TEVA PHARMACEUTICAL INDUSTRIES LTD

Comparison of Three Months Ended March 31, 2024 to Three Months Ended March 31, 2023

Segment Information

United States Segment

The following table presents revenues, expenses and profit for our United States segment for the three months ended March 31, 2024 and 2023:

United States Revenues

As part of a recent shift in executive management responsibilities and in line with our Pivot to Growth strategy, commencing January 1, 2024, Canada is reported as part of our International Markets segment. Prior period amounts were recast to reflect this change. See note 15 to our consolidated financial statements.

Revenues from our United States segment in the first quarter of 2024 were $1,725 million, an increase of $48 million, or 3%, compared to the first quarter of 2023. This increase was mainly due to higher revenues from AUSTEDO, as well as higher revenues from generic products, partially offset by lower revenues from certain innovative products, primarily COPAXONE and BENDEKA and TREANDA, as well as from Anda, our distribution business.

The following table presents revenues for our United States segment by major products and activities for the three months ended March 31, 2024 and 2023:

Generic products revenues in our United States segment (including biosimilars) in the first quarter of 2024 were $808 million, an increase of 8% compared to the first quarter of 2023, mainly due to revenues from lenalidomide capsules (the generic version of Revlimid®), partially offset by increased competition to other generic products.

Among the most significant generic products we sold in the United States in the first quarter of 2024 were lenalidomide capsules (the generic version of Revlimid®), Truxima® (the biosimilar to Rituxan®), epinephrine injectable solution (the generic equivalent of EpiPen® and EpiPen Jr®), and albuterol sulfate inhalation aerosol (our ProAir® authorized generic).

In the first quarter of 2024, our total prescriptions were approximately 314 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions, compared to approximately 312 million (based on trailing twelve months), representing 8.3% of total U.S. generic prescriptions in the first quarter of 2023, all according to IQVIA data.

On February 24, 2024, Alvotech and Teva announced that the FDA approved SIMLANDI (adalimumab-ryvk) injection, as an interchangeable biosimilar to Humira®, for the treatment of adult rheumatoid arthritis, juvenile idiopathic arthritis, adult psoriatic arthritis, adult ankylosing spondylitis, Crohn’s disease, adult ulcerative colitis, adult plaque psoriasis, adult hidradenitis suppurativa and adult uveitis. Teva plans to launch SIMLANDI during the second quarter of 2024.

On April 16, 2024, Alvotech and Teva announced that the FDA has approved SELARSDITM (ustekinumab-aekn) injection for subcutaneous use, as a biosimilar to Stelara®, for the treatment of moderate to severe plaque psoriasis and for active psoriatic arthritis in adults and pediatric patients 6 years and older.

AJOVY revenues in our United States segment in the first quarter of 2024 were $45 million, flat compared to the first quarter of 2023. In the first quarter of 2024, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 27.4% compared to 24.5% in the first quarter of 2023.

AJOVY is indicated for the preventive treatment of migraine in adults. AJOVY was launched in the U.S. in 2018. AJOVY is the only anti-CGRP subcutaneous product indicated for quarterly treatment.

AJOVY is protected worldwide by patents expiring in 2026 at the earliest; extensions have been granted in several countries, including the United States and in Europe, until 2031. Additional patents relating to the use of AJOVY in the treatment of migraine have also been issued in the United States and will expire between 2035 and 2039. Such patents are also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States (obtained in September 2018) and 10 years from marketing approval in Europe (obtained in April 2019).

In October 2017, we filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents, including three method of treatment patents and six composition of matter patents. Lilly then submitted inter partes review (“IPR”) petitions to the Patent Trial and Appeal Board (“PTAB”), challenging the validity of the nine Teva patents. The PTAB issued decisions upholding the three method of treatment patents but finding the six composition of matter patents invalid, which decisions were affirmed by the Court of Appeals for the Federal Circuit on August 16, 2021. A jury trial regarding the three method of treatment patents resulted in a verdict in Teva’s favor on November 9, 2022, in which the three method of treatment patents were determined to be valid and infringed by Lilly, and Teva was awarded $176.5 million in damages. On September 26, 2023, the U.S. District Court for the District of Massachusetts issued a decision that reversed the jury’s verdict and damages award, finding Teva’s method of treatment patents to be invalid. Teva appealed this ruling on October 24, 2023. On February 2, 2024, Teva filed its opening appeal brief and Lilly filed its responding brief on April 19, 2024. Teva’s responsive brief is due on May 29, 2024, and Lilly’s final brief is due on June 19, 2024. No date has been set for the appeal hearing.

