901.
Our Business Segments
We operate our business through three segments: North America, Europe and International Markets. Each business segment manages our entire product portfolio in its region, including generics, specialty and OTC products. This structure enables strong alignment and integration between operations, commercial regions, RD 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. The
COVID-19
Pandemic As a leading global pharmaceutical company, Teva provides essential medicines to millions of patients around the world every day. Our priorities remain focused on the health and well-being of our employees and on our responsibility to continue to provide our medicines to the nearly 200 million patients who depend on us every day.
During the first quarter of 2022, we have not experienced material delays in the production and distribution of medicines. The
COVID-19
pandemic has had an effect on our suppliers, which led to minimal delays in our materials supply. However, the supply chain supporting our key products – specialty, generics and API – remains largely uninterrupted, with adequate product inventory across our network and redundancy plans in place to address potential shortfalls, if any. Our facilities that research, manufacture, order, pack, distribute and provide critical customer and patient services remain largely uninterrupted as well, and are currently functioning to meet demand for essential medicines for patients throughout the world. During the first quarter of 2022, we have experienced delays in clinical trials due to slow-downs of recruitment for studies and suspended regulatory inspections, raw material supply issues, delays in regulatory approvals of new products due to reduced capacity or
re-prioritization
of regulatory agencies and delays in pre-commercial
launch activities. We may experience further delays if the pandemic continues for an extended period of time. The long-term effects of the pandemic cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will continue to see variable demand in future periods. While
COVID-19
continues to impact sales in certain markets and for certain products, we do not currently anticipate a material impact on our 2022 financial results due to the ongoing global pandemic. Highlights
Significant highlights in the first quarter of 2022 included:
| • | Revenues in the first quarter of 2022 were $3,661 million, a decrease of 8%, or 5% in local currency terms, compared to the first quarter of 2021. This decrease was mainly due to lower revenues in our North America segment primarily related to generic products and COPAXONE, partially offset by higher revenues from Anda and generic products in our Europe segment. |
42
| • | Our North America segment generated revenues of $1,737 million and profit of $402 million in the first quarter of 2022. Revenues decreased by 13% compared to the first quarter of 2021. Profit decreased by 30% compared to the first quarter of 2021. |
| • | Our Europe segment generated revenues of $1,156 million and profit of $381 million in the first quarter of 2022. Revenues decreased by 5% compared to the first quarter of 2021. In local currency terms, revenues increased by 3%. Profit increased by 13% compared to the first quarter of 2021. |
| • | Our International Markets segment generated revenues of $492 million and profit of $179 million in the first quarter of 2022. Revenues were flat in U.S. dollars, but increased by 8% in local currency terms, compared to the first quarter of 2021. Profit increased by 47% compared to the first quarter of 2021. |
| • | Our revenues from other activities in the first quarter of 2022 were $275 million, a decrease of 5% compared to the first quarter of 2021. In local currency terms, revenues were flat compared to the first quarter of 2021. |
| • | Impairments of identifiable intangible assets were $149 million in the first quarter of 2022, compared to $79 million in the first quarter of 2021. See note 5 to our consolidated financial statements. |
| • | We recorded expenses of $128 million for other asset impairments, restructuring and other items in the first quarter of 2022, compared to expenses of $137 million in the first quarter of 2021. See note 12 to our consolidated financial statements. |
| • | Legal settlements and loss contingencies expenses were $1,124 million in the first quarter of 2022, compared to $104 million in the first quarter of 2021. See note 9 to our consolidated financial statements. |
| • | Operating loss was $713 million in the first quarter of 2022, compared to an operating income of $434 million in the first quarter of 2021. |
| • | Financial expenses were $258 million in the first quarter of 2022, compared to $290 million in the first quarter of 2021. |
| • | In the first quarter of 2022, we recognized a tax expense of $2 million, on pre-tax loss of $971 million. In the first quarter of 2021, we recognized a tax expense of $62 million, on pre-tax income of $144 million. See note 11 to our consolidated financial statements. |
| • | As of March 31, 2022, our debt was $22,917 million, compared to $23,043 million as of December 31, 2021. This decrease was mainly due to exchange rate fluctuations. |
| • | Cash flow used in operating activities during the first quarter of 2022 was $49 million, compared to $405 million in the first quarter of 2021. The lower cash flow used in operating activities in the first quarter of 2022 was mainly due to changes in working capital items resulting from a decrease in accounts receivables net of SRA in connection with the decrease in revenues. |
| • | During the first quarter of 2022, we generated free cash flow of $117 million, which we define as comprising: $49 million in cash flow used in operating activities, $305 million in beneficial interest collected in exchange for securitized accounts receivables and $25 million in proceeds from divestitures of businesses and other assets, partially offset by $157 million in cash used for capital investment and $7 million in cash used for acquisition of businesses, net of cash acquired. During the first quarter of 2021, we generated free cash flow of $59 million. |
43
Results of Operations
Comparison of Three Months Ended March 31, 2022 to Three Months Ended March 31, 2021
Segment Information
North America Segment
The following table presents revenues, expenses and profit for our North America segment for the three months ended March 31, 2022 and 2021:
Three months ended March 31, |
||||||||||||||||
2022 |
2021 |
|||||||||||||||
(U.S. $ in millions / % of Segment Revenues) |
||||||||||||||||
| Revenues |
$ | 1,737 | 100 | % | $ | 1,989 | 100 | % | ||||||||
| Gross profit |
890 | 51.2 | % | 1,074 | 54.0 | % | ||||||||||
| RD expenses |
143 | 8.2 | % | 160 | 8.0 | % | ||||||||||
| SM expenses |
245 | 14.1 | % | 229 | 11.5 | % | ||||||||||
| GA expenses |
112 | 6.4 | % | 111 | 5.6 | % | ||||||||||
| Other income |
(11 | ) | (0.7 | %) | (3 | ) | § | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 402 | 23.1 | % | $ | 577 | 29.0 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| * | 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 quarter of 2022 were $1,737 million, a decrease of $251 million, or 13%, compared to the first quarter of 2021, mainly due to a decrease in revenues from generic products and COPAXONE, partially offset by higher revenues from Anda.
