TEVA US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

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

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

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

Our Business Segments

We operate our business through three segments: North America, Europe and International Markets. Each business segment manages our entire product portfolio in its region, including generics, specialty and OTC products. This structure enables strong alignment and integration between operations, commercial regions, 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.

The COVID-19 Pandemic

As a leading global pharmaceutical company, Teva provides essential medicines to millions of patients around the world every day. Our priorities remain focused on the health and well-being of our employees and on our responsibility to continue to provide our medicines to the nearly 200 million patients who depend on us every day.

During 2021, we have not experienced material delays in production and distribution of medicines or disruptions in our supply chains. The supply chain supporting our key products – specialty, generics and API – remains largely uninterrupted, with adequate product inventory across our network and redundancy plans in place to address potential shortfalls, if any. Our facilities that research, manufacture, order, pack, distribute and provide critical customer and patient services remain largely uninterrupted as well, and are currently functioning to meet demand for essential medicines for patients throughout the world.

During 2021, we have experienced delays in clinical trials due to slow-downs of recruitment for studies and suspended regulatory inspections, raw material supply issues, delays in regulatory approvals of new products due to reduced capacity or re-prioritization of regulatory agencies and delays in pre-commercial launch activities. We may experience further delays if the pandemic continues for an extended period of time.

The long-term effects of the pandemic cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. During 2021, the COVID-19 pandemic has continued to have an impact on markets and on customer stocking and purchasing patterns. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will continue to see variable demand in future periods. While COVID-19 continues to impact sales in certain markets and for certain products, we do not currently anticipate a material impact on our 2022 financial results due to the ongoing global pandemic.

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Highlights

Significant highlights of 2021 included:

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Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for fiscal years 2021 and 2020. For a comparison of our results of operations and financial condition for fiscal years 2020 and 2019, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Annual Report on Form 10-K, filed with the SEC on February 10, 2021.

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the past two years:

Year ended December 31,

(U.S. $ in millions /% of Segment Revenues)

Other income (31 ) § (10 ) §

* 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 2021 were $7,809 million, a decrease of $637 million, or 7.5%, compared to 2020, mainly due to a decline in revenues from COPAXONE, generic products and ANDA, partially offset by higher revenues from AUSTEDO and AJOVY. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the COVID-19 pandemic, but has also experienced increase in demand for certain products related to the treatment of COVID-19 and its symptoms. In addition, the ability to promote our new specialty products, primarily AJOVY and AUSTEDO, has been impacted by less physician visits by patients and less physician interactions by our sales personnel.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the past two years:

(U.S. $ in millions)

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Generic products

revenues in our North America segment (including biosimilars) in 2021 decreased by 6% to $3,769 million, compared to 2020, mainly due to increased competition on key products and lower volumes as well as lower revenues from generic launches in 2021.

Among the most significant generic products we sold in North America in 2021 were Truxima (the biosimilar to Rituxan

®

), epinephrine injectable solution (the generic equivalent of EpiPen

®

and EpiPen Jr.

®

), albuterol sulfate inhalation aerosol (our ProAir authorized generic), emtricitabine and tenofovir disoproxil fumarate tablets (the generic equivalent of Truvada

®

), and lidocaine transdermal patch (the generic equivalent of Lidoderm Patch

®

).

For more information on our generic products, including biosimilars, see “Item 1—Business—Our Product Portfolio and Business Offering—Generic Medicines.” In 2021, our total prescriptions were approximately 301 million (based on trailing twelve months), representing 8.3% of total U.S. generic prescriptions according to IQVIA data.

AJOVY

revenues in our North America segment in 2021 increased by 31% to $176 million, compared to 2020, mainly due to growth in volume. In 2021, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 21.4%, compared to 20.3% in 2020.

For more information on AJOVY, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AJOVY.”

AUSTEDO

revenues in our North America segment in 2021 increased by 26% to $802 million, compared to 2020, mainly due to growth in volume.

For more information on AUSTEDO, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AUSTEDO.”

BENDEKA

and

TREANDA

combined revenues in our North America segment in 2021 decreased by 7% to $385 million, compared to 2020, mainly due to the availability of alternative therapies and continued competition from Belrapzo

®

(a ready-to-dilute bendamustine hydrochloride product from Eagle).

For more information on BENDEKA and TREANDA, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—Oncology.”

COPAXONE

revenues in our North America segment in 2021 decreased by 35% to $577 million, compared to 2020, mainly due to generic competition in the United States and availability of alternative therapies.

For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”

ProAir

(HFA and RespiClick) revenues in our North America segment in 2021 decreased by 25% to $180 million, compared to 2020. In January 2019, we launched our own ProAir authorized generic in the United States, following the launch of a generic version of Ventolin

®

HFA, another albuterol inhaler. Revenues from our ProAir authorized generic are included in “generic products” above. During 2021, the exit market share of our overall albuterol product, including our ProAir authorized generic was 34%, making it the largest in the market, compared to 40.1% in 2020.

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For more information on ProAir and our Digihaler portfolio, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—Respiratory.”

Anda

revenues from third parties in our North America segment in 2021 decreased by 9% to $1,323 million, compared to 2020.

Product Launches and Pipeline

In 2021, we launched the generic version of the following branded products in the United States:

Mesalamine Extended-Release Capsules, 0.375g Apriso® January $ 344

Etonogestrel and Ethinyl Estradiol Vaginal Ring NuvaRing® January $ 812

Liothyronine Sodium Tablets USP, 5mcg, 25mcg, 50mcg Cytomel® February $ 107

Brinzolamide Ophthalmic Suspension, USP, 1% Azopt® March $ 184

Mesalamine Suppositories Canasa® April $ 66

Isotretinoin Capsules, USP Absorica® April $ 156

Erythromycin Tablets, USP N/A May $ 45

Tiopronin Tablets Thiola® May $ 0.2

Ivermectin Cream, 1% Soolantra® June $ 111

Formoterol Fumarate Inhalation Solution Perforomist® June $ 300

Bexarotene Capsules 75 mg Targretin® November $ 48

Adapalene and Benzoyl Peroxide Gel Epiduo® December $ 281

Arformoterol Tartrate Inhalation, Eq. 0.015 mg base/2 mL Brovana® December $ 333

Erlotinib Hydrochloride Tablets, 2 mg Tarceva® December $ 3

Pyrimethamine Tablets USP, 25 mg Daraprim® December $ 42

Ibuprofen & Famotidine Tablets, 800 mg/26.6 mg Duexis® December $ 690

Naloxone HCl Nasal Spray, 4 mg/spray Narcan® December $ 281

Buprenorphine Transdermal System, 7.5 mcg Butrans® December $ 13

As of December 31, 2021, our generic products pipeline in the United States includes 200 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 September 30, 2021 exceeding $110 billion, according to IQVIA. Approximately 72% of pending applications include a paragraph IV patent challenge and we believe we are first to file with respect to 75 of these products, or 102 products including

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final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $81 billion in U.S. brand sales for the twelve months ended September 30, 2021, according to IQVIA.