In addition, in 2018 we entered into separate agreements with Alder Biopharmaceuticals, Inc. and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the United Kingdom.

AUSTEDO revenues in our United States segment in the first quarter of 2024 increased by 67%, to $282 million, compared to $170 million in the first quarter of 2023, mainly due to growth in volume including the launch of AUSTEDO XR in May 2023, as well as expanded access for patients and increased investment to support higher demand.

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 13 Orange Book patents expiring between 2031 and 2038. We received notice letters from two ANDA filers regarding the filing of their ANDAs with paragraph (IV) certifications for certain of the patents listed in the Orange Book for AUSTEDO. On July 1, 2021, we filed claims against two generic ANDA filers, Aurobindo and Lupin, in the U.S. District Court for the District of New Jersey. In addition, Apotex filed a petition for IPR by the PTAB of the patent covering the deutetrabenazine compound that expires in 2031. On March 9, 2022, the U.S. Patent and Trademark Office denied Apotex’s petition and declined to institute a review of the deutetrabenazine patent. On April 29, 2022 and June 8, 2022, we reached agreements with Lupin and Aurobindo, respectively, to sell their generic products beginning in April 2033, or earlier under certain circumstances. There are no further patent litigations pending regarding AUSTEDO.

AUSTEDO XR (deutetrabenazine) extended-release tablets was approved by the FDA on February 17, 2023, and became commercially available in the U.S. in May 2023. AUSTEDO XR is a new once-daily formulation indicated in adults for tardive dyskinesia and chorea associated with Huntington’s disease, additional to the currently marketed twice-daily AUSTEDO. AUSTEDO XR is protected by ten Orange Book patents expiring between 2031 and 2041.

UZEDY(risperidone) extended-release injectable suspension was approved by the FDA on April 28, 2023 for the treatment of schizophrenia in adults, and was launched in the U.S. in May 2023. UZEDY is a subcutaneous, long-acting formulation of risperidone that controls the steady release of risperidone. UZEDY is protected by nine Orange Book patents expiring between 2025 and 2033. We are moving forward with plans to launch UZEDY in other countries around the world. UZEDY faces competition from four other products.

BENDEKAand TREANDA combined revenues in our United States segment in the first quarter of 2024 decreased by 26% to $46 million, compared to the first quarter of 2023, mainly due to generic bendamustine products entry into the market. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022.

In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the United States to the full period for which we sell BENDEKA and increased the royalty rate. In consideration, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.

There are 18 patents listed in the U.S. Orange Book for BENDEKA with expiration dates in 2026 and 2031. In April 2020, the U.S. District Court for the District of Delaware issued a trial decision upholding the validity of all of the asserted patents and finding that four ANDA filers for generic versions of BENDEKA infringe at least one of the patents. Teva settled with one of the three ANDA filers that appealed the district court’s decision, and on August 13, 2021, the Federal Circuit issued a Rule 36 affirmance of such decision. Litigation against the fifth ANDA filer was dismissed after withdrawal of its patent challenge, and on October 18, 2021, the case against a sixth ANDA filer was also settled.

Teva also settled litigations against three 505(b)(2) applicants, Hospira, Inc. (“Hospira”), Dr. Reddy’s Laboratories (“DRL”) and Accord Healthcare (“Accord”). Based on these settlement agreements, the three 505(b)(2) filers, Hospira, Accord and DRL can launch their products on November 17, 2027 or earlier under certain circumstances. On May 4, 2023, and June 9, 2023, Teva and Eagle also filed suit against BendaRx Corp. in the U.S. District Court for the District of Delaware, following its filing of a 505(b)(2) NDA for a bendamustine product. In addition, on June 16, 2023, Teva filed suit against BendaRx USA Corp. in the U.S. District Court for the District of Eastern Virginia, which was then stayed and has now been transferred to the U.S. District Court for the District of Delaware where it has been consolidated with the suits filed there.

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. Currently, there are multiple generic TREANDA products on the market.

COPAXONE revenues in our United States segment in the first quarter of 2024 decreased by 58% to $30 million, compared to the first quarter of 2023, mainly due to generic competition and a decrease in glatiramer acetate market share due to availability of alternative therapies. COPAXONE revenues in the first quarter of 2024 were also negatively impacted by an increase in sales allowance due to anon-recurring item.