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 March 31, 2022 and 2021:
Three months ended March 31, |
Percentage Change |
|||||||||||
2022 |
2021 |
2022-2021 |
||||||||||
(U.S. $ in millions) |
||||||||||||
| Generic products |
$ | 899 | $ | 1,053 | (15 | %) | ||||||
| AJOVY |
36 | 31 | 16 | % | ||||||||
| AUSTEDO |
154 | 146 | 6 | % | ||||||||
| BENDEKA/TREANDA |
82 | 91 | (10 | %) | ||||||||
| COPAXONE |
86 | 164 | (48 | %) | ||||||||
| Anda |
342 | 289 | 18 | % | ||||||||
| Other |
139 | 215 | (35 | %) | ||||||||
| |
|
|
|
|||||||||
| Total |
$ | 1,737 | $ | 1,989 | (13 | %) | ||||||
| |
|
|
|
|||||||||
Generic products
®
) and Truxima®
. Among the most significant generic products we sold in North America in the first quarter of 2022 were Truxima
®
(the biosimilar to Rituxan®
), lenalidomide capsules (the generic version of Revlimid®
), epinephrine injectable solution (the generic equivalent of EpiPen®
and EpiPen Jr.®
) and albuterol sulfate inhalation aerosol (our ProAir®
authorized generic). 44
In the first quarter of 2022, our total prescriptions were approximately 302 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions according to IQVIA data.
On March 7, 2022 we announced the launch of the first generic version of Revlimid
®
(lenalidomide capsules), in 5mg, 10mg, 15mg, and 25mg strengths, in the United States. These lenalidomide capsules are a prescription medicine used in adults for the treatment of (i) multiple myeloma in combination with the medicine dexamethasone, (ii) certain myelodysplastic syndromes, and (iii) mantle cell lymphoma following specific prior treatment. AJOVY
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 product indicated for quarterly treatment and in January 2021 we launched a new product offering, providing a quarterly dose.
AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States. Applications for patent term extensions have been submitted in various markets around the world, and certain extensions in Europe and other countries have already been granted 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 and 10 years from marketing approval in Europe. 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. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the PTAB issued decisions on the first six IPRs, finding the six composition of matter patents invalid as being obvious. On March 31, 2020, the PTAB issued a decision upholding the three method of treatment patents. On August 16, 2021, the Court of Appeals for the Federal Circuit affirmed all of the PTAB’s decisions. The litigation is proceeding as to the three method of treatment patents and trial is expected in October 2022. We also filed another suit against Lilly on June 8, 2021, asserting two patents recently granted to Teva, related to the treatment of refractory migraine. Lilly responded to the complaint with a motion to dismiss, which Teva opposed. On March 15, 2022, the U.S. District Court for the District of Massachusetts denied Lilly’s motion to dismiss and on March 23, 2022, Lilly submitted IPR petitions challenging the patentability of the two refractory migraine patents. On April 11, 2022, Lilly submitted another IPR petition challenging the patentability of a patent related to the two refractory migraine patents. 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
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 seven 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 a complaint against Aurobindo, asserting six of the Orange Book patents, and a separate complaint against Lupin, asserting four of the Orange Book patents. The suits were filed in the U.S. District Court for the District of New Jersey. The seventh patent was issued in November 2021, and listed in the Orange Book in December 2021. 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, we reached an agreement with Lupin to resolve the abovementioned dispute over Lupin’s ANDA for a generic deutetrabenazine product. Under the terms of the settlement agreement, the litigation between the parties in the U.S. District Court for the District of New Jersey will be ended, and Lupin will have a license to sell its generic product beginning April 2033, or earlier under certain circumstances. The litigation against Aurobindo remains pending.
BENDEKA
TREANDA
®
ready-to-dilute
45
In July 2018, Eagle prevailed in its suit against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. On March 13, 2020, this decision was upheld in the appellate court. As things currently stand, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. 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 with respect to the other two filers. On December 14, 2021, Apotex filed a Petition for a Writ of Certiorari with the U.S. Supreme Court, which was denied. 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. Recent suits against two filers of 505(b)(2) NDAs referencing BENDEKA are also in the initial stages of litigation.
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, allowing Hospira to launch its product on January 17, 2028 or earlier under certain circumstances.
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.
COPAXONE
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®
. Anda
46
Product Launches and Pipeline
In the first quarter of 2022, 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 (U.S. $ in millions (IQVIA)) * |
|||||
| Fluticasone Propionate and Salmeterol Inhalation Powder, USP |
Advair Diskus ® |
March | $ | 2,940 | ||||
| Lenalidomide Capsules, 5, 10, 15, 25 mg |
Revlimid ® capsules |
March | $ | 2,143 | ||||
| Diclofenac Potassium Capsules |
Zipsor ® Liquid FilledCapsules |
March | $ | 20 | ||||
| * | 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 March 31, 2022, 189 product applications awaiting FDA approval, including 67 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 December 31, 2021 of approximately $111 billion, according to IQVIA. Approximately 71% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 72 of these products, or 100 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $81 billion in U.S. brand sales for the twelve months ended December 31, 2021, 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 first quarter of 2022, 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 (U.S. $ in millions (IQVIA)) * |
||||
| Midostaurin Capsules, 25 mg |
Rydapt ® |
$ | 88 | |||
| Riociguat Tablets |
Adempas ® |
$ | 12 | |||
| Gefitinib Tablets, 250 mg |
Iressa ® |
$ | 6 | |||
| * | The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch. |
47
For information regarding our specialty and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (RD) Expenses” below.
North America Gross Profit
Gross profit from our North America segment in the first quarter of 2022 was $890 million, a decrease of 17%, compared to $1,074 million in the first quarter of 2021. This decrease was mainly due to lower gross profit from generic products and lower gross profit from COPAXONE.
Gross profit margin for our North America segment in the first quarter of 2022 decreased to 51.2%, compared to 54.0% in the first quarter of 2021. This decrease was mainly due to a change in the mix of generic products and COPAXONE.
North America RD Expenses
RD expenses relating to our North America segment in the first quarter of 2022 were $143 million, a decrease of 11%, compared to $160 million in the first quarter of 2021.
For a description of our RD expenses in the first quarter of 2022, see “—Teva Consolidated Results—Research and Development (RD) Expenses” below.
North America SM Expenses
SM expenses relating to our North America segment in the first quarter of 2022 were $245 million, an increase of 7%, compared to $229 million in the first quarter of 2021. This increase was mainly due to direct to consumer promotional expenses related to AUSTEDO.
North America GA Expenses
GA expenses relating to our North America segment in the first quarter of 2022 were $112 million, flat compared to the first quarter of 2021.
North America Profit
Profit from our North America segment consists of gross profit less RD expenses, SM expenses, GA 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 first quarter of 2022 was $402 million, a decrease of 30% compared to $577 million in the first quarter of 2021, mainly due to lower revenues, as discussed above.
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the three months ended March 31, 2022 and 2021:
Three months ended March 31, |
||||||||||||||||
2022 |
2021 |
|||||||||||||||
(U.S. $ in millions / % of Segment Revenues) |
||||||||||||||||
| Revenues |
$ | 1,156 | 100 | % | $ | 1,214 | 100 | % | ||||||||
| Gross profit |
694 | 60.0 | % | 688 | 56.6 | % | ||||||||||
| RD expenses |
58 | 5.0 | % | 66 | 5.4 | % | ||||||||||
| SM expenses |
196 | 17.0 | % | 214 | 17.7 | % | ||||||||||
| GA expenses |
59 | 5.1 | % | 70 | 5.8 | % | ||||||||||
| Other income |
§ | § | § | § | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 381 | 32.9 | % | $ | 338 | 27.8 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| * Segment profit does not include amortization and certain other items. § Represents an amount less than $0.5 million or 0.5%, as applicable. |
| |||||||||||||||
48
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 quarter of 2022 were $1,156 million, a decrease of 5%, or $58 million, compared to the first quarter of 2021. In local currency terms, revenues increased by 3%.