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

In 2021, 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.

Ibrutinib Caps Imbruvica® $ 781

Lubiprostone Caps Amitiza® $ 306

Lenalidomide Capsules, 2.5 mg and 20 mg Revlimid® $ 162

Pimavanserin Capsules, 34 mg Nuplazid® $ 165

Methylnaltrexone Bromide Subcutaneous Injection Relistor® $ 19

Tasimelteon Caps Hetlioz® $ 2

For a description of our specialty product pipeline, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines” above.

North America Gross Profit

Gross profit from our North America segment in 2021 was $4,226 million, a decrease of 6% compared to $4,489 million in 2020, mainly due to lower revenues from COPAXONE and generic products.

Gross profit margin for our North America segment in 2021 increased to 54.1%, compared to 53.1% in 2020. This increase was mainly due to higher revenues from AUSTEDO and a favorable mix of generic products.

North America R&D Expenses

R&D expenses relating to our North America segment in 2021 were $618 million, a decrease of 1% compared to $622 million in 2020.

For a description of our R&D expenses in 2021, 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 2021 were $988 million, a decrease of 2% compared to $1,013 million in 2020, mainly due to lower volumes as well as sales force efficiencies.

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North America G&A Expenses

G&A expenses relating to our North America segment in 2021 were $427 million, a decrease of 4% compared to $443 million in 2020.

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 2021 was $2,224 million, a decrease of 8% compared to $2,421 million in 2020. This decrease was mainly due to lower revenues, partially offset by lower operating expenses, as discussed above, as well as higher other income, as discussed in note 16 to our consolidated financial statements.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the past two years:

Year ended December 31,

(U.S. $ in millions /% of Segment Revenues)

Other (income) expense (5 ) § (3 ) §

* 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 2021 were $4,886 million, an increase of $129 million, or 3%, compared to 2020. In local currency terms, revenues decreased by 2%, mainly due to lower demand of generic, OTC and respiratory products due to the impact the COVID-19 pandemic had on purchasing patterns, price declines in oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate products, partially offset by increasing revenues from AJOVY.

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Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the past two years:

Year ended December 31, Percentage Change 2020-2021

(U.S. $ in millions)

§ Represents an amount less than 0.5%.

Generic products

revenues in our Europe segment in 2021, including OTC products, increased by 2% to $3,569 million, compared to 2020. In local currency terms, revenues decreased by 3%, mainly due to lower demand of generic, OTC and respiratory products due to the impact the COVID-19 pandemic had on purchasing patterns.

AJOVY

revenues in our Europe segment in 2021 were $87 million, compared to $31 million in 2020, mainly due to launches and reimbursements in additional European countries and growth in existing countries.

For more information on AJOVY, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—AJOVY.”

COPAXONE

revenues in our Europe segment in 2021 decreased by 2% to $391 million, compared to 2020. In local currency terms, revenues decreased by 6%, mainly due to price reductions resulting from competing glatiramer acetate products.

For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”

Respiratory products

revenues in our Europe segment in 2021 increased by 1% to $356 million, compared to 2020. In local currency terms, revenues decreased by 4% mainly due to lower demand of respiratory products due to the impact the COVID-19 pandemic had on purchasing patterns.

Product Launches and Pipeline

As of December 31, 2021, our generic products pipeline in Europe included 588 generic approvals relating to 77 compounds in 163 formulations, no EMA approvals received. In addition, approximately 1,351 marketing authorization applications pending approval in 37 European countries, relating to 137 compounds in 278 formulations. One application is pending with the EMA.

For a description of our specialty product pipeline, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines” above.

Europe Gross Profit

Gross profit from our Europe segment in 2021 was $2,823 million, an increase of 6% compared to $2,666 million in 2020. This increase was mainly due to a positive exchange rate impact and lower cost of goods sold, mainly driven by our network consolidation activities.

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Gross profit margin for our Europe segment in 2021 increased to 57.8%, compared to 56.0% in 2020, mainly due to our network consolidation activities.

Europe R&D Expenses

R&D expenses relating to our Europe segment in 2021 were $244 million, a decrease of 1% compared to $247 million in 2020.

For a description of our R&D expenses in 2021, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in 2021 were $846 million, an increase of 2% compared to $830 million in 2020. This increase was mainly due to exchange rate impacts.

Europe G&A Expenses

G&A expenses relating to our Europe segment in 2021 were $244 million, a decrease of 7% compared to $261 million in 2020.

Europe Profit

Profit of 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 2021 was $1,494 million, an increase of 12% compared to $1,331 million in 2020. This increase was mainly due to higher gross profit, as described above.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the past two years:

(U.S. $ in millions / % of Segment Revenues)

Other (income) expense (5 ) § (11 ) (0.5 %)

* 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,

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covering a substantial portion of the global pharmaceutical market. Our key international markets are Japan, Russia and Israel. The countries in our International Markets segment include highly regulated, pure generic markets, such as Israel, branded generics oriented markets, such as Russia and certain Latin American markets, and hybrid markets, such as Japan.

On February 1, 2021, we completed the sale of the majority of the generic and operational assets of our business venture in Japan.

Revenues from our International Markets segment in 2021 were $2,032 million, a decrease of $122 million, or 6%, compared to 2020. In local currency terms, revenues decreased by 4% compared to 2020, mainly due to lower sales in Japan resulting from the divestment mentioned above, partially offset by higher revenues in most markets. Revenues continued to be affected by the ongoing impact of the COVID-19 pandemic on markets and on customer stocking and purchasing patterns. Revenues in 2021, included $6 million from a positive hedging impact, compared to $16 million from a positive hedging impact in 2020, which are included in “Other” in the table below. See note 10d 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 past two years:

Year ended December 31, Percentage Change 2020-2021

(U.S. $ in millions)

Generic products

revenues in our International Markets segment in 2021, which include OTC products, decreased by 8% to $1,649 million, compared to 2020. In local currency terms, revenues decreased by 7%, mainly due to lower revenues in Japan resulting from the divestment mentioned above, regulatory price reductions and generic competition to off-patented products, partially offset by higher revenues in most other markets.

AJOVY

was launched in certain markets in our International Markets segment, including in Japan during the third quarter of 2021. We are moving forward with plans to launch AJOVY in other markets. AJOVY revenues in our International Markets segment in 2021 were $50 million compared to $18 million in 2020. Revenues in 2021 included a milestone payment of $35 million received from Otsuka related to the launch of AJOVY in Japan. Revenues in 2020 included a milestone payment of $15 million received from Otsuka.