The market for MS treatments continues to develop, particularly with the approval of generic versions of COPAXONE. Oral treatments for MS, such as Tecfidera®, Gilenya® and Aubagio®, continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies, such as Ocrevus® and Kesimpta®.

Anda revenues from third-party products in our United States segment in the first quarter of 2024 decreased by 10% to $381 million, compared to $424 million in the first quarter of 2023, mainly due to lower demand from seasonal and other market conditions. Anda, our distribution business in the United States, distributes generic and innovative medicines and OTC pharmaceutical products from Teva and various third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the distribution market by maintaining a broad portfolio of products, competitive pricing and delivery throughout the United States.

Product Launches and Pipeline

In the first quarter of 2024, we launched the generic version of the following branded products in the United States:

Our generic products pipeline in the United States includes, as of March 31, 2024, 130 product applications awaiting FDA approval, including 61 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 December 31, 2023 of approximately $111 billion, according to IQVIA. Approximately 78% of pending applications include a paragraph IV patent challenge, and we believe we arefirst-to-file with respect to 59 of these products, or 86 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first-to-file opportunities represent over $75 billion in U.S. brand sales for the twelve months ended December 31, 2023, according to IQVIA.

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

In the first quarter of 2024, 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.

For information regarding our innovative and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

United States Gross Profit

Gross profit from our United States segment in the first quarter of 2024 was $858 million, an increase of 9%, compared to $789 million in the first quarter of 2023.

Gross profit margin for our United States segment in the first quarter of 2024 increased to 49.8%, compared to 47.0% in the first quarter of 2023. This increase was mainly due to a favorable mix of products primarily driven by an increase in revenues from AUSTEDO and lenalidomide capsules (the generic version of Revlimid®), as well as a decrease in our operational costs.

United States R&D Expenses

R&D expenses relating to our United States segment in the first quarter of 2024 were $154 million, an increase of 3%, compared to $149 million in the first quarter of 2023.

United States S&M Expenses

S&M expenses relating to our United States segment in the first quarter of 2024 were $261 million, an increase of 26%, compared to $207 million in the first quarter of 2023. This increase was mainly due to promotional activities related to AUSTEDO, primarily thedirect-to-consumer advertising campaign, and promotional activities related to the launch of UZEDY.

United States G&A Expenses

G&A expenses relating to our United States segment in the first quarter of 2024 were $93 million, a decrease of 2% compared to $95 million in the first quarter of 2023.

United States Profit

Profit from our United States 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 United States segment in the first quarter of 2024 was $350 million, an increase of 4% compared to $338 million in the first quarter of 2023. This increase was mainly due to higher gross profit, partially offset by higher S&M expenses, as discussed above.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended March 31, 2024 and 2023:

Europe Revenues

Our Europe segment includes the European Union, the United Kingdom and certain other European countries.

Revenues from our Europe segment in the first quarter of 2024 were $1,272 million, an increase of 7%, or $88 million, compared to the first quarter of 2023. In local currency terms, revenues increased by 4% compared to the first quarter of 2023, mainly due to higher revenues from generic products and AJOVY.

In the first quarter of 2024, revenues were positively impacted by exchange rate fluctuations of $43 million, including hedging effects, compared to the first quarter of 2023. Revenues in the first quarter of 2024 included $8 million from a positive hedging impact, which is included in “Other” in the table below. Revenues in the first quarter of 2023 included $6 million from a negative hedging impact, which is included in “Other” in the table below. See note 8d to our consolidated financial statements.

The following table presents revenues for our Europe segment by major products and activities for the three months ended March 31, 2024 and 2023:

Generic products revenues (including OTC and biosimilar products) in our Europe segment in the first quarter of 2024, increased by 8% to $1,004 million, compared to the first quarter of 2023. In local currency terms, revenues increased by 5%, mainly due to higher volumes.

AJOVY revenues in our Europe segment in the first quarter of 2024 increased by 42% to $51 million, compared to $36 million in the first quarter of 2023. In local currency terms revenues increased by 40%, mainly due to growth in European countries in which AJOVY had previously been launched.

For information about AJOVY patent protection, see “—United States Revenues—Revenues by Major Products and Activities” above.

COPAXONE revenues in our Europe segment in the first quarter of 2024 decreased by 4% to $57 million, compared to the first quarter of 2023. In local currency terms, revenues decreased by 5%, due to price reductions and a decline in volume resulting from competing glatiramer acetate products and availability of alternative therapies.

