Fair value measurement

9 Months Ended

Sep. 30, 2021

NOTE 16 – Fair value measurement:

Financial items carried at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are classified in the tables below in one of the three categories of fair value levels:


	September 30, 2021
	Level 1		Level 2			Level 3			Total

	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	325	$	—		$	—		$	325
Cash, deposits and other		1,720		—			—			1,720
Investment in securities:
Equity securities		18		—			—			18
Other, mainly debt securities		5		—			1			6
Derivatives:
Asset derivatives—options and forward contracts		—		45			—			45
Liability derivatives—options and forward contracts		—		(23	)		—			(23	)
Contingent consideration**		—		—			(187	)		(187	)

Total	$	2,068	$	22		$	(186	)	$	1,904


	December 31, 2020
	Level 1		Level 2			Level 3			Total

	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	367	$	—		$	—		$	367
Cash, deposits and other		1,810		—			—			1,810
Investment in securities:
Equity securities*		25		259			—			284
Other, mainly debt securities		5		—			10			15
Derivatives:
Asset derivatives—options and forward contracts		—		24			—			24
Liability derivatives—options and forward contracts		—		(79	)		—			(79	)
Contingent consideration**		—		—			(268	)		(268	)

Total	$	2,207	$	204		$	(258	)	$	2,153

During the first quarter of 2021, Teva’s shares in American Well Corporation (“American Well”) moved from a Level 2 measurement to a Level 1 measurement within the fair value hierarchy, since they

were

no longer subject to a sale restriction. As of September 30, 2021, Teva sold all of its holdings in American Well.

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

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 ranging from 90% to 100% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from 7.3% to 7.8%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was 7.5%. 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:


	Nine months ended September 30, 2021			Nine months ended September 30, 2020

	(U.S. $ in millions)
Fair value at the beginning of the period	$	(258	)		(448	)
Transfer into Level 3- equity securities		—			179
Revaluation of equity securities		—			118
Redemption of debt securities		(9	)		—
Revaluation of debt securities		—			(3	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		21			161
Eagle transaction		(14	)		(65	)
Settlement of contingent consideration:
Eagle transaction		74			85

Fair value at the end of the period	$	(186	)	$	27

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*
	September 30,		December 31,
	2021		2020

	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	21,018	$	22,684
Senior notes and convertible senior debentures included under short-term debt		2,413		3,207

Total	$	23,431	$	25,891

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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