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, innovative medicines and biopharmaceuticals, improving the lives of patients.

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

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

Our Business Segments

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

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

Macroeconomic Environment

In recent months, the global economy has been impacted by fluctuating foreign exchange rates. Approximately 47% of our revenues are denominated in currencies other than the U.S. dollar. The strengthening of the U.S. dollar versus other currencies in which we operate, negatively impacts our revenues, results of operations, profits and cash flows. We also manufacture largely outside of the United States, which may to varying degrees result in lower expenses. Additionally, high levels of inflation have recently resulted in significant economic volatility and monetary tightening by central banks. The global economy has also been impacted by the ongoing conflict between Russia and Ukraine, which has spurred rising energy costs and caused disruptions to the global and the Company’s internal supply chain. Supply chain disruptions and rising energy costs could continue to result in delays in our production and distribution processes, R&D initiatives and our ability to timely respond to consumer demand. See also discussion under “—International Markets segment” below.

We have implemented certain measures in response to such macroeconomic pressures and are continually considering various initiatives, including price adjustments, enhanced inventory management and alternative sourcing strategies for our raw material supply, to allow us to partially mitigate and offset the impact of these macroeconomic factors. However, although inflationary and other macroeconomic pressures may ease, the higher costs we have experienced during the recent period have already impacted our operations and will likely continue to have an effect on our financial results.

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Highlights

Significant highlights of 2022 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 2022 and 2021. For a comparison of our results of operations and financial condition for fiscal years 2021 and 2020, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Annual Report on Form 10-K, filed with the SEC on February 9, 2022.

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 (15 ) § (31 ) §

* 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 2022 were $7,452 million, a decrease of $357 million, or 5%, compared to 2021, mainly due to a decline in revenues from generic products, COPAXONE and BENDEKA and TREANDA, partially offset by higher revenues from our innovative products—AUSTEDO and AJOVY, as well as Anda.

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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)

Generic products revenues in our North America segment (including biosimilars) in 2022 decreased by 6% to $3,549 million, compared to 2021, mainly due to increased competition to parts of our portfolio, as well as supply disruptions including the closure of the Irvine, CA site, partially offset by revenues from generic launches in 2022.

Among the most significant generic products we sold in North America in 2022 were Truxima® (the biosimilar to Rituxan®), lenalidomide capsules (the generic version of Revlimid®), epinephrine injectable solution (the generic equivalent of EpiPen® and EpiPen Jr.®), albuterol sulfate inhalation aerosol (our ProAirauthorized generic), and lidocaine transdermal patch (the generic equivalent of Lidoderm Patch®).

On March 7, 2022 we announced the launch of the first generic version of Revlimid® (lenalidomide capsules), in 5mg, 10mg, 15mg, and 25mg strengths, in the United States. These lenalidomide capsules are a prescription medicine used in adults for the treatment of (i) multiple myeloma in combination with the medicine dexamethasone, (ii) certain myelodysplastic syndromes, and (iii) mantle cell lymphoma following specific prior treatment.

For more information on our generic products, including biosimilars, see “Item 1—Business—Our Product Portfolio and Business Offering—Generic Medicines.”

In 2022, our total prescriptions were approximately 306 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions according to IQVIA data.

AJOVY revenues in our North America segment in 2022 increased by 24% to $218 million, compared to 2021, mainly due to growth in volume and favorable net pricing. In 2022, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 26%, compared to 21.4% in 2021.

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

AUSTEDO revenues in our North America segment in 2022 increased by 20% to $963 million, compared to 2021, mainly due to growth in volume.

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

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BENDEKA and TREANDA combined revenues in our North America segment in 2022 decreased by 18% to $316 million, compared to 2021, mainly due to the availability of alternative therapies and intense competition. In December 2022, the orphan drug exclusivity that had attached to bendamustine products expired. To-date we are aware of one generic TREANDA product on the market.

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

COPAXONE revenues in our North America segment in 2022 decreased by 33% to $387 million, compared to 2021, mainly due to generic competition in the United States and a decrease in glatiramer acetate market share due to availability of alternative biologic therapies.

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

Anda revenues from third parties in our North America segment in 2022 increased by 11% to $1,471 million, compared to 2021, mainly due to higher demand.