In certain countries, Teva remains in litigation against generic companies regarding COPAXONE.

Respiratory products revenues in our Europe segment in the first quarter of 2024 decreased by 3% to $66 million compared to the first quarter of 2023. In local currency terms, revenues decreased by 5% compared to the first quarter of 2023, mainly due to net price reductions and lower volumes.

Product Launches and Pipeline

As of March 31, 2024, our generic products pipeline in Europe included 132 generic approvals relating to 25 compounds in 47 formulations, with no European Medicines Agency (“EMA”) approvals received. In addition, approximately 1,470 marketing authorization applications are pending approval in 37 European countries, relating to 101 compounds in 223 formulations. Two applications are pending with the EMA relating to seven strengths in 30 markets.

For information regarding our innovative medicines and biosimilar products pipeline, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe Gross Profit

Gross profit from our Europe segment in the first quarter of 2024 was $738 million, an increase of 13% compared to $655 million in the first quarter of 2023.

Gross profit margin for our Europe segment in the first quarter of 2024 increased to 58.0%, compared to 55.3% in the first quarter of 2023. This increase was mainly due to a favorable mix of products as well as a decrease in our operational costs.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first quarter of 2024 were $56 million, an increase of 5% compared to $53 million in the first quarter of 2023.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first quarter of 2024 were $194 million, an increase of 4% compared to $187 million in the first quarter of 2023, this increase was mainly to support revenue growth including AJOVY, as well as due to exchange rate fluctuations.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first quarter of 2024 were $65 million, a decrease of 6% compared to $70 million in the first quarter of 2023.

Europe Profit

Profit from our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Profit from our Europe segment in the first quarter of 2024 was $423 million, an increase of 22%, compared to $345 million in the first quarter of 2023. This increase was mainly due to higher gross profit, as described above.

International Markets Segment

The following table presents revenues, expenses and profit for our International Markets segment for the three months ended March 31, 2024 and 2023:

International Markets Revenues

Our International Markets segment includes all countries in which we operate other than the United States and the countries included in our Europe segment. The International Markets segment includes more than 35 countries, covering a substantial portion of the global pharmaceutical industry. As part of a recent shift in executive management responsibilities, commencing January 1, 2024, Canada is reported under our International Markets segment and is no longer included as part of our United States segment. Prior period amounts were recast to reflect this change. See note 15 to our consolidated financial statements.

The countries in our International Markets segment include highly regulated, mainly generic markets, such as Canada and Israel, branded generics-oriented markets, such as Russia and certain Latin America markets and hybrid markets, such as Japan.

In February 2022, Russia launched an invasion of Ukraine. As of the date of this Quarterly Report on Form 10-Q, sustained conflict and disruption in the region is ongoing. Russia and Ukraine markets are included in our International Markets segment results. We have no manufacturing or R&D facilities in these markets. During the three months ended March 31, 2024, 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 hedged our exposure to currency exchange rate fluctuations with respect to our balance sheet assets, revenues and expenses. However, as of the end of the first quarter of 2024, we hedge a small part of our projected net revenues in Russian ruble for 2024. Prior to and since the escalation of the conflict, we have been taking measures to reduce our operational cash balances in Russia and Ukraine. We have been monitoring the solvency of our customers in Russia and Ukraine and have taken measures, where practicable, to mitigate our exposure to risks related to the conflict in the region. However, the duration, severity and global implications (including potential inflation and devaluation consequences) of the conflict cannot be predicted at this time and could have an effect on our business, including on our exchange rate exposure, supply chain, operational costs and commercial presence in these markets.

Revenues from our International Markets segment in the first quarter of 2024 were $597 million, an increase of 3% compared to the first quarter of 2023. In local currency terms, revenues increased by 17% compared to the first quarter of 2023, mainly due to higher revenues from generic products in most markets, partially offset by regulatory price reductions and generic competition tooff-patented products in Japan.

In the first quarter of 2024, revenues were negatively impacted by exchange rate fluctuations of $82 million, net of hedging effects, compared to the first quarter of 2023. Revenues in the first quarter of 2024 included $4 million from a positive hedging impact, compared to a minimal hedging impact in the first quarter of 2023, which are included in “Other” in the table below. See note 8d to our consolidated financial statements.

