QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) | |
(Address of principal executive offices) |
(Zip code) | |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
||||||
For an accessible version of this Quarterly Report on Form 10-Q, please visit www.tevapharm.com
INDEX
| PART I. |
Financial Statements (unaudited) | |||||
| Item 1. |
Financial Statements (unaudited) | |||||
| Consolidated Balance Sheets | 3 | |||||
| Consolidated Statements of Income (loss) | 4 | |||||
| Consolidated Statements of Comprehensive Income (loss) | 5 | |||||
| Consolidated statements of changes in equity | 6 | |||||
| Consolidated Statements of Cash Flows | 8 | |||||
| Notes to Consolidated Financial Statements | 9 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 46 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 72 | ||||
| Item 4. |
Controls and Procedures | 72 | ||||
| PART II. |
OTHER INFORMATION | |||||
| Item 1. |
Legal Proceedings | 73 | ||||
| Item 1A. |
Risk Factors | 73 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 73 | ||||
| Item 3. |
Defaults Upon Senior Securities | 73 | ||||
| Item 4. |
Mine Safety Disclosures | 73 | ||||
| Item 5. |
Other Information | 73 | ||||
| Item 6. |
Exhibits | 74 | ||||
| Signatures | 75 | |||||
| • | our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; concentration of our customer base and commercial alliances among our customers; delays in launches of new generic products; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; our ability to develop and commercialize biopharmaceutical products; competition for our innovative medicines, including AUSTEDO ® , AJOVY® ® ; our ability to achieve expected results from investments in our product pipeline; our ability to develop and commercialize additional pharmaceutical products; our ability to successfully launch and execute our new strategy, including to expand our innovative and biosimilar medicines pipeline and profitably commercialize the innovative medicines and biosimilar portfolio, whether organically or through business development, and to sustain and focus our portfolio of generics medicines; and the effectiveness of our patents and other measures to protect our intellectual property rights; |
| • | our substantial indebtedness, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us; |
| • | our business and operations in general, including: the impact of global economic conditions and other macroeconomic developments and the governmental and societal responses thereto; the widespread outbreak of an illness or any other communicable disease, or any other public health crisis; effectiveness of our optimization efforts; our ability to attract, hire, integrate and retain highly skilled personnel; manufacturing or quality control problems; interruptions in our supply chain; disruptions of information technology systems; breaches of our data security; variations in intellectual property laws; challenges associated with conducting business globally, including political or economic instability, major hostilities or terrorism; costs and delays resulting from the extensive pharmaceutical regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; significant sales to a limited number of customers; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; and our prospects and opportunities for growth if we sell assets; |
| • | compliance, regulatory and litigation matters, including: failure to comply with complex legal and regulatory environments; increased legal and regulatory action in connection with public concern over the abuse of opioid medications; our ability to timely make payments required under our nationwide opioids settlement agreement and provide our generic version of Narcan ® |
| • | other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our long-lived assets; the impact of geopolitical conflicts including the ongoing conflict between Russia and Ukraine; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business; |
ITEM 1. |
FINANCIAL STATEMENTS |
June 30, 2023 |
December 31, 2022 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | |
$ | |||||
| Accounts receivables, net of allowance for credit losses of $ |
|
|||||||
| Inventories |
|
|||||||
| Prepaid expenses |
|
|||||||
| Other current assets |
|
|||||||
| Assets held for sale |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total current assets |
|
|||||||
| Deferred income taxes |
|
|||||||
| Other non-current assets |
|
|||||||
| Property, plant and equipment, net |
|
|||||||
| Operating lease right-of-use |
|
|||||||
| Identifiable intangible assets, net |
|
|||||||
| Goodwill |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total assets |
$ | |
$ | |||||
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|||||||
| Current liabilities: |
|
|||||||
| Short-term debt |
$ | |
$ | |||||
| Sales reserves and allowances |
|
|||||||
| Accounts payables |
|
|||||||
| Employee-related obligations |
|
|||||||
| Accrued expenses |
|
|||||||
| Other current liabilities |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|||||||
| Long-term liabilities: |
|
|||||||
| Deferred income taxes |
|
|||||||
| Other taxes and long-term liabilities |
|
|||||||
| Senior notes and loans |
|
|||||||
| Operating lease liabilities |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total long-term liabilities |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies |
|
|||||||
| Total liabilities |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Equity: |
|
|||||||
| Teva shareholders’ equity: |
|
|||||||
| Ordinary shares of NIS issued |
|
|||||||
| Additional paid-in capital |
|
|||||||
| Accumulated deficit |
( |
) |
( |
) | ||||
| Accumulated other comprehensive loss |
( |
) |
( |
) | ||||
| Treasury shares as of June 30, 2023 and December 31, 2022: million ordinary shares |
( |
) |
( |
) | ||||
| |
|
|
|
|
|
|
|
|
| |
||||||||
| |
|
|
|
|
|
|
|
|
| Non-controlling interests |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total equity |
|
|||||||
| |
|
|
|
|
|
|
|
|
| Total liabilities and equity |
$ | |
$ | |||||
| |
|
|
|
|
|
|
|
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Net revenues |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
||||||||||||||||
Gross profit |
||||||||||||||||
Research and development expenses |
||||||||||||||||
Selling and marketing expenses |
||||||||||||||||
General and administrative expenses |
||||||||||||||||
Intangible assets impairments |
||||||||||||||||
Goodwill impairment |
||||||||||||||||
Other assets impairments, restructuring and other items |
||||||||||||||||
Legal settlements and loss contingencies |
||||||||||||||||
Other income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Operating income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Financial expenses, net |
||||||||||||||||
Income (loss) before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income taxes (benefit) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Share in (profits) losses of associated companies, net |
( |
) | ( |
) | ( |
) | ||||||||||
Net income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net income (loss) attributable to non-controlling interests |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net income (loss) attributable to Teva |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Earnings (loss) per share attributable to ordinary shareholders: |
||||||||||||||||
Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted average number of shares (in millions): |
||||||||||||||||
Basic |
||||||||||||||||
Diluted |
||||||||||||||||
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Net income (loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Currency translation adjustment |
( |
) | ( |
) | ( |
) | ||||||||||
Unrealized gain (loss) from derivative financial instruments, net |
||||||||||||||||
Unrealized loss on defined benefit plans |
( |
) | ||||||||||||||
Total other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
Total comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Comprehensive income (loss) attributable to non-controlling interests |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Comprehensive income (loss) attributable to Teva |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
Teva shareholders’ equity |
||||||||||||||||||||||||||||||||||||
Ordinary shares |
||||||||||||||||||||||||||||||||||||
Number of shares (in millions) |
Stated value |
Additional paid-in capital |
Retained earnings (accumulated deficit) |
Accumulated other comprehensive (loss) |
Treasury shares |
Total Teva shareholders’ equity |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
(U.S. dollars in millions) |
||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Issuance of Shares |
* | * | * | * | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ |
( |
$ | $ | $ | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| * | Represents an amount less than $ |
Teva shareholders’ equity |
|||||||||||||||||||||||||||||||||||||||
Ordinary shares |
|||||||||||||||||||||||||||||||||||||||
Number of shares (in millions) |
Stated value |
Additional paid-in capital |
Retained earnings (accumulated deficit) |
Accumulated other comprehensive (loss) |
Treasury shares |
Total Teva shareholders’ equity |
Non- controlling interests |
Total equity |
|||||||||||||||||||||||||||||||
(U.S. dollars in millions) |
|||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net Income (loss) |
( |
) | ( |
) | ( |
) | ( |
) |
|||||||||||||||||||||||||||||||
| Other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ( |
) |
|||||||||||||||||||||||||||||||
| Issuance of Shares |
* | * | * | * | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
|||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| * | Represents an amount less than $ |
Teva shareholders’ equity |
||||||||||||||||||||||||||||||||||||
Ordinary shares |
||||||||||||||||||||||||||||||||||||
Number of shares (in millions) |
Stated value |
Additional paid-in capital |
Retained earnings (accumulated deficit) |
Accumulated other comprehensive (loss) |
Treasury shares |
Total Teva shareholders’ equity |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
(U.S. dollars in millions) |
||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) |
( |
) | ||||||||||||||||||||||||||||||||||
| Issuance of Shares |
* | * | * | * | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| * | Represents an amount less than $ |
Teva shareholders’ equity |
||||||||||||||||||||||||||||||||||||
Ordinary shares |
||||||||||||||||||||||||||||||||||||
Number of shares (in millions) |
Stated value |
Additional paid-in capital |
Retained earnings (accumulated deficit) |
Accumulated other comprehensive (loss) |
Treasury shares |
Total Teva shareholders’ equity |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
(U.S. dollars in millions) |
||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Net Income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Issuance of shares |
* | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||
| * | Represents an amount less than $ |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Operating activities: |
||||||||||||||||
Net income (loss) |
$ | ( |
) | ( |
) | $ | ( |
) | ( |
) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operations: |
||||||||||||||||
Depreciation and amortization |
||||||||||||||||
Impairment of goodwill, long-lived assets and assets held for sale |
||||||||||||||||
Net change in operating assets and liabilities |
( |
) | ||||||||||||||
Deferred income taxes – net and uncertain tax positions |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Stock-based compensation |
||||||||||||||||
Other items |
( |
) | ( |
) | ( |
) | ||||||||||
Net loss (gain) from investments and from sale of long lived assets |
( |
) | ( |
) | ( |
) | ||||||||||
Net cash provided by (used in) operating activities |
||||||||||||||||
Investing activities: |
||||||||||||||||
Beneficial interest collected in exchange for securitized trade receivables |
||||||||||||||||
Purchases of property, plant and equipment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Proceeds from sale of business and long lived assets |
||||||||||||||||
Acquisition of businesses, net of cash acquired |
( |
) | ||||||||||||||
Purchases of investments and other assets |
( |
) | ( |
) | ( |
) | ||||||||||
Proceeds from sale of investments |
||||||||||||||||
Other investing activities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net cash provided by (used in) investing activities |
||||||||||||||||
Financing activities: |
||||||||||||||||
Repayment of senior notes and loans and other long term liabilities |
( |
) | ( |
) | ( |
) | ||||||||||
Proceeds from senior notes, net of issuance costs |
||||||||||||||||
Other financing activities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net cash provided by (used in) financing activities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Translation adjustment on cash and cash equivalents |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net change in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ( |
) | ||||||||||
Balance of cash, cash equivalents and restricted cash at beginning of period |
||||||||||||||||
Balance of cash, cash equivalents and restricted cash at end of period |
$ | |||||||||||||||
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets: |
||||||||||||||||
Cash and cash equivalents |
||||||||||||||||
Restricted cash included in other current assets |
||||||||||||||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
||||||||||||||||
Non-cash financing and investing activities: |
||||||||||||||||
Beneficial interest obtained in exchange for securitized accounts receivables |
$ | |||||||||||||||
a. |
Basis of presentation |
b. |
Significant accounting policies |
June 30, |
December 31, |
|||||||
2023 |
2022 |
|||||||
(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 other current liabilities |
$ | ( |
) | $ | ||||
Three months ended June 30, 2023 |
|||||||||||||||||||||
North America |
Europe |
International Markets |
Other activities |
Total |
|||||||||||||||||
(U.S.$ in millions) |
|||||||||||||||||||||
Sale of goods |
|||||||||||||||||||||
Licensing arrangements |
|||||||||||||||||||||
Distribution |
§ | ||||||||||||||||||||
Other |
( |
) | ( |
) | |||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||
| § | Represents an amount less than $0.5 million. |
Three months ended June 30, 2022 |
||||||||||||||||||||
North America |
Europe |
International Markets |
Other activities |
Total |
||||||||||||||||
(U.S.$ in millions) |
||||||||||||||||||||
Sale of goods |
||||||||||||||||||||
Licensing arrangements |
||||||||||||||||||||
Distribution |
§ | |||||||||||||||||||
Other |
( |
) | ||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| § | Represents an amount less than $0.5 million. |
Six months ended June 30, 2023 |
||||||||||||||||||||
North America |
Europe |
International Markets |
Other activities |
Total |
||||||||||||||||
(U.S.$ in millions) |
||||||||||||||||||||
Sale of goods |
||||||||||||||||||||
Licensing arrangements |
||||||||||||||||||||
Distribution |
§ | |||||||||||||||||||
Other |
§ | ( |
) |
|||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
Six months ended June 30, 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 $0.5 million. |
Sales Reserves and Allowances |
|||||||||||||||||||||||||||||||||
Reserves included in Accounts Receivable, net |
Rebates |
Medicaid and other governmental allowances |
Chargebacks |
Returns |
Other |
Total reserves included in Sales Reserves and Allowances |
Total |
||||||||||||||||||||||||||
(U.S.$ in millions) |
|||||||||||||||||||||||||||||||||
Balance at January 1, 2023 |
$ | $ | $ | $ | $ | $ | $ | $ | | ||||||||||||||||||||||||
Provisions related to sales made in current year period |
|||||||||||||||||||||||||||||||||
Provisions related to sales made in prior periods |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | |||||||||||||||||||||
Credits and payments |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | |||||||||||||||||
Translation differences |
( |
) |
|||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Sales Reserves and Allowances |
||||||||||||||||||||||||||||||||
Reserves included in Accounts Receivable, net |
Rebates |
Medicaid and other governmental allowances |
Chargebacks |
Returns |
Other |
Total reserves included in Sales Reserves and Allowances |
Total |
|||||||||||||||||||||||||
(U.S.$ in millions) |
||||||||||||||||||||||||||||||||