Product Launches and Pipeline

In 2022, we launched the generic version of the following branded products in the United States:

Lenalidomide Capsules, 5, 10, 15, & 25 mg Revlimid® March $ 2,143

Diclofenac Potassium Capsules Zipsor® March $ 20

Pirfenidone Tablets 267mg & 801mg Esbriet® May $ 570

Scopolamine Transdermal System 1mg/3 days Transderm Scop® May $ 88

Dalfampridine Extended-release Tablets 10mg Ampyra® May $ 81

Lanthanum Carbonate Chewable Tablets 500mg, 750mg, 1000mg Fosrenol® May $ 35

Pemetrexed Injection 100mg/4mL, 500mg/20mL, 1g/40mL** N/A May No Data

Vilazodone Hydrochloride Tablets 10mg, 20mg, 40mg Viibryd® June $ 569

Mycophenolate Mofetil for Oral Suspension, USP, 200mg/mL CellCept® June $ 55

Tacrolimus Ointment Protopic® September $ 80

Pantoprazole Sodium for Injection Protonix® September $ 77

Mycophenolate Mofetil Tablets 500mg CellCept® September $ 68

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Icosapent Ethyl Capsules 500mg Vascepa® September $ 21

Penciclovir Cream 1% Denavir® November $ 22

Naproxen Sodium ER Tablets 375mg, 500mg & 750mg Naprelan® November $ 10

Icosapent Ethyl Capsules 1g Vascepa® December $ 1,373

Tasimelteon Capsules 20mg*** Hetlioz® December No Data

*** Marketed through Specialty Pharmacy that does not report to IQVIA.

As of December 31, 2022, our generic products pipeline in the United States includes 171 product applications awaiting FDA approval, including 73 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, 2022 of approximately $113 billion, according to IQVIA. Approximately 71% of pending applications include a paragraph IV patent challenge and we believe we are first to file with respect to 68 of these products, or 97 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $81 billion in U.S. brand sales for the twelve months ended September 30, 2022, 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 2022, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a 30-month regulatory stay lapses or a 180-day exclusivity period awarded to another manufacturer either expires or is forfeited.

Cabozantanib Tablets, 20, 40 and 60 mg Cabometyx® $ 1,136

Valbenazine Capsules, 40 mg and 80 mg Ingrezza® $ 1,041

Canagliflozin Tabs Invokana® $ 900

Dapagliflozin/ Metformin Tablets Xigduo XR® $ 560

Linaclotide Capsules, 72 mcg Linzess® $ 457

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Plerixafor Injection, 24 mg/1.2 mL (20 mg/mL) Mozobil® $ 192

Methylnaltrexone Bromide Tablets, 150 mg Relistor® $ 131

Midostaurin Capsules, 25 mg Rydapt® $ 88

Oxymetazoline Hydrochloride Cream, 1% Rhofade® $ 25

Riociguat Tablets Adempas® $ 12

Gefitinib Tablets, 250 mg Iressa® $ 6

For a description of our innovative medicines pipeline, see “Item 1—Business—Our Product Portfolio and Business Offering—Innovative Medicines” above.

North America Gross Profit

Gross profit from our North America segment in 2022 was $3,926 million, a decrease of 7% compared to $4,226 million in 2021, mainly due to lower revenues as discussed above.

Gross profit margin for our North America segment in 2022 decreased to 52.7%, compared to 54.1% in 2021. This decrease was mainly due to lower revenues from COPAXONE and an unfavorable mix of generic products.

North America R&D Expenses

R&D expenses relating to our North America segment in 2022 were $532 million, a decrease of 14% compared to $618 million in 2021.

For a description of our R&D expenses in 2022, 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 2022 were $941 million, a decrease of 5% compared to $988 million in 2021, mainly due to cost efficiencies.

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North America G&A Expenses

G&A expenses relating to our North America segment in 2022 were $474 million, an increase of 11% compared to $427 million in 2021.

For a description of our G&A expenses in 2022, see “—Teva Consolidated Results—General and Administrative (G&A) Expenses” below.

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 2022 was $1,993 million, a decrease of 10% compared to $2,224 million in 2021. This decrease was mainly due to lower revenues, partially offset by lower operating expenses, as discussed above.

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 (3 ) § (5 ) §

* 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 2022 were $4,525 million, a decrease of $361 million, or 7%, compared to 2021. In local currency terms, revenues increased by 4%, mainly due to higher demand of generic and OTC products resulting from new product launches and from the removal of restrictions related to doctor and hospital visits by patients previously implemented in response to the COVID-19 pandemic, as well as higher sales of cough and cold products and higher revenues from AJOVY, partially offset by lower revenues from COPAXONE and certain other respiratory products.

In 2022, revenues were negatively impacted by exchange rate fluctuations of $550 million, including hedging effects, compared to 2021. Revenues in 2022 included $17 million from a positive hedging impact, which are included in “Other” in the table below. See note 10d to our consolidated financial statements.

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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 2022-2021

(U.S. $ in millions)

Generic products revenues (including OTC and biosimilar products) in our Europe segment in 2022 decreased by 3% to $3,466 million, compared to 2021. In local currency terms, revenues increased by 9%, mainly due to higher demand of generic and OTC products, resulting from new product launches and from the removal of restrictions related to doctor and hospital visits by patients previously implemented in response to the COVID-19 pandemic, as well as higher sales of cough and cold products.

AJOVY revenues in our Europe segment in 2022 increased by 43% to $124 million, compared to 2021. In local currency terms, revenues increased by 61%, 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—Innovative Medicines—AJOVY.”