The following table presents revenues for our International Markets segment by major products and activities for the three months ended March 31, 2024 and 2023:

Generic products revenues (including OTC products) in our International Markets segment were $477 million in the first quarter of 2024, flat compared to the first quarter of 2023. In local currency terms, revenues increased by 16% compared to the first quarter of 2023, mainly due to higher revenues in most markets, largely driven by price increases as a result of higher costs due to inflationary pressure and higher volumes, partially offset by regulatory price reductions and generic competition tooff-patented products in Japan.

AJOVY was launched in certain markets in our International Markets segment, including in Canada, Japan, Australia, Israel, South Korea, Brazil and others. We are moving forward with plans to launch AJOVY in other markets. AJOVY revenues in our International Markets segment in the first quarter of 2024 were $17 million, compared to $13 million in the first quarter of 2023.

COPAXONE revenues in our International Markets segment in the first quarter of 2024 were $12 million compared to $17 million in the first quarter of 2023.

AUSTEDO was launched in China and Israel in 2021 and in Brazil in 2022, for the treatment of chorea associated with Huntington’s disease and for the treatment of tardive dyskinesia. In February 2024, we announced a strategic partnership for the marketing and distribution of AUSTEDO in China. We continue with additional submissions in various other markets.

International Markets Gross Profit

Gross profit from our International Markets segment in the first quarter of 2024 was $297 million, an increase of 4% compared to $285 million in the first quarter of 2023.

Gross profit margin for our International Markets segment in the first quarter of 2024 increased to 49.7%, compared to 49.0% in the first quarter of 2023. This increase was mainly due to price increases largely as a result of inflationary pressures and a favorable mix of products, partially offset by regulatory price reductions and generic competition tooff-patented products in Japan, as well as higher costs due to inflationary and other macroeconomic pressures.

International Markets R&D Expenses

R&D expenses relating to our International Markets segment in the first quarter of 2024 were $28 million, an increase of 1% compared to the first quarter of 2023.

International Markets S&M Expenses

S&M expenses relating to our International Markets segment in the first quarter of 2024 were $118 million, an increase of 5% compared to the first quarter of 2023, mainly to support revenue growth.

International Markets G&A Expenses

G&A expenses relating to our International Markets segment in the first quarter of 2024 were $35 million, a decrease of 9% compared to the first quarter of 2023.

International Markets Profit

Profit from our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Profit from our International Markets segment in the first quarter of 2024 was $117 million, an increase of 8%, compared to $108 million in the first quarter of 2023.

Other Activities

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

On January 31, 2024, we announced that we intend to divest our API business (including its R&D, manufacturing and commercial activities) through a sale, which divestment is expected to be completed in the first half of 2025. The intention to divest is in alignment with our Pivot to Growth strategy. However, there can be no assurance regarding the ultimate timing or structure of a potential divestiture or that a divestiture will be agreed or completed at all.

Our revenues from other activities in the first quarter of 2024 were $225 million, an increase of 3% in U.S. dollars or 2% in local currency terms, compared to the first quarter of 2023.

API sales to third parties in the first quarter of 2024 were $128 million, reflecting an increase of 2% in both U.S. dollars and local currency terms, compared to the first quarter of 2023, following a reallocation of an immaterial business within our other activities, in line with our intention to divest our API business.

Teva Consolidated Results

The data presented with respect to other asset impairments, restructuring and other items, operating income (loss), income taxes, net income (loss) attributable to Teva and earnings (loss) per share for the prior period have been revised to reflect a revision in relation to a contingent consideration and related expenses in the consolidated financial statements. For additional information, see note 1c to our consolidated financial statements.

Revenues

Revenues in the first quarter of 2024 were $3,819 million, an increase of 4% in U.S. dollars or 5% in local currency terms compared to the first quarter of 2023. This increase was mainly due to higher revenues from generic products in all our segments, from AUSTEDO, as well as from AJOVY in our Europe and International Markets segments, partially offset by lower revenues from COPAXONE, and from Anda, our distribution business in the U.S. See “—United States Revenues,” “—Europe Revenues,” “—International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the first quarter of 2024, net of hedging effects, negatively impacted revenues by $39 million, compared to the first quarter of 2023. See note 8d to our consolidated financial statements.

Gross Profit

Gross profit in the first quarter of 2024 was $1,771 million, an increase of 12% compared to $1,582 million in the first quarter of 2023.

Gross profit margin was 46.4% in the first quarter of 2024, compared to 43.2% in the first quarter of 2023. This increase was mainly due to a favorable mix of products as well as a decrease in our operational costs.