Balance at January 1, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Provisions related to sales made in current year period |
||||||||||||||||||||||||||||||||
Provisions related to sales made in prior periods |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Credits and payments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Translation differences |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Balance at June 30, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
June 30, |
December 31, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
Finished products |
$ | $ | ||||||
Raw and packaging materials |
||||||||
Products in process |
||||||||
Materials in transit and payments on account |
||||||||
| $ | $ | |||||||
Gross carrying amount net of impairment |
Accumulated amortization |
Net carrying amount |
||||||||||||||||||||||
June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
|||||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||||||
Product rights |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Trade names |
||||||||||||||||||||||||
In process research and development |
— | — | ||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (a) | Identifiable product rights of $ |
| (b) | IPR&D assets of $ |
| (a) | Identifiable product rights of $ Generics; and |
| (b) | IPR&D assets of $ |
| (a) | Identifiable product rights of $ |
| (b) | IPR&D assets of $ |
| (a) | Identifiable product rights of $ |
| (b) | IPR&D assets of $ |
North America |
Europe |
International Markets |
Other |
Total |
||||||||||||||||||||
Teva’s API |
Medis |
|||||||||||||||||||||||
(U.S. $ in millions) |
||||||||||||||||||||||||
Balance as of December 31, 2022 (1) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Changes during the period: |
||||||||||||||||||||||||
Goodwill impairment |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||
Goodwill reclassified as assets held for sale |
( |
) | ( |
) | ||||||||||||||||||||
Translation differences |
||||||||||||||||||||||||
Balance as of June 30, 2023 (1) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Cumulative goodwill impairment as of June 30, 2023 and December 31, 2022 was approximately $ $, respectively. |
a. |
Short-term debt: |
June 30, |
December 31, |
|||||||||||||||
Interest rate as of June 30, 2023 |
Maturity |
2023 |
2022 |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Convertible senior debentures |
% | |||||||||||||||
Current maturities of long-term liabilities |
||||||||||||||||
Total short-term debt |
$ | $ | ||||||||||||||
b. |
Long-term debt: |
Interest rate as of June 30, 2023 |
Maturity |
June 30, 2023 |
December 31, 2022 |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Sustainability-linked senior notes EUR |
% |
|||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Sustainability-linked senior notes EUR |
% |
|||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Sustainability-linked senior notes EUR |
% |
|||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Senior notes EUR |
% |
|||||||||||||||
Sustainability-linked 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 |
% |
|||||||||||||||
Sustainability-linked senior notes USD |
% |
|||||||||||||||
Senior notes USD |
% |
|||||||||||||||
Sustainability-linked senior notes USD |
% |
|||||||||||||||
Sustainability-linked senior notes USD |
% |
|||||||||||||||
Senior notes CHF |
% |
|||||||||||||||
Total senior notes |
||||||||||||||||
Other long-term debt |
||||||||||||||||
Less current maturities |
( |
) |
( |
) | ||||||||||||
Less debt issuance costs (8) |
( |
) |
( |
) | ||||||||||||
Total senior notes and loans |
$ |
$ |
||||||||||||||
| (1) | In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of |
| (2) | In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of |
| (3) | In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $ |
| (4) | In March 2023, Teva issued sustainability-linked senior notes in an aggregate principal amount of $ |
| (5) | In March 2023, Teva consummated a cash tender offer and extinguished $ |
| (6) | If Teva fails to achieve certain sustainability performance targets, the interest rate shall increase by |
| (7) | If Teva fails to achieve certain sustainability performance targets, a one-time premium payment of |
| (8) | Debt issuance costs as of June 30, 2023 include $ |
| (9) | In March 2023, Teva repaid $ |
| (10) | In July 2023, Teva repaid $ |
| (*) | Interest rate adjustments and a potential one-time premium payment related to the sustainability-linked bonds are treated as bifurcated embedded derivatives. See note 8c. |
a. |
Foreign exchange risk management: |
b. |
Interest risk management: |
c. |
Bifurcated embedded derivatives: |
d. |
Derivative instruments outstanding: |
June 30, 2023 |
December 31, 2022 |
|||||||
(U.S. $ in millions) |
||||||||
Cross-currency swap—cash flow hedge (1) |
$ | $ | ||||||
Fair value |
||||||||||||||||
Designated as hedging instruments |
Not designated as hedging instruments |
|||||||||||||||
June 30, 2023 |
December 31, 2022 |
June 30, 2023 |
December 31, 2022 |
|||||||||||||
Reported under |
(U.S. $ in millions) |
(U.S. $ in millions) |
||||||||||||||
Asset derivatives: |
||||||||||||||||
Other current assets: |
||||||||||||||||
Option and forward contracts |
$ | $ | $ | $ | ||||||||||||
Other non-current assets: |
||||||||||||||||
Cross-currency swap-cash flow hedge (1) |
||||||||||||||||
Liability derivatives: |
||||||||||||||||
Other current liabilities: |
||||||||||||||||
Option and forward contracts |
( |
) | ( |
) | ||||||||||||
Financial expenses, net |
Other comprehensive income (loss) |
|||||||||||||||
Three months ended, |
Three months ended, |
|||||||||||||||
June 30, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
|||||||||||||
Reported under |
(U.S. $ in millions) |
|||||||||||||||
Line items in which effects of hedges are recorded |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
Cross-currency swaps—cash flow hedge (1) |
( |
) | ( |
) | ||||||||||||
Financial expenses, net |
Other comprehensive income (loss) |
|||||||||||||||
Six months ended, |
Six months ended, |
|||||||||||||||
June 30, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
|||||||||||||
Reported under |
(U.S. $ in millions) |
|||||||||||||||
Line items in which effects of hedges are recorded |
$ | $ | $ | $ | ( |
) | ||||||||||
Cross-currency swaps—cash flow hedge (1) |
( |
) | ( |
) | ||||||||||||
Financial expenses, net |
Net revenues |
|||||||||||||||
Three months ended, |
Three months ended, |
|||||||||||||||
June 30, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
|||||||||||||
| Reported under |
(U.S. $ in millions) |
|||||||||||||||
| Line items in which effects of hedges are recorded |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
| Option and forward contracts (2) |
( |
) | ( |
) | ||||||||||||
| Option and forward contracts economic hedge (3) |
( |
) | ( |
) | ||||||||||||
Financial expenses, net |
Net revenues |
|||||||||||||||
Six months ended, |
Six months ended, |
|||||||||||||||
June 30, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
|||||||||||||
| Reported under |
(U.S. $ in millions) |
|||||||||||||||
| Line items in which effects of hedges are recorded |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
| Option and forward contracts (2) |
( |
) | ( |
) | ||||||||||||
| Option and forward contracts economic hedge (3) |
( |
) | ||||||||||||||
(1) |
On March 31, 2023, Teva entered into a cross-currency interest rate swap agreement, designated as cash flow hedge for accounting purposes with respect to an intercompany loan due October 2026, denominated in Japanese yen. |
| (2) | Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses, net. |
| (3) | Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty and several other currencies to protect its projected operating results for 2023. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. For the three months ended June 30, 2023, the positive impact from these derivatives recognized under revenues was $ |
e. |
Amortizations due to terminated derivative instruments: |
f. |
Securitization: |
g. |
Supplier Finance Program Obligation |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
(U.S. $ in millions) |
(U.S. $ in millions) |
|||||||||||||||
| Impairments of long-lived tangible assets (1) |
$ | $ | $ | $ | ||||||||||||
| Contingent consideration |
||||||||||||||||
| Restructuring |
||||||||||||||||
| Other |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Including impairments related to exit and disposal activities. |
Three months ended June 30, |
||||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Restructuring |
||||||||
| Employee termination |
$ | $ | ||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
Six months ended June 30, |
||||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Restructuring |
||||||||
| Employee termination |
$ | $ | ||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
Employee termination costs |
Other |
Total |
||||||||||
(U.S. $ in millions) |
||||||||||||
| Balance as of January 1, 2023 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Provision |
( |
) | ( |
) | ( |
) | ||||||
| Utilization and other* |
||||||||||||
| |
|
|
|
|
|
|||||||
| Balance as of June 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| |
|
|
|
|
|
|||||||
Employee termination costs |
Other |
Total |
||||||||||
(U.S. $ in millions) |
||||||||||||
| Balance as of January 1, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Provision |
( |
) | ( |
) | ( |
) | ||||||
| Utilization and other* |
||||||||||||
| |
|
|
|
|
|
|||||||
| Balance as of June 30, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| |
|
|
|
|
|
|||||||
| * | Includes adjustments for foreign currency translation. |
Net Unrealized Gains (Losses) |
Benefit Plans |
|||||||||||||||
Foreign currency translation adjustments |
Derivative financial instruments |
Actuarial gains (losses) and prior service (costs) credits |
Total |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Balance as of December 31, 2022, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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 June 30, 2023, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| * | Amounts do not include a $ non-controlling interests. |
Net Unrealized Gains (Losses) |
Benefit Plans |
|||||||||||||||
Foreign currency translation adjustments |
Derivative financial instruments |
Actuarial gains (losses) and prior service (costs) credits |
Total |
|||||||||||||
(U.S. $ in millions) |
||||||||||||||||
Balance as of December 31, 2021, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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 June 30, 2022, net of taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| * | Amounts do not include a $ non-controlling interests. |
| (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. |
Three months ended June 30, |
||||||||||||
2023 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ | $ | $ | |||||||||
Gross profit |
||||||||||||
R&D expenses |
||||||||||||
S&M expenses |
||||||||||||
G&A expenses |
||||||||||||
Other income |
( |
) | ( |
) | ( |
) | ||||||
Segment profit |
$ | $ | $ | |||||||||
Three months ended June 30, |
||||||||||||
2022 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ |
$ |
$ |
|||||||||
Gross profit |
||||||||||||
R&D expenses |
||||||||||||
S&M expenses |
||||||||||||
G&A expenses |
||||||||||||
Other income |
( |
) |
( |
) |
( |
) | ||||||
Segment profit |
$ |
$ |
$ |
|||||||||
Six months ended June 30, |
||||||||||||
2023 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ | $ | $ | |||||||||
Gross profit |
||||||||||||
R&D expenses |
||||||||||||
S&M expenses |
||||||||||||
G&A expenses |
||||||||||||
Other income |
( |
) | ( |
) |
( |
) | ||||||
Segment profit |
$ | $ | $ | |||||||||
Six months ended June 30, |
||||||||||||
2022 |
||||||||||||
North America |
Europe |
International Markets |
||||||||||
(U.S. $ in millions) |
||||||||||||
Revenues |
$ | $ | $ | |||||||||
Gross profit |
||||||||||||
R&D expenses |
||||||||||||
S&M expenses |
||||||||||||
G&A expenses |
||||||||||||
Other income |
( |
) | ( |
) | ( |
) | ||||||
Segment profit |
$ | $ | $ | |||||||||
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
(U.S. $ in millions) |
(U.S. $ in millions) |
|||||||||||||||
| North America profit |
$ |
$ |
$ |
$ |
||||||||||||
| Europe profit |
||||||||||||||||
| International Markets profit |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total reportable segments profit |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Profit (loss) of other activities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total segments profit |
||||||||||||||||
| Amounts not allocated to segments: |
||||||||||||||||
| Amortization |
||||||||||||||||
| Other assets impairments, restructuring and other items |
||||||||||||||||
| Goodwill impairment |
||||||||||||||||
| Intangible assets impairments |
||||||||||||||||
| Legal settlements and loss contingencies |
||||||||||||||||
| Other unallocated amounts |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Consolidated operating income (loss) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Financial expenses, net |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Consolidated income (loss) before income taxes |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| |
|
|
|
|
|
|
|
North America |
Three months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| AUSTEDO |
||||||||
| BENDEKA ® and TREANDA® |
||||||||
| COPAXONE |
||||||||
| Anda |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
North America |
Six months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| AUSTEDO |
||||||||
| BENDEKA and TREANDA |
||||||||
| COPAXONE |
||||||||
| Anda |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
Europe |
Three months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| COPAXONE |
||||||||
| Respiratory products |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
Europe |
Six months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| COPAXONE |
||||||||
| Respiratory products |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
International markets |
Three months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| COPAXONE |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
International markets |
Six months ended June 30, |
|||||||
2023 |
2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Generic products |
$ |
$ |
||||||
| AJOVY |
||||||||
| COPAXONE |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Total |
$ |
$ |
||||||
| |
|
|
|
|||||
June 30, 2023 |
||||||||||||||||
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 |
— |
— |
||||||||||||||
Cross currency interest rate swaps |
— |
|||||||||||||||
Liability derivatives: |
||||||||||||||||
Options and forward contracts |
— |
( |
) |
— |
( |
) | ||||||||||
Bifurcated embedded derivatives |
— |
— |
§ |
— |
||||||||||||
Contingent consideration* |
— |
— |
( |
) |
( |
) | ||||||||||
Total |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||
December 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 |
$ |
( |
) |
$ |
( |
) |
$ |
|||||||||
§ |
Represents an amount less than $0.5 million. |
* |
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions. |
Six months ended June 30, 2023 |
Six months ended June 30, 2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Fair value at the beginning of the period |
$ | ( |
) | ( |
) | |||
| Bifurcated embedded derivatives |
||||||||
| Adjustments to provisions for contingent consideration: |
||||||||
| Actavis Generics transaction |
( |
) | ( |
) | ||||
| Eagle transaction |
( |
) | ( |
) | ||||
| Novetide transaction |
( |
) | — | |||||
| Settlement of contingent consideration: |
||||||||
| Actavis Generics transaction |
||||||||
| Eagle transaction |
||||||||
| Novetide 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 |
Estimated fair value* |
||||||||
June 30, 2023 |
December 31, 2022 |
|||||||
(U.S. $ in millions) |
||||||||
| Senior notes and sustainability-linked senior notes included under senior notes and loans |
$ | $ | ||||||
| Senior notes and convertible senior debentures included under short-term debt |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
* |
The fair value was estimated based on quoted market prices. |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Overview
We are a global pharmaceutical company, committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health. Our mission is to be a global leader in generics, innovative medicines and biopharmaceuticals, improving the lives of patients.