COPAXONE revenues in our Europe segment in 2022 decreased by 31% to $268 million, compared to 2021. In local currency terms, revenues decreased by 23%, mainly due to price reductions and a decline in volume resulting from competing glatiramer acetate products and availability of alternative therapies.

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

Respiratory products revenues in our Europe segment in 2022 decreased by 23% to $273 million, compared to 2021. In local currency terms, revenues decreased by 14% mainly due to net price reductions and lower volumes.

Product Launches and Pipeline

As of December 31, 2022, our generic products pipeline in Europe included 751 generic approvals relating to 89 compounds in 189 formulations, no EMA approvals received during 2022. In addition, approximately 1,162 marketing authorization applications pending approval in 37 European countries, relating to 102 compounds in 211 formulations. Two applications are pending with the EMA.

For a description of our innovative medicines pipeline, see “Item 1—Business—Research and Development” above.

Europe Gross Profit

Gross profit from our Europe segment in 2022 was $2,700 million, a decrease of 4% compared to $2,823 million in 2021. This decrease was mainly due to exchange rate fluctuations.

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Gross profit margin for our Europe segment in 2022 increased to 59.7%, compared to 57.8% in 2021, mainly due to our network consolidation activities and a favorable mix of products.

Europe R&D Expenses

R&D expenses relating to our Europe segment in 2022 were $213 million, a decrease of 13% compared to $244 million in 2021.

For a description of our R&D expenses in 2022, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in 2022 were $748 million, a decrease of 12% compared to $846 million in 2021. This decrease was mainly due to exchange rate fluctuations and cost efficiencies.

Europe G&A Expenses

G&A expenses relating to our Europe segment in 2022 were $246 million, an increase of 1% compared to $244 million in 2021.

For a description of our G&A expenses in 2022, see “—Teva Consolidated Results—General and Administrative (G&A) Expenses” below.

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 2022 was $1,496 million, flat compared to $1,494 million in 2021.

International Markets Segment

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

Year ended December 31,

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

Other (income) expense (43 ) (2.2% ) (5 ) §

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

§ Represents an amount less than 0.5%.

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International Markets Revenues

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

In February 2022, Russia launched an invasion of Ukraine. As of the date of this Annual Report on Form 10-K, sustained conflict and disruption in the region is ongoing. Russia and Ukraine markets are included in our International Markets segment results. We have no manufacturing or R&D facilities in these markets. During the year ended December 31, 2022, the impact of this conflict on our International Markets segment’s results of operations and financial condition was immaterial. Consistent with our foreign exchange risk management hedging programs, we entered into hedges to hedge our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. However, as of the end of 2022, we were unable to renew certain of our expiring hedging positions due to the liquidity situation in the market for Russian rubles. Prior to and since the escalation of the conflict, we have been taking measures to reduce our operational cash balances in Russia and Ukraine. We have been monitoring the solvency of our customers in Russia and Ukraine and have taken measures, where practicable, to mitigate our exposure to risks related to the conflict in the region. However, the duration, severity and global implications (including potential inflation and devaluation consequences) of the conflict cannot be predicted at this time and could have an effect on our business, including on our exchange rate exposure, supply chain, operational costs and commercial presence in these markets.

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 2022 were $1,903 million, a decrease of $129 million, or 6%, compared to 2021. In local currency terms, revenues increased by 3% compared to 2021, mainly due to higher revenues from generic products in most markets, partially offset by lower sales in Japan resulting from the divestment mentioned above. Revenues in 2021 included a milestone payment of $35 million.

In 2022, revenues were negatively impacted by exchange rate fluctuations of $181 million including hedging effects, compared to the year end of 2021. Revenues in 2022, included $11 million from a negative hedging impact, compared to $6 million from a positive hedging impact in 2021, 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 2022-2021

(U.S. $ in millions)

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Generic products revenues in our International Markets segment in 2022, which include OTC products, decreased by 4% to $1,586 million, compared to 2021. In local currency terms, revenues increased by 5%, due to higher revenues in most markets, as well as price increases largely as a result of rising costs due to inflationary pressure, partially offset by lower revenues in Japan resulting from regulatory price reductions, the divestment mentioned above, and generic competition to off-patented products.

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 2022 were $35 million compared to $50 million in 2021. Revenues in 2021 included a milestone payment of $35 million received from Otsuka related to the launch of AJOVY in Japan.

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

COPAXONE revenues in our International Markets segment in 2022 decreased by 3% to $36 million, compared to 2021. In local currency terms, revenues increased by 15%.

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

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

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

International Markets Gross Profit

Gross profit from our International Markets segment in 2022 was $1,033 million, a decrease of 8% compared to $1,118 million in 2021.