Research and Development (R&D) Expenses, net

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

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.

In the first quarter of 2024, our R&D expenses related primarily to innovative product candidates and marketed products in neuroscience (such as neuropsychiatry, including post-approval commitments), immunology and immuno-oncology and selected other areas, as well as generic products and biosimilars.

R&D expenses, net in the first quarter of 2024 were $242 million, an increase of 4% compared to $234 million in the first quarter of 2023, as we continue to execute on our Pivot to Growth strategy.

Our higher R&D expenses, net in the first quarter of 2024, compared to the first quarter of 2023, were mainly due to an increase related to our late-stage innovative pipeline in neuroscience (mainly neuropsychiatry) and in immunology and immuno-oncology.

Our R&D expenses, net in the first quarter of 2024 were also impacted by reimbursements from our strategic partnerships. See note 2 to our consolidated financial statements.

R&D expenses as a percentage of revenues were 6.3% in the first quarter of 2024, compared to 6.4% in the first quarter of 2023.

Innovative Medicines Pipeline

Below is a description of key products in our innovative medicines pipeline as of May 1, 2024:

Biosimilar Products Pipeline

We have additional biosimilar products in development internally and with our partners that are in various stages of clinical trials and regulatory review worldwide, including Phase 3 clinical trials for biosimilars to Prolia® and Xgeva® (denosumab), Xolair® (omalizumab), as well as Eylea® (afilbercept) and Simponi® and Simponi Aria® (golimumab), which are in collaboration with Alvotech for the U.S. market.

Selling and Marketing (S&M) Expenses

S&M expenses in the first quarter of 2024 were $608 million, an increase of 11.4% compared to the first quarter of 2023. This increase was mainly a result of the factors discussed above under “—United States segment—S&M Expenses.”

S&M expenses as a percentage of revenues were 15.9% in the first quarter of 2024, compared to 14.9% in the first quarter of 2023.

General and Administrative (G&A) Expenses

G&A expenses in the first quarter of 2024 were $278 million, a decrease of 6% compared to the first quarter of 2023, mainly due to lower litigation fees in the first quarter of 2024.

G&A expenses as a percentage of revenues were 7.3% in the first quarter of 2024 compared to 8.1% in the first quarter of 2023.

Intangible Asset Impairments

We recorded expenses of $80 million for identifiable intangible asset impairments in the first quarter of 2024, compared to expenses of $178 million in the first quarter of 2023. See note 5 to our consolidated financial statements.

Goodwill Impairment

No goodwill impairments were recorded in the first quarters of 2024 and 2023.

Other Asset Impairments, Restructuring and Other Items

We recorded expenses of $674 million for other asset impairments, restructuring and other items in the first quarter of 2024, compared to expenses of $110 million in the first quarter of 2023. See note 12 to our consolidated financial statements.

Legal Settlements and Loss Contingencies

We recorded expenses of $106 million in legal settlements and loss contingencies in the first quarter of 2024, compared to expenses of $233 million in the first quarter of 2023. See note 9 to our consolidated financial statements.

Operating Income (Loss)

Operating loss was $218 million in the first quarter of 2024, compared to an operating loss of $13 million in the first quarter of 2023. The higher operating loss in the first quarter of 2024 was mainly due to higher other assets impairments, restructuring and other items, as well as higher S&M expenses in the first quarter of 2024, partially offset by higher gross profit, lower legal settlements and loss contingencies and lower intangible asset impairments in the first quarter of 2024.

Operating loss as a percentage of revenues was 5.7% in the first quarter of 2024, compared to an operating loss as a percentage of revenues of 0.4% in the first quarter of 2023.

Financial Expenses, Net

In the first quarter of 2024, financial expenses, net were $250 million, mainly comprised ofnet-interest expenses of $233 million. In the first quarter of 2023, financial expenses, net were $260 million, mainly comprised ofnet-interest expenses of $236 million.

Reconciliation Table to Consolidated Income (Loss) Before Income Taxes

The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended March 31, 2024 and 2023:

Income Taxes

In the first quarter of 2024, Teva recognized a tax benefit of $52 million, on apre-tax loss of $467 million. In the first quarter of 2023, Teva recognized a tax benefit of $19 million, on apre-tax loss of $272 million. See note 11 to our consolidated financial statements.

Share in (Profits) Losses of Associated Companies, Net

Share in losses of associated companies, net in the first quarter of 2024 was $4 million. Share in profits of associated companies, net in the first quarter of 2023 was immaterial.

Net Income (Loss) Attributable tonon-controlling interests

Net loss attributable tonon-controlling interests was $280 million in the first quarter of 2024, compared to a net loss attributable tonon-controlling interests of $33 million in the first quarter of 2023. The higher net loss in the first quarter of 2024 was mainly due to higher impairments of tangible assets largely related to the classification of a business in our International Markets segment as held for sale. See note 12 to our consolidated financial statements.

Net Income (Loss) Attributable to Teva

Net loss was $139 million in the first quarter of 2024, compared to a net loss of $220 million in the first quarter of 2023. The lower net loss in the first quarter of 2024 was mainly due to higher net loss attributable tonon-controlling interests, higher gross profit and lower legal settlements and loss contingencies, partially offset by higher other asset impairments, restructuring and other items, as discussed above.

Diluted Shares Outstanding and Earnings (Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculations for the three months ended March 31, 2024 and 2023 was 1,123 million and 1,115 million shares, respectively.

Diluted loss per share was $0.12 in the first quarter of 2024, compared to diluted loss per share of $0.20 in the first quarter of 2023. See note 13 to our consolidated financial statements.

Share Count for Market Capitalization

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

As of March 31, 2024 and 2023, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,167 million and 1,158 million shares, respectively.

Impact of Currency Fluctuations on Results of Operations

In the first quarter of 2024, approximately 50% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Russian ruble, Swiss franc, Canadian dollar, and the new Israeli shekel) impact our results.

During the first quarter of 2024, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each compared on a quarterly average basis): Argentinian peso by 77%, Turkish lira by 39%, Russian ruble by 20%, Chilean peso by 14%, Japanese yen by 11%, Ukrainian hryvna by 4%, Australian dollar by 4% and the new Israeli shekel by 3%. The following main currencies increased in value against the U.S. dollar: Polish zloty by 10%, Mexican peso by 10%, Swiss franc by 6%, Brazilian real by 5%, British pound by 4% and the euro by 1%.

As a result, exchange rate movements during the first quarter of 2024, net of hedging effects, negatively impacted overall revenues by $39 million and operating income by $11 million, compared to the first quarter of 2023.

In the first quarter of 2024, a positive hedging impact of $13 million was recognized under revenues, and a negative hedging impact of $3 million was recognized under cost of sales. In the first quarter of 2023, a negative hedging impact of $6 million was recognized under revenues and a minimal hedging 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 8d to our consolidated financial statements.

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

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

2024 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023.

Liquidity and Capital Resources

Total balance sheet assets were $42,773 million as of March 31, 2024, compared to $43,479 million as of December 31, 2023.

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 $1,235 million as of March 31, 2024, compared to negative $1,374 million as of December 31, 2023. This increase was mainly due to an increase in accounts receivables net of SR&A and in inventory levels, a decrease in employee-related obligations mainly due to performance incentive payments to employees for 2023, and a decrease in accounts payables, partially offset by a classification to held for sale of working capital balance related to a business in our International Markets segment, as well as an increase in other current liabilities.

Employee-related obligations, as of March 31, 2024 were $492 million, compared to $611 million as of December 31, 2023. The decrease in the first quarter of 2024 was mainly due to performance incentive payments to employees for 2023, partially offset by an accrual for performance incentive payments to employees for 2024.

Cash investment in property, plant and equipment in the first quarter of 2024 was $124 million, compared to $139 million in the first quarter of 2023. Depreciation in the first quarter of 2024 was $120 million, compared to $139 million in the first quarter of 2023.

Cash and cash equivalents as of March 31, 2024 were $2,991 million compared to $3,226 million as of December 31, 2023.

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

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $1.8 billion unsecured syndicated sustainability-linked revolving credit facility, entered into in April 2022, as amended in February 2023 and on May 3, 2024 (“RCF”). See note 7 to our consolidated financial statements.

Debt Balance and Movements

As of March 31, 2024, our debt was $19,643 million, compared to $19,833 million as of December 31, 2023. This decrease was mainly due to $193 million of exchange rate fluctuations.

In April 2024, we repaid $956 million of our 6% senior notes at maturity.

As of March 31, 2024, our debt was effectively denominated in the following currencies: 60% in U.S. dollars, 38% in euros and 2% in Swiss francs.

The portion of total debt classified as short-term as of March 31, 2024 was 16% compared to 8% as of December 31, 2023.

Our financial leverage, which is the ratio between our debt and the sum of our debt and equity, was 72% as of March 31, 2024, compared to 71% as of December 31, 2023.

Our average debt maturity was approximately 5.7 years as of March 31, 2024, compared to 6.0 years as of December 31, 2023.

Total Equity

Total equity was $7,543 million as of March 31, 2024, compared to $8,126 million as of December 31, 2023. This decrease was mainly due to a net loss of $419 million, a negative impact of $123 million from exchange rate fluctuations, and purchase of shares fromnon-controlling interests in a subsidiary of Teva in Switzerland of $64 million.

Exchange rate fluctuations affected our balance sheet, as approximately 80% of our net assets as of March 31, 2024 (including both monetary andnon-monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, 2023, changes in currency rates as of March 31, 2024 had a negative impact of $123 million on our equity. The following main currency increased in value against the U.S. dollar: Mexican peso by 2%. The following main currencies decreased in value against the U.S. dollar: Chilean peso by 11%, Japanese yen by 7%, Swiss franc by 7%, Russian ruble by 4%, and the euro by 2%. All comparisons are on ayear-to-date basis.

Cash Flow

We continually seek to improve the efficiency of our working capital management. Periodically, as part of our cash and commercial relationship management activities, we make decisions in our commercial and supply chain activities which may drive an acceleration of receivable payments from customers, or deceleration of payments to third parties. This has the effect of increasing or decreasing cash from operations during any given period. In connection with strategic continual improvement, we obtained more favorable payment terms from many of our vendors which are expected to continue in future periods. In addition, in periods in which receivable payments from customers are delayed, we have and expect we may in the future extend the time to pay certain vendors, so as to balance our liquidity position. Such decisions may have a material impact on our annual operating cash flow measurement, as well as on our quarterly results.

Cash flow used in operating activities during the first quarter of 2024 was $124 million, compared to $145 million of cash flow used in operating activities in the first quarter of 2023. The lower cash flow used in operating activities in the first quarter of 2024 resulted mainly from higher profit in our Europe segment, partially offset by changes in certain working capital items, including a negative impact from accounts payables.

During the first quarter of 2024, we generated free cash flow of $32 million, which we define as comprising $124 million in cash flow used in operating activities, $295 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program), partially offset by $124 million in cash used for capital investment and $15 million in cash used for acquisition of businesses, net of cash acquired. During the first quarter of 2023, we generated free cash flow of $41 million, which we define as comprising $145 million in cash flow used in operating activities, $323 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $2 million in proceeds from divestitures of businesses and other assets, partially offset by $139 million in cash used for capital investment.

Dividends

We have not paid dividends on our ordinary shares or ADSs since December 2017.

Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements, collaboration agreements, development funding agreements and participation in joint ventures associated with R&D activities. For further information on our agreements with mAbxience, Launch Therapeutics and Abingworth, Biolojic Design, Royalty Pharma, Sanofi, Modag, Alvotech, Takeda and MedinCell, see note 2 to our consolidated financial statements.

We are committed to paying royalties to owners ofknow-how, partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

Non-GAAP Net Income and Non-GAAP EPS Data

We presentnon-GAAP net income andnon-GAAP earnings per share (“EPS”) as management believes that such data provide useful information to investors because they are used by management and our Board of Directors, in conjunction with other performance metrics, to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets and ultimately to evaluate the performance of management, including annual compensation. While other qualitative factors and judgment also affect annual compensation, the principal quantitative element in the determination of such compensation are performance targets tied to the work plan, which are based on thesenon-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. Thesenon-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of usingnon-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 considernon-GAAP net income andnon-GAAP EPS in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In preparing ournon-GAAP net income andnon-GAAP EPS data, we exclude items that either have anon-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 ournon-GAAP net income andnon-GAAP EPS include:

The following tables present ournon-GAAP net income andnon-GAAP EPS for the three months ended March 31, 2024 and 2023, as well as reconciliations of each measure to their nearest GAAP equivalents:

Off-Balance Sheet Arrangements

Except for securitization transactions, which are disclosed in note 10f to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, we do not have any materialoff-balance sheet arrangements.

Critical Accounting Policies

For a summary of our significant accounting policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2023. Additionally, see note 6 to our consolidated financial statements on this Form 10-Q for disclosure regarding reporting units at risk identified during our annual goodwill impairment test.

Recently Issued Accounting Pronouncements

See note 1 to our consolidated financial statements.