We operate worldwide, with headquarters in Israel and a significant presence in the United States, Europe and many other markets around the world. Our key strengths include our world-leading generic medicines expertise and portfolio, focused innovative medicines portfolio and global infrastructure and scale.
Teva was incorporated in Israel on February 13, 1944 and is the successor to a number of Israeli corporations, the oldest of which was established in 1901.
Our Business Segments
We operate our business through three segments: North America, Europe and International Markets. Each business segment manages our entire product portfolio in its region, including generics, which includes biosimilars and OTC products, as well as innovative medicines. This structure enables strong alignment and integration between operations, commercial regions, R&D and our global marketing and portfolio function, optimizing our product lifecycle across therapeutic areas.
In addition to these three segments, we have other activities, primarily the sale of API to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis.
Pivot to Growth Strategy
In May 2023, we introduced our new “Pivot to Growth” strategy, which is based on four key pillars: (i) delivering on our growth engines, mainly AUSTEDO, UZEDY and our late-stage pipeline of biosimilars; (ii) stepping up innovation through delivering on our late-stage innovative pipeline assets as well as building up our early-stage pipeline organically and potentially through business development activities; (iii) sustaining our generics medicines powerhouse with a global commercial footprint, focused portfolio, pipeline and manufacturing footprint; and (iv) focusing our business by optimizing our portfolio and global manufacturing footprint to enable strategic capital deployment to accelerate our near and long-term growth engines and reorganizing certain of our business units to a more optimal structure, while also reorganizing key business units to enhance operational efficiency.
Macroeconomic Environment
In recent months, the global economy has been impacted by fluctuating foreign exchange rates. Approximately 46% of our revenues in the second quarter of 2023 were denominated in currencies other than the U.S. dollar. The strengthening of the U.S. dollar versus other currencies in which we operate, negatively impacts our revenues, results of operations, profits and cash flows. We also manufacture largely outside of the United States, which may to varying degrees result in lower expenses. Additionally, high levels of inflation have recently resulted in significant economic volatility and monetary tightening by central banks. The global economy has also been impacted by the ongoing conflict between Russia and Ukraine, which has caused disruptions to the global and the Company’s internal supply chain. Supply chain disruptions could continue to result in delays in our production and distribution processes, R&D initiatives and our ability to timely respond to consumer demand. See also discussion under “—International Markets segment” below.
We have implemented certain measures in response to such macroeconomic pressures and are continually considering various initiatives, including price adjustments where we are not restricted contractually or regulatorily, enhanced inventory management and alternative sourcing strategies for our raw material supply, to allow us to partially mitigate and offset the impact of these macroeconomic factors. However, although inflationary and other macroeconomic pressures may ease, the higher costs we have experienced during the recent periods have already impacted our operations and will likely continue to have an effect on our financial results.
46
Highlights
Significant highlights in the second quarter of 2023 included:
| • | Revenues in the second quarter of 2023 were $3,878 million, an increase of 2% compared to the second quarter of 2022. In local currency terms, revenues increased by 4%, mainly due to higher revenues from AUSTEDO and Anda in our North America segment and from generic products in our International Markets segment, partially offset by lower revenues from generic products and from COPAXONE in our North America segment as well as from API sales to third parties. |
| • | Our North America segment generated revenues of $1,991 million and segment profit of $520 million in the second quarter of 2023. Revenues increased by 5% and segment profit increased by 8% compared to the second quarter of 2022. |
| • | Our Europe segment generated revenues of $1,163 million and segment profit of $334 million in the second quarter of 2023. Revenues decreased by 1% in U.S. dollars, or flat in local currency terms, compared to the second quarter of 2022. Segment profit decreased by 14% compared to the second quarter of 2022. |
| • | Our International Markets segment generated revenues of $479 million and segment profit of $124 million in the second quarter of 2023. Revenues increased by 5% in U.S. dollars, or 13% in local currency terms, compared to the second quarter of 2022. Segment profit increased by 30% compared to the second quarter of 2022. |
| • | Our revenues from other activities in the second quarter of 2023 were $245 million, a decrease of 5% in both U.S. dollars and local currency terms, compared to the second quarter of 2022. |
| • | Exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted revenues by $51 million compared to the second quarter of 2022. See note 8d to our consolidated financial statements. |
| • | Impairments of identifiable intangible assets were $63 million in the second quarter of 2023, compared to $51 million in the second quarter of 2022. See note 5 to our consolidated financial statements. |
| • | We recorded a goodwill impairment charge of $700 million related to our International Markets reporting unit in the second quarter of 2023, compared to a goodwill impairment charge of $745 million in the second quarter of 2022, of which $479 million was related to our International Markets reporting unit and $266 million was related to Teva’s API reporting unit. See note 6 to our consolidated financial statements. |
| • | We recorded expenses of $100 million for other asset impairments, restructuring and other items in the second quarter of 2023, compared to expenses of $118 million in the second quarter of 2022. See note 12 to our consolidated financial statements. |
| • | Legal settlements and loss contingencies expenses were $462 million in the second quarter of 2023, compared to $729 million in the second quarter of 2022. See note 9 to our consolidated financial statements. |
| • | Operating loss was $646 million in the second quarter of 2023, compared to an operating loss of $949 million in the second quarter of 2022. |
| • | Financial expenses were $268 million in the second quarter of 2023, compared to $211 million in the second quarter of 2022. |
| • | In the second quarter of 2023, we recognized a tax benefit of $16 million, on a pre-tax loss of $914 million. In the second quarter of 2022, we recognized a tax benefit of $900 million, on a pre-tax loss of $1,160 million. See note 11 to our consolidated financial statements. |
| • | As of June 30, 2023, our debt was $20,678 million, compared to $21,212 million as of December 31, 2022. In July 2023, we repaid $1,000 million of our 2.8% senior notes at maturity. Additionally, in July 2023, a total amount of $700 million was withdrawn under the RCF and is outstanding as of the date of this Quarterly Report on Form 10-Q. See note 7 to our consolidated financial statements. |
| • | Our working capital balance, which includes accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was negative $489 million as of June 30, 2023, compared to negative $119 million as of December 31, 2022. This decrease was mainly due to an increase in accounts payables, resulting primarily from more |
47
| favorable vendor payment terms that went into effect in the second quarter of 2023 and higher inventory purchases, as well as by an increase in provisions for legal settlements and loss contingencies, partially offset by an increase in inventory levels, in accounts receivables, net of SR&A, in prepaid expenses, and a decrease in employee-related obligations. |
| • | Cash flow generated from operating activities during the second quarter of 2023 was $324 million, compared to $123 million in the second quarter of 2022. The higher cash flow generated in the second quarter of 2023 resulted mainly from changes in working capital items, including a positive impact from accounts receivables, net of SR&A, and from inventory levels, partially offset by a negative impact from accounts payables. |
| • | During the second quarter of 2023, we generated free cash flow of $632 million, which we define as comprising: $324 million in cash flow generated from operating activities, $371 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $56 million in proceeds from divestitures of businesses and other assets, partially offset by $119 million in cash used for capital investment. During the second quarter of 2022, we generated free cash flow of $301 million. The increase in the second quarter of 2023 resulted mainly from higher cash flow generated from operating activities, as well as higher proceeds from sale of business and long-lived assets. |
Results of Operations
Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022
Segment Information
North America Segment
The following table presents revenues, expenses and profit for our North America segment for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 1,991 | 100 | % | $ | 1,904 | 100 | % | ||||||||
| Gross profit |
1,046 | 52.5 | % | 1,010 | 53.0 | % | ||||||||||
| R&D expenses |
159 | 8.0 | % | 147 | 7.7 | % | ||||||||||
| S&M expenses |
264 | 13.3 | % | 256 | 13.4 | % | ||||||||||
| G&A expenses |
106 | 5.3 | % | 127 | 6.7 | % | ||||||||||
| Other income |
(4 | ) | § | (1 | ) | § | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 520 | 26.1 | % | $ | 481 | 25.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
North America Revenues
Our North America segment includes the United States and Canada. Revenues from our North America segment in the second quarter of 2023 were $1,991 million, an increase of $87 million, or 5%, compared to the second quarter of 2022. This increase was mainly due to higher revenues from certain innovative products, primarily AUSTEDO and AJOVY, as well as Anda, partially offset by lower revenues from generic products, COPAXONE and BENDEKA and TREANDA.