Gross profit margin for our International Markets segment in 2022 decreased to 54.3%, compared to 55.0% in 2021. This decrease was mainly due to regulatory price reductions and generic competition to off-patented products in Japan, partially offset by price increases largely as a result of rising costs due to inflationary pressure and a favorable mix of products sold.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in 2022 were $72 million, an increase of 6% compared to $68 million in 2021.

For a description of our R&D expenses in 2022, 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 2022 were $405 million, a decrease of 3% compared to $417 million in 2021, mainly due to exchange rate fluctuations and cost efficiencies.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in 2022 were $119 million, an increase of 9% compared to $109 million in 2021.

For a description of our G&A expenses in 2022, see “—Teva Consolidated Results—General and Administrative (G&A) Expenses” below.

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International Markets Other Income

Other income relating to our International Markets segment in 2022 was $43 million, compared to $5 million in 2021. Other income in 2022 was mainly the result of settlement proceeds.

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 2022 was $479 million a decrease of 9% compared to $529 million in 2021. This decrease was mainly due to lower gross profit, 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 2022 were $1,045 million, a decrease of 9% in U.S. dollars, or 6% in local currency terms, compared to 2021.

API sales to third parties in 2022 were $675 million, a decrease of 9% in both U.S. dollars and local currency terms.

Teva Consolidated Results

Revenues

Revenues in 2022 were $14,925 million, a decrease of 6%, in U.S. dollars or 1% in local currency terms, compared to 2021, mainly due to lower revenues from COPAXONE and certain respiratory products in our North America and Europe segments, generic products as well as BENDEKA and TREANDA in our North America segment, partially offset by higher revenues from generic products in our Europe and International Markets segments, and from our innovative products – AUSTEDO and AJOVY, and Anda. See “—North America Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during 2022, including hedging effects, negatively impacted revenues by $780 million, compared to 2021. See note 10d to our consolidated financial statements.

Gross Profit

Gross profit in 2022 was $6,973 million, a decrease of 8% compared to 2021.

Gross profit margin was 46.7% in 2022, compared to 47.8% in 2021.

This decrease in gross profit margin was mainly due to lower revenues from COPAXONE and certain respiratory products in our North America and Europe segments, partially offset by higher revenues from AUSTEDO in North America and a favorable mix of generic products in our Europe segment.

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.

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

Our R&D expenses in 2022 were $838 million, a decrease of 13% compared to 2021.

Our lower R&D expenses in 2022, compared to 2021, were mainly due to a decrease in several neuroscience projects (in the pain and migraine and headache therapeutic areas) and immunology (in the respiratory therapeutic area), as well as a decline in various generics projects, and an adjustment in payments pursuant to a contract with one of our R&D partners in 2022, partially offset by higher R&D expenses related to our biosimilar products pipeline.

R&D expenses as a percentage of revenues were 5.6% in 2022, compared to 6.1% in 2021.

Selling and Marketing (S&M) Expenses

S&M expenses in 2022 were $2,265 million, a decrease of 7% compared to 2021. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses” and “—Europe Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were 15.2% in 2022, compared to 15.3% in 2021.

General and Administrative (G&A) Expenses

G&A expenses in 2022 were $1,180 million, an increase of 7% compared to 2021. This increase was related to proceeds received from Teva’s insurance carriers pursuant to a settlement reached on a derivative proceeding in the second quarter of 2021 related to the acquisition of Actavis Generics, as well as higher litigation fees in the second quarter of 2022.

G&A expenses as a percentage of revenues were 7.9% in 2022, compared to 6.9% in 2021.

Identifiable Intangible Asset Impairments

We recorded expenses of $355 million for identifiable intangible asset impairments in 2022, compared to expenses of $424 million in 2021. See note 6 to our consolidated financial statements.

Goodwill Impairment

We recorded goodwill impairment charges of $2,045 million in the year ended December 31, 2022, of which $979 million is related to our International Markets reporting unit and $1,066 million is related to Teva’s API reporting unit. See note 7 to our consolidated financial statements.

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $414 million for other asset impairments, restructuring and other items in 2022, compared to expenses of $341 million in 2021. For further details, as well as a description of significant regulatory and other events, see note 15 to our consolidated financial statements.

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Legal Settlements and Loss Contingencies

In 2022, we recorded expenses of $2,082 million in legal settlements and loss contingencies, compared to expenses of $717 million in 2021. See note 11 to our consolidated financial statements.

Other Income

Other income in 2022 was $107 million, compared to $98 million in 2021. See note 16 to our consolidated financial statements.

Operating Income (Loss)

Operating loss was $2,099 million in 2022, compared to operating income of $1,716 million in 2021.

Operating loss as a percentage of revenues was 14.1% in 2022, compared to operating income as a percentage of revenues of 10.8% in 2021. Operating loss in 2022 was mainly affected by goodwill impairment charges and legal settlements and loss contingencies.

Financial Expenses, Net

Financial expenses, net were $966 million in 2022, compared to $1,058 million in 2021. Financial expenses in 2022 were mainly comprised of interest expenses and other bank charges of $930 million.