In the first quarter of 2021, our lower revenues were impacted by the implications of the
COVID-19
pandemic. In the first quarter of 2022, our higher revenues were attributed to higher demand for generic and OTC products resulting mainly from the removal of restrictions related to doctor and hospital visits by patients that were previously implemented in response to the COVID-19
pandemic, as well as higher sales of cough and cold products. In the first quarter of 2022, revenues were negatively impacted by exchange rate fluctuations of $67 million, net of hedging effects.
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 March 31, 2022 and 2021:
Three months ended March 31, |
Percentage Change |
|||||||||||
2022 |
2021 |
2022-2021 |
||||||||||
(U.S. $ in millions) |
||||||||||||
| Generic products |
$ | 876 | $ | 865 | 1 | % | ||||||
| AJOVY |
30 | 16 | 94 | % | ||||||||
| COPAXONE |
72 | 100 | (29 | %) | ||||||||
| Respiratory products |
71 | 93 | (24 | %) | ||||||||
| Other |
107 | 140 | (24 | %) | ||||||||
| |
|
|
|
|||||||||
| Total |
$ | 1,156 | $ | 1,214 | (5 | %) | ||||||
| |
|
|
|
|||||||||
Generic products
COVID-19
pandemic, as well as higher sales of cough and cold products. AJOVY
For information about AJOVY patent protection, see “—North America Revenues—Revenues by Major Product” above.
COPAXONE
One European patent protecting COPAXONE 40 mg/mL was found invalid by the Board of Appeal of the European Patent Office in September 2020. Two additional patents expiring in 2030 were found invalid at the European Patent Office 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
Product Launches and Pipeline
As of March 31, 2022, our generic products pipeline in Europe included 185 generic approvals relating to 33 compounds in 75 formulations, with no European Medicines Agency (“EMA”) approvals received. In addition, approximately 1,241 marketing authorization applications are pending approval in 37 European countries, relating to 132 compounds in 266 formulations. Two applications are pending with the EMA with one application relating to three strengths in 30 markets.
49
For information regarding our specialty and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (RD) Expenses” below.
Europe Gross Profit
Gross profit from our Europe segment in the first quarter of 2022 was $694 million, an increase of 1% compared to $688 million in the first quarter of 2021.
Gross profit margin for our Europe segment in the first quarter of 2022 increased to 60.0%, compared to 56.6% in the first quarter of 2021. This increase was mainly due to lower cost of goods sold, mainly driven by our network consolidation activities, as well as a decrease in write-offs.
Europe RD Expenses
RD expenses relating to our Europe segment in the first quarter of 2022 were $58 million, a decrease of 12% compared to $66 million in the first quarter of 2021.
For a description of our RD expenses in the first quarter of 2022, see “—Teva Consolidated Results—Research and Development (RD) Expenses” below.
Europe SM Expenses
SM expenses relating to our Europe segment in the first quarter of 2022 were $196 million, a decrease of 8% compared to $214 million in the first quarter of 2021. This decrease was mainly due to exchange rate fluctuations, as well as lower marketing costs in the first quarter of 2022.
Europe GA Expenses
GA expenses relating to our Europe segment in the first quarter of 2022 were $59 million, a decrease of 15% compared to $70 million in the first quarter of 2021.
Europe Profit
Profit from our Europe segment consists of gross profit less RD expenses, SM expenses, GA 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 first quarter of 2022 was $381 million, an increase of 13%, compared to $338 million in the first quarter of 2021. This increase was mainly due to higher gross profit and reduced expenses, as discussed above.
International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the three months ended March 31, 2022 and 2021:
Three months ended March 31, |
||||||||||||||||
2022 |
2021 |
|||||||||||||||
(U.S. $ in millions / % of Segment Revenues) |
||||||||||||||||
| Revenues |
$ | 492 | 100 | % | $ | 490 | 100 | % | ||||||||
| Gross profit |
286 | 58.1 | % | 260 | 53.0 | % | ||||||||||
| RD expenses |
20 | 4.0 | % | 18 | 3.6 | % | ||||||||||
| SM expenses |
97 | 19.8 | % | 96 | 19.6 | % | ||||||||||
| GA expenses |
29 | 5.9 | % | 26 | 5.3 | % | ||||||||||
| Other income |
(40 | ) | (8.1 | %) | (2 | ) | § | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 179 | 36.4 | % | $ | 122 | 24.9 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
50
International Markets Revenues
Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical market. Our key international markets are Japan, Russia and Israel. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics oriented markets, such as Russia and certain Latin 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 RD facilities in these markets. During the first quarter of 2022, the impact of this conflict on our International Markets segment results of operations and financial condition was immaterial. Consistent with our foreign exchange risk management hedging programs, we enter into hedges to hedge our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. In the first quarter of 2022, prior to escalation of the conflict, we took measures to reduce our operational cash balances in Russia and Ukraine and we are monitoring the solvency of our customers in Russia and Ukraine and taking 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. On February 1, 2021, we completed the sale of the majority of the generic and operational assets of our business venture in Japan.
Revenues from our International Markets segment in the first quarter of 2022 were $492 million, flat compared to the first quarter of 2021. In local currency terms, revenues increased by 8% compared to the first quarter of 2021, mainly due to higher revenues in certain markets, partially offset by lower revenues in Japan resulting from the divestment mentioned above, as well as regulatory price reductions and generic competition to
off-patented
products. Revenues continued to be affected by the ongoing impact of the COVID-19
pandemic on markets and on customer stocking and purchasing patterns. 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 March 31, 2022 and 2021:
Three months ended March 31, |
Percentage Change |
|||||||||||
2022 |
2021 |
2022-2021 |
||||||||||
(U.S. $ in millions) |
||||||||||||
| Generic products |
$ | 388 | $ | 392 | (1 | %) | ||||||
| AJOVY |
6 | 1 | 315 | % | ||||||||
| COPAXONE |
10 | 12 | (11 | %) | ||||||||
| Other |
88 | 85 | 4 | % | ||||||||
| |
|
|
|
|||||||||
| Total |
$ | 492 | $ | 490 | § |
|||||||
| |
|
|
|
|||||||||
| § | Represents an amount less than 0.5%. |
Generic products
off-patented
products in Japan. 51
AJOVY
COPAXONE
AUSTEDO
International Markets Gross Profit
Gross profit from our International Markets segment in the first quarter of 2022 was $286 million, an increase of 10% compared to $260 million in the first quarter of 2021.