48
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, |
Percentage Change 2023-2022 |
|||||||||||
| 2023 | 2022 | |||||||||||
| (U.S. $ in millions) | ||||||||||||
| Generic products |
$ | 969 | $ | 1,026 | (6 | %) | ||||||
| AJOVY |
57 | 49 | 16 | % | ||||||||
| AUSTEDO |
308 | 204 | 51 | % | ||||||||
| BENDEKA and TREANDA |
69 | 83 | (17 | %) | ||||||||
| COPAXONE |
64 | 94 | (33 | %) | ||||||||
| Anda |
392 | 308 | 27 | % | ||||||||
| Other |
133 | 139 | (4 | %) | ||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 1,991 | $ | 1,904 | 5 | % | ||||||
|
|
|
|
|
|
|
|||||||
Generic products revenues in our North America segment (including biosimilars) in the second quarter of 2023 were $969 million, a decrease of 6% compared to the second quarter of 2022, mainly due to increased competition to parts of our portfolio.
Among the most significant generic products we sold in North America in the second quarter of 2023 were lenalidomide capsules (the generic version of Revlimid®), epinephrine injectable solution (the generic equivalent of EpiPen® and EpiPen Jr®), Truxima® (the biosimilar to Rituxan®), and albuterol sulfate inhalation aerosol (our ProAir® authorized generic).
In the second quarter of 2023, our total prescriptions were approximately 319 million (based on trailing twelve months), representing 8.4% of total U.S. generic prescriptions, compared to approximately 302 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions in the second quarter of 2022, all according to IQVIA data.
AJOVY revenues in our North America segment in the second quarter of 2023 increased by 16% to $57 million, compared to the second quarter of 2022, mainly due to growth in volume. In the second quarter of 2023, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 25.1% compared to 24.4% in the second quarter of 2022.
AJOVY is indicated for the preventive treatment of migraine in adults. AJOVY was launched in the U.S. in 2018, and was approved in Canada in April 2020. Our auto-injector device for AJOVY became commercially available in the U.S. in April 2020 and in Canada in April 2021. AJOVY is the only anti-CGRP subcutaneous product indicated for quarterly treatment.
AJOVY is protected worldwide by patents expiring in 2026 at the earliest; extensions have been granted in several countries, including the United States and Europe, until 2031. Additional patents relating to the use of AJOVY in the treatment of migraine have also been issued in the United States and will expire between 2035 and 2039. Such patents are also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States (obtained in September 2018) and 10 years from marketing approval in Europe (obtained in April 2019). We filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents, including three method of treatment patents and six composition of matter patents. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine Teva patents. The PTAB issued decisions upholding the three method of treatment patents but finding the asserted claims of the six composition of matter patents invalid, which decisions were affirmed by the Court of Appeals for the Federal Circuit on August 16, 2021. A jury trial regarding the three method of treatment patents began on October 18, 2022, and on November 9, 2022, the jury issued a verdict in Teva’s favor, finding the three method of treatment patents valid and infringed by Lilly and awarding Teva $176.5 million in damages. On January 28, 2023, Lilly filed a motion requesting that the District Court overturn the jury’s verdict. Once the motion is decided, the losing party may appeal the decision to the Court of Appeals for the Federal Circuit.
On June 8, 2021, we filed another lawsuit against Lilly in the U.S. District Court for the District of Massachusetts alleging that Lilly’s marketing and sale of galcanezumab product infringes two patents related to the treatment of refractory migraine. Lilly’s IPR petitions challenging the patentability of these two patents as well as a third patent also related to the treatment of refractory migraine were instituted by the PTAB. Oral argument in these IPR proceedings was
49
heard on July 19, 2023, and the PTAB’s decisions are expected in the second half of 2023. The litigation in the District of Massachusetts was stayed during the pendency of these IPR proceedings. In addition, in 2018 we entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.
AUSTEDO revenues in our North America segment in the second quarter of 2023 increased by 51%, to $308 million, compared to $204 million in the second quarter of 2022, mainly due to growth in volume and the launch of AUSTEDO XR in May 2023.
AUSTEDO was launched in the U.S. in 2017. It is indicated for the treatment of chorea associated with Huntington disease and for the treatment of tardive dyskinesia in adults.
AUSTEDO is protected in the United States by ten Orange Book patents expiring between 2031 and 2038 and in Europe by two patents expiring in 2029. We received notice letters from two ANDA filers regarding the filing of their ANDAs with paragraph (IV) certifications for certain of the patents listed in the Orange Book for AUSTEDO. On July 1, 2021, we filed claims against two generic ANDA filers, Aurobindo and Lupin, in the U.S. District Court for the District of New Jersey. In addition, Apotex filed a petition for IPR by the PTAB of the patent covering the deutetrabenazine compound that expires in 2031. On March 9, 2022, the U.S. Patent and Trademark Office denied Apotex’s petition and declined to institute a review of the deutetrabenazine patent. On April 29, 2022 and June 8, 2022, we reached agreements with Lupin and Aurobindo, respectively, to sell their generic products beginning April 2033, or earlier under certain circumstances. There are no further patent litigations pending regarding AUSTEDO.
AUSTEDO XR (deutetrabenazine) extended-release tablets was approved by the FDA on February 17, 2023, and became commercially available in the U.S. in May 2023. AUSTEDO XR is a new once-daily formulation indicated in adults for tardive dyskinesia and chorea associated with Huntington’s disease, additional to the currently marketed twice-daily AUSTEDO. AUSTEDO XR is protected by eight Orange Book patents expiring between 2031 and 2041.
UZEDY (risperidone) extended-release injectable suspension was approved by the FDA on April 28, 2023 for the treatment of schizophrenia in adults, and was launched in the U.S. in May 2023. UZEDY is the first subcutaneous, long-acting formulation of risperidone that controls the steady release of risperidone. UZEDY is protected by nine Orange Book patents expiring between 2025 and 2033.
BENDEKA and TREANDA combined revenues in our North America segment in the second quarter of 2023 decreased by 17% to $69 million, compared to the second quarter of 2022, mainly due to generic bendamustine product entry into the market. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022.
In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increased the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.
There are 16 patents listed in the U.S. Orange Book for BENDEKA with expiry dates in 2026 and 2031. In September 2019, a patent infringement action against four of six ANDA filers for generic versions of BENDEKA was tried in the U.S. District Court for the District of Delaware. On April 27, 2020, the district court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe at least one of the patents. Three of the four ANDA filers appealed the district court decision. Teva settled with one of the three ANDA filers, and on August 13, 2021, the Federal Circuit issued a Rule 36 affirmance of the district court decision. Litigation against the fifth ANDA filer was dismissed after the withdrawal of its patent challenge, and the case against a sixth ANDA filer was also settled.
Additionally, in July 2018, Teva and Eagle filed suit against Hospira, Inc. (“Hospira”) related to its 505(b)(2) NDA referencing BENDEKA in the U.S. District Court for the District of Delaware. On December 16, 2019, the district court dismissed the case against Hospira on all but one of the asserted patents, which expires in 2031. On April 18, 2022, Teva and Eagle settled this matter with Hospira. Teva had also filed suit against two other 505(b)(2) NDA filers, Doctor Reddy’s Laboratories (“DRL”) and Accord Healthcare (“Accord”). On December 10, 2022 and April 4, 2023, Teva and Eagle settled with Accord and DRL, respectively. Based on the settlement agreements, the three 505(b)(2) filers, Hospira, Accord and DRL can launch their products on November 17, 2027 or earlier under certain circumstances. On May 4, 2023, and June 9, 2023, Teva and Eagle also filed suit against BendaRx Corp. in the U.S. District Court for the District of Delaware, following its filing of a 505(b)(2) NDA for a bendamustine product. In addition, On June 16, 2023, Teva filed suit against BendaRx USA Corp. in the U.S. District Court for the District of Eastern Virginia.
50
In addition to the settlement with Eagle regarding its bendamustine 505(b)(2) NDA, between 2015 and 2020, we reached final settlements with 22 ANDA filers for generic versions of the lyophilized form of TREANDA and one 505(b)(2) NDA filer for a generic version of the liquid form of TREANDA, providing for the launch of generic versions of TREANDA prior to patent expiration. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022. There are now multiple generic TREANDA products on the market.
COPAXONE revenues in our North America segment in the second quarter of 2023 decreased by 33% to $64 million, compared to the second quarter of 2022, mainly due to generic competition in the United States and a decrease in glatiramer acetate market share due to availability of alternative therapies.
The market for MS treatments continues to develop, particularly with the approval of generic versions of COPAXONE. Oral treatments for MS, such as Tecfidera®, Gilenya® and Aubagio®, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus® and Kesimpta®.
Anda revenues from third-party products in our North America segment in the second quarter of 2023 increased by 27% to $392 million, compared to $308 million in the second quarter of 2022, mainly due to higher demand. Anda, our distribution business in the United States, distributes generic and innovative medicines and OTC pharmaceutical products from Teva and various third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the distribution market by maintaining a broad portfolio of products, competitive pricing and delivery throughout the United States.
Product Launches and Pipeline
In the second quarter of 2023, we launched the generic version of the following branded products in North America:
| Product Name |
Brand Name | Launch Date |
Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA))* |
|||||||||
| Darunavir Tablets |
Prezista® tablets | June | $ | 308 | ||||||||
| Topiramate Extended-release Capsules 25 mg, 50 mg & 100 mg |
Trokendi XR® | May | $ | 244 | ||||||||
| Amlodipine Besylate Tablets, USP |
Norvasc® tablets | May | $ | 88 | ||||||||
| Gefitinib Tablets |
Iressa® tablets | June | $ | 5 | ||||||||
| * | The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch. |
Our generic products pipeline in the United States includes, as of June 30, 2023, 156 product applications awaiting FDA approval, including 69 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended March 31, 2023 of approximately $113 billion, according to IQVIA. Approximately 75% of pending applications include a paragraph IV patent challenge, and we believe we are first-to-file with respect to 69 of these products, or 96 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first-to-file opportunities represent over $75 billion in U.S. brand sales for the twelve months ended March 31, 2023, according to IQVIA.
IQVIA reported brand sales are one of the many indicators of future potential value of a launch, but equally important are the mix and timing of competition, as well as cost effectiveness. The potential advantages of being the first filer with respect to some of these products may be subject to forfeiture, shared exclusivity or competition from so-called “authorized generics,” which may ultimately affect the value derived.
In the second quarter of 2023, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a 30-month regulatory stay lapses or a 180-day exclusivity period awarded to another manufacturer either expires or is forfeited.
51
| Generic Name |
Brand Name | Total Annual U.S. Branded Sales at Time of Launch (U.S. $ in millions (IQVIA))* |
||||
| Tofacitinib Tablets, 5 mg and 10 mg |
Xeljanz PF® | $ | 879 | |||
| Thalidomide Capsules USP, 50 mg, 100 mg, and 200 mg |
Thalomid® | $ | 12 | |||
| Treprostinil ER Tabs, 0.25 mg, 1 mg and 2.5 mg** |
Orenitram® | No Data | ||||
| * | The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch. |
| ** | Marketed through Specialty Pharmacy that doesn’t report to IQVIA. |
For information regarding our innovative and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
North America Gross Profit
Gross profit from our North America segment in the second quarter of 2023 was $1,046 million, an increase of 4%, compared to $1,010 million in the second quarter of 2022.
Gross profit margin for our North America segment in the second quarter of 2023 decreased to 52.5%, compared to 53.0% in the second quarter of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as well as an increase in revenues with lower profitability from Anda, partially offset by an increase in revenues with higher profitability from AUSTEDO.
North America R&D Expenses
R&D expenses relating to our North America segment in the second quarter of 2023 were $159 million, an increase of 8%, compared to $146 million in the second quarter of 2022.
For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
North America S&M Expenses
S&M expenses relating to our North America segment in the second quarter of 2023 were $264 million, an increase of 3%, compared to $256 million in the second quarter of 2022. This increase was mainly due to promotional activities related to AUSTEDO and UZEDY.
North America G&A Expenses
G&A expenses relating to our North America segment in the second quarter of 2023 were $106 million, a decrease of 16% compared to $127 million in the second quarter of 2022.
North America Profit
Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our North America segment in the second quarter of 2023 was $520 million, an increase of 8% compared to $481 million in the second quarter of 2022. This increase was mainly due to higher revenues from certain innovative products, primarily AUSTEDO.