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.

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 479 529

Total reportable segments profit 3,968 4,246

Profit of other activities 172 154

Amounts not allocated to segments:

Other assets impairments, restructuring and other items 414 341

Goodwill impairment 2,045 —

Intangible assets impairments 355 424

Legal settlements and loss contingencies 2,082 717

Other unallocated amounts 610 402

Consolidated operating income (loss) (2,099 ) 1,716

Consolidated income (loss) before income taxes $ (3,065 ) $ 658

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Income Taxes

In 2022, we recognized a tax benefit of $638 million, or 21%, on a pre-tax loss of $3,065 million.

In 2021, we recognized a tax expense of $211 million, or 32%, on a pre-tax income of $658 million. See note 13 our consolidated financial statements.

Share In (Profits) Losses of Associated Companies, Net

Share in profits of associated companies, net was $21 million in 2022, compared to $9 million in 2021. Share in profits of associated companies, net in 2022 was mainly related to the difference between the book value of our investment in Novetide and its fair value as of the date we completed its acquisition in January 2022.

Net Income (Loss) Attributable to Teva

Net loss was $2,353 million in 2022, compared to a net income of $417 million in 2021. Net loss in 2022 was mainly affected by goodwill impairment charges and legal settlements and loss contingencies, partially offset by a tax benefit, all as discussed above.

Diluted Shares Outstanding and Earnings (Loss) Per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for 2022 and 2021 was 1,110 million and 1,107 million shares, respectively.

In computing diluted loss per share for the year ended December 31, 2022, no account was taken of the potential dilution that could occur upon the exercise of options and non-vested restricted share units (“RSUs” and performance share units (“PSUs”) granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

In computing diluted earnings per share for the 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.

Diluted loss per share was $2.12 for the year ended December 31, 2022, compared to diluted earnings per share of $0.38 for the year ended December 31, 2021.

Share Count for Market Capitalization

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

As of December 31, 2022 and 2021, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,143 million and 1,128 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In 2022, approximately 47% 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, British pound, Canadian dollar, Russian ruble, Japanese yen, Swiss franc, Israeli shekel and Polish zloty) impact our results.

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During 2022, 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 Turkish lira by 47%, the Argentinian peso by 25%, the Hungarian forint by 18%, the Japanese yen by 16%, the Ukraine hryvna by 15%, the Swedish krona by 15% and the Polish zloty by 13%. The following main currencies relevant to our operations increased in value against the U.S. dollar: the Russian ruble by 9%, the Brazilian real by 5% and the Mexican peso by 1%.

As a result, exchange rate movements during 2022, including hedging effects, negatively impacted overall revenues by $780 million and operating income by $247 million in comparison with 2021.

In 2022, a positive hedging impact of $11 million was recognized under revenues, and a negative impact of $7 million was recognized under cost of sales. In 2021, a positive impact of $31 million was recognized under revenues and a minimal negative impact was recognized under cost of sales.

Hedging transactions against future projected revenues and expenses are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. See note 10d to our consolidated financial statements.

Commencing 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.

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

Liquidity and Capital Resources

Total balance sheet assets were $44,006 million as of December 31, 2022, compared to $47,666 million as of December 31, 2021.

Our working capital balance, which includes accounts receivables net of SR&A, inventories, prepaid expenses and other current assets, accounts payables, employee-related obligations, accrued expenses and other current liabilities, was negative $119 million as of December 31, 2022, compared to positive $787 million as of December 31, 2021. This decrease was mainly a result of lower accounts receivables balances, net of SR&A, due to the securitization facility entered into in November 2022, partially offset by timing of sale cycle in the fourth quarter of 2022, an increase in accrued expenses mainly related to an update to the estimated settlement provision recorded in connection with the remaining opioid cases and an increase in accounts payables.

Cash investment in property, plant and equipment in 2022 was $548 million, compared to $562 million in 2021. Depreciation was $576 million in 2022, compared to $528 million in 2021.

Cash and cash equivalents and short-term and long-term investments, as of December 31, 2022, were $2,817 million compared to $2,191 million as of December 31, 2021.

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

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $1.8 billion unsecured syndicated sustainability-linked revolving credit facility, entered into in April 2022, which was amended in February 2023 (“RCF”). See note 9 to our consolidated financial statements.

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2022 Debt Balance and Movements

As of December 31, 2022, our debt was $21,212 million, compared to $23,043 million as of December 31, 2021.This decrease was mainly due to $1,369 million of senior notes repaid at maturity and $484 million of exchange rate fluctuations.

In April 2022, Teva repaid $296 million of its 3.25% senior notes at maturity.

In July 2022, Teva repaid $365 million of its 0.50% senior notes at maturity.

In December 2022, Teva repaid $713 million of its 2.95% senior notes at maturity.