COPAXONE

revenues in our International Markets segment in 2021 decreased by 29% to $37 million, compared to 2020. In local currency terms, revenues decreased by 25%.

For more information on COPAXONE, see “Item 1—Business—Our Product Portfolio and Business Offering—Specialty Medicines—COPAXONE.”

International Markets Gross Profit

Gross profit from our International Markets segment in 2021 was $1,118 million, an increase of 2% compared to $1,096 million in 2020.

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Gross profit margin for our International Markets segment in 2021 increased to 55.0%, compared to 50.9% in 2020. This increase was mainly due to higher profitability resulting from the divestment in Japan mentioned above, partially offset by regulatory price reductions and generic competition to off-patented products in Japan.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in 2021 were $68 million, a decrease of 3% compared to $70 million in 2020.

For a description of our R&D expenses in 2021, 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 2021 were $417 million, a decrease of 2% compared to $427 million in 2020, mainly due to lower marketing and travel costs attributed to restrictions related to the COVID-19 pandemic.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in 2021 were $109 million, a decrease of 19% compared to $136 million in 2020.

International Markets Profit

Profit of 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 2021 was $529 million an increase of 12% compared to $474 million in 2020. This increase was mainly due to higher revenues in most markets and lower S&M and G&A expenses, partially offset by lower sales in Japan, as discussed above.

Other Activities

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

Our revenues from other activities in 2021 were $1,151 million, a decrease of 12% compared to 2020. In local currency terms, revenues decreased by 13%, mainly due to a decrease in volumes from API and Medis resulting from the COVID-19 pandemic, as well as lower revenues from contract manufacturing services.

API sales to third parties in 2021 were $742 million, a decrease of 4% in both U.S. dollars and local currency terms.

Teva Consolidated Results

Revenues

Revenues in 2021 were $15,878 million, a decrease of 5%, in U.S. dollars or 6% in local currency terms, compared to 2020, mainly due to lower revenues from COPAXONE, generic products in the U.S., generic

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products in Japan resulting from the divestment of a majority of the generic and operational assets of our Japanese business venture, and Anda, partially offset by higher revenues from AUSTEDO and AJOVY. Revenues continued to be affected by the ongoing impact of the COVID-19 pandemic on markets and on customer stocking and purchasing patterns. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during 2021, including hedging effects, positively impacted revenues by $232 million, compared to 2020. See note 10d to our consolidated financial statements.

Gross Profit

Gross profit in 2021 was $7,594 million, a decrease of 2% compared to 2020. This decrease was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—International Markets Gross Profit.”

Gross profit as a percentage of revenues was 47.8% in 2021, compared to 46.4% in 2020.

This increase in gross profit as a percentage of revenues was mainly due to higher profitability in North America, resulting from higher revenues from AUSTEDO and AJOVY, and a favorable mix of generic products, as well as higher profitability in Europe and International Markets, partially offset by lower revenues from COPAXONE due to generic competition.

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

Net R&D expenses for 2021 were $967 million, a decrease of 3% compared to 2020.

In 2021, our R&D expenses were primarily related to specialty product candidates in neuroscience (such as migraine, movement disorders/ neurodegeneration and neuropsychiatry, including post-approval commitments), immunology (such as respiratory medicines) and selected other areas, as well as generic products including biosimilars.

Our lower R&D expenses in 2021, compared to 2020, were mainly due to an upfront payment paid in connection with the collaboration with Alvotech and a decrease in the pain and neuropsychiatry therapeutic areas, partially offset by higher R&D expenses related to generic products including biosimilars.

R&D expenses as a percentage of revenues were 6.1% in 2021, compared to 6.0% in 2020.

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Selling and Marketing (S&M) Expenses

S&M expenses in 2021 were $2,429 million, a decrease of 3% compared to 2020. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were 15.3% in 2021, compared to 15.0% in 2020.

General and Administrative (G&A) Expenses

G&A expenses in 2021 were $1,099 million, a decrease of 6% compared to 2020.

G&A expenses as a percentage of revenues were 6.9% in 2021, flat compared to 2020.

Identifiable Intangible Asset Impairments

We recorded expenses of $424 million for identifiable intangible asset impairments in 2021, compared to expenses of $1,502 million in 2020. See note 6 to our consolidated financial statements.

Goodwill Impairment

No goodwill impairment charge was recorded in 2021. We recorded a goodwill impairment charge of $4,628 million related to our North America reporting unit in 2020. See note 7 to our consolidated financial statements.

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $341 million for other asset impairments, restructuring and other items in 2021, compared to expenses of $479 million in 2020. For further details, as well as a description of significant regulatory and other events, see note 15 to our consolidated financial statements.

Legal Settlements and Loss Contingencies

In 2021, we recorded an expense of $717 million in legal settlements and loss contingencies, compared to an expense of $60 million in 2020. See note 11 to our consolidated financial statements.

Other Income

Other income in 2021 was $98 million, compared to $40 million in 2020. See note 16 to our consolidated financial statements.

Operating Income (Loss)

Operating income was $1,716 million in 2021, compared to operating loss of $3,572 million in 2020.

Operating income as a percentage of revenues was 10.8% in 2021, compared to operating loss as a percentage of revenues of 21.4% in 2020. Operating loss in 2020 was mainly affected by goodwill impairment charges and intangible asset impairments.

Financial Expenses, Net

Financial expenses were $1,058 million in 2021, compared to $834 million in 2020.

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Financial expenses in 2021 were mainly comprised of interest expenses and other bank charges of $891 million and loss on revaluations of marketable securities of $90 million.

Financial expenses in 2020 were mainly comprised of interest expenses and other bank charges of $901 million, partially offset by gains on revaluations of marketable securities of $85 million as well as a gain of $26 million resulting from the impact of exchange rate fluctuations during 2020 on our monetary assets and liabilities, net of hedging effects.

The following table presents a reconciliation of our segment profits to Teva’s consolidated operating income (loss) and to consolidated income (loss) before income taxes for the past two years:

Year endedDecember 31,

(U.S. $ in millions)

International Markets profit 529 474

Total reportable segments profit 4,246 4,225

Profit of other activities 154 163

Amounts not allocated to segments:

Other assets impairments, restructuring and other items 341 479

Goodwill impairment — 4,628

Intangible asset impairments 424 1,502

Legal settlements and loss contingencies 717 60

Other unallocated amounts 402 271

Consolidated operating income (loss) 1,716 (3,572 )

Consolidated income (loss) before income taxes $ 658 $ (4,406 )

Tax Rate

In 2021, we recognized a tax expense of $211 million, or 32%, on a pre-tax income of $658 million.

In 2020, we recognized a tax benefit of $168 million, or 4%, on a pre-tax loss of $4,406 million. Our tax rate for 2020 was lower than in 2021 mainly due to a goodwill impairment charge that did not have a corresponding tax effect.