52
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 1,163 | 100 | % | $ | 1,171 | 100 | % | ||||||||
| Gross profit |
640 | 55.0 | % | 703 | 60.0 | % | ||||||||||
| R&D expenses |
53 | 4.6 | % | 56 | 4.7 | % | ||||||||||
| S&M expenses |
194 | 16.7 | % | 196 | 16.8 | % | ||||||||||
| G&A expenses |
61 | 5.2 | % | 63 | 5.4 | % | ||||||||||
| Other income |
(1 | ) | § | (1 | ) | § | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 334 | 28.7 | % | $ | 389 | 33.2 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
Europe Revenues
Our Europe segment includes the European Union, the United Kingdom and certain other European countries.
Revenues from our Europe segment in the second quarter of 2023 were $1,163 million, a decrease of 1%, or $8 million, compared to the second quarter of 2022. In local currency terms, revenues were flat compared to the second quarter of 2022.
Revenues in the second quarter of 2023 included $1 million from a negative hedging impact, which is included in “Other” in the table below. Revenues in the second quarter of 2022 included $31 million from a positive hedging impact, which is included in “Other” in the table below. See note 8d to our consolidated financial statements.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, |
Percentage Change 2023-2022 |
|||||||||||
| 2023 | 2022 | |||||||||||
| (U.S. $ in millions) | ||||||||||||
| Generic products |
$ | 909 | $ | 873 | 4 | % | ||||||
| AJOVY |
39 | 29 | 32 | % | ||||||||
| COPAXONE |
60 | 72 | (17 | %) | ||||||||
| Respiratory products |
66 | 65 | 2 | % | ||||||||
| Other |
89 | 131 | (32 | %) | ||||||||
|
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|
|
|
|
|
|||||||
| Total |
$ | 1,163 | $ | 1,171 | (1 | %) | ||||||
|
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|
|
|
|
|
|||||||
Generic products revenues (including OTC and biosimilar products) in our Europe segment in the second quarter of 2023, increased by 4% to $909 million, compared to the second quarter of 2022. In local currency terms, revenues increased by 2%, mainly due to higher demand and price increases as well as from generic product launches.
AJOVY revenues in our Europe segment in the second quarter of 2023 increased by 32% in both U.S. dollars and local currency terms to $39 million, compared to $29 million in the second quarter of 2022. This increase was mainly due to growth in the European countries in which AJOVY had previously been launched.
For information about AJOVY patent protection, see “—North America Revenues—Revenues by Major Products and Activities” above.
COPAXONE revenues in our Europe segment in the second quarter of 2023 decreased by 17% to $60 million, compared to the second quarter of 2022. In local currency terms, revenues decreased by 21%, due to price reductions and a decline in volume resulting from competing glatiramer acetate products.
53
One European patent protecting COPAXONE 40 mg/mL was found invalid by the Board of Appeal of the European Patent Office in September 2020 and two additional patents expiring in 2030 were found invalid in December 2021. In certain countries, Teva remains in litigation against generic companies on an additional COPAXONE 40 mg/mL patent that expires in 2030.
Respiratory products revenues in our Europe segment in the second quarter of 2023 increased by 2% to $66 million compared to the second quarter of 2022. In local currency terms, revenues were flat compared to the second quarter of 2022.
Product Launches and Pipeline
As of June 30, 2023, our generic products pipeline in Europe included 235 generic approvals relating to 44 compounds in 83 formulations, with no European Medicines Agency (“EMA”) approvals received. In addition, approximately 1,110 marketing authorization applications are pending approval in 37 European countries, relating to 97 compounds in 202 formulations. One application is pending with the EMA relating to three strengths in 30 markets.
For information regarding our innovative medicines and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
Europe Gross Profit
Gross profit from our Europe segment in the second quarter of 2023 was $640 million, a decrease of 9% compared to $703 million in the second quarter of 2022.
Gross profit margin for our Europe segment in the second quarter of 2023 decreased to 55.0%, compared to 60.0% in the second quarter of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as well as a favorable impact of hedging activities in the second quarter of 2022.
Europe R&D Expenses
R&D expenses relating to our Europe segment in the second quarter of 2023 were $53 million, a decrease of 5% compared to $56 million in the second quarter of 2022.
For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
Europe S&M Expenses
S&M expenses relating to our Europe segment in the second quarter of 2023 were $194 million, a decrease of 1% compared to $196 million in the second quarter of 2022.
Europe G&A Expenses
G&A expenses relating to our Europe segment in the second quarter of 2023 were $61 million, a decrease of 4% compared to $63 million in the second quarter of 2022.
Europe Profit
Profit from our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our Europe segment in the second quarter of 2023 was $334 million, a decrease of 14%, compared to $389 million in the second quarter of 2022. This decrease was mainly due to lower gross profit as described above.
54
International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 479 | 100 | % | $ | 454 | 100 | % | ||||||||
| Gross profit |
254 | 53.2 | % | 242 | 53.3 | % | ||||||||||
| R&D expenses |
21 | 4.3 | % | 19 | 4.2 | % | ||||||||||
| S&M expenses |
110 | 23.0 | % | 99 | 21.7 | % | ||||||||||
| G&A expenses |
29 | 6.0 | % | 30 | 6.7 | % | ||||||||||
| Other income |
(28 | ) | (5.9 | %) | (1 | ) | § | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Segment profit* |
$ | 124 | 25.8 | % | $ | 95 | 20.9 | % | ||||||||
|
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|
|
|
|
|
|
|||||||||
| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
International Markets Revenues
Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical market. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics-oriented markets, such as Russia and certain Latin America markets and hybrid markets, such as Japan.
In February 2022, Russia launched an invasion of Ukraine. As of the date of this Quarterly Report on Form 10-Q, sustained conflict and disruption in the region is ongoing. Russia and Ukraine markets are included in our International Markets segment results. We have no manufacturing or R&D facilities in these markets. During the six months ended June 30, 2023, the impact of this conflict on our International Markets segment’s results of operations and financial condition was immaterial. Consistent with our foreign exchange risk management hedging programs, we entered into hedges to hedge our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. However, as of the end of the second quarter of 2023, we were unable to renew certain of our expiring hedging positions due to the liquidity situation in the market for Russian rubles and we currently hedge a small part of our projected net revenues for 2023. Prior to and since the escalation of the conflict, we have been taking measures to reduce our operational cash balances in Russia and Ukraine. We have been monitoring the solvency of our customers in Russia and Ukraine and have taken measures, where practicable, to mitigate our exposure to risks related to the conflict in the region. However, the duration, severity and global implications (including potential inflation and devaluation consequences) of the conflict cannot be predicted at this time and could have an effect on our business, including on our exchange rate exposure, supply chain, operational costs and commercial presence in these markets.
Revenues from our International Markets segment in the second quarter of 2023 were $479 million, an increase of 5% compared to the second quarter of 2022. In local currency terms, revenues increased by 13% compared to the second quarter of 2022, mainly due to higher revenues from generic products in most markets, partially offset by regulatory price reductions and generic competition to off-patented products in Japan.
In the second quarter of 2023, revenues were negatively impacted by exchange rate fluctuations of $35 million, net of hedging effects, compared to the second quarter of 2022. Revenues in the second quarter of 2023 included a positive hedging impact of $6 million, compared to a negative hedging impact of $17 million in the second quarter of 2022, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.
55
Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, |
Percentage Change |
|||||||||||
| 2023 | 2022 | 2023-2022 | ||||||||||
| (U.S. $ in millions) | ||||||||||||
| Generic products |
$ | 394 | $ | 394 | § | |||||||
| AJOVY |
9 | 10 | (18 | %) | ||||||||
| COPAXONE |
10 | 9 | 1 | % | ||||||||
| Other |
67 | 40 | 68 | % | ||||||||
|
|
|
|
|
|||||||||
| Total |
$ | 479 | $ | 454 | 5 | % | ||||||
|
|
|
|
|
|||||||||
| § | Represents an amount less than 0.5%. |
Generic products revenues (including OTC products) in our International Markets segment in the second quarter of 2023 were flat compared to the second quarter of 2022. In local currency terms, revenues increased by 13% compared to the second quarter of 2022, mainly due to higher revenues in most markets, largely driven by price increases largely as a result of rising costs due to inflationary pressure, partially offset by regulatory price reductions and generic competition to off-patented products in Japan.
AJOVY was launched in certain markets in our International Markets segment, including in Japan in August 2021. We are moving forward with plans to launch AJOVY in other markets. AJOVY revenues in our International Markets segment in the second quarter of 2023 were $9 million, compared to $10 million in the second quarter of 2022.
COPAXONE revenues in our International Markets segment in the second quarter of 2023 were $10 million compared to $9 million in the second quarter of 2022.
AUSTEDO was launched in China and Israel during 2021 and in Brazil in 2022, for the treatment of chorea associated with Huntington’s disease and for the treatment of tardive dyskinesia. We continue with additional submissions in various other markets.
International Markets Gross Profit
Gross profit from our International Markets segment in the second quarter of 2023 was $254 million, an increase of 5% compared to $242 million in the second quarter of 2022.
Gross profit margin for our International Markets segment in the second quarter of 2023 decreased to 53.2%, compared to 53.3% in the second quarter of 2022. This decrease was mainly due to regulatory price reductions and generic competition to off-patented products in Japan, as well as rising costs due to inflationary and other macroeconomic pressures, partially offset by price increases largely as a result of such inflationary pressures, and the negative hedging impact in the second quarter of 2022.
International Markets R&D Expenses
R&D expenses relating to our International Markets segment in the second quarter of 2023 were $21 million, an increase of 7% compared to the second quarter of 2022.
For a description of our R&D expenses in the second quarter of 2023, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.
International Markets S&M Expenses
S&M expenses relating to our International Markets segment in the second quarter of 2023 were $110 million, an increase of 12% compared to the second quarter of 2022, mainly to support revenue growth.
International Markets G&A Expenses
G&A expenses relating to our International Markets segment in the second quarter of 2023 were $29 million, a decrease of 5% compared to $30 million in the second quarter of 2022.
International Markets Other Income
Other income relating to our International Markets segment in the second quarter of 2023 was $28 million, compared to $1 million in the second quarter of 2022. Other income in the second quarter of 2023 included a capital gain from the sale of assets.
International Markets Profit
Profit from our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our International Markets segment in the second quarter of 2023 was $124 million, an increase of 30%, compared to $95 million in the second quarter of 2022. This increase was mainly due to higher other income and higher gross profit in the second quarter of 2023, partially offset by higher S&M expenses in the second quarter of 2023.
56
Other Activities
We have other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.
Our revenues from other activities in the second quarter of 2023 were $245 million, a decrease of 5% in both U.S. dollars and local currency terms compared to the second quarter of 2022.
API sales to third parties in the second quarter of 2023 were $152 million, a decrease of 14% in both U.S. dollars and local currency terms, compared to the second quarter of 2022.
Teva Consolidated Results
Revenues
Revenues in the second quarter of 2023 were $3,878 million, an increase of 2% compared to the second quarter of 2022. In local currency terms, revenues increased by 4%, mainly due to higher revenues from AUSTEDO and Anda in our North America segment and from generic products in our International Markets segment, partially offset by lower revenues from generic products and from COPAXONE in our North America segment as well as from API sales to third parties. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.
Exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted revenues by $51 million, compared to the second quarter of 2022. See note 8d to our consolidated financial statements.
Gross Profit
Gross profit in the second quarter of 2023 was $1,796 million, flat compared to the second quarter of 2022.
Gross profit margin was 46.3% in the second quarter of 2023, compared to 47.4% in the second quarter of 2022. This decrease was mainly driven by rising costs due to inflationary and other macroeconomic pressures, an increase in revenues with lower profitability from Anda in our North America segment and lower revenues from COPAXONE, partially offset by higher revenues from AUSTEDO.
Research and Development (R&D) Expenses
Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.
Our R&D activities for innovative medicines and biosimilar products in each of our segments include costs of discovery research, preclinical development, drug formulation, early- and late-stage clinical development and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) post-approval studies for marketed products; and (v) indirect expenses, such as costs of internal administration, infrastructure and personnel.
R&D expenses in the second quarter of 2023 were $240 million, an increase of 5% compared to $228 million in the second quarter of 2022.
In the second quarter of 2023, our R&D expenses related primarily to innovative product candidates in neuroscience (such as neuropsychiatry, including post-approval commitments), immunology and immuno-oncology and selected other areas, as well as generic products and biosimilars.
Our higher R&D expenses in the second quarter of 2023, compared to the second quarter of 2022, were mainly due to an increase in neuroscience (mainly neuropsychiatry), in immunology and immuno-oncology, as well as in various generics and biosimilar products.
R&D expenses as a percentage of revenues were 6.2% in the second quarter of 2023, compared to 6.0% in the second quarter of 2022.
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Innovative Medicines Pipeline
Below is a description of key products in our innovative medicines pipeline as of August 2, 2023:
| Phase 2 |
Phase 3 |
Pre-Submission |
Under Regulatory Review | |||||
| Neuroscience | Olanzapine LAI Schizophrenia (September 2022) |
|||||||
| Immunology | Anti- TL1A (TEV-48574) Inflammatory Bowel Disease |
ICS/SABA (TEV-56248) Respiratory (February 2023) |
||||||
| Other | Digihaler® (beclomethasone dipropionate HFA)(U.S.) | Digihaler® (budesonide and formoterol fumarate dihydrate) (EU)(1) | ||||||
| (1) | Approved in the U.K. |
Biosimilar Products Pipeline
We have additional biosimilar products in development internally and with our partners that are in various stages of clinical trials and regulatory review worldwide, including phase 3 clinical trials for biosimilars to Prolia® (denosumab), Xolair® (omalizumab), Eylea® (afilbercept) and Simponi® (golimumab), a biosimilar to Lucentis® (ranibizumab) that was submitted in Canada, and biosimilars to Stelara® (ustekinumab) and to Humira® (adalimumab), each of which are currently under U.S. regulatory review.
Selling and Marketing (S&M) Expenses
S&M expenses in the second quarter of 2023 were $603 million, an increase of 2% compared to the second quarter of 2022. This increase was mainly a result of the factors discussed above under “—North America segment—S&M Expenses” and “—International Markets Segment—S&M Expenses.”
S&M expenses as a percentage of revenues were 15.5% in the second quarter of 2023, compared to 15.7% in the second quarter of 2022.
General and Administrative (G&A) Expenses
G&A expenses in the second quarter of 2023 were $307 million, a decrease of 2% compared to the second quarter of 2022.
G&A expenses as a percentage of revenues were 7.9% in the second quarter of 2023 compared to 8.3% in the second quarter of 2022.
Intangible Asset Impairments
We recorded expenses of $63 million for identifiable intangible asset impairments in the second quarter of 2023, compared to expenses of $51 million in the second quarter of 2022. See note 5 to our consolidated financial statements.
Goodwill Impairment
We recorded a goodwill impairment charge of $700 million related to our International Markets reporting unit in the second quarter of 2023, compared to a goodwill impairment charge of $745 million in the second quarter of 2022, of which $479 million was related to our International Markets reporting unit and $266 million was related to Teva’s API reporting unit. See note 6 to our consolidated financial statements.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $100 million for other asset impairments, restructuring and other items in the second quarter of 2023, compared to expenses of $118 million in the second quarter of 2022. See note 12 to our consolidated financial statements.
58
Legal Settlements and Loss Contingencies
We recorded expenses of $462 million in legal settlements and loss contingencies in the second quarter of 2023, compared to expenses of $729 million in the second quarter of 2022. See note 9 to our consolidated financial statements.
Other Income
Other income in the second quarter of 2023 was $33 million, compared to $34 million in the second quarter of 2022.
Other income in the second quarter of 2023 included a capital gain from the sale of assets related to our International Markets segment. Other income in the second quarter of 2022 was mainly related to a capital gain related to the sale of an R&D site.
Operating Income (Loss)
Operating loss was $646 million in the second quarter of 2023, compared to an operating loss of $949 million in the second quarter of 2022. The lower operating loss in the second quarter of 2023 was mainly due to higher legal settlements and loss contingencies in the second quarter of 2022.
Operating loss as a percentage of revenues was 16.7% in the second quarter of 2023, compared to an operating loss as a percentage of revenues of 25.1% in the second quarter of 2022.
Financial Expenses, Net
In the second quarter of 2023, financial expenses were $268 million, mainly comprised of net-interest expenses of $240 million. In the second quarter of 2022, financial expenses were $211 million, mainly comprised of net-interest expenses of $229 million, partially offset by a positive exchange rate impact driven mainly from currencies which we were unable to hedge, such as the Russian ruble.
The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| (U.S. $ in millions) | ||||||||
| North America profit |
$ | 520 | $ | 481 | ||||
| Europe profit |
334 | 389 | ||||||
| International Markets profit |
124 | 95 | ||||||
|
|
|
|
|
|||||
| Total reportable segments profit |
977 | 964 | ||||||
| Profit (loss) of other activities |
33 | 55 | ||||||
|
|
|
|
|
|||||
| Total segments profit |
1,011 | 1,019 | ||||||
| Amounts not allocated to segments: |
||||||||
| Amortization |
162 | 212 | ||||||
| Other assets impairments, restructuring and other items |
100 | 118 | ||||||
| Goodwill impairment |
700 | 745 | ||||||
| Intangible assets impairments |
63 | 51 | ||||||
| Legal settlements and loss contingencies |
462 | 729 | ||||||
| Other unallocated amounts |
170 | 113 | ||||||
|
|
|
|
|
|||||
| Consolidated operating income (loss) |
(646 | ) | (949 | ) | ||||
|
|
|
|
|
|||||
| Financial expenses, net |
268 | 211 | ||||||
|
|
|
|
|
|||||
| Consolidated income (loss) before income taxes |
$ | (914 | ) | $ | (1,160 | ) | ||
|
|
|
|
|
|||||
59
Income Taxes
In the second quarter of 2023, we recognized a tax benefit of $16 million, on a pre-tax loss of $914 million. In the second quarter of 2022, we recognized a tax benefit of $900 million, on a pre-tax loss of $1,160 million. See note 11 to our consolidated financial statements.
Share in (Profits) Losses of Associated Companies, Net
Share in profits of associated companies, net in the second quarter of 2023 was $1 million. We did not have any share in (profits) losses of associated companies, net in the second quarter of 2022.
Net Income (Loss) Attributable to Teva
Net loss was $863 million in the second quarter of 2023, compared to net loss of $232 million in the second quarter of 2022. The higher net loss in the second quarter of 2023 was mainly due to a lower tax benefit, partially offset by lower operating loss, as discussed above.
Diluted Shares Outstanding and Earnings (Loss) per Share
The weighted average diluted shares outstanding used for the fully diluted share calculations for the three months ended June 30, 2023 and 2022 was 1,120 million and 1,110 million shares, respectively.
Diluted loss per share was $0.77 in the second quarter of 2023, compared to diluted loss per share of $0.21 in the second quarter of 2022. See note 13 to our consolidated financial statements.
Share Count for Market Capitalization
We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and PSUs, and the conversion of our convertible senior debentures, in each case, at period end.
As of June 30, 2023 and 2022, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,157 million and 1,144 million shares, respectively.
Impact of Currency Fluctuations on Results of Operations
In the second quarter of 2023, approximately 46% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Canadian dollar, Russian ruble, Japanese yen, Swiss franc and new Israeli shekel) impact our results.
During the second quarter of 2023, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each compared on a quarterly average basis): Argentinian peso by 49%, Turkish lira by 24%, Ukrainian hryvna by 20%, Russian ruble by 17%, Israeli shekel by 8%, Swedish krona by 7% and the British pound by 1%. The following main currencies increased in value against the U.S. dollar: Mexican peso by 13%, Swiss franc by 7%, Hungarian forint by 6%, Chilean peso by 5% and the euro by 2%.
As a result, exchange rate movements during the second quarter of 2023, including hedging effects, negatively impacted overall revenues by $51 million and operating income by $38 million, compared to the second quarter of 2022.
In the second quarter of 2023, a positive hedging impact of $4 million was recognized under revenues, and a negative hedging impact of $2 million was recognized under cost of sales. In the second quarter of 2022, a positive hedging impact of $17 million was recognized under revenues and a negative hedging impact of $3 million was recognized under cost of sales.
Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 8d to our consolidated financial statements.
Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.
Commencing in the second quarter of 2022, the cumulative inflation in Turkey exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.
60
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Unless specified otherwise, the factors used to explain quarterly changes on a year-over-year basis are also relevant for the comparison of the results for the six months ended June 30, 2023 and 2022. Where there are different factors affecting the six months comparison, we have described them below.
Segment Information
North America Segment
The following table presents revenues, expenses and profit for our North America segment for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions / % of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 3,757 | 100 | % | $ | 3,641 | 100 | % | ||||||||
| Gross profit |
1,857 | 49.4 | % | 1,899 | 52.2 | % | ||||||||||
| R&D expenses |
315 | 8.4 | % | 289 | 7.9 | % | ||||||||||
| S&M expenses |
487 | 12.9 | % | 501 | 13.7 | % | ||||||||||
| G&A expenses |
208 | 5.5 | % | 239 | 6.6 | % | ||||||||||
| Other income |
(5 | ) | § | (12 | ) | § | ||||||||||
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| Segment profit* |
$ | 852 | 22.7 | % | $ | 883 | 24.2 | % | ||||||||
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| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%. |
North America Revenues
Our North America segment includes the United States and Canada. Revenues from our North America segment in the first six months of 2023 were $3,757 million, an increase of 3% compared to $3,641 million in the first six months of 2022.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | Percentage Change |
|||||||||||
| 2023 | 2022 | 2023-2022 | ||||||||||
| (U.S. $ in millions) | ||||||||||||
| Generic products |
$ | 1,793 | $ | 1,925 | (7 | %) | ||||||
| AJOVY |
107 | 86 | 24 | % | ||||||||
| AUSTEDO |
478 | 358 | 33 | % | ||||||||
| BENDEKA and TREANDA |
131 | 165 | (20 | %) | ||||||||
| COPAXONE |
139 | 180 | (23 | %) | ||||||||
| Anda |
816 | 650 | 26 | % | ||||||||
| Other |
293 | 278 | 5 | % | ||||||||
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| Total |
$ | 3,757 | $ | 3,641 | 3 | % | ||||||
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| * | Other revenues in the first six months of 2023 increased mainly due to a reduction in estimated liabilities in connection with ProAir® HFA following its discontinuation on October 1, 2022. |
61
North America Gross Profit
Gross profit from our North America segment in the first six months of 2023 was $1,857 million, a decrease of 2%, compared to $1,899 million in the first six months of 2022.
Gross profit margin for our North America segment in the first six months of 2023 decreased to 49.4% compared to 52.2% in the first six months of 2022.
North America R&D Expenses
R&D expenses relating to our North America segment in the first six months of 2023 were $315 million, an increase of 9%, compared to $289 million in the first six months of 2022.
North America S&M Expenses
S&M expenses relating to our North America segment in the first six months of 2023 were $487 million, a decrease 3%, compared to $501 million in the first six months of 2022.
North America G&A Expenses
G&A expenses relating to our North America segment in the first six months of 2023 were $208 million, a decrease of 13%, compared to $239 million in the first six months of 2022.
North America Profit
Profit from our North America segment in the first six months of 2023 was $852 million, a decrease of 3%, compared to $883 million in the first six months of 2022. This decrease was mainly due to higher cost of goods sold, mainly driven by rising costs due to inflationary and other macroeconomic pressures, as mentioned above, partially offset by higher revenues from AUSTEDO as well as lower operational expenses.
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 2,347 | 100 | % | $ | 2,327 | 100 | % | ||||||||
| Gross profit |
1,294 | 55.2 | % | 1,397 | 60.0 | % | ||||||||||
| R&D expenses |
106 | 4.5 | % | 114 | 4.9 | % | ||||||||||
| S&M expenses |
381 | 16.2 | % | 393 | 16.9 | % | ||||||||||
| G&A expenses |
130 | 5.5 | % | 122 | 5.2 | % | ||||||||||
| Other (income) expense |
(1 | ) | § | (1 | ) | § | ||||||||||
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| Segment profit* |
$ | 679 | 28.9 | % | $ | 769 | 33.1 | % | ||||||||
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| * | Segment profit does not include amortization and certain other items. |
| § | Represents an amount less than 0.5%, as applicable. |
Europe Revenues
Our Europe segment includes the European Union, the United Kingdom, and certain other European countries.
Revenues from our Europe segment in the first six months of 2023 were $2,347 million, an increase of 1% or $20 million, compared to the first six months of 2022. In local currency terms, revenues increased by 5% compared to the first six months of 2022, mainly due to higher demand and price increases from generic products and growth in volume from AJOVY, partially offset by lower sales from COPAXONE.
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In the first six months of 2023, revenues were negatively impacted by exchange rate fluctuations of $87 million, net of hedging effects, compared to the first six months of 2022. Revenues in the first six months of 2023 included $7 million from a negative hedging impact, which are included in “Other” in the table below. Revenues in the first six months of 2022 included $39 million from a positive hedging impact. See note 8d to our consolidated financial statements.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | Percentage Change |
|||||||||||
| 2023 | 2022 | 2023-2022 | ||||||||||
| (U.S. $ in millions) | ||||||||||||
| Generic products |
$ | 1,841 | $ | 1,749 | 5 | % | ||||||
| AJOVY |
74 | 60 | 25 | % | ||||||||
| COPAXONE |
119 | 144 | (17 | %) | ||||||||
| Respiratory products |
134 | 137 | (2 | %) | ||||||||
| Other |
178 | 238 | (25 | %) | ||||||||
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| Total |
$ | 2,347 | $ | 2,327 | 1 | % | ||||||
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Europe Gross Profit
Gross profit from our Europe segment in the first six months of 2023 was $1,294 million, a decrease of 7% compared to $1,397 million in the first six months of 2022.
Gross profit margin for our Europe segment in the first six months of 2023 decreased to 55.2% compared to 60.0% in the first six months of 2022.
Europe R&D Expenses
R&D expenses relating to our Europe segment in the first six months of 2023 were $106 million, a decrease of 7% compared to $114 million in the first six months of 2022.
Europe S&M Expenses
S&M expenses relating to our Europe segment in the first six months of 2023 were $381 million, a decrease of 3% compared to $393 million in the first six months of 2022.
Europe G&A Expenses
G&A expenses relating to our Europe segment in the first six months of 2023 were $130 million, an increase of 7% compared to $122 million in the first six months of 2022.
Europe Profit
Profit from our Europe segment in the first six months of 2023 was $679 million, a decrease of 12% compared to $769 million in the first six months of 2022.
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International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (U.S. $ in millions /% of Segment Revenues) | ||||||||||||||||
| Revenues |
$ | 971 | 100 | % | $ | 946 | 100 | % | ||||||||
| Gross profit |
517 | 53.2 | % | 528 | 55.8 | % | ||||||||||
| R&D expenses |
40 | 4.2 | % | 39 | 4.1 | % | ||||||||||
| S&M expenses |
208 | 21.4 | % | 196 | 20.7 | % | ||||||||||
| G&A expenses |
60 | 6.2 | % | 60 | 6.3 | % | ||||||||||
| Other (income) expense |
(29 | ) | (3.0 | %) | (41 | ) | (4.3 | %) | ||||||||
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| Segment profit* |
$ | 237 | 24.5 | % | $ | 274 | 29.0 | % | ||||||||
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| * | Segment profit does not include amortization and certain other items. |
International Markets Revenues
Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first six months of 2023 were $971 million, an increase of $25 million, or 3%, compared to the first six months of 2022. In local currency terms, revenues increased by 11%.
In the first six months of 2023, revenues were negatively impacted by exchange rate fluctuations of $77 million net of hedging effects, compared to the first six months of 2022. Revenues in the first six months of 2023 included a positive hedging impact of $7 million, compared to a negative hedging impact of $5 million which were included in “Other” in the table below. See note 8d to our consolidated financial statements.
Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| (U.S. $ in millions) | ||||||||
| Generic products |
$ | 793 | $ | 782 | ||||
| AJOVY |
19 | 16 | ||||||
| COPAXONE |
22 | 20 | ||||||
| Other |
137 | 128 | ||||||
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| Total |
$ | 971 | $ | 946 | ||||
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International Markets Gross Profit
Gross profit from our International Markets segment in the first six months of 2023 was $517 million, compared to $528 million in the first six months of 2022.
Gross profit margin for our International Markets segment in the first six months of 2023 was 53.2%, a decrease of 2.6% compared to the first six months of 2022.
International Markets R&D Expenses
R&D expenses relating to our International Markets segment in the first six months of 2023 were $40 million, an increase of 3% compared to $39 million in the first six months of 2022.
International Markets S&M Expenses
S&M expenses relating to our International Markets segment in the first six months of 2023 were $208 million, an increase of 6% compared to $196 million in the first six months of 2022.
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International Markets G&A Expenses
G&A expenses relating to our International Markets segment in the first six months of 2023 were $60 million flat compared to the first six months of 2022.
International Markets Other Income
Other income in the first six months of 2023 was $29 million, compared to $41 million in the first six months of 2022. Other income in the first six months of 2023 was included a capital gain from the sale of assets. Other income in the first six months of 2022 was mainly the result of settlement proceeds.
International Markets Profit
Profit from our International Markets segment in the first six months of 2023 was $237 million, a decrease of 13%, compared to $274 million in the first six months of 2022. This decrease was mainly due to lower gross profit, lower other income as well as higher S&M expenses in the first six months of 2023.
Other Activities
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 six months of 2023 decreased by 13% to $464 million, compared to the first six months of 2022. In local currency terms, revenues decreased by 12%.
API sales to third parties in the first six months of 2023 were $284 million, a decrease of 21% in both U.S. dollars and local currency terms, compared to the first six months of 2022.
Teva Consolidated Results
Revenues
Revenues in the first six months of 2023 were $7,539 million, an increase of 1% compared to the first six months of 2022. In local currency terms, revenues increased by 4%, compared to the first six months of 2022.
Exchange rate movements during the first six months of 2023, including hedging effects, negatively impacted revenues by $180 million, compared to the first six months of 2022. See note 8d to our consolidated financial statements.
Gross Profit
Gross profit in the first six months of 2023 was $3,378 million, a decrease of 4% compared to the first six months of 2022.
Gross profit margin was 44.8% in the first six months of 2023, compared to 47.5% in the first six months of 2022.
Research and Development (R&D) Expenses
R&D expenses in the first six months of 2023 were $473 million, an increase of 5% compared to the first six months of 2022.
R&D expenses as a percentage of revenues were 6.3% in the first six months of 2023, compared to 6.1% in the first six months of 2022.
Selling and Marketing (S&M) Expenses
S&M expenses in the first six months of 2023 were $1,149 million, a decrease of 2% compared to the first six months of 2022, mainly due to exchange rate fluctuations in our Europe segment as well as cost efficiencies in our North America segment during the first quarter of 2023.
S&M expenses as a percentage of revenues were 15.2% in the first six months of 2023, compared to 15.8% in the first six months of 2022.
General and Administrative (G&A) Expenses
G&A expenses in the first six months of 2023 were $602 million, a decrease of 1% compared to the first six months of 2022.
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G&A expenses as a percentage of revenues were 8.0% in the first six months of 2023, compared to 8.2% in the first six months of 2022.
Intangible Asset Impairments
We recorded expenses of $241 million for identifiable intangible asset impairments, in the first six months of 2023, compared to expenses of $199 million in the first six months of 2022. See note 5 to our consolidated financial statements.
Goodwill Impairment
We recorded a goodwill impairment charge of $700 million related to our International Markets reporting unit in the first six months of 2023, compared to a goodwill impairment charge of $745 million in the first six months of 2022, of which $479 million was related to our International Markets reporting unit and $266 million was related to Teva’s API reporting unit. See note 6 to our consolidated financial statements.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $195 million for other asset impairments, restructuring and other items in the first six months of 2023, compared to expenses of $246 million in the first six months of 2022. See note 12 to our consolidated financial statements.
Legal Settlements and Loss Contingencies
We recorded expenses of $695 million in legal settlements and loss contingencies in the first six months of 2023, compared to expenses of $1,854 million in the first six months of 2022. See note 9 to our consolidated financial statements.
Other Income
Other income in the first six months of 2023 was $34 million, compared to $87 million in the first six months of 2022. Other income in the first six months of 2023 included a capital gain from the sale of assets related to our International Markets segment. Other income in the first six months of 2022 was mainly the result of settlement proceeds in our International Markets segment as well as a capital gain related to the sale of an R&D site.
Operating Income (Loss)
Operating loss was $644 million in the first six months of 2023, compared to an operating loss of $1,662 million in the first six months of 2022.
Operating loss as a percentage of revenues was 8.5% in the first six months of 2023, compared to an operating loss as a percentage of revenues of 22.3% in the first six months of 2022.
Financial Expenses, Net
In the first six months of 2023, financial expenses were $528 million, mainly comprised of net-interest expenses of $476 million. In the first six months of 2022, financial expenses were $468 million, mainly comprised of net-interest expenses of $469 million.
The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the six months ended June 30, 2023 and 2022:
| Six months ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (U.S. $ in millions) | ||||||||
| North America profit |
$ | 852 | $ | 883 | ||||
| Europe profit |
679 | 769 | ||||||
| International Markets profit |
237 | 274 | ||||||
|
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| Total reportable segments profit |
1,769 | 1,926 | ||||||
| Profit (loss) of other activities |
27 | 107 | ||||||
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|
|
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| Total segments profit |
1,796 | 2,032 | ||||||
| Amounts not allocated to segments: |
||||||||
| Amortization |
326 | 412 | ||||||
| Other assets impairments, restructuring and other items |
195 | 246 | ||||||
| Goodwill impairment |
700 | 745 | ||||||
| Intangible asset impairments |
241 | 199 | ||||||
| Legal settlements and loss contingencies |
695 | 1,854 | ||||||
| Other unallocated amounts |
282 | 240 | ||||||
|
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|
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| Consolidated operating income (loss) |
(644 | ) | (1,662 | ) | ||||
|
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|
|
|
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| Financial expenses, net |
528 | 468 | ||||||
|
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|
|
|
|||||
| Consolidated income (loss) before income taxes |
$ | (1,172 | ) | $ | (2,131 | ) | ||
|
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|
|
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66
Income Taxes
In the first six months of 2023, we recognized a tax benefit of $35 million, on pre-tax loss of $1,172 million. In the first six months of 2022, we recognized a tax benefit of $899 million, on pre-tax loss of $2,131 million. See note 11 to our consolidated financial statements.
Share in (Profits) Losses of Associated Companies, Net
Share in profits of associated companies, net in the first six months of 2023 was $1 million, compared to share in profits of $21 million in the first six months of 2022. Share in profits of associated companies, net in the first six months of 2022 was mainly related to the difference between the book value of our investment in Novetide and its fair value as of the date we completed its acquisition in January 2022.
Net Income (Loss) Attributable to Teva
Net loss was $1,068 million in the first six months of 2023, compared to net loss of $1,187 million in the first six months of 2022. The lower net loss in the first six months of 2023 was mainly due to lower legal settlements and loss contingencies partially offset by a lower tax benefit, as discussed above.
Diluted Shares Outstanding and Earnings (Loss) per Share
The weighted average diluted shares outstanding used for the fully diluted share calculations for the six months ended June 30, 2023 and 2022 was 1,118 million and 1,109 million shares, respectively.
Basic and diluted loss per share was $0.96 for the six months ended June 30, 2023, compared to basic and diluted loss per share of $1.07 for the six months ended June 30, 2022. See note 13 to our consolidated financial statements.
Impact of Currency Fluctuations on Results of Operations
In the first six months of 2023, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks and, accordingly, changes in the exchange rate between the U.S. dollar and local currencies in markets in which we operate (primarily the euro, British pound, Canadian dollar, Russian ruble, Japanese yen, Swiss franc and new Israeli shekel) impact our results.
During the first six months of 2023, the following main currencies relevant to our operations decreased in value against the U.S. dollar: Argentinian peso by 47%, Turkish lira by 25%, Ukrainian hryvna by 21%, Japanese yen by 9%, new Israeli shekel by 9%, Swedish krona by 9%, British pound by 5% and the euro by 1% (all compared on a six-month average basis). The following main currencies relevant to our operations increased in value against the U.S. dollar: Mexican peso by 12%, Swiss franc by 3% and Chilean peso by 2%.
As a result, exchange rate movements during the first six months of 2023, including hedging effects, negatively impacted overall revenues by $180 million and our operating income by $70 million, in comparison to the first six months of 2022.
In the first six months of 2023, a negative hedging impact of $2 million was recognized under revenues, and a negative hedging impact of $1 million was recognized under cost of sales. In the first six months of 2022, a positive hedging impact of $35 million was recognized under revenues and a negative hedging impact of $4 million was recognized under cost of sales.
67
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.
Liquidity and Capital Resources
Total balance sheet assets were $43,095 million as of June 30, 2023, compared to $44,006 million as of December 31, 2022.
Our working capital balance, which includes accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was negative $489 million as of June 30, 2023, compared to negative $119 million as of December 31, 2022. This decrease was mainly due to an increase in accounts payables, resulting primarily from more favorable vendor payment terms that went into effect in the second quarter of 2023 and higher inventory purchases, as well as by an increase in provisions for legal settlements and loss contingencies, partially offset by an increase in inventory levels, in accounts receivables, net of SR&A, in prepaid expenses, and a decrease in employee-related obligations.
Employee-related obligations, as of June 30, 2023 were $451 million, compared to $566 million as of December 31, 2022. The decrease in the first six months of 2023 was mainly due to performance incentive payments to employees for 2022, partially offset by an accrual for performance incentive payments to employees for 2023.
Cash investment in property, plant and equipment in the second quarter of 2023 was $119 million, compared to $127 million in the second quarter of 2022. Depreciation in the second quarter of 2023 was $138 million, compared to $146 million in the second quarter of 2022.
Cash and cash equivalents and short-term and long-term investments as of June 30, 2023 were $2,680 million, compared to $2,817 million as of December 31, 2022.
Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.
Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $1.8 billion unsecured syndicated sustainability-linked revolving credit facility, entered into in April 2022, as amended in February 2023 (“RCF”). See note 7 to our consolidated financial statements.
Debt Balance and Movements
As of June 30, 2023, our debt was $20,678 million, compared to $21,212 million as of December 31, 2022. This decrease was mainly due to $646 million senior notes repaid at maturity, partially offset by $156 million of exchange rate fluctuations. Additionally, during the first quarter of 2023, we repurchased $2,506 million aggregate principal amount of notes upon consummation of a cash tender offer, and issued $2,445 million of sustainability-linked senior notes net of issuance costs. For further information, see note 7 to our consolidated financial statements.
In July 2023, a total amount of $700 million was withdrawn under the RCF and is outstanding as of the date of this Quarterly Report on Form 10-Q.
In July 2023, we repaid $1,000 million of our 2.8% senior notes at maturity.
Our debt as of June 30, 2023 was effectively denominated in the following currencies: 62% in U.S. dollars, 36% in euros and 2% in Swiss francs.
The portion of total debt classified as short-term as of June 30, 2023 and as of December 31, 2022 was 10%.
Our financial leverage, which is the ratio between our debt and the sum of our debt and equity, was 73% as of June 30, 2023 and as of December 31, 2022.
Our average debt maturity was approximately 6.2 years as of June 30, 2023, compared to 5.8 years as of December 31, 2022.
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Total Equity
Total equity was $7,708 million as of June 30, 2023, compared to $8,691 million as of December 31, 2022. This decrease was mainly due to a net loss of $1,136 million, partially offset by a positive impact of $81 million from exchange rate fluctuations.
Exchange rate fluctuations affected our balance sheet, as approximately 92% of our net assets as of June 30, 2023 (including both non-monetary and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2022, changes in currency rates as of June 30, 2023 had a positive impact of $81 million on our equity. The following main currencies increased in value against the U.S. dollar: Mexican peso by 12%, Polish zloty by 7%, Chilean peso by 5%, Peruvian sol by 4%, British pound by 4% and the euro by 2%. The following main currencies decreased in value against the U.S. dollar: Russian ruble by 18% and Japanese yen by 10%. All comparisons are on a year-to-date basis.
Cash Flow
We continually seek to improve the efficiency of our working capital management. Periodically, as part of our cash and commercial relationship management activities, we make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers, or deceleration of payments to vendors. This has the effect of increasing or decreasing cash from operations during any given period. Increased cash from operations has the effect of reducing our leverage ratio, which is measured net of cash and cash equivalents, as of the end of such period. In connection with strategic continual improvement, we obtained more favorable payment terms from many of our vendors which are expected to continue in future periods. In addition, in periods in which receivable payments from customers are delayed, we have and expect we may in the future extend the time to pay certain vendors, so as to balance our liquidity position. Such decisions may have a material impact on our annual operating cash flow measurement, as well as on our quarterly results.
Cash flow generated from operating activities during the second quarter of 2023 was $324 million, compared to $123 million in the second quarter of 2022. The higher cash flow generated in the second quarter of 2023 resulted mainly from changes in working capital items, including a positive impact from accounts receivables, net of SR&A, and from inventory levels, partially offset by a negative impact from accounts payables.
During the second quarter of 2023, we generated free cash flow of $632 million, which we define as comprising $324 million in cash flow generated from operating activities, $371 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $56 million in proceeds from divestitures of businesses and other assets, partially offset by $119 million in cash used for capital investment. During the second quarter of 2022, we generated free cash flow of $301 million, which we define as comprising $123 million in cash flow generated from operating activities, $287 million in beneficial interest collected in exchange for securitized accounts receivables and $18 million in proceeds from divestitures of businesses and other assets, partially offset by $127 million in cash used for capital investment. The increase in the second quarter of 2023, resulted mainly from higher cash flow generated from operating activities, as well as higher proceeds from sale of business and long-lived assets.
Dividends
We have not paid dividends on our ordinary shares or ADSs since December 2017.
Commitments
In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities. For further information on our agreements with Modag, Alvotech, Takeda and MedinCell, see note 2 to our consolidated financial statements.
We are committed to paying royalties to owners of know-how, partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.
In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.
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2023 Aggregated Contractual Obligations
There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
Non-GAAP Net Income and Non-GAAP EPS Data
We present non-GAAP net income and non-GAAP earnings per share (“EPS”) as management believes that such data provide useful information to investors because they are used by management and our Board of Directors, in conjunction with other performance metrics, to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets and ultimately to evaluate the performance of management, including annual compensation. While other qualitative factors and judgment also affect annual compensation, the principal quantitative element in the determination of such compensation are performance targets tied to the work plan, which are based on these non-GAAP measures.
Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. Investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry. Investors should consider non-GAAP net income and non-GAAP EPS in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.
In preparing our non-GAAP net income and non-GAAP EPS data, we exclude items that either have a non-recurring impact on our financial performance or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not excluded, potentially cause investors to extrapolate future performance from an improper base that is not reflective of our underlying business performance. Certain of these items are also excluded because of the difficulty in predicting their timing and scope. The items excluded from our non-GAAP net income and non-GAAP EPS include:
| • | amortization of purchased intangible assets; |
| • | legal settlements and material litigation fees and/or loss contingencies, due to the difficulty in predicting their timing and scope; |
| • | impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill; |
| • | restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities; |
| • | acquisition- or divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees and inventory step-up; |
| • | expenses related to our equity compensation; |
| • | significant one-time financing costs, amortization of issuance costs and terminated derivative instruments, and marketable securities investment valuation gains/losses; |
| • | unusual tax items; |
| • | other awards or settlement amounts, either paid or received; |
| • | other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, or other unusual events; and |
| • | corresponding tax effects of the foregoing items. |
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The following tables present our non-GAAP net income and non-GAAP EPS for the three and six months ended June 30, 2023 and 2022, as well as reconciliations of each measure to their nearest GAAP equivalents:
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| ($ in millions except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Net income (Loss) attributable to Teva |
($) (863 | ) | (232 | ) | ($) (1,068 | ) | (1,187 | ) | ||||||||
| Increase (decrease) for excluded items: |
||||||||||||||||
| Amortization of purchased intangible assets |
162 | 212 | 326 | 412 | ||||||||||||
| Legal settlements and loss contingencies |
462 | 729 | 695 | 1,854 | ||||||||||||
| Goodwill impairment |
700 | 745 | 700 | 745 | ||||||||||||
| Impairment of long-lived assets |
74 | 65 | 262 | 230 | ||||||||||||
| Restructuring costs |
10 | 35 | 66 | 92 | ||||||||||||
| Costs related to regulatory actions taken in facilities |
1 | 3 | 2 | 4 | ||||||||||||
| Equity compensation |
30 | 39 | 62 | 63 | ||||||||||||
| Contingent consideration |
70 | 61 | 90 | 94 | ||||||||||||
| Loss (Gain) on sale of business |
1 | (31 | ) | 1 | (31 | ) | ||||||||||
| Accelerated depreciation |
24 | 32 | 49 | 33 | ||||||||||||
| Financial expenses |
16 | 23 | 39 | 33 | ||||||||||||
| Share in profits (losses) of associated companies – net |
— | 0 | — | (22 | ) | |||||||||||
| Items attributable to non-controlling interests |
(49 | ) | (39 | ) | (90 | ) | (50 | ) | ||||||||
| Other non-GAAP items* |
123 | 80 | 186 | 201 | ||||||||||||
| Corresponding tax effects and unusual tax items |
(131 | ) | (965 | ) | (235 | ) | (1,105 | ) | ||||||||
| Non-GAAP net income attributable to Teva |
($) 629 | 754 | ($) 1,085 | 1,363 | ||||||||||||
| Non-GAAP tax rate** |
15.2 | % | 7.7 | % | 15.3 | % | 12.9 | % | ||||||||
| GAAP diluted earnings (loss) per share attributable to Teva |
($) (0.77 | ) | (0.21 | ) | ($) (0.96 | ) | (1.07 | ) | ||||||||
| EPS difference*** |
1.33 | 0.89 | 1.92 | 2.29 | ||||||||||||
| Non-GAAP diluted EPS attributable to Teva*** |
($) 0.56 | 0.68 | ($) 0.96 | 1.22 | ||||||||||||
| Non-GAAP average number of shares (in millions)*** |
1,129 | 1,114 | 1,127 | 1,116 | ||||||||||||
| * | Other non-GAAP items include other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, primarily related to the rationalization of our plants, certain inventory write-offs, material litigation fees and other unusual events. |
| ** | Non-GAAP tax rate is tax expenses (benefit) excluding the impact of non-GAAP tax adjustments presented above as a percentage of income (loss) before income taxes excluding the impact of non-GAAP adjustments presented above. |
| *** | EPS difference and diluted non-GAAP EPS are calculated by dividing our non-GAAP net income attributable to Teva by our non-GAAP diluted weighted average number of shares. |
Off-Balance Sheet Arrangements
Except for securitization transactions, which are disclosed in note 10f to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, we do not have any material off-balance sheet arrangements.
Critical Accounting Policies
For a summary of our significant accounting policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2022. Additionally, see note 6 to our consolidated financial statements on this Form 10-Q for disclosure regarding reporting units at risk identified during our annual goodwill impairment test.
Recently Issued Accounting Pronouncements
See note 1 to our consolidated financial statements.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There has not been any material change in our assessment of market risk as set forth in Item 7A to our Annual Report on Form 10-K for the year ended December 31, 2022.
| ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Teva maintains “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.
After evaluating the effectiveness of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2023, there were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.
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ITEM 1. |
LEGAL PROCEEDINGS |
ITEM 1A. |
RISK FACTORS |
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. |
MINE SAFETY DISCLOSURES |
ITEM 5. |
OTHER INFORMATION |
| ITEM 6. | EXHIBITS |
| * | Filed herewith. |
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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: August 2, 2023 |
By: |
/s/ Eli Kalif | ||||
| Name: |
Eli Kalif | |||||
| Title: |
Executive Vice President, Chief Financial Officer (Duly Authorized Officer) | |||||
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