Our debt as of December 31, 2022 was effectively denominated in the following currencies: 62% in U.S. dollars, 36% in euros and 2% in Swiss francs.

The portion of total debt classified as short-term as of December 31, 2022 was 10%, compared to 6% as of December 31, 2021, mainly due to repayment of debt, partially offset by a reclassification of upcoming maturities in 2022.

Our financial leverage, which is the ratio between our debt and the sum of our debt and equity, was 71% as of December 31, 2022, compared to 67% as of December 31, 2021.

Our average debt maturity was approximately 5.8 years as of December 31, 2022, compared to 6.4 years as of December 31, 2021.

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

2021 Debt Balance and Movements

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.

Total Equity

Total equity was $8,691 million as of December 31, 2022, compared to $11,244 million as of December 31, 2021. This decrease was mainly due to a net loss of $2,406 million and a negative impact of $356 million from exchange rate fluctuations.

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Exchange rate fluctuations affected our balance sheet, as approximately 66% 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, 2021, changes in currency rates had a negative impact of $356 million on our equity as of December 31, 2022. The following main currencies decreased in value against the U.S. dollar: Chilean peso by 12%, Polish zloty by 11%, Japanese yen by 9%, euro by 8%, Croatian kuna by 8%, Bulgarian lev by 8%, British pound by 8%, Swiss franc by 5%, and the Peruvian nuevo sol by 4%. The Russian ruble increased in value against the U.S. dollar by 28%. 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 and commercial relationship management activities, we may make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers or deceleration of payments to vendors, having the effect of increasing or decreasing cash from operations in an individual period. Such decisions may have an impact on our annual operating cash flow measurement, as well as on our quarterly results.

Cash flow generated from operating activities in 2022 was $1,590 million, compared to $798 million in 2021. The increase in 2022 resulted mainly from the sale of accounts receivables under our U.S. securitization facility entered into in November 2022, and lower cash collections remitted to the owner of the receivables under our EU securitization program mainly due to exchange rate fluctuations, partially offset by an increase in inventory levels, as well as higher payments of legal settlements in connection with the opioids litigation. For further information on our securitization facilities see note 10f to our consolidated financial statements.

During 2022, we generated free cash flow of $2,243 million, which we define as comprising $1,590 million in cash flow generated from operating activities, $1,140 million in beneficial interest collected in exchange for securitized accounts receivables and $68 million proceeds from divestitures of businesses and other assets, partially offset by $548 million in cash used for capital investments and $7 million in cash used for acquisition of businesses, net of cash acquired. 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. The increase in 2022 resulted mainly from an increase in cash flow generated from operating activities, partially offset by lower beneficial interest collected in exchange for securitized accounts receivables under our EU securitization program mainly due to exchange rate fluctuations, as well as lower proceeds from divestitures of businesses and other assets. For further information on our securitization facilities see note 10f to our consolidated financial statements.

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 that will provide Teva an exclusive global license to develop, manufacture and commercialize Modag’s lead compound (TEV-56286) and a related compound (TEV-56287).TEV-56286 was initially developed for the treatment of MSA and Parkinson’s disease,

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and has the potential to be applied to other treatments for neurodegenerative disorders, such as Alzheimer’s disease. A phase 1b clinical trial is currently being completed for TEV-56286. In the fourth quarter of 2021, Teva made an upfront payment of $10 million to Modag that was recorded as an R&D expense. Modag may be eligible for future development milestone payments, totaling an aggregate amount of up to $40 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® and Stelara®. Under the terms of the agreement, Alvotech is responsible for the development, registration and supply of the biosimilar product candidates and Teva will exclusively commercialize the products in the United States. Teva made an upfront payment in the third quarter of 2020 and additional upfront and milestone payments in the second quarter of 2021, which were recorded as an R&D expense. Teva also made a milestone payment in January 2023 which was recorded as R&D expenses in the fourth quarter of 2022. Additional development and commercial milestone payments of up to $398 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. Alvotech was previously involved in litigation involving certain IP and trade secrets claims filed by Abbvie in relation to Alvotech’s proposed biosimilar to Humira®, all of which were settled on March 8, 2022. Pursuant to that settlement, Alvotech and Teva may sell Alvotech’s proposed biosimilar to Humira® in the United States beginning on July 1, 2023, provided that U.S. regulatory approval is obtained by that date. In September 2022, Alvotech announced they received a CRL from the FDA with respect to Alvotech’s proposed biosimilar to Humira®and an additional CRL was received in December 2022. In January 2023, the FDA accepted for review a Biologic License Application (“BLA”) for Alvotech’s proposed biosimilar Stelara®.

In September 2016, Teva and Regeneron entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share in the global commercial rights to this product (excluding Japan, Korea and nine other Asian countries), as well as ongoing associated 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. In October 2022, development of fasinumab for the treatment of osteoarthritic pain was discontinued.