Gross profit margin for our International Markets segment in the first quarter of 2022 increased to 58.1%, compared to 53.0% in the first quarter of 2021. This increase was mainly due to a change in product portfolio mix, price increases largely as a result of rising costs due to inflationary pressure and a positive impact from hedging activity, partially offset by regulatory price reductions and generic competition to
off-patented
products in Japan. International Markets RD Expenses
RD expenses relating to our International Markets segment in the first quarter of 2022 were $20 million, an increase of 12% compared to $18 million in the first quarter of 2021.
For a description of our RD expenses in the first quarter of 2022, see “—Teva Consolidated Results—Research and Development (RD) Expenses” below.
International Markets SM Expenses
SM expenses relating to our International Markets segment in the first quarter of 2022 were $97 million, an increase of 1% compared to $96 million the first quarter of 2021.
International Markets GA Expenses
GA expenses relating to our International Markets segment in the first quarter of 2022 were $29 million, an increase of 13% compared to $26 million in the first quarter of 2021.
International Markets Other Income
Other income relating to our International Markets segment in the first quarter of 2022 was $40 million, compared to $2 million in the first quarter of 2021. Other income in the first quarter of 2022 was mainly the result of settlement proceeds.
International Markets Profit
Profit from our International Markets segment consists of gross profit less RD expenses, SM expenses, GA 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 first quarter of 2022 was $179 million, an increase of 47%, compared to $122 million in the first quarter of 2021. This increase was mainly due to higher gross profit as well as other income, as mentioned above.
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 first quarter of 2022 were $275 million, a decrease of 5% compared to the first quarter of 2021. In local currency terms, revenues were flat.
52
API sales to third parties in the first quarter of 2022 were $181 million, an increase of 2% in both U.S. dollars and local currency terms compared to the first quarter of 2021.
Teva Consolidated Results
Revenues
Revenues in the first quarter of 2022 were $3,661 million, a decrease of 8%, or 5% in local currency terms, compared to the first quarter of 2021. This decrease was mainly due to lower revenues in our North America segment primarily related to generic products and COPAXONE, partially offset by higher revenues from Anda and generic products in our Europe segment. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.
Exchange rate movements during the first quarter of 2022, including hedging effects, negatively impacted revenues by $133 million, compared to the first quarter of 2021. See note 8d to our consolidated financial statements.
Gross Profit
Gross profit in the first quarter of 2022 was $1,740 million, a decrease of 7% compared to the first quarter of 2021. This decrease was mainly a result of the factors discussed above under “—North America Segment—Gross Profit,” “—Europe Segment—Gross Profit” and “—International Markets Segment—Gross Profit.”
Gross profit margin was 47.5% in the first quarter of 2022, compared to 47.2% in the first quarter of 2021. The increase in gross profit margin was mainly driven by our network consolidation activities, as well as a change in product portfolio mix in our International Markets segment, partially offset by the unfavorable mix of generic products in our North America segment and lower revenues from COPAXONE.
Research and Development (RD) Expenses
Our RD 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 RD activities for specialty and biosimilar products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) post-approval studies for marketed products; and (v) indirect expenses, such as costs of internal administration, infrastructure and personnel.
RD expenses in the first quarter of 2022 were $225 million, a decrease of 11% compared to the first quarter of 2021.
In the first quarter of 2022, our RD expenses related primarily to specialty product candidates in neuroscience (such as migraine, movement disorders/ neurodegeneration and neuropsychiatry, including post-approval commitments), immunology (such as respiratory medicines) and selected other areas, as well as generic products including biosimilars.
Our lower RD expenses in the first quarter of 2022, compared to the first quarter of 2021, were mainly due to a decrease in neuroscience (in the pain and migraine and headache therapeutic areas), as well as various generics projects.
RD expenses as a percentage of revenues were 6.2% in the first quarter of 2022, compared to 6.4% in the first quarter of 2021.
53
Specialty Products Pipeline
Below is a description of key products in our specialty pipeline as of April 20, 2022:
| Phase 2 |
Phase 3 |
Pre-Submission |
Under Regulatory Review | |||||
Novel Biologics |
TEV-48574 Inflammatory Bowel Disease |
Fasinumab Osteoarthritic Pain (March 2016) (1) |
||||||
Small Molecules |
Deutetrabenazine Dyskinesia in Cerebral Palsy (September 2019) |
Risperidone LAI Schizophrenia (2) | ||||||
Digital Respiratory |
Digihaler ® (budesonide and formoterol fumarate dihydrate) (EU) |
|||||||
QVAR ® Digihaler ® (beclomethasone dipropionate HFA)(U.S.) |
||||||||
| (1) | Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). Results for two phase 3 clinical trials, FACT OA1 and FACT OA2, were released on August 5, 2020, indicating that the co-primary endpoints for fasinumab 1 mg monthly were achieved. Fasinumab 1 mg monthly demonstrated significant improvements in pain and physical function over placebo at week 16 and week 24, respectively. Fasinumab 1 mg monthly also showed nominally significant benefits in physical function in two trials and pain in one trial, when compared to the maximum FDA-approved prescription doses of non-steroidal anti-inflammatory drugs for osteoarthritis. The FACT OA1 trial included an additional treatment arm, fasinumab 1 mg every two months, which showed numerical benefit over placebo, but did not reach statistical significance. In initial safety analyses from the phase 3 trials, there was an increase in arthropathies reported with fasinumab. In a sub-group of patients from one phase 3 long-term safety trial, there was an increase in joint replacement with fasinumab 1 mg monthly treatment during the off-drug follow-up period, although this increase was not seen in the other trials to date. |
Active treatment of patients with fasinumab, which only involved dosing in an optional second-year extension phase of one trial, has been discontinued following a recommendation from the fasinumab program’s Independent Data Monitoring Committee that the program should be terminated, based on available evidence obtained to date. The core efficacy data has already been obtained to support potential fasinumab regulatory filings. Long-term safety data is expected to be discussed with the FDA in 2022.
Currently, all
non-essential
activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA. | (2) | Developed under a license agreement with MedinCell. In August 2021, the FDA accepted the NDA for risperidone LAI, based on phase 3 data from two pivotal studies. In April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for risperidone LAI. We are reviewing our next steps based on the CRL and will work closely with the FDA to address their recommendations. |
Discontinued Project
During the first quarter of 2022, development of
TEV-53275
was discontinued. 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 (afilbercept), a biosimilar to Lucentis
®
(denosumab), Stelara®
(ustekinumab), Xolair®
(omalizumab) and Eylea®
®
(ranibizumab) that is currently under regulatory review in Europe and is in pre-submission
in Canada, as well as a biosimilar to Humira®
(adalimumab) that is currently under U.S. regulatory review. 54
Selling and Marketing (SM) Expenses
SM expenses in the first quarter of 2022 were $584 million, flat compared to the first quarter of 2021. This was mainly a result of the factors discussed above under “—North America Segment—SM Expenses” and “—Europe Segment—SM Expenses”.