The statutory Israeli corporate tax rate was 23% in 2021. Our effective tax rate is the result of a variety of factors, including the geographic mix and type of products sold during the year, interest expense disallowance, amortization, legal settlement charges, impairments, the impact of adjustments to uncertain tax positions, adjustments to valuation allowances on deferred tax assets and the different effective tax rates applicable to non-Israeli subsidiaries that have tax rates different than our average tax rate.

Share In (Profits) Losses of Associated Companies – Net

Share in profits of associated companies, net was $9 million in 2021, compared to $138 million in 2020. Our share in profits of associated companies, net in 2020 was mainly due to a gain of $134 million reflecting the difference between the book value of our investment in American Well Corporation and its fair value as of the date it completed its initial public offering in September 2020.

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Net Income (Loss) Attributable to Teva

Net income was $417 million in 2021, compared to a net loss of $3,990 million in 2020.

Diluted Shares Outstanding and Earnings (Loss) Per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for 2021 and 2020 was 1,107 million and 1,095 million shares, respectively.

In computing diluted earnings per share for the year ended December 31, 2021, basic earnings per share were adjusted to take into account the potential dilution that could occur upon the exercise of options and non-vested RSUs and PSUs granted under employee stock compensation plans. No account was taken of the potential dilution by the convertible senior debentures, since they had an anti-dilutive effect on earnings per share.

In computing diluted loss per share for the year ended December 31, 2020, no account was taken of the potential dilution that could occur upon the exercise of options and non-vested RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Diluted earnings per share were $0.38 for the year ended December 31, 2021, compared to diluted loss per share of $3.64 for the year ended December 31, 2020.

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 performance share units (“PSUs”) and the conversion of our convertible senior debentures, in each case, at period end.

As of December 31, 2021 and 2020, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,128 million and 1,117 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In 2021, approximately 48% of our revenues were denominated in currencies other than the U.S. dollar. Since 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 local currencies in the markets in which we operate (primarily the euro, Israeli shekel, Japanese yen, British pound, Russian ruble, Canadian dollar, Swiss franc, Indian rupee and Polish zloty) impact our results.

During 2021, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on an annual average compared to annual average basis): the Argentinian peso by 26%, the Turkish lira by 19%, the Brazilian real by 5%, the Japanese yen by 3% and the Russian ruble by 2%. The following main currencies relevant to our operations increased in value against the U.S. dollar: the Australian dollar by 9%, the British pound by 7%, the Canadian dollar by 7%, the Swedish krona by 7%, the Israeli shekel by 6% and the euro by 4%.

As a result, exchange rate movements during 2021, including hedging effects, positively impacted overall revenues by $232 million and operating income by $49 million in comparison with 2020.

In 2021, a positive hedging impact of $31 million was recognized under revenues, and a negative impact of $1 million was recognized under cost of sales. In 2020, a positive impact of $1 million was recognized under revenues, offset by a positive impact of $1 million recognized under cost of sales.

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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 10 to our consolidated financial statements.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a 3-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.

Liquidity and Capital Resources

Total balance sheet assets were $47,666 million as of December 31, 2021, compared to $50,640 million as of December 31, 2020.

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 $787 million as of December 31, 2021, compared to $662 million as of December 31, 2020.

Cash investment in property, plant and equipment in 2021 was $562 million, compared to $578 million in 2020. Depreciation was $528 million in 2021, compared to $537 million in 2020.

Cash and cash equivalents and short-term and long-term investments, as of December 31, 2021, were $2,191 million compared to $2,478 million as of December 31, 2020. This decrease was mainly due to debt repayments as discussed below, partially offset by cash flow generated during the year.

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.

Our principal sources of short-term liquidity are our cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion syndicated revolving credit facility entered into in April 2019, which will be reduced to $2.2 billion in April 2022 (“RCF”).

Tranche A had a maturity date of April 8, 2022, of which an amount of $1.065 billion was extended twice, initially to April 8, 2023 and then to April 8, 2024. Tranche B has a maturity date of April 8, 2024. Loans and letters of credit will be available from time to time under each tranche for Teva’s general corporate purposes.

The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time. The net debt to EBITDA ratio limit was 5.00x through the fourth quarter of 2021, gradually declines to 4.50x in the first and second quarters of 2022, 4.00x in the third and fourth quarters of 2022, and will decline to 3.50x in the first quarter of 2023.

The RCF can be used for general corporate purposes, including repaying existing debt. As of December 31, 2021 and as of the date of this Annual Report on Form 10-K, no amounts were outstanding under the RCF.

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

Based on current and forecasted results, we expect that we will not exceed the financial covenant thresholds set forth in the RCF within one year from the date these financial statements are issued. Due to the fact that our

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cash flow generation and EBITDA vary between quarters, there is a possibility that we will not be compliant with our financial covenants during a specific period and could temporarily be unable to draw upon the RCF. If this were to occur, we expect to continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that these financial statements are issued without drawing upon the RCF. We continually evaluate our expected compliance with the covenants described above, and intend, if needed, to proactively renegotiate and amend such covenants.

2021 Debt Balance and Movements

As of December 31, 2021, our debt was $23,043 million, compared to $25,919 million as of December 31, 2020. This decrease was mainly due to $4,008 million repurchased upon consummation of a cash tender offer, $3,167 million senior notes repaid at maturity and $710 million of exchange rate fluctuations, partially offset by $4,973 million of issued sustainability-linked senior notes net of issuance costs.

On February 1, 2021, $491 million of our 0.25% convertible senior debentures, due 2026 were redeemed by holders.

In July 2021, we repaid $1,475 million of our 2.2% senior notes at maturity.

In November 2021, we completed debt issuances for an aggregate principal amount of $5,013 million, comprised of 1,500 million euro principal amount of 4.38% sustainability-linked senior notes due in 2030, 1,100 million euro principal amount of 3.75% sustainability-linked senior notes due in 2027, $1,000 million principal amount of 4.75% sustainability-linked senior notes due in 2027 and $1,000 million principal amount of 5.13% sustainability-linked senior notes due in 2029.

In November 2021, we completed a cash tender offer, which resulted in debt reduction of: $4,008 million from our 1.13% 1,500 million euro senior notes due in October 2024, 1.25% 1,300 million euro senior notes due in March 2023, 3.25% 700 million euro senior notes due in April 2022, 2.8% $3,000 million senior notes due in July 2023 and 2.95% $1,300 million senior notes due in December 2022.

In November 2021, we repaid $613 million and $588 million of our 3.65% senior notes at maturity.

During 2021, we borrowed up to $500 million under our RCF, which was fully repaid before year end. As of the date of this Annual Report on Form 10-K, no amounts were outstanding under the RCF.

Our debt as of December 31, 2021 was effectively denominated in the following currencies: 60% in U.S. dollars, 37% in euros and 3% in Swiss francs.

The portion of total debt classified as short-term as of December 31, 2021 was 6%, compared to 12% as of December 31, 2020, mainly due to repayment of debt, partially offset by a reclassification of upcoming maturities in 2022.

Our financial leverage was 67% as of December 31, 2021, compared to 70% as of December 31, 2020.

Our average debt maturity was approximately 6.4 years as of December 31, 2021, compared to 5.8 years as of December 31, 2020.

For further information, see note 9 to our consolidated financial statements.

2020 Debt Balance and Movements

In March 2020, we repaid our $700 million 2.25% senior notes at maturity.

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In July 2020, we repaid our €1,010 million 0.375% senior notes at maturity.

During 2020 we borrowed up to €270 million from our RCF, which was fully repaid before 2020 year end.

Total Equity

Total equity was $11,244 million as of December 31, 2021, compared to $11,061 million as of December 31, 2020. This increase was mainly due to a net income of $456 million, $119 million stock-based compensation expenses and $39 million in unrealized profit associated with hedging activities, partially offset by a negative impact of $462 million from exchange rate fluctuations.

Exchange rate fluctuations affected our balance sheet, as approximately 50% of our net assets (including both non-monetary and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2020, changes in currency rates had a negative impact of $462 million on our equity as of December 31, 2021, mainly due to the change in value against the U.S. dollar of: the Chilean peso by 5%, the Peruvian nuevo sol by 3%, the Bulgarian lev by 3%, the Japanese yen by 3%, the Polish zloty by 2%, the Russian ruble by 2% and the euro by 2%. All comparisons are on a year-end to year-end basis.

Cash Flow

We seek to continually improve the efficiency of our working capital management. From time to time, as part of our cash management activities, we may make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers or deceleration of payments to vendors, having the effect of increasing or decreasing cash from operations in an individual period. Such decisions had no material impact on our 2021 operating cash flow measurement, but may impact quarter-to-quarter results.

Cash flow generated from operating activities in 2021 was $798 million, compared to $1,216 million in 2020. This decrease was mainly due to lower profit in our North America segment during 2021.

During 2021, we generated free cash flow of $2,196 million, which we define as comprising: $798 million in cash flow generated from operating activities, $1,648 million in beneficial interest collected in exchange for securitized accounts receivables and $311 million in proceeds from divestitures of businesses and other assets, partially offset by $562 million in cash used for capital investments. During 2020, we generated free cash flow of $2,110 million, comprised of $1,216 million in cash flow generated from operating activities $1,405 million in beneficial interest collected in exchange for securitized accounts receivables and $67 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $578 million in cash used for capital investments. The increase in 2021 resulted mainly from higher cash generated from divestitures of businesses and other assets, partially offset by lower cash flow generated from operating activities.

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 royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities.

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

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(anle138b) and a related compound (sery433). Anle138b was initially developed for the treatment of Multiple System Atrophy (MSA) and Parkinson’s disease, and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease. A phase 1b clinical trial is currently being completed. In the fourth quarter of 2021, after obtaining required approval, Teva made an upfront payment of $10 million that was recorded as R&D expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to $70 million, as well as future commercial milestones and royalties.

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

®

. Under this agreement, Alvotech is responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. Teva made an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021 that were recorded as R&D expenses. Additional development and commercial milestone payments of up to $455 million, as well as royalty payments, may be payable by Teva over the next few years. Teva and Alvotech will share profit from the commercialization of these biosimilars. In March 2021, Abbvie sued Alvotech for allegedly misappropriating confidential information relating to Humira

®

. In October 2021, the claim was dismissed for lack of jurisdiction. Abbvie has appealed this decision to the U.S. Court of Appeals. In addition, there is pending patent litigation between Abbvie and Alvotech related to Alvotech’s proposed biosimilar to Humira

®

. In December 2021, Abbvie also filed a complaint with the U.S. International Trade Commission (“ITC”) against both Alvotech and Teva seeking to prevent Teva and Alvotech from importing Alvotech’s proposed biosimilar to Humira

®

into the United States. On January 26, 2022, the ITC issued a decision to initiate an investigation into Alvotech’s proposed biosimilar product.

In October 2016, Teva and Celltrion, Inc. (“Celltrion”) entered into a collaborative agreement to commercialize Truxima

®

and Herzuma

®

, two biosimilar products for the U.S. and Canadian markets. Teva paid Celltrion $160 million, of which Teva received an aggregate credit of $60 million as of March 31, 2021. Teva and Celltrion share the profit from the commercialization of these products. These two products, Truxima and Herzuma, were approved by the FDA in November and December 2018, respectively, and were launched in the United States in November 2019 and March 2020, respectively. No additional milestone payments are expected.

In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 and additional payments for achievement of development milestones in an aggregate amount of $120 million were paid during 2017 and 2018. The agreement stipulates additional development and commercial milestone payments of up to $2,230 million, as well as future royalties. Currently, all non-essential activities and related expenditures for fasinumab have been put on hold. Next steps will be assessed together with Regeneron, with the intention of discussing data with the FDA.

In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple long-acting injectable products. The lead product candidate selected was risperidone LAI (TV-46000) suspension for subcutaneous use for the treatment of schizophrenia. In August 2021, the FDA accepted the NDA for risperidone LAI, based on phase 3 data from two pivotal studies. Teva leads the clinical development and regulatory process and is responsible for commercialization of this product candidate. MedinCell may be eligible for development milestones, and future commercial milestones of up to $112 million in respect of risperidone LAI. Teva will also pay MedinCell royalties based on net sales.

We are committed to pay 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

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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.

Aggregated Contractual Obligations

The following table summarizes our material contractual obligations and commitments as of December 31, 2021:

Payments Due by Period

Total Less than1 year 1-3 years 3-5 years More than5 years

(U.S. $ in millions)

The total gross amount of unrecognized tax benefits for uncertain tax positions was $672 million at December 31, 2021. Payment of these obligations would result from settlements with tax authorities. Due to the difficulty in determining the timing and magnitude of settlements, these obligations are not included in the table above. Correspondingly, it is difficult to ascertain whether we will pay any significant amount related to these obligations within the next year.

We have committed to make potential future milestone payments to third parties under various agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. As of December 31, 2021, if all development milestones and targets, for compounds in phase 2 and in more advanced stages of development, are achieved, the total contingent payments could reach an aggregate amount of up to $121 million. Additional contingent payments are owed upon achievement of product approval or launch milestones.

We have committed to pay royalties to owners of know-how, partners in alliances and other certain arrangements and to parties that financed research and development, at a wide range of rates as a percentage of sales or of the gross margin of certain products, as defined in the underlying agreements.

Due to the uncertainty of the timing of these payments, these amounts, and the amounts described in the previous paragraph, are not included in the table above.

Off-Balance Sheet Arrangements

Except for securitization transactions, which are disclosed in note 10 f to our consolidated financial statements, we do not have any material off-balance sheet arrangements.

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Supplemental Non-GAAP Income Data

We utilize certain non-GAAP financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize the non-GAAP measures:

• our annual budgets are prepared on a non-GAAP basis; and

Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such non-GAAP data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

Investors should consider non-GAAP financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In arriving at our non-GAAP presentation, we exclude items that either have a non-recurring impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

• amortization of purchased intangible assets;

• expenses related to our equity compensation;

• unusual tax items;

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• other awards or settlement amounts, either paid or received;

• corresponding tax effects of the foregoing items.

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The following tables present supplemental non-GAAP data, in U.S. dollars, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts:

GAAP Excluded for non-GAAP measurement Non-GAAP

Gross profit margin 48 % 54 %

Other (income) expense (98 ) (51 ) (48 )

Legal settlements and loss contingencies 717 717 —

Other asset impairments, restructuring and other items 341 160 133 7 40 —

Intangible assets impairment 424 424 —

Share in profits (losses) of associated companies – net (9 ) (1 ) (8 )

Net income (loss) attributable to non-controlling interests 39 (15 ) 54

The non-GAAP diluted weighted average number of shares was 1,107 million for the year ended December 31, 2021.

Non-GAAP income taxes for the year ended December 31, 2021 were 16% on pre-tax non-GAAP income.

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GAAP Excluded for non-GAAP measurement Non-GAAP

Gross profit margin 46.4 % 52.4 %

Other (income) expense (40 ) (8 ) (31 )

Legal settlements and loss contingencies 60 60 —

Other asset impairments, restructuring and other items 479 416 120 (81 ) 24 —

Intangible assets impairment 1,502 1,502 —

Share in profits (losses) of associated companies – net (138 ) (134 ) (4 )

Net income (loss) attributable to non-controlling interests (109 ) (177 ) 68

The non-GAAP diluted weighted average number of shares was 1,099 million for the year ended December 31, 2020.

Non-GAAP income taxes for the year ended December 31, 2020 were 17% on pre-tax non-GAAP income.

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Non-GAAP Tax Rate

Non-GAAP income taxes for 2021 were $570 million on non-GAAP pre-tax income of $3,471 million. Non-GAAP income taxes in 2020 were $577 million on non-GAAP pre-tax income of $3,470 million. The non-GAAP tax rate for 2021 was 16.4%, similar to 16.6% in 2020. Our non-GAAP tax rate was mainly affected by the mix of products we sold and interest expense disallowance.

Trend Information

The following factors are expected to have a significant effect on our 2022 results:

• continued success of our specialty products AUSTEDO and AJOVY;

• ability to successfully execute key generic launches in a timely manner;

• ability to successfully develop and launch new biosimiliar products;

• our disciplined cash management and debt repayment schedule;

• continued efforts towards achieving our long-term financial goals.

For additional information, please see “Item 1—Business” and elsewhere in this Item 7.

Critical Accounting Policies

For a description of our significant accounting policies, see note 1 to our consolidated financial statements.

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. We base our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.

Of our policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements. We have applied our policies and critical accounting estimates consistently across our businesses.

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The critical accounting estimates relate to the following:

• Revenue Recognition and SR&A in the United States

• Income Taxes

• Contingencies

• Goodwill

• Identifiable Intangible Assets

Revenue Recognition and SR&A in the United States

Our gross product revenues are subject to a variety of deductions which are generally estimated and recorded in the same period that the revenues are recognized, and primarily represent chargebacks, rebates and sales allowances to wholesalers, retailers and government agencies with respect to our pharmaceutical products. Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, our changes of estimates reflecting actual results or updated expectations, have not been material to our overall business. Product-specific rebates, however, may have a significant impact on year-over-year individual product growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with governmental allowances, U.S. Medicaid and other performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters. See also “Revenue recognition” in note 1 to our consolidated financial statements.

Income Taxes

The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws.

Accounting for uncertainty in income taxes requires that it be more likely than not that the tax benefits recognized in the financial statements be sustained based on technical merits. The amount of benefits recorded for these positions is measured as the largest benefit more likely than not to be sustained. Significant judgment is required in making these determinations.

Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the determination of the appropriate valuation allowances, we have considered the most recent projections of future business results and prudent tax planning alternatives that may allow us to realize the deferred tax assets. Taxes which would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred taxes, as it is our intention to hold these investments rather than realize them.

Taxes have not been provided for tax-exempt income, as the Company intends to permanently reinvest these earnings and does not currently foresee a need to distribute dividends out of these earnings. In addition, the

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Company announced a suspension of dividend distribution on ordinary shares and ADSs in 2017. Furthermore, deferred taxes have not been provided for the retained earnings of the Company’s foreign subsidiaries because the Company does not expect these subsidiaries to distribute taxable dividends in the foreseeable future, as their earnings and excess cash are used to pay down the group’s external liabilities, and the Company expects to have sufficient resources in the Israeli companies to fund its cash needs in Israel. An assessment of the tax that would have been payable had the Company’s foreign subsidiaries distributed their income to the Company is not practicable because of the multiple levels of corporate ownership and multiple tax jurisdictions involved in each hypothetical dividend distribution.

For a discussion of the valuation allowance, deferred tax and valuation allowance estimates see notes 1 and 13 to our consolidated financial statements.

Contingencies

From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, in large part as a result of the nature of its business, Teva is frequently subject to litigation, governmental investigations and other legal proceedings. Except for income tax contingencies or contingent consideration acquired in a business combination, Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable. When accruing these costs, Teva will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, Teva accrues for the minimum amount within the range. Teva records anticipated recoveries under existing insurance contracts at the gross amount that is expected to be collected when they are considered probable to occur.

Teva reviews the adequacy of the accruals on a periodic basis and may determine to alter its provisions at any time in the future if it believes it would be appropriate to do so. As such accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined estimates, accruals may materially differ from actual verdicts, settlements or other agreements made with regards to such contingencies. Litigation outcomes and contingencies are unpredictable and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments concerning future events and often rely heavily on estimates and assumptions.

Goodwill

Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least annually, in the second quarter of the fiscal year.

We perform an impairment test annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is necessary to perform the next goodwill impairment quantitative test.

Examples of events or circumstances that may be indicative of impairment include, but are not limited to: macroeconomic and industry conditions, overall financial performance and adverse changes in legal, regulatory, market share and other relevant entity specific events.

The Company estimates the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs. Key estimates include the revenue growth rates taking into consideration industry and market conditions, terminal growth rate and the discount rate. The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics.

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The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill, to those reporting units.

When necessary, we record charges for impairments of goodwill for the amount by which the carrying amount exceeds the fair value of these assets.

See note 7 and note 19 to our consolidated financial statements for further details on the goodwill impairment recognized in 2020, and Teva’s operating and reporting segments.

Identifiable Intangible Assets

Identifiable intangible assets are comprised of definite life intangible assets and indefinite life intangible assets.

Definite life intangible assets consist mainly of acquired product rights and other rights relating to products for which marketing approval was received from the FDA or the equivalent agencies in other countries. These assets are amortized using mainly the straight-line method over their estimated period of useful life, or based on economic benefit models, if more appropriate, which is determined by identifying the period and manner in which substantially all of the cash flows are expected to be generated. Amortization of acquired developed products is recorded under cost of sales. Amortization of marketing and distribution rights is recorded under selling and marketing expenses when separable.

Indefinite life intangible assets are mainly comprised of IPR&D assets. Teva monitors these assets for items such as research and development milestones and progress to identify any triggering events.

The fair value of acquired identifiable intangible assets is determined using an income approach. This method starts with a forecast of all expected future net cash flows associated with the asset and then adjusts the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.

Whenever impairment indicators are identified for definite life intangible assets, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the asset’s or asset group’s cash flows and then calculates, if required, the discounted value of cash flow by applying an appropriate discount rate to the undiscounted cash flow streams. Teva then compares such value against the asset’s or asset group’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of carrying value over fair value based on the discounted cash flows.

For indefinite life intangible assets Teva performs an impairment test annually in the second quarter and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Teva determines the fair value of the asset annually or when triggering events are present, based on discounted cash flows and records an impairment loss if book value exceeds fair value.

Examples of events or circumstances that may be indicative of impairment include:

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The more significant estimates and assumptions inherent in the estimate of the fair value of identifiable intangible assets include (i) assumptions associated with forecasting product profitability, including sales and cost to sell projections, (ii) tax rates which seek to incorporate the geographic diversity of the projected cash flows, (iii) expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk, R&D expenditure for ongoing support of product rights or continued development of IPR&D, and (iv) estimated useful lives and IPR&D expected launch dates. Additionally, for IPR&D assets the risk of failure has been factored into the fair value measure.

While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, in general, intangible assets other than goodwill that are most at risk of impairment include IPR&D assets and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, as R&D is an inherently risky activity. Consequently, IPR&D assets could be determined to be no longer commercially viable. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value annually or when triggering events are present. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.

Recently Issued Accounting Pronouncements

See note 1 to our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

The objective of our financial risk management measures is to minimize the impact of risks arising from foreign exchange and interest rate fluctuations. To reduce these risks, we take various operational measures in order to achieve a natural hedge and may enter, from time to time, into financial derivative instruments. Our derivative transactions are executed through global banks. We believe that due to our diversified derivatives portfolio, the credit risk associated with any of these banks is minimal. No derivative instruments are entered into for trading purposes.

Exchange Rate Risk Management

We operate our business worldwide and, as such, we are subject to foreign exchange risks on our results of operations, our monetary assets and liabilities and our foreign subsidiaries’ net assets. For further information on currencies in which we operate, see “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations —Impact of Currency Fluctuations on Results of Operations.”

We generally prefer to borrow in U.S. dollars; however, from time to time we borrow funds in other currencies, such as the euro, Swiss franc and new Israeli shekel, in order to benefit from same currency revenues in relation to same currency costs and same currency assets in relation to same currency liabilities.

Cash Flow Exposure

Total revenues were $15,878 million in 2021. Of these revenues, approximately 48% were denominated in currencies other than the U.S. dollar, 21% in euros, 4% in British pound and the rest in other currencies, none of which accounted for more than 4% of total revenues in 2021. In most currencies, we record corresponding expenses.

In certain currencies, primarily the euro, our revenues generally exceed our expenses. Conversely, in other currencies, primarily the new Israeli shekel and the Indian rupee, our expenses generally exceed our revenues.

We enter into financial derivatives to hedge part of those currencies which do not have a sufficient natural hedge, in order to reduce the impact of foreign exchange fluctuations on our operating results.

As of December 31, 2021, we hedged part of our expected operating results for 2022 in currencies other than the U.S. dollar, primarily the euro, British pound, Canadian dollar, Swiss franc, Polish zloty, Japanese yen, Russian ruble and Latin American currencies.

In certain cases, we may hedge exposure arising from a specific transaction, executed in a currency other than the functional currency, by entering into forward contracts and/or by using plain-vanilla and exotic option strategies. We generally limit the term of hedging transactions to a maximum of eighteen months.

Balance Sheet Exposure

With respect to our monetary assets and liabilities, the exposure arises when the monetary assets and/or liabilities are denominated in currencies other than the functional currency of our subsidiaries. We strive to limit our exposure through natural hedging. The remaining exposure is hedged almost in full by entering into financial derivative instruments. To the extent possible, the hedging activity is carried out on a consolidated level.

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The table below presents exposures exceeding $50 million in absolute values:

Net exposure as of December 31, 2021

Liability/Asset (U.S. $ in millions)

Outstanding Foreign Exchange Hedging Transactions

As of December 31, 2021, we had outstanding derivatives, primarily forwards and currency option contracts, with a corresponding notional amount of approximately $1.7 billion and $0.4 billion, respectively. As of December 31, 2020, we had outstanding derivatives, primarily forwards and currency option contracts with corresponding notional amounts of approximately $2.4 billion and $0.5 billion, respectively.

The table below presents the net notional and fair values of the financial derivatives entered into as of December 31, 2021 in order to reduce currency exposure arising from our cash flow and balance sheet exposures. The table below presents only currency paired with hedged net notional values exceeding $50 million.

(U.S. $ in millions)

Forward:

GBP USD * 133 — (3 ) —

EUR CAD * 101 — (1 ) —

Options:

JPY USD * 89 — — —

GBP USD * 53 — (1 ) —

* Represents net notional value of less than $50 million.

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Foreign Subsidiaries Net Assets

Under certain market conditions, we may hedge against possible fluctuations in foreign subsidiaries’ net assets (“net investment hedge”). In these cases, we may use cross currency swaps and forward contracts.

Interest Rate Risk Management

We are subject to interest rate risk on our investments and on our borrowings. We manage interest rate risk in the aggregate, while focusing on our immediate and intermediate liquidity needs.

We raise capital through various debt instruments including senior notes and sustainability-linked senior notes that bear a fixed or variable interest rate, syndicated revolving credit facility that bears a fixed or variable interest rate and convertible debentures that bear a fixed and variable interest rate. In some cases, as described below, we have swapped from a fixed to a variable interest rate (“fair value hedge”), from a variable to a fixed interest rate and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), reducing overall interest expenses or hedging risks associated with interest rate fluctuations.

In certain cases, we may hedge, in whole or in part, against exposure arising from a specific transaction, such as debt issuances related to an acquisition or debt refinancing, by entering into forward and interest rate swap contracts and/or by using options.

The table below presents the aggregate outstanding debt by currencies and maturities as of December 31, 2021:

(U.S. dollars in millions)

Fixed Rate:

USD convertible debentures* 23 0.25 % 0.25 % — — — — — —

Variable Rate:

Less debt issuance costs (100 )

* Classified under short-term debt.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

Page

Consolidated Financial Statements:

Balance sheets 90

Statements of income (loss) 91

Statements of comprehensive income (loss) 92

Statements of changes in equity 93

Statements of cash flows 94

Notes to consolidated financial statements 96

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Teva Pharmaceutical Industries Limited

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Teva Pharmaceutical Industries Limited and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in

Internal Control—Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in

Internal Control—Integrated Framework

(2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Teva Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose

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s in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment—North America and Europe reporting units

As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance and goodwill balance for the North America and Europe reporting units were $20,040 million, $6,474 million and $8,544 million, respectively, as of December 31, 2021. As disclosed by management, goodwill is assigned to reporting units and tested for impairment at least annually, in the second quarter of the fiscal year, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the second quarter of 2021, Teva conducted a quantitative analysis of the North America and Europe reporting units as part of its annual goodwill impairment test and utilized the assistance of an independent valuation expert. No goodwill impairment charge was recorded during the second quarter of 2021. Management determines the fair value of its reporting units using the income approach. Within the income approach, the method used is the discounted cash flow method. For the impairment assessments, management started with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applied a discount rate to arrive at a net present value amount. Key estimates include the revenue growth rates (including revenue for AUSTEDO) taking into consideration industry and market conditions, terminal growth rate and the discount rate. Market conditions for the North America reporting unit include estimates related to the resolution of the opioids and price fixing litigation.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the North America and Europe reporting units is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting units; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, discount rate, terminal growth rate and estimates related to the resolution of the opioid, pricing and market allocation litigation for the North America reporting unit; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the

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valuation of the North America and Europe reporting units. These procedures also included, among others, (i) testing management’s process for determining the fair value estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness, accuracy and relevance of underlying data used in the model; and (iv) evaluating the significant assumptions used by management related to the revenue growth rates, discount rate, terminal growth rate and estimates related to the resolution of the opioid, pricing and market allocation litigation for the North America reporting unit. Evaluating management’s assumptions related to the revenue growth rates and terminal growth rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Evaluating management’s assumption related to estimates related to the resolution of the opioid, pricing and market allocation litigation for the North America reporting unit involved obtaining and evaluating letters of audit inquiry with internal and external legal counsel and discussing the status of significant known actual and potential litigation with the Company’s internal and external legal counsel. Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s discounted cash flow model and the discount rate assumption.

Sales Reserves and Allowances (“SR&A”)—Rebates, Chargebacks and Medicaid in the United States

As described in Notes 1 and 3 to the consolidated financial statements, the amount of consideration to which the Company expects to be entitled varies as a result of rebates, chargebacks, and other SR&A that the Company offers to its customers and their customers, as well as the occurrence or nonoccurrence of future events, including milestone events. A minimum amount of variable consideration is recorded by the Company concurrently with the satisfaction of performance obligations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As of December 31, 2021, consolidated SR&A for rebates, chargebacks and Medicaid were $3,594 million. Provisions for chargebacks involve estimates of usage by retailers and other indirect buyers with varying contract prices for multiple wholesalers. The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers. Provisions are calculated using historical chargeback experience and/or expected chargeback levels for new products and anticipated pricing changes. Provisions for rebates are estimated based on the specific terms in each agreement based on historical trends and expected sales. Provisions for Medicaid are based on historical trends of rebates paid, as well as on changes in wholesaler inventory levels and increases or decreases in sales.

The principal considerations for our determination that performing procedures relating to SR&A for rebates, chargebacks and Medicaid in the United States is a critical audit matter are (i) the significant judgment by management due to the significant measurement uncertainty involved in developing the reserves, as the reserves are based on assumptions developed using contractual and mandated terms with customers, historical experience, and projected market conditions in the US; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions, related to wholesaler inventory levels and expected chargeback levels.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to SR&A for rebates, chargebacks and Medicaid in the United States, including controls over the assumptions used by management to estimate the reserves. These procedures also included, among others, (i) developing independent estimates of the reserves using third party information, the contractual or mandated terms of the specific rebate or chargeback programs, and the historical trends of payments and comparing the independent estimates to management’s estimates; (ii) evaluating the reasonableness of significant assumptions used by management related to wholesaler inventory levels and expected chargeback levels; and (iii) testing the completeness, accuracy, and relevance of underlying data used to estimate the reserves, including testing actual claims processed by the Company.

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Opioid, Pricing and Market Allocation Litigation in the United States

As described in Notes 1, 11 and 12 to the consolidated financial statements, management evaluates litigation contingencies and records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable. Such contingencies include those related to opioid, pricing and market allocation litigation in the United States. As of December 31, 2021, the Company’s consolidated provision for legal settlements and loss contingencies was $2,710 million, which included an estimated settlement provision recorded in connection with the remaining opioid cases.

The principal considerations for our determination that performing procedures relating to opioid, pricing and market allocation litigation in the United States is a critical audit matter are the significant judgment by management when assessing the likelihood of a loss being incurred and when determining whether a reasonable estimate of the loss or range of loss for each claim can be made, which in turn led to high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s assessment of the loss contingencies associated with these legal matters. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s evaluation of the loss contingencies relating to opioid, pricing and market allocation litigation in the United States, including controls over determining whether a loss is probable and whether the amount of loss can be reasonably estimated, as well as financial statement disclosures. These procedures also included, among others, (i) gaining an understanding of the Company’s process around the accounting and reporting for these legal matters; (ii) obtaining and evaluating the letters of audit inquiry with internal and external legal counsel; (iii) discussing the status of significant known actual and potential litigation with the Company’s internal legal counsel; (iv) evaluating the reasonableness of management’s assessment regarding whether a loss is probable and whether the amount of loss can be reasonably estimated; and (v) evaluating the sufficiency of the Company’s litigation contingency disclosures. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the factual investigation performed by management and their advisors with respect to pricing and market allocation allegations.

/s/ Kesselman & Kesselman

Kesselman & Kesselman

Certified Public Accountants (Isr.)

A member of PricewaterhouseCoopers International Limited

Tel-Aviv, Israel

February 9, 2022

We have served as the Company’s auditor since at least 1976. We have not been able to determine the specific year we began serving as the auditor of the company.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in millions)

December 31, December 31,

ASSETS

Current assets:

Cash and cash equivalents $ 2,165 $ 2,177

Assets held for sale 19 189

Other non-current assets 515 538

Property, plant and equipment, net 5,982 6,296