July 27, 2022, 4:09 p.m. EDT

10-Q: TEVA PHARMACEUTICAL INDUSTRIES LTD

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

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

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

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

Our Business Segments

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

The







        COVID-19
        Pandemic
        


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

During the second quarter of 2022, we have not experienced material delays in the production and distribution of medicines. The







        COVID-19
        pandemic has had an effect on our suppliers, which led to minimal delays or
        disruptions in our materials supply. However, the supply chain supporting our
        key products - specialty, generics and API - remains largely uninterrupted, with
        adequate product inventory across our network and redundancy plans in place to
        address potential shortfalls, if any. Our facilities that research, manufacture,
        order, pack, distribute and provide critical customer and patient services
        remain largely uninterrupted as well, and are currently functioning to meet
        demand for essential medicines for patients throughout the world.
        


During the second quarter of 2022, we have experienced delays in some clinical trials due to slow-downs of recruitment for studies and suspended regulatory inspections, delays in regulatory approvals of new products due to reduced capacity or

The long-term effects of the pandemic cannot be predicted at this time and would depend on the duration and severity of the pandemic and the restrictive measures put in place to control its impact. Although no one can predict future demand for pharmaceutical products, market dynamics or the scope or duration of the financial and other challenges arising from the pandemic, it is possible that we will continue to see variable demand in future periods. We do not currently anticipate that the ongoing







        COVID-19
        pandemic will have a material impact on our 2022 financial results.
        


Highlights

Significant highlights in the second quarter of 2022 included:

Revenues in the second quarter of 2022 were $3,786 million, a decrease of 3% compared to the second quarter of 2021, or an increase of 1% in local currency terms. This increase in local currency terms was mainly due to higher revenues from generic products in our Europe and North America segments, partially offset by lower revenues from COPAXONE and BENDEKA/TREANDA in our North America segment.

Our Europe segment generated revenues of $1,171 million and profit of $389 million in the second quarter of 2022. Revenues decreased by 1% in U.S. dollars, but increased by 8% in local currency terms compared to the second quarter of 2021. Profit increased by 13% compared to the second quarter of 2021.

Our International Markets segment generated revenues of $454 million and profit of $95 million in the second quarter of 2022. Revenues decreased by 6% in U.S. dollars, but increased by 3% in local currency terms, compared to the second quarter of 2021. Profit decreased by 23% compared to the second quarter of 2021.

Our revenues from other activities in the second quarter of 2022 were $257 million, a decrease of 14% compared to the second quarter of 2021. In local currency terms, revenues decreased by 10% compared to the second quarter of 2021.

Exchange rate movements during the second quarter of 2022, net of hedging effects, negatively impacted revenues by $162 million, compared to the second quarter of 2021. See note 8d to our consolidated financial statements.

Impairments of identifiable intangible assets were $51 million in the second quarter of 2022, compared to $195 million in the second quarter of 2021. See note 5 to our consolidated financial statements.

We recorded a goodwill impairment charge of $745 million in the second quarter of 2022, of which $479 million is related to our International Markets reporting unit and $266 million is related to Teva's API reporting unit. See note 6 to our consolidated financial statements.

We recorded expenses of $118 million for other asset impairments, restructuring and other items in the second quarter of 2022, compared to expenses of $28 million in the second quarter of 2021. See note 12 to our consolidated financial statements.

Legal settlements and loss contingencies expenses were $729 million in the second quarter of 2022, compared to $6 million in the second quarter of 2021. See note 9 to our consolidated financial statements.

Operating loss was $949 million in the second quarter of 2022, compared to an operating income of $582 million in the second quarter of 2021.

Financial expenses were $211 million in the second quarter of 2022, compared to $274 million in the second quarter of 2021.

In the second quarter of 2022, we recognized a tax benefit of $900 million, on pre-tax loss of $1,160 million. In the second quarter of 2021, we recognized a tax expense of $98 million, on pre-tax income of $308 million. See note 11 to our consolidated financial statements.

As of June 30, 2022, our debt was $22,082 million, compared to $23,043 million as of December 31, 2021. This decrease was mainly due to $680 million from exchange rate fluctuations and $296 million of senior notes repaid at maturity.

Cash flow generated from operating activities during the second quarter of 2022 was $123 million, compared to $218 million in the second quarter of 2021. This decrease was mainly due to payments related to legal settlements in the second quarter of 2022, partially offset by an increase in accounts payables.

During the second quarter of 2022, we generated free cash flow of $301 million, which we define as comprising: $123 million in cash flow generated from operating activities, $287 million in beneficial interest collected in exchange for securitized accounts receivables and $18 million in proceeds from divestitures of businesses and other assets, partially offset by $127 million in cash used for capital investment. During the second quarter of 2021, we generated free cash flow of $625 million. The decrease in the second quarter of 2022 resulted mainly from lower cash flow from operating activities as well as lower proceeds from sales of assets.

Results of Operations

Comparison of Three Months Ended June 30, 2022 to Three Months Ended June 30, 2021







        Segment Information
        North America Segment
        The following table presents revenues, expenses and profit for our North America
        segment for the three months ended June 30, 2022 and 2021:
                                    Three months ended June 30,
                                   2022                      2021
                                (U.S. $ in millions / % of Segment
                                             Revenues)
        Revenues          $   1,904          100 %    $ 1,943         100 %
        Gross profit          1,010         53.0 %      1,040        53.5 %
        R&D expenses            147          7.7 %        162         8.4 %
        S&M expenses            256         13.4 %        255        13.1 %
        G&A expenses            127          6.7 %        106         5.5 %
        Other income             (1 )          �           (5 )         �
        Segment profit*   $     481         25.3 %    $   521        26.8 %
        


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

� Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the second quarter of 2022 were $1,904 million, a decrease of $39 million, or 2%, compared to the second quarter of 2021, mainly due to a decrease in revenues from COPAXONE and BENDEKA/TREANDA, partially offset by higher revenues from generic products.







        Revenues by Major Products and Activities
        The following table presents revenues for our North America segment by major
        products and activities for the three months ended June 30, 2022 and 2021:
                              Three months ended          Percentage
                                   June 30,                 Change
                               2022           2021        2022-2021
                             (U.S. $ in millions)
        Generic products   $      1,026      $   951                8 %
        AJOVY                        49           46                9 %
        AUSTEDO                     204          174               17 %
        BENDEKA/TREANDA              83          106              (22 %)
        COPAXONE                     94          152              (38 %)
        Anda                        308          316               (2 %)
        Other                       139          199              (30 %)
        Total              $      1,904      $ 1,943               (2 %)
        


Generic products

Among the most significant generic products we sold in North America in the second quarter of 2022 were lenalidomide capsules (the generic version of Revlimid

In the second quarter of 2022, our total prescriptions were approximately 302 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions according to IQVIA data.

On March 7, 2022, we announced the launch of the first generic version of Revlimid

AJOVY

AJOVY is indicated for the preventive treatment of migraine in adults. AJOVY was launched in the U.S. in 2018, and was approved in Canada in April 2020. Our auto-injector device for AJOVY became commercially available in the U.S. in April 2020 and in Canada in April 2021. AJOVY is the only anti-CGRP product indicated for quarterly treatment and in January 2021, we launched a new product offering, providing a quarterly dose.

AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States. Applications for patent term extensions have been submitted in various markets around the world, and certain extensions in Europe and other countries have already been granted until 2031. Additional patents relating to the use of AJOVY in the treatment of migraine have also been issued in the United States and will expire between 2035 and 2039. Such patents are also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States and 10 years from marketing approval in Europe. We filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.'s ("Lilly") marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly then submitted inter partes review ("IPR") petitions to the Patent Trial and Appeal Board ("PTAB"), challenging the validity of the nine patents asserted against it in the litigation. The litigation in the district court was stayed pending resolution of the IPR petitions. On February 18, 2020, the PTAB issued decisions on the first six IPRs, finding the six composition of matter patents invalid as being obvious. On March 31, 2020, the PTAB issued a decision upholding the three method of treatment patents. On August 16, 2021 the Court of Appeals for the Federal Circuit affirmed all of the PTAB's decisions. The litigation is proceeding as to the three method of treatment patents and trial is expected in October 2022. We also filed another suit against Lilly on June 8, 2021, asserting two patents recently granted to Teva, related to the treatment of refractory migraine. Lilly responded to the complaint with a motion to dismiss, which Teva opposed. On March 15, 2022, the U.S. District Court for the District of Massachusetts denied Lilly's motion to dismiss and on March 23, 2022, Lilly submitted IPR petitions challenging the patentability of the two refractory migraine patents. On April 11, 2022, Lilly submitted another IPR petition challenging the patentability of a patent related to the two refractory migraine patents. In addition, in 2018 we entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly's action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO

AUSTEDO was launched in the U.S. in 2017. It is indicated for the treatment of chorea associated with Huntington disease and for the treatment of tardive dyskinesia in adults.

AUSTEDO is protected in the United States by eight Orange Book patents expiring between 2031 and 2038 and in Europe by two patents expiring in 2029. We received notice letters from two ANDA filers regarding the filing of their ANDAs with paragraph (IV) certifications for certain of the patents listed in the Orange Book for AUSTEDO. On July 1,

2021, we filed a complaint against Aurobindo, asserting six of the Orange Book patents, and a separate complaint against Lupin, asserting four of the Orange Book patents. The suits were filed in the U.S. District Court for the District of New Jersey. The seventh patent was issued in November 2021, and listed in the Orange Book in December 2021. In addition, Apotex filed a petition for IPR by the PTAB of the patent covering the deutetrabenazine compound that expires in 2031. On March 9, 2022, the U.S. Patent and Trademark Office denied Apotex's petition and declined to institute a review of the deutetrabenazine patent. On April 29, 2022, we reached an agreement with Lupin to resolve the abovementioned dispute over Lupin's ANDA for a generic deutetrabenazine product. On June 8, 2022 we reached an agreement with Aurobindo regarding the dispute over Aurobindo's ANDA for a generic deutetrabenazine product. Under the terms of the settlement agreements, the litigation between the parties in the U.S. District Court for the District of New Jersey have been ended, and Lupin and Aurobindo will have a license to sell its generic product beginning April 2033, or earlier under certain circumstances. There are no further patent litigations pending regarding AUSTEDO.

BENDEKA







        TREANDA
        combined revenues in our North America segment in the second quarter of 2022
        decreased by 22% to $83 million, compared to the second quarter of 2021, mainly
        due to the availability of alternative therapies and continued competition from
        Belrapzo
        �
        (a
        ready-to-dilute
        bendamustine hydrochloride product from Eagle).
        


In July 2018, Eagle prevailed in its suit against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. On March 13, 2020, this decision was upheld in the appellate court. As things currently stand, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increased the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.

There are 16 patents listed in the U.S. Orange Book for BENDEKA with expiry dates in 2026 and 2031. In September 2019, a patent infringement action against four of six ANDA filers for generic versions of BENDEKA was tried in the U.S. District Court for the District of Delaware. On April 27, 2020, the district court upheld the validity of all of the asserted patents and found that all four ANDA filers infringe at least one of the patents. Three of the four ANDA filers appealed the district court decision. Teva settled with one of the three ANDA filers, and on August 13, 2021, the Federal Circuit issued a Rule 36 affirmance of the district court decision with respect to the other two filers. On December 14, 2021, Apotex filed a Petition for a Writ of Certiorari with the U.S. Supreme Court, which was denied. Litigation against the fifth ANDA filer was dismissed after the withdrawal of its patent challenge, and the case against a sixth ANDA filer was also settled. Suits against two filers of 505(b)(2) NDAs referencing BENDEKA are pending.

Additionally, in July 2018, Teva and Eagle filed suit against Hospira, Inc. ("Hospira") related to its 505(b)(2) NDA referencing BENDEKA in the U.S. District Court for the District of Delaware. On December 16, 2019, the district court dismissed the case against Hospira on all but one of the asserted patents, which expires in 2031. On April 18, 2022, Teva and Eagle settled this matter, allowing Hospira to launch its product on January 17, 2028 or earlier under certain circumstances.

In addition to the settlement with Eagle regarding its bendamustine 505(b)(2) NDA, between 2015 and 2020, we reached final settlements with 22 ANDA filers for generic versions of the lyophilized form of TREANDA and one 505(b)(2) NDA filer for a generic version of the liquid form of TREANDA, providing for the launch of generic versions of TREANDA prior to patent expiration.

COPAXONE

The market for MS treatments continues to develop, particularly with the approval of generic versions of COPAXONE. Oral treatments for MS, such as Tecfidera

Anda







        Product Launches and Pipeline
        In the second quarter of 2022, we launched the generic version of the following
        branded products in North America:
                                                                                           Total Annual U.S.
                                                                                         Branded Sales at Time
                                                                                               of Launch
                                                                                          (U.S. $ in millions
                                                                      Launch                   (IQVIA))
        Product Name                           Brand Name              Date                        *
        Pirfenidone Tablets                Esbriet
        267mg & 801mg                      �
                                            tablets                       May           $                 569.8
        Vilazodone Hydrochloride           Viibryd
        Tablets 10mg, 20mg, 40mg           �
                                            tablets                      June           $                 569.1
        Scopolamine Transdermal            Transderm Scop
        System 1mg/3 days                  �
                                           Transdermal System             May           $                  87.9
        Dalfampridine                      Ampyra
        Extended-release Tablets           �
        10mg                                Extended
                                           Release Tablets                May           $                  81.3
        Mycophenolate Mofetil for          CellCept
        Oral Suspension, USP,              �
        200mg/mL                           Oral
                                           Suspension                    June           $                  55.2
        Lanthanum Carbonate                Fosrenol
        Chewable Tablets 500mg,            �
        750mg, 1000mg                       chewable
                                           tablets                        May           $                  35.4
        Pemetrexed Injection
        100mg/4mL, 500mg/20mL,
        1g/40mL**                          N/A                            May                               N/A
        


* The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch or re-launch.

** Teva's Pemetrexed is a 505(b)(2) product, was filed as an NDA and is not bioequivalent to a brand product.

Our generic products pipeline in the United States includes, as of June 30, 2022, 178 product applications awaiting FDA approval, including 68 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended March 31, 2022 of approximately $109 billion, according to IQVIA. Approximately 73% of pending applications include a paragraph IV patent challenge, and we believe we are first to file with respect to 69 of these products, or 97 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over $82 billion in U.S. brand sales for the twelve months ended March 31, 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

In the second quarter of 2022, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A "tentative approval" indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a 30-month







        --------------------------------------------------------------------------------
                                                                               Total Annual U.S.
                                                                             Branded Sales at Time
                                                                                   of Launch
                                                                              (U.S. $ in millions
                                                                                   (IQVIA))
        Generic Name                                    Brand Name                     *
        Canagliflozin Tabs                             Invokana
                                                       �                    $                   900
        Linaclotide Capsules, 72 mcg                   Linzess
                                                       �                    $                   457
        Plerixafor Injection, 24 mg/1.2 mL (20         Mozobil
        mg/mL)                                         �                    $                   192
        Methylnaltrexone Bromide Tablets, 150          Relistor
        mg                                             �                    $                   131
        Methylphenidate Hydrochloride
        Extended-Release Chewable Tablets, 20          Quillichew ER
        . . .
        


Jul 27, 2022

COMTEX_411104747/2041/2022-07-27T16:09:05

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