SM expenses as a percentage of revenues were 15.9% in the first quarter of 2022, compared to 14.7% in the first quarter of 2021.
General and Administrative (GA) Expenses
GA expenses in the first quarter of 2022 were $296 million, an increase of 2% compared to the first quarter of 2021.
GA expenses as a percentage of revenues were 8.1% in the first quarter of 2022, compared to 7.3% in the first quarter of 2021.
Intangible Asset Impairments
We recorded expenses of $149 million for identifiable intangible asset impairments in the first quarter of 2022, compared to expenses of $79 million in the first quarter of 2021. See note 5 to our consolidated financial statements.
Goodwill Impairment
No goodwill impairments were recorded in the first quarters of 2022 and 2021.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $128 million for other asset impairments, restructuring and other items in the first quarter of 2022, compared to expenses of $137 million in the first quarter of 2021. For further details, as well as a description of significant regulatory and other events, see note 12 to our consolidated financial statements.
Legal Settlements and Loss Contingencies
In the first quarter of 2022, we recorded expenses of $1,124 million in legal settlements and loss contingencies, compared to an expense of $104 million in the first quarter of 2021. See note 9 to our consolidated financial statements.
Other Income
Other income in the first quarter of 2022 was $52 million, compared to $5 million in the first quarter of 2021. Other income in the first quarter of 2022 was mainly the result of settlement proceeds in our International Markets segment.
Operating Income (Loss)
Operating loss was $713 million in the first quarter of 2022, compared to an operating income of $434 million in the first quarter of 2021.
Operating loss as a percentage of revenues was 19.5% in the first quarter of 2022, compared to operating income as a percentage of revenues of 10.9% in the first quarter of 2021. Operating loss in the first quarter of 2022 was mainly affected by legal settlements and loss contingencies.
Financial Expenses, Net
Financial expenses were $258 million in the first quarter of 2022, compared to $290 million in the first quarter of 2021. Financial expenses in the first quarter of 2022 were mainly comprised of interest expenses of $238 million. Financial expenses in the first quarter of 2021 were mainly comprised of interest expenses of $239 million and loss on revaluations of marketable securities of $64 million.
55
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 March 31, 2022 and 2021:
Three months ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
(U.S. $ in millions) |
||||||||
| North America profit |
$ | 402 | $ | 577 | ||||
| Europe profit |
381 | 338 | ||||||
| International Markets profit |
179 | 122 | ||||||
| |
|
|
|
|||||
| Total reportable segments profit |
962 | 1,036 | ||||||
| Profit of other activities |
52 | 41 | ||||||
| |
|
|
|
|||||
| Total segments profit |
1,013 | 1,077 | ||||||
| Amounts not allocated to segments: |
||||||||
| Amortization |
200 | 242 | ||||||
| Other assets impairments, restructuring and other items |
128 | 137 | ||||||
| Intangible assets impairments |
149 | 79 | ||||||
| Legal settlements and loss contingencies |
1,124 | 104 | ||||||
| Other unallocated amounts |
127 | 82 | ||||||
| |
|
|
|
|||||
| Consolidated operating income (loss) |
(713 | ) | 434 | |||||
| |
|
|
|
|||||
| Financial expenses, net |
258 | 290 | ||||||
| |
|
|
|
|||||
| Consolidated income (loss) before income taxes |
$ | (971 | ) | $ | 144 | |||
| |
|
|
|
|||||
Tax Rate
In the first quarter of 2022, we recognized a tax expense of $2 million, on
pre-tax
loss of $971 million. In the first quarter of 2021, we recognized a tax expense of $62 million, on pre-tax
income of $144 million. Our tax rate for the first quarter of 2022 was mainly affected by legal settlement charges, adjustments to valuation allowances on deferred tax assets and interest expense disallowances. 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 quarter of 2022 was $21 million, compared to share in profits of $3 million in the first quarter of 2021. The share in profits of associated companies, net in the first quarter 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 $955 million in the first quarter of 2022, compared to net income of $77 million in the first quarter of 2021.
Diluted Shares Outstanding and Earnings (Loss) per Share
The weighted average diluted shares outstanding used for the fully diluted share calculations for both the three months ended March 31, 2022 and 2021 were 1,107 million shares.
Diluted loss per share was $0.86 in the first quarter of 2022, compared to diluted earnings per share of $0.07 in the first quarter of 2021. 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 March 31, 2022 and 2021, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,145 million and 1,130 million, respectively.
56
Impact of Currency Fluctuations on Results of Operations
In the first quarter of 2022, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Canadian dollar, Russian ruble, new Israeli shekel and Japanese yen) impact our results.
During the first quarter of 2022, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on a quarterly average compared to quarterly average basis): Turkish lira by 47%, Argentinian peso by 17%, Russian ruble by 14%, Chilean peso by 11%, Swedish krona by 10% and Japanese yen by 9%. The following main currencies relevant to our operations increased in value against the U.S. dollar: Brazilian real by 4% and Israeli shekel by 2%.
As a result, exchange rate movements during the first quarter of 2022, including hedging effects, negatively impacted overall revenues by $133 million and operating income by $56 million, compared to the first quarter of 2021.
In the first quarter of 2022, a positive hedging impact of $19 million was recognized under revenues, and a minimal positive impact was recognized under cost of sales. In the first quarter of 2021, a positive hedging impact of $28 million was recognized under revenues and a minimal negative impact 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.
Liquidity and Capital Resources
Total balance sheet assets were $47,059 million as of March 31, 2022, compared to $47,666 million as of December 31, 2021.
Our working capital balance, which includes accounts receivables net of SRA, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was $727 million as of March 31, 2022, compared to $787 million as of December 31, 2021. This decrease was mainly due to an update to the estimated settlement provision recorded in connection with the remaining opioid cases, offset by an increase in inventory levels and accounts receivables net of SRA.
Employee-related obligations, as of March 31, 2022 were $481 million, compared to $563 million as of December 31, 2021. The decrease in the first quarter of 2022 was mainly due to performance incentive payments to employees for 2021.
Cash investment in property, plant and equipment in the first quarter of 2022 was $157 million, compared to $150 million in the first quarter of 2021. Depreciation in the first quarter of 2022 was $123 million, compared to $134 million in the first quarter of 2021.
Cash and cash equivalents and short-term and long-term investments as of March 31, 2022 were $2,199 million, compared to $2,191 million as of December 31, 2021.
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.
57
Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily, as of March 31, 2022, our $2.3 billion unsecured syndicated revolving credit facility entered into in April 2019, which was replaced in April 2022 (“RCF”).