In November 2013, Teva entered into an agreement with MedinCell for the development and commercialization of multiple LAI 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 new drug application (“NDA”) for risperidone LAI, based on phase 3 data from two pivotal studies. Teva leads the clinical development and regulatory process and is responsible for commercialization of this product candidate. MedinCell may be eligible for future commercial milestones of up to $112 million in respect of risperidone LAI. Teva will also pay MedinCell royalties on net sales. In April 2022, the FDA issued a CRL regarding the NDA for risperidone LAI. Teva resubmitted the NDA in October 2022 and awaits the FDA’s response.

The second selected product candidate is TEV-44749, a LAI for the treatment of schizophrenia. In the third quarter of 2022, Teva decided to progress development of the product to phase 3, as a result of which a $3 million milestone payment was paid to MedinCell which was recognized as R&D expenses. MedinCell may become eligible for further milestones and royalties on sales of TEV-44749.

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 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.

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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, 2022:

Payments Due by Period

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

(U.S. $ in millions)

The total gross amount of unrecognized tax benefits for uncertain tax positions was $638 million at December 31, 2022. 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, 2022, if all development milestones and targets, for compounds in phase 2 and more advanced stages of development, are achieved, the total contingent payments could reach an aggregate amount of up to $26 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 10f to our consolidated financial statements, we do not have any material off-balance sheet arrangements.

Non-GAAP Net Income and Non-GAAP EPS Data

We present non-GAAP net income and non-GAAP earnings per share (“EPS”) as management believes that such data provide useful information to investors because they are used by management and our Board of Directors, in conjunction with other performance metrics, to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets and ultimately to evaluate the performance of management,

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including annual compensation. While other qualitative factors and judgment also affect annual compensation, the principal quantitative element in the determination of such compensation are performance targets tied to the work plan, which are based on these non-GAAP measures.

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

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

• amortization of purchased intangible assets;

• expenses related to our equity compensation;

• unusual tax items;

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

• corresponding tax effects of the foregoing items.

Commencing the first quarter of 2022, we no longer exclude IPR&D acquired in development arrangements from our non-GAAP financial measures. In our comparable non-GAAP financial measures for the year ended December 31, 2021 we excluded $15 million IPR&D acquired in development arrangements. We are not recasting the non-GAAP presentation for the year ended December 31, 2021 since the adjustment is not significant. We made this change to our presentation of non-GAAP financial measures to improve the comparability of our non-GAAP presentation to those of other companies in the pharmaceutical industry that made a similar change to their presentations beginning in the first quarter of 2022.

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The following tables present our non-GAAP net income and non-GAAP EPS for the years ended December 31, 2022 and 2021, as well as reconciliations of each measure to their nearest GAAP equivalents:

Year endedDecember 31,

($ in millionsexcept per shareamounts)

Net income (loss) attributable to Teva ($) (2,353) 417

Increase (decrease) for excluded items:

Amortization of purchased intangible assets 732 802

Legal settlements and loss contingencies 2,082 717

Goodwill impairment 2,045 —

Impairment of long-lived assets 402 584

Other R&D expenses — 15

Costs related to regulatory actions taken in facilities 7 23

Contingent consideration 163 7

Gain on sale of business (47 ) (51 )

Accelerated depreciation 117 18

Share in profits (losses) of associated companies – net (22 ) (1 )

Items attributable to non-controlling interests (96 ) (15 )

Corresponding tax effects and unusual tax items (1,016 ) (360 )

Non-GAAP net income attributable to Teva ($) 2,812 2,855

Diluted earnings (loss) per share attributable to Teva ($) (2.12) 0.38

Diluted Non-GAAP EPS attributable to Teva** ($) 2.52 2.58

Non-GAAP weighted average number of shares (in millions)** 1,115 1,107

Trend Information

The following factors are expected to have a significant effect on our 2023 results:

• continued success of our innovative medicines AUSTEDO and AJOVY;

• success of clinical trials and approval of risperidone LAI;

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

• ability to successfully develop and launch new biosimilar products;

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

For additional information, please see “Item 1—Business” above 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 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.

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-

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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 the 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 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 reasonably 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

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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, although it believes that its present reserves are adequate, changes in facts and circumstances in the future may lead to adjustments to reserve estimates and could have a material impact on Teva’s results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid. 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 a reporting unit 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.

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 impairments recognized in 2022 and 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

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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:

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.

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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

Our total revenues were $14,925 million in 2022. Of these revenues, approximately 47% were denominated in currencies other than the U.S. dollar, of which 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 2022. 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, 2022, we hedged part of our expected operating results for 2023 in currencies other than the U.S. dollar, primarily the euro, British pound, Canadian dollar, Swiss franc, Swedish krona, Polish zloty, Japanese yen, Chilean peso, Indian rupee and Israeli shekel.

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, 2022

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

Outstanding Foreign Exchange Hedging Transactions

As of December 31, 2022, we had outstanding derivatives, primarily forwards and currency option contracts, with a corresponding notional amount of approximately $1.9 billion and $0.3 billion, respectively. As of December 31, 2021, we had outstanding derivatives, primarily forwards and currency option contracts with corresponding notional amounts of approximately $2.1 billion and $0.4 billion, respectively.

The table below presents the net notional and fair values of the financial derivatives entered into as of December 31, 2022 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:

EUR CAD 50 * (2 ) — 1

Options:

CAD USD * 53 — — —

CHF USD * 51 (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, unsecured syndicated sustainability-linked 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, 2022:

(U.S. dollars in millions)

Fixed Rate:

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

Variable Rate:

Others 1 — —

Less debt issuance costs (78 )

* 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, 2022

Page

Consolidated Financial Statements:

Balance sheet 91

Statements of income (loss) 92

Statements of comprehensive income (loss) 93

Statements of changes in equity 94

Statements of cash flows 95

Notes to consolidated financial statements 97

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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, 2022 and 2021, 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, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 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, 2022, 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, 2022 and 2021

,

and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022

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, 2022, 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.

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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 purposes 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, Europe, International Markets and Teva API 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, Europe, International Markets and Teva API reporting units were $17,633 million, $6,450 million, $8,302 million, $1,339 million and $1,293 million, respectively, as of December 31, 2022. 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 2022, management conducted a quantitative analysis of all reporting units as part of its annual goodwill impairment test with the assistance of an independent valuation expert. In the second quarter of 2022, management recorded a goodwill impairment charge of $745 million as follows: (i) $479 million related to its International Markets reporting unit; and (ii) $266 million related to its Teva API reporting unit. During the fourth quarter of 2022, management noted the following main triggering events for its International Markets reporting unit and its Teva API reporting unit: (i) fluctuations in exchange rates between certain currencies in which the Company operates in its International Markets reporting unit, and the U.S. dollar, are expected to significantly lower projected operating results; and (ii) updated assumptions supporting the cash flow projections of the Teva API reporting unit, including certain revenue growth assumptions, and the associated operating profit margins. As a result, management performed a quantitative analysis and recorded a goodwill impairment charge of $500 million related to its International Markets reporting unit and $800 million related to its Teva API reporting unit. 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. Management starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. As disclosed by management, key estimates include the revenue growth rates taking into consideration industry and market conditions, terminal growth rate and the discount rate.

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The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the North America, Europe, International Markets and Teva API 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 and terminal growth rate; 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 valuation of the North America, Europe, International Markets and Teva API 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. 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. 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, 2022, consolidated SR&A for rebates, chargebacks and Medicaid were $3,229 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 for estimating chargebacks 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 U.S.; 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

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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.

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, 2022, the Company’s consolidated provision for legal settlements and loss contingencies was $4,186 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 (i) 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; (ii) a 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; 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 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 and external 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

Certified Public Accountants (Isr.)

A member of PricewaterhouseCoopers International Limited

Tel Aviv, Israel

February 10, 2023

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)

ASSETS

Current assets:

Cash and cash equivalents $ 2,801 $ 2,165

Assets held for sale 10 19

Other non-current assets 441 515

Property, plant and equipment, net 5,739 5,982

Operating lease right-of-use assets 419 495

Identifiable intangible assets, net 6,270 7,466

LIABILITIES AND EQUITY

Current liabilities:

Sales reserves and allowances 3,750 4,241

Employee-related obligations 566 563

Long-term liabilities:

Other taxes and long-term liabilities 3,847 2,578

Operating lease liabilities 349 416

Commitments and contingencies, see note 12

Equity:

Teva shareholders’ equity:

Accumulated other comprehensive loss (2,838 ) (2,683 )

Non-controlling interests 794 966

Amounts may not add up due to rounding.

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

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

Year ended December 31,

Research and development expenses, net 838 967 997

Other asset impairments, restructuring and other items 414 341 479

Legal settlements and loss contingencies 2,082 717 60

Share in (profits) losses of associated companies – net (21 ) (9 ) (138 )

Net income (loss) attributable to non-controlling interests (53 ) 39 (109 )

Net income (loss) attributable to Teva (2,353 ) 417 (3,990 )

Earnings (loss) per share attributable to ordinary shareholders:

Weighted average number of shares (in millions):

Amounts may not add up due to rounding.

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

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2

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

Year ended December 31,

Other comprehensive income (loss), net of tax:

Currency translation adjustment (356 ) (462 ) (69 )

Unrealized gain (loss) on derivative financial instruments, net 29 39 57

Unrealized gain (loss) on defined benefit plans, net 57 32 (18 )

Total other comprehensive income (loss) (270 ) (391 ) (30 )

Total comprehensive income (loss) (2,676 ) 65 (4,129 )

Comprehensive income (loss) attributable to Teva $ (2,507 ) $ 133 $ (4,076 )

Amounts may not add up due to rounding.

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

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