In April 2022, we entered into an unsecured syndicated sustainability-linked revolving credit facility of $1.8 billion with 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 SP 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.
Under the terms of the RCF, the leverage ratio shall not exceed 4.50x in the second and third quarters of 2022, 4.25x in the fourth quarter of 2022, 4.00x in the first, second and third quarters of 2023, 3.75x in the fourth quarter of 2023 and 3.50x in 2024 and onwards.
The RCF can be used for general corporate purposes, including repaying existing debt. As of March 31, 2022 and as of the date of this Quarterly Report on Form 10-Q, no amounts were outstanding under the RCF.
Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date the financial statements are issued.
Under specified circumstances, including non-compliance with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the RCF. Additionally, violations of the covenants, under the abovementioned 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 our senior notes and sustainability-linked senior notes, due to cross acceleration provisions.
We expect that we will continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that the financial statements are issued.
Debt Balance and Movements
As of March 31, 2022, our debt was $22,917 million, compared to $23,043 million as of December 31, 2021. This decrease was mainly due to exchange rate fluctuations.
Our debt as of March 31, 2022 was effectively denominated in the following currencies: 61% in U.S. dollars, 36% in euros and 3% in Swiss francs.
The portion of total debt classified as short-term as of March 31, 2022 was 9%, compared to 6% as of December 31, 2021.
Our financial leverage was 69% as of March 31, 2022, compared to 67% as of December 31, 2021.
Our average debt maturity was approximately 6.2 years as of March 31, 2022, compared to 6.4 years as of December 31, 2021.
Total Equity
Total equity was $10,260 million as of March 31, 2022, compared to $11,244 million as of December 31, 2021. This decrease was mainly due to a net loss of $952 million and a negative impact of $64 million from exchange rate fluctuations.
Exchange rate fluctuations affected our balance sheet, as approximately 55% of our net assets in the first quarter of 2022 (including both
non-monetary
and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2021, changes in currency rates had a negative impact of $64 million on our equity as of March 31, 2022, mainly due to the changes in value against the U.S. dollar of: the Russian ruble by 12%, the Turkish lira by 11%, the Chilean peso by 7%, the Peruvian sol by 7%, the Japanese yen by 6%, the Mexican peso by 3%, the British pound by 3%, the Polish zloty by 3%, the Croatian kuna by 2% and the euro by 1%. All comparisons are on a quarter-end
to quarter-end
basis. Cash Flow
We seek to continually improve the efficiency of our working capital management. From time to time, as part of our cash and commercial relationship management activities, we may 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, having the effect of increasing or decreasing cash from operations in an individual period. Such decisions may have an impact on our annual operating cash flow measurement, as well as on our quarterly results.
58
Cash flow used in operating activities during the first quarter of 2022 was $49 million, compared to $405 million in the first quarter of 2021. The lower cash flow used in operating activities in the first quarter of 2022 was mainly due to changes in working capital items resulting from a decrease in accounts receivables net of SRA in connection with the decrease in revenues.
During the first quarter of 2022, we generated free cash flow of $117 million, which we define as comprising $49 million in cash flow used in operating activities, $305 million in beneficial interest collected in exchange for securitized accounts receivables and $25 million in proceeds from divestitures of businesses and other assets, partially offset by $157 million in cash used for capital investment and $7 million in cash used for acquisition of businesses, net of cash acquired. During the first quarter of 2021, we generated free cash flow of $59 million, comprising $405 million in cash flow generated from operating activities, $476 million in beneficial interest collected in exchange for securitized accounts receivables and $138 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $150 million in cash used for capital investment. The increase in the first quarter of 2022 resulted mainly from lower cash flow used in operating activities, partially offset by lower sales of 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 RD activities.
In October 2021, Teva announced a license agreement with Modag that will provide Teva an exclusive global license to develop, manufacture and commercialize Modag’s lead compound
(TEV-56286)
and a related compound (TEV-56287).
TEV-56286
was initially developed for the treatment of Multiple System Atrophy (MSA) and Parkinson’s disease, and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease. A phase 1b clinical trial is currently being completed for TEV-56286.
In the fourth quarter of 2021, Teva made an upfront payment of $10 million to Modag that was recorded as RD expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to $70 million, as well as future commercial milestones and royalties. In August 2020, Teva entered into an agreement with biopharmaceutical company Alvotech for the exclusive commercialization in the U.S. of five biosimilar product candidates. The initial pipeline for this collaboration contains biosimilar candidates addressing multiple therapeutic areas, including a proposed biosimilar to Humira in the United States beginning on July 1, 2023, provided that U.S. regulatory approval is obtained by that date. On March 28, 2022, the ITC officially terminated the investigation requested by Abbvie.
®
. Under this agreement, Alvotech is responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. Teva paid an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as RD expenses. Additional development and commercial milestone payments of up to $455 million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. In March 2021, Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira®
. In October 2021, the claim was dismissed for lack of jurisdiction. Abbvie has appealed this decision to the U.S. Court of Appeals. In addition, there is pending patent litigation between Abbvie and Alvotech related to Alvotech’s proposed biosimilar to Humira®
. In December 2021, Abbvie also filed a complaint with the ITC against both Alvotech and Teva seeking to prevent Teva and Alvotech from importing Alvotech’s proposed biosimilar to Humira®
into the United States. On January 26, 2022, the ITC issued a decision to initiate an investigation into Alvotech’s proposed biosimilar product. On March 8, 2022, Abbvie and Alvotech settled all the above pending IP matters relating to Alvotech’s proposed biosimilar to Humira®
. Pursuant to that settlement, Alvotech and Teva may sell Alvotech’s proposed biosimilar to Humira®
In September 2016, Teva and Regeneron entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated RD costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone
59
payments of up to $2,230 million, as well as future royalties. Currently, all
non-essential
activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA. In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable products. The lead product candidate selected was risperidone LAI
(TV-46000)
suspension for subcutaneous use for the treatment of schizophrenia. In August 2021, the FDA accepted the NDA for risperidone LAI, based on phase 3 data from two pivotal studies. Teva leads the clinical development and regulatory process and is responsible for commercialization of this product candidate. MedinCell may be eligible for development milestones, and future commercial milestones of up to $112 million in respect of risperidone LAI. Teva will also pay MedinCell royalties on net sales. In April 2022, the FDA issued a CRL regarding the NDA for risperidone LAI. Teva is reviewing its next steps based on the CRL and will work closely with the FDA to address their recommendations. We are committed to paying royalties to owners of
know-how,
partners in alliances and certain other arrangements, and to parties that financed RD 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.
2022 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, 2021. Supplemental
Non-GAAP
Income Data We utilize certain
non-GAAP
financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize the non-GAAP
measures: | • | our management and Board of Directors use the non-GAAP measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management; |
| • | our annual budgets are prepared on a non-GAAP basis; and |
| • | senior management’s annual compensation is derived, in part, using these non-GAAP measures. While qualitative factors and judgment also affect annual bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, which is based on the non-GAAP presentation set forth below. |
Non-GAAP
financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such non-GAAP
data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP
measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP
financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using non-GAAP
financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry. Investors should consider
non-GAAP
financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP. In arriving at our
non-GAAP
presentation, we exclude items that either have a non-recurring
impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In 60
addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:
| • | amortization of purchased intangible assets; |
| • | legal settlements and 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 RD 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, such as inventory write-offs or related consulting costs, or other unusual events; and |
| • | corresponding tax effects of the foregoing items. |
Commencing the first quarter of 2022, we no longer exclude IPRD acquired in development arrangements from our
non-GAAP
financial measures. In our comparable non-GAAP
financial measures for the first quarter of 2021, we excluded $5 million IPRD acquired in development arrangements. We are not recasting the non-GAAP presentation for the first quarter of 2021 since the adjustment is not significant. We are making this change to our presentation of non-GAAP financial measures to improve comparability of our non GAAP presentation to those of other companies in the pharmaceutical industry that are making a similar change to their presentations beginning in the first quarter of 2022. The following tables present supplemental
non-GAAP
data, in U.S. dollar, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts: 61
The following table presents the GAAP measures, related
non-GAAP
adjustments and the corresponding non-GAAP
amounts for the applicable periods: Three Months Ended March 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||
U.S. $ and shares in millions (except per share amounts) |
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| GAAP | Excluded for non-GAAP measurement |
Non-GAAP |
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| Amortization of purchased intangible assets |
Legal settlements and loss contingencies |
Impairment of long lived assets |
Restructuring costs |
Costs related to regulatory actions taken in facilities |
Equity compensation |
Contingent consideration |
Other non-GAAP items* |
Other items |
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| Net revenues |
3,661 | 3,661 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of sales |
1,921 | 178 | 1 | 5 | 62 | 1,675 | ||||||||||||||||||||||||||||||||||||||
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| Gross profit |
1,740 | 178 | 1 | 5 | 62 | 1,986 | ||||||||||||||||||||||||||||||||||||||
| Gross profit margin |
47.5 | % | 54.2 | % | ||||||||||||||||||||||||||||||||||||||||
| RD expenses |
225 | 4 | 221 | |||||||||||||||||||||||||||||||||||||||||
| SM expenses |
584 | 22 | 7 | 3 | 552 | |||||||||||||||||||||||||||||||||||||||
| GA expenses |
296 | 8 | 36 | 252 | ||||||||||||||||||||||||||||||||||||||||
| Other income |
(52 | ) | — | (52 | ) | |||||||||||||||||||||||||||||||||||||||
| Legal settlements and loss contingencies |
1,124 | 1,124 | — | |||||||||||||||||||||||||||||||||||||||||
| Other assets impairments, restructuring and other items |
128 | 16 | 57 | 33 | 21 | — | ||||||||||||||||||||||||||||||||||||||
| Intangible assets impairments |
149 | 149 | — | |||||||||||||||||||||||||||||||||||||||||
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| Operating income (loss) |
(713 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | 1,013 | |||||||||||||||||||||||||||||||||
| Financial expenses, net |
258 | 11 | 247 | |||||||||||||||||||||||||||||||||||||||||
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| Income (loss) before income taxes |
(971 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | 11 | 766 | ||||||||||||||||||||||||||||||||
| Income taxes |
2 | (140 | ) | 142 | ||||||||||||||||||||||||||||||||||||||||
| Share in (profits) losses of associated companies, net |
(21 | ) | (22 | ) | 1 | |||||||||||||||||||||||||||||||||||||||
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| Net income (loss) |
(952 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | (152 | ) | 623 | |||||||||||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interests |
3 | (11 | ) | 14 | ||||||||||||||||||||||||||||||||||||||||
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| Net income (loss) attributable to Teva |
(955 | ) | 200 | 1,124 | 165 | 57 | 1 | 24 | 33 | 123 | (163 | ) | 609 | |||||||||||||||||||||||||||||||
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| EPS - Basic |
(0.86 | ) | 1.41 | 0.55 | ||||||||||||||||||||||||||||||||||||||||
| EPS - Diluted |
(0.86 | ) | 1.41 | 0.55 | ||||||||||||||||||||||||||||||||||||||||
The
non-GAAP
diluted weighted average number of shares was 1,112 million for the three months ended March 31, 2022. Non-GAAP
income taxes for the three months ended March 31, 2022 were 18.5% on pre-tax
non-GAAP
income. | * | 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, such as certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of our plants and other unusual events. |
62
Three Months Ended March 31, 2021 |
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U.S. $ and shares in millions (except per share amounts) |
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| GAAP | Excluded for non-GAAP measurement |
Non-GAAP |
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| Amortization of purchased intangible assets |
Legal settlements and loss contingencies |
Impairment of long lived assets |
Other RD expenses |
Restructuring costs |
Costs related to regulatory actions taken in facilities |
Equity compensation |
Contingent consideration |
Other non-GAAP items* |
Other items |
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| Net revenues |
3,982 | 3,982 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales |
2,104 | 215 | 5 | 6 | 41 | 1,838 | ||||||||||||||||||||||||||||||||||||||||||
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| Gross profit |
1,878 | 215 | 5 | 6 | 41 | 2,144 | ||||||||||||||||||||||||||||||||||||||||||
| Gross profit margin |
47.2 | % | 53.8 | % | ||||||||||||||||||||||||||||||||||||||||||||
| RD expenses |
254 | 5 | 5 | 244 | ||||||||||||||||||||||||||||||||||||||||||||
| SM expenses |
585 | 27 | 9 | 549 | ||||||||||||||||||||||||||||||||||||||||||||
| GA expenses |
290 | 11 | — | 278 | ||||||||||||||||||||||||||||||||||||||||||||
| Other income |
(5 | ) | — | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Legal settlements and loss contingencies |
104 | 104 | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other assets impairments, restructuring and other items |
137 | 48 | 81 | 3 | 4 | — | ||||||||||||||||||||||||||||||||||||||||||
| Intangible assets impairments |
79 | 79 | — | |||||||||||||||||||||||||||||||||||||||||||||
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| Operating income (loss) |
434 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | 1,077 | |||||||||||||||||||||||||||||||||||||
| Financial expenses, net |
290 | 64 | 227 | |||||||||||||||||||||||||||||||||||||||||||||
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| Income (loss) before income taxes |
144 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | 64 | 851 | ||||||||||||||||||||||||||||||||||||
| Income taxes |
62 | (85 | ) | 146 | ||||||||||||||||||||||||||||||||||||||||||||
| Share in (profit) losses of associated companies – net |
(3 | ) | 2 | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||
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| Net income (loss) |
84 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | (19 | ) | 709 | |||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interests |
7 | (3 | ) | 10 | ||||||||||||||||||||||||||||||||||||||||||||
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| Net income (loss) attributable to Teva |
77 | 242 | 104 | 127 | 5 | 81 | 5 | 31 | 3 | 45 | (22 | ) | 699 | |||||||||||||||||||||||||||||||||||
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| EPS - Basic |
0.07 | 0.57 | 0.64 | |||||||||||||||||||||||||||||||||||||||||||||
| EPS - Diluted |
0.07 | 0.56 | 0.63 | |||||||||||||||||||||||||||||||||||||||||||||
The
non-GAAP
diluted weighted average number of shares was 1,107 million for the three months ended March 31, 2021. Non-GAAP
income taxes for the three months ended March 31, 2021 were 17% on pre-tax
non-GAAP
income. | * | 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, such as certain accelerated depreciation expenses and inventory write offs, primarily related to the rationalization of our plants and other unusual events. |
63
Non-GAAP
Tax Rate Non-GAAP
income taxes in the first quarter of 2022 were $142 million, or 18.5%, on pre-tax
non-GAAP
income of $766 million. Non-GAAP
income taxes in the first quarter of 2021 were $146 million, or 17%, on pre-tax
non-GAAP
income of $851 million. Our non-GAAP
tax rate in the first quarter of 2022 was mainly affected by the mix of products we sold and interest expense disallowances. We expect our annual
non-GAAP
tax rate for 2022 to be between 18% to 19%, higher than our non-GAAP
tax rate for 2021, which was 16.4%, mainly as a result of the different mix of products we expect to sell this year. Off-Balance
Sheet Arrangements Except for securitization transactions, which are disclosed in note 10(f) to our consolidated financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2021, 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, 2021. 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, 2021. ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Teva maintains “disclosure controls and procedures” (as defined in 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.
Rules 13a-15(e) and 15d-15(e) under
After evaluating the effectiveness of our disclosure controls and procedures as of March 31, 2022, 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 quarter ended March 31, 2022, 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.
64
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 the 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, 2021. 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 March 31, 2022.
Repurchase of Shares
We did not repurchase any of our shares during the three months ended March 31, 2022 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 |
Revolving Credit Agreement
On April 29, 2022, Teva and certain of its subsidiaries entered into a $1.8 billion senior unsecured sustainability-linked revolving credit agreement (the “Revolving Credit Agreement”) with a syndicate of banks, arranged by Bank of America Europe Designated Activity Company, as Documentation Agent and Sustainability Coordinator, Bank of America Europe DAC, BNP Parisbas, Citibank, N.A., Goldman Sachs Bank USA, HSBC Bank Plc, Inesa San Paolo S.P.A, J.P. Morgan S.E., Mizuho Bank, LTD. and PNC Bank, National Association, as Bookrunners Mandated Lead Arrangers, and Bank of America, N.A., as Administrative Agent and Bank of America Europe Designated Activity Company, as Sustainability Coordinator.
The Revolving Credit Agreement provides for a $1.8 billion Tranche A-1 commitment, and loans and letters of credit will be available from time to time for Teva’s general corporate purposes. Tranche A-1 has a maturity date of April 29, 2026, with two one-year extension options, and will bear interest at Term SOFR (which is subject to certain SOFR Adjustments, as such term is defined in the Revolving Credit Agreement) plus a margin ranging from 0.650% to 1.650% based on Teva’s credit rating from time to time. The applicable margin may be increased or decreased (or neither increased or decreased) based on a progress of two sustainability performance metrics outlined in the Revolving Credit Agreement, (i) the company’s SP Environmental, Social and Governance Score and (ii) number of new regulatory submissions in low and middle-income countries. The applicable margin will never be reduced or increased based on sustainability performance metrics by more than 0.05% during any calendar year. The commitment will also be subject to a commitment fee on undrawn amounts ranging from 0.228% to 0.578%, based on Teva’s credit rating from time to time. All outstanding loans and letters of credit will be subject to a utilization fee, ranging from 0.100% to 0.300%, based on the then aggregate loans and letters of credit then currently outstanding. Funding of the loans under the Revolving Credit Agreement is subject to customary drawdown conditions.
The Revolving Credit Agreement contains certain customary affirmative and negative covenants for facilities of this type, including certain reporting obligations and certain limitations on dispositions; mergers or consolidations; restricted payments; and limitations on liens, encumbrances and certain indebtedness. The Revolving Credit Agreement contains two financial maintenance covenants, (i) a maximum leverage ratio stepping down from 4.50x to 3.50x over the life of the facility and (ii) a minimum interest coverage ratio of 3.50x. The Revolving Credit Agreement also contains customary events of default, including non-compliance with one or more of the covenants.
The representations, warranties and covenants contained in the Revolving Credit Agreement were made only for purposes of such agreement and as of the dates specified therein, were solely for the benefit of the parties thereto and may be subject to qualifications agreed by the contracting parties and standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company and its subsidiaries.
Concurrently with entry into the Revolving Credit Agreement, Teva’s existing $2.3 billion senior unsecured revolving credit agreement with a syndicate of banks, arranged by Bank of America Merrill Lynch International Designated Activity Company and HSBC Bank plc, as Coordinating LLC, Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., Mizuho Bank, Ltd., Morgan Stanley Senior Funding, Inc., MUFG Bank, Ltd., Sumitomo Mitsui Banking Corporation and PNC Bank National Association, as Bookrunners Mandated Lead Arrangers, Banca IMI, as Lead Arranger, and Bank of America, N.A., as Administrative Agent, was terminated. See note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for a summary of the terms of the existing revolving credit agreement.
The foregoing description of the Revolving Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Revolving Credit Agreement, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
65
ITEM 6. |
EXHIBITS |
| * | Filed herewith. |
66
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.
| TEVA PHARMACEUTICAL INDUSTRIES LIMITED | ||||||
| Date: May 3, 2022 | By: | /s/ Eli Kalif | ||||
| Name: | Eli Kalif | |||||
| Title: | Executive Vice President, Chief Financial Officer (Duly Authorized Officer) | |||||
67
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1 Basis Of Presentation:Note 2 Certain Transactions:Note 3 Revenue From Contracts with Customers:Note 4 Inventories:Note 5 Identifiable Intangible Assets:Note 6 Goodwill:Note 7 Debt Obligations:Note 8 Derivative Instruments and Hedging Activities:Note 9 Legal Settlements and Loss Contingencies:Note 10 Commitments and Contingencies:Note 11 Income Taxes:Note 12 Other Assets Impairments, Restructuring and Other Items:Note 13 Earnings (loss) Per Share:Note 14 Accumulated Other Comprehensive Income (loss):Note 15 Segments:Note 16 Fair Value Measurement